US Treasury To Implement Unlawful Internet Gambling Act

by Glen Shapiro, LawAndTax-News.com, New York

18 November 2008

The United States Treasury Department and the Federal Reserve Board have announced the release of a joint final rule to implement the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, which effectively blocks access to the lucrative US internet gambling market for offshore operators.

The Act prohibits gambling businesses from knowingly accepting payments in connection with unlawful internet gambling, including payments made through credit cards, electronic funds transfers, and checks.

The Board and the Treasury are required by the Act to develop a joint rule in consultation with the Department of Justice. The final rule requires US financial firms that participate in designated payment systems to establish and implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in connection with unlawful Internet gambling.

According to the Treasury, for purposes of this rule, unlawful internet gambling generally would cover the making of a bet or wager that involves use of the internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is initiated, received, or otherwise made. Compliance with the rule is required by December 1, 2009.

The controversial legislation has effectively closed the door to the lucrative US gambling market to companies registered in foreign territories and offshore jurisdictions, such as Costa Rica, Gibraltar and Antigua and Barbuda, one of the largest offshore gaming domiciles with an estimated 537 gambling websites based there in 2007.

In March 2008, the European Commission announced that it has decided to launch an investigation into US legislation affecting foreign suppliers of internet gambling services, within the framework of its Trade Barriers Regulation (TBR), following a complaint lodged by the Remote Gambling Association (RGA) in December 2007. The European industry claims that the US should not be allowed to enforce gambling laws selectively against foreign suppliers with respect to services offered at a time when the US had WTO commitments permitting online gambling.

The European e-gaming industry argues that the United States measures violate Articles XVI (market access) and XVII (national treatment) of the GATS (General Agreement on Trade in Services). All EU suppliers of remote gambling services have now withdrawn from the US market in anticipation of the adoption of the UIGEA.

The European Commission's complaint and investigation are separate from the compensation package that the EU and US agreed upon in December 2007, following the loss of trade opportunities in the US gambling sector as a result of the US intention to withdraw its GATS commitments on gambling. Under this package the World Trade Organisation allowed Antigua and Barbuda to impose USD21m worth of retaliatory measures against the US, although this is considered to be a drop in the ocean compared to the billions in revenue the island may lose as a result of the US legislation. Antigua had initially asked for USD3.4bn in damages. The European Commission accepted the US offer of openings in other sectors as compensation, such as in the US postal and courier market and storage and warehouse sectors.

However, the American Bankers Association (ABA) told Congress in April that the regulations imposed by the UIGEA are 'burdensome and unworkable', and have little chance of actually stopping illegal internet gambling.

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