Poker Discussion
|
|
Please help support pocketfives by using our links when choosing to download a new site!
CarbonPoker · Full Tilt · Cake Poker · PokerStars · Ultimate Bet · Players Only · Bodog
I. Nelson Rose
Professor of Law, Whittier Law School
Home Office: 17031 Encino Hills Drive
Encino, California 91436
(818) 788-8509
Fax: (818) 788-3104
Web Site: www.GamblingAndTheLaw.com
Email: rose@sprintmail.com
Gambling and the Law®:
The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed
© Copyright 2006, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com.
Note – This paper is copyrighted. You may quote it at length, republish it or distribute it for free only if you include this copyright and trademark information.
The Unlawful Internet Gambling Enforcement Act of 2006 was rammed through Congress by the Republican leadership in the final minutes before the election period recess. According to Sen. Frank R. Lautenberg (D-NJ), no one on the Senate-House Conference Committee had even seen the final language of the bill. The Act is title VIII of a completely unrelated bill, the Safe Port Act, HR 4954, dealing with port security. It can be found on pages 213 -244 of the Conference Report: http://www.saveonlinegaming.com/hr49543.pdf . It is based on the Leach and Goodlatte bills, HR 4411 and HR 4777, but there are some important differences.
The following is a detailed analysis of the Act. The section numbers that follow refer to new sections that have been added to title 31 of the U.S. Code:
§5361 The Act begins with Congress’s findings and purpose. These include a recommendation from the discredited National Gambling Impact Study Commission, whose chair was the right-wing, Republican incompetent, Kay Coles James. Findings include the doubtful assertion that Internet gambling is a growing problem for banks and credit card companies. It correctly states that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially cross-border betting.
The Act contains a standard clause that it does not change any other law or Indian compact. It repeats this many times, to make sure that no one can use the Act as a defense to another crime, or to expand existing gambling.
Most importantly, the Department of Justice is arguing before the World Trade Organization, in the dispute between the U.S. and Antigua, that all interstate gambling is illegal under the Wire Act. The DOJ insisted that any Internet prohibition passed by Congress not expressly authorize Internet betting on Horseracing. The DOJ believes this will allow it to continue to argue that the Interstate HorseRacing Act does not do exactly what it says it does, legalize interstate horseracing.
§5362 Definitions.
Bet or wager includes risking something of value on the outcome of a contest, sports event “or a game subject to chance.” The Act otherwise allows contestants to risk money on themselves. The “game subject to chance” restriction is designed to eliminate Internet poker.
The Act then confuses the issue of skill by stating that betting includes purchasing an “opportunity” to win a lottery, which must be predominantly subject to chance. Someone will figure out a way to create an opportunity to win, where the opportunity is subject to some chance. But the Act expressly prohibits lotteries based on sports events.
Betting includes instructions or information. This eliminates the argument overseas operators used that the money was already in a foreign country, so no bet took place in the U.S.
The Act exempts activities that we all know are gambling, but are, by statute, declared not to be gambling. These include securities and commodities, including futures, that are traded on U.S. exchanges. Boilerrooms and bucketshops, selling foreign securities are gambling. Insurance is not.
Free games are not gambling. But there is a special provision that allows sites to offer points or credits to players only if these are redeemable only for more games. Operators of free games, where players can win valuable prizes, will have to stop giving points for wins that can be redeemed for cash. Free bingo, on the other hand, can still give small cash prizes paid out of the advertising budget.
Fantasy leagues are legal, but subject to detailed restrictions. A fantasy team cannot be “based on the current membership of an actual team.” What they actually mean is a fantasy team cannot be composed merely of the players of a real team. There is no limit on the cost of entering, but prizes must be announced in advance, and not based on the fees paid by participants. Statistics must be derived from more than one play, more than one player, and more than one real-world event.
Being in the “business of betting or wagering” still does not include mere players. It also expressly does not include financial institutions involved in money transfers.
“Designated payment system” is a new term. It could have been labeled simply “target,” as in “you are the target of a criminal investigation.” It covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. The procedure will be that the Secretary of the Treasury, Board of Governors of the Federal Reserve System and Attorney General will meet and create regulations and orders targeting certain money transfer systems.
“Financial transaction provider” is a very broad definition covering everyone who participates in transferring money for illegal Internet gambling. This expressly includes an “operator of a terminal at which an electronic fund transfer may be initiated,” and international payment networks. This covers third party providers, like Neteller.
“Interactive computer service” includes Internet service providers.
“Restricted transaction” means any transmittal of money involved with unlawful Internet gambling.
“Unlawful Internet gambling” is defined as betting, receiving or transmitting a bet that is illegal under federal, state or tribal law. The Act says to ignore the intermediary computers and look to the place where the bet is made or received.
This does not completely solve the problem of Internet poker, or even Internet casinos. The Act does not expand the reach of the Wire Act, the main federal statute the DOJ uses against Internet gambling. Although the DOJ has taken the position that the Wire Act covers all forms of gambling, courts have ruled that it is limited to bets on sports events and races. State anti-gambling statutes have similar weaknesses, including the presumption that they do not apply if part of the activity takes place overseas. This new statute requires that the Internet gambling be “unlawful.” But it would often be difficult to find a federal, state or tribal law that clearly made a specific Internet bet illegal.
Nevada and other states are expressly permitted to authorize 100% intrastate gambling systems. Congress required that state law and regulations include blocking access to minors and persons outside the state.
Tribes were given the same rights, with the same restrictions. Two tribes can set up an Internet gaming system, if it is authorized by the Indian Gaming Regulatory Act. This means that tribes can operate bingo games linking bingo halls on reservations. They can also link progressive slot machines, if their tribal-state compacts allow. But they cannot operate Internet lotteries and other games open to the general public.
It is interesting that Congress decreed that states can decide for themselves if they want to have at-home betting on horseracing, but not on dogracing. Congress also decreed that tribes can operate games that link reservations, even across state lines, but not the states themselves: state lotteries are not exempt.
Congress had a little problem with the term “financial institution.” To force casinos to report large cash transaction, federal law was changed to define “financial institution” as including large gambling businesses. Congress had to undo that definition, so that in this Act casinos go back to being casinos. Since no other federal laws were changed, casinos will still have to file Financial Transaction Reports and the other forms.
The other definitions are standard or are described above.
§5363 “No person engaged in the business of betting or wagering may knowingly accept” any money transfers in any way from a person participating in unlawful Internet gambling. This includes credit cards, electronic fund transfers, and even paper checks. But it is limited to Internet gambling businesses, not mere players. It also would not cover payment processors, except under a theory of aiding and abetting.
§5364 Federal regulators have 270 days from the date this bill is signed into law to come up with regulations to identify and block money transactions to gambling sites. At this writing, President Bush had not yet signed this bill, but he will. So the regs will go into effect by the beginning of July 2007.
The regs will require everyone connected with a “designated payment system” to i.d. and block all restricted transactions. So all payment processors are suppose to have systems in place to prevent money from going to operators of illegal Internet gambling. The first step will undoubtedly be to take the credit card merchant code 7995 and expand it to all money transfers. Visa created the 7995 classification in 2001 to avoid having its credit cards used for online gambling. The federal government will order banks and all others involved with electronic money transfers to cease sending funds to any Internet operator who has a 7995 credit card merchant code. Any financial institution that follows the regs cannot be sued, even if it wrongfully blocks a legitimate transaction.
The Act allows the federal regulators to exempt transactions where it would be impractical to require identifying and blocking. This obviously applies to paper checks. Banks have no way now of reading who the payee is on paper checks and cannot be expected to go into that business. Banks tried to defeat this bill, not because they cared about patrons’ privacy, but because they knew that it would cost them billions of dollars to set up systems to read paper checks.
The great unknown is how far into the Internet commerce stream federal regulators are willing to go. The Act requires institutions like the Bank of America and Neteller to i.d. and block transactions to unlawful gambling sites, whatever they are. But, while the Bank of America will comply, Neteller might not, because it is not subject to U.S. regulations. Will federal regulators then prohibit U.S. banks from sending funds to Neteller? And would they then prohibit U.S. banks from sending funds to an overseas bank, which forwards the money to Neteller?
For financial institutions within the U.S, the Act provides that exclusive regulatory enforcement rests with their federal regulators, like the Federal Reserve Board. The Federal Trade Commission is supposed to enforce regulations on everyone else. It is extremely doubtful whether the F.T.C. will ever try to do anything about the Netellers of the world, who are beyond regular U.S. regulatory control.
§5365 Since there is no way to regulate overseas payment processors, the Act allows the U.S. and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders, preliminary and permanent injunctions, to prevent restricted transactions. The only problem with this enormous power is that it is, again, practically useless against payment processors who are entirely overseas.
It is difficult to serve a company with the papers necessary to start a lawsuit, a summons and complaint or petition, if the company has no offices, or officers, in the U.S. Even if the papers for such a lawsuit can be served, there is normally no requirement that foreign countries enforce these types of orders. Other countries are particularly reluctant to enforce a T.R.O., which does not even require that the defendant be present. Preliminary injunctions are also often ignored, because they are issued without a full trial and can be modified at anytime by the trial judge. Neteller operates out of the Isle of Man. I do not know of any treaty or other law which would require the Isle of Man to enforce even a permanent injunction against one of its licensed operators.
The Act provides for limited civil remedies against “interactive computer services.” An Internet service provider can be ordered to remove sites and block hyperlinks to sites that are transmitting money to unlawful gambling sites. ISPs are under no obligation to monitor whether its patrons are sending funds to payment processors or even directly to gambling sites. But once it receives notice from an U.S. Attorney or state Attorney General, the ISP can be forced to appear at a hearing to be ordered to sever its links.
But the statute has an interesting requirement: The site must “reside on a computer server that such service controls or operates.” This would limit the reach of this statute to payment processors, affiliates and search engines that are housed on that particular ISP. The same problem of going after foreign operators and payment processors affects this section. Foreign ISPs are difficult to serve and not necessarily subject to federal court injunctions.
The greatest danger here would seem to be with affiliates. Any American operator can be easily grabbed. This includes sites that don’t directly take bets, but do refer visitors to gaming sites. If the affiliate is paid for those referrals by receiving a share of the money wagered or lost, it would not be difficult to charge the affiliate with violating this law, under the theory of aiding and abetting. Being a knowing accomplice and sharing in the proceeds of a crime make the aider and abettor guilty of the crime itself. The federal government could also charge the affiliate with conspiracy to violate this new Act.
The other danger lies with search engines. Although California-based Google does not take paid ads, punching in “sports bet” brings ups many links to real-money sites. This new Act expressly allows a federal court to order the removal of “a hypertext link to an online site” that is violating the prohibition on money transfers. But what prosecutor would want to be ridiculed internationally for trying to prevent Google from showing links?
The Act gives ISPs a little more security by declaring that they cannot be convicted of violating the Wire Act, unless, of course, the ISP is operating its own illegal gambling site.
This section of the Act ends with a limitation, that, frankly, makes no sense. It says that, after all the talk of getting court orders to prevent restricted transactions, “no provision of this subchapter shall be construed as authorizing” anyone “to institute proceedings to prevent or restrain a restricted transaction against any financial transaction provider, to the extent that the person is acting as a financial transaction provider.” This could be a typo, since the bill was rushed through without an opportunity to even be read. Or perhaps it means that banks can be ordered to not transfer money to gambling sites, but only if they know about it. It is indecipherable.
§5366 Criminal penalties: Up to five years in prison, and a fine. And barred from being involved in gambling.
§5367 The Act naturally makes ISPs and financial institutions liable if they actually operate illegal gambling sites themselves.
Lastly, the Act requests, but does not require, the executive branch to try and get other countries to help enforce this new law and “encourage cooperation by foreign governments” in identifying whether Internet gambling is being used for crime. The Secretary of the Treasury is told to issue a report to Congress each year “on any deliberations between the United States and other countries on issues relating to Internet gambling.” That report will go unread.
END
© Copyright 2006. Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA is recognized as one of the world’s leading experts on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.
|
|
|
|
|
Dan
(United States)
2,245
Posts.
Joined
05-01-2006.
10-03-2006 10:18 AM
-
In reply to
|
|
|
|
Thank you for posting this. Professor Rose will be one of the guests on this week's Podcast and will discuss the gambling legislation from a legal standpoint.
|
|
|
|
can u breakdown his breakdown so i dont have to read so much?
|
|
|
|
^^^^ what dippy said. ummmm, can we still play or not?
|
|
|
|
Okay here's a question.... does Neteller have a 7995 merchant code? If so, all transfers involving Neteller will be blocked.
|
|
|
|
When he says language to "eliminate poker" ... does that mean include poker in the restriction or exclude it from the restriction? I'm assuming he means include poker in the restriction, but it isn't very clear.
|
|
|
lmao @ google not being allowed to link to gambling sites.
No one is allowed say "Pokerstars dot com" anymore.
The phrase is now officially banned in the entire united states.
|
|
|
|
|
cmitch
(United States)
1,082
Posts.
Joined
02-08-2005.
10-03-2006 11:17 AM
-
In reply to
|
|
|
Dan,
Have you guys discussed with any lawyers how this effects revenue received by P5s? It seems that affiliates are probably going to be the biggest losers or take the biggest risks once the dust settles, based on his analysis below:
The greatest danger here would seem to be with affiliates. Any American operator can be easily grabbed. This includes sites that don’t directly take bets, but do refer visitors to gaming sites. If the affiliate is paid for those referrals by receiving a share of the money wagered or lost, it would not be difficult to charge the affiliate with violating this law, under the theory of aiding and abetting. Being a knowing accomplice and sharing in the proceeds of a crime make the aider and abettor guilty of the crime itself. The federal government could also charge the affiliate with conspiracy to violate this new Act.
|
|
|
|
|
Dan
(United States)
2,245
Posts.
Joined
05-01-2006.
10-03-2006 11:22 AM
-
In reply to
|
|
|
|
Thanks, cmitch.
We have been working ardently to understand how this legislation will affect PocketFives from all angles. It has been a busy past few days for us in doing so. My main goal at this point is to keep our members updated as much as possible about the implications of this legislation passing, in terms of their ability to enjoy the game of poker, and in terms of staying within a legal boundary.
You'll notice that we'll have legal expert and Professor Nelson Bruce, National Right for Online Gaming Executive Director Brian Jakusik, and Poker Players Alliance President Michael Bolcerek on this week's episode of the Podcast to discuss some of these items. We hope it provides a meaningful analysis of the landscape that will soon be reality for online poker players.
|
|
|
|
Thank you professor Rose. Question, are we safe for the next 270 days no matter what?
|
|
|
|
Professor Rose,
I own a very large Sports betting informational service and almost all of my members bet
our selections on the internet. We have built this buissness for almost 10
years now and we do VERY well with our selections and Picks.
My question to you is this:
Since we sell information to the public and we receive money JUST for the information that could be bet on the
internet. Does this put us at risk since we are in the united states?
We receive compensation for our selections however we have no affiliations with
any sports books. Are we at risk?
Can we contact your office for a consultation on this?
Best,
Demetrios
|
|
|
What the law says, is that someone has to persuade US courts that poker is not a game "subject to chance", in order for Poker not to be covered by the Legislation.
We all know that every game that involves external influences (ie cards) has an element of chance, however small.
This was carefully worded to ensure that Poker was covered. I doubt that even the most expert of eloquent lawyer could convince anyone that there is no element of chance in a poker game, whether cash, or tournament. We all know that there to be the case.
gg online poker.
|
|
|
|
I haven't read the bill, but I think the indecipherable limitation at the end means that the bill does not create a private right of action. So, while federal prosecutors and state attorneys general can sue to enforce the bill, private citizens cannot sue to enforce it. Elliot Spitzer can haul a bank or a site into court, but Puritan Pete can't. Again, haven't read it, but I think that's what that limitation is saying. If you read this, Professor, maybe you can comment on your Podcast.
|
|
|
|
The way poker is defined in this act has little to do with whether or not we will still be able to play. The act is designed to stop the flow of money from banks to gambling sites through regulation and practical law application. In other words, it is now illegal under U.S. law for VISA (or any other financial institution) to fund these sites- which changes little since they were already taking financial precautions against covering gambling losses through their 7995 system.
What does change is the way Neteller will have to operate. Many of us have neteller debit cards that allow us to withdraw funds at U.S. ATM's. This U.S. subsidiary of Neteller may have to cease operations, though it is difficult to confidently say that without the attorney general's interpretations. However, as long as Neteller remains outside of the U.S., it does not have to respect the regulations and provisions that will result from this act. Thus, you can still use Neteller to withdraw, but the methods to do so will prboably have to change.
It is NOT illegal for you to play, and the act doesn't specifically target U.S. citizens from accepting funds for playing. Instead of taking direct action against U.S. citizens, Congress tried to sufficate their means to play by potentially (I use this word because the full scope of the act has not been realized yet) cutting off all U.S. financial institutions from funding gambling sites.
Finally, Professor Rose asks two key questions, which I believe if interpreted properly should wipe out the ridiculous GG ONLINE POKER posts that are running rampant across this forum:
Will federal regulators then prohibit U.S. banks from sending funds to Neteller? And would they then prohibit U.S. banks from sending funds to an overseas bank, which forwards the money to Neteller?
If the answer to the first question is yes, then guess what: a huge market opens in the world for an alternative payment processor that changes the way it does business in every way it can to ensure the acceptance of U.S. transfers. Worst case scenario? The U.S. blocks transfers to this payment processor, then the next one, etc, until there is a major lawsuit and this ridiculous issue is decided by the courts (which will take years..). Which leads us to my question in response to Rose's second inquiry...HOW ARE THEYGOING TO BLOCK FUNDS FROM U.S. BANKS TO OVERSEAS BANKS WITHOUT CRITICALLY AFFECTING OUR ECONOMY???? The answer is they cannot do so without several exceptions and loopholes that will be easily exploitable.
Online poker isn't going anywhere. Whatever they decide to do, there will be so many ways around the scope of this act that even the worst players are going to find out about it. Full Tilt can put a message on their site telling people how to use these methods to get their money on to the site, and the government can't do a thing about it. There is so much money at stake for so many parties, and someone always finds a way to capitalize.
|
|
|
|
|
tybme
(United States)
225
Posts.
Joined
08-11-2006.
10-03-2006 3:55 PM
-
In reply to
|
|
|
This
includes sites that don’t directly take bets, but do refer visitors to
gaming sites. If the affiliate is paid for those referrals by
receiving a share of the money wagered or lost, it would not be
difficult to charge the affiliate with violating this law, under the
theory of aiding and abetting. Being a knowing accomplice and sharing
in the proceeds of a crime make the aider and abettor guilty of the
crime itself. The federal government could also charge the affiliate
with conspiracy to violate this new Act.
How about the revenue that Pros make supporting sites? Ivey, Furguson, Gordon etc. goping to get hauled off for Full Tilt commercials? Intersting thought.
|
|
|
|
|
PocketFives.com Rankings
|
|
|
|
|
Carbon Poker Sorting Tables
|
|
|
|
|
|
|
|
|