This may be cited as the "Unlawful
Internet Gambling Act of 2006".
SEC. 802.
PROHIBITION ON ACCEPTANCE OF ANY PAYMENT INSTRUMENT FOR
UNLAWFUL INTERNET GAMBLING.
(a) IN GENERAL.—Chapter 53 of title 31, United States
Code, is amended by adding at the end the following:
SUBCHAPTER IV
PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
§ 5361. Congressional findings and purpose
(a) FINDINGS.
Congress finds the following:
(1) Internet gambling is primarily funded through
personal use of payment system instruments, credit cards, and wire transfers.
(2) The National Gambling Impact Study Commission in
1999 recommended the passage of legislation to prohibit wire transfers to
Internet gambling sites or the banks which represent such sites.
(3) Internet gambling is a growing cause of debt
collection problems for insured depository institutions and the consumer credit
industry.
(4) New mechanisms for enforcing gambling laws on the
Internet are necessary because traditional law enforcement mechanisms are often
inadequate for enforcing gambling prohibitions or regulations on the Internet,
especially where such gambling crosses State or national borders.
(b) RULE OF CONSTRUCTION.
NO provision of this subchapter shall be construed as
altering, limiting, or extending any Federal or State law or Tribal-State
compact prohibiting, permitting, or regulating gambling within the United
States.
§ 5362. Definitions
In this subchapter:
(1 ) BET OR WAGER.
The term 'bet or wager'—
(A) means the staking or risking by any person of
something of value upon the outcome of a contest of others, a sporting event, or
a game subject to chance, upon an agreement or understanding that the person or
another person will receive something of value in the event of a certain
outcome;
(B) includes the purchase of a chance or opportunity to
win a lottery or other prize (which opportunity to win is predominantly subject
to chance);
(C) includes any scheme of a type described in section
3702 of title 28;
(D) includes any instructions or information pertaining
to the establishment or movement of funds by the bettor or customer in, to, or
from an account with the business of betting or wagering; and
(E) does not include-
(i) any activity governed by the securities laws (as
that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934
for the purchase or sale of securities (as that term is defined in section
3(a)(10) of that Act);
(ii) any transaction conducted on or subject to the
rules of a registered entity or exempt board of trade under the Commodity
Exchange Act;
(iii) any over-the-counter derivative instrument;
(iv) any other transaction that
(I) is excluded or exempt from regulation under the
Commodity Exchange Act; or
(II) is exempt from State gaming or bucket shop laws
under section 12(e) of the Commodity Exchange Act or section 28(a) of the
Securities Exchange Act of 1934;
(v) any contract of indemnity or guarantee;
(vi) any contract for insurance;
(vii) any deposit or other transaction with an insured
depository institution;
(viii) participation in any game or contest in which
participants do not stake or risk anything of value other than
(I) personal efforts of the participants in playing the
game or contest or obtaining access to the Internet; or
(II) points or credits that the sponsor of the game or
contest provides to participants free of charge and that can be used or redeemed
only for participation in games or contests offered by the sponsor; or
(ix) participation in any fantasy or simulation sports
game or educational game or contest in which (if the game or contest involves a
team or teams) no fantasy or simulation sports team is based on the current
membership of an actual team that is a member of an amateur or professional
sports organization (as those terms are defined in section 3701 of title 28) and
that meets the following conditions:
(I) All prizes and awards offered to winning
participants are established and made known to the participants in advance of
the game or contest and their value is not determined by the number of
participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative
knowledge and skill of the participants and are determined predominantly by
accumulated statistical results of the performance of individuals (athletes in
the case of sports events) in multiple real-world sporting or other events.
(III) No winning outcome is based
(aa) on the score, pointspread, or any performance or
performances of any single real world team or any combination of such teams; or
(bb) solely on any single performance of an individual
athlete in any single real-world sporting or other event.
(2) BUSINESS OF BETTING OR WAGERING.
The term 'business of betting or wagering' does not
include the activities of a financial transaction provider, or any interactive
computer service or telecommunications service.
(3) DESIGNATED PAYMENT SYSTEM.
The term 'designated payment system' means any system
utilized by a financial transaction provider that the Secretary and the Board of
Governors of the Federal Reserve System, in consultation with the Attorney
General, jointly determine, by regulation or order, could be utilized in
connection with, or to facilitate, any restricted transaction.
(4) FINANCIAL TRANSACTION PROVIDER.
The term 'financial transaction provider' means a
creditor, credit card issuer, financial institution, operator of a terminal at
which an electronic fund transfer may be initiated, money transmitting business,
or international, national, regional, or local payment network utilized to
effect a credit transaction, electronic fund transfer, stored value product
transaction, or money transmitting service, or a participant in such network, or
other participant in a designated payment system.
(5) INTERNET.
The term 'Internet' means the international computer
network of interoperable packet switched data networks.
(6) INTERACTIVE COMPUTER SERVICE.
The term 'interactive computer service' has the meaning
given the term in section 230(f) of the Communications Act of 1934 (47 U.S.C.
230(f)).
(7) RESTRICTED TRANSACTION.
The term 'restricted transaction' means any transaction
or transmittal involving any credit, funds, instrument, or proceeds described in
any paragraph of section 5363 which the recipient is prohibited from accepting
under section 5363.
(8) SECRETARY.
The term 'Secretary' means the Secretary of the
Treasury.
(9) STATE.
The term 'State' means any State of the United States,
the District of Columbia, or any commonwealth, territory, or other possession of
the United States.
(10) UNLAWFUL INTERNET GAMBLING.
(A) IN GENERAL.—The term 'unlawful Internet gambling'
means to place, receive, or otherwise knowingly transmit a bet or wager by any
means which involves the use, at least in part, of the Internet where such bet
or wager is unlawful under any applicable Federal or State law in the State or
Tribal lands in which the bet or wager is initiated, received, or otherwise
made.
(B) INTRASTATE TRANSACTIONS.
The term 'unlawful Internet gambling' does not inelude
placing, receiving, or otherwise transmitting a bet or wager where
(i) the bet or wager is initiated and received or
otherwise made exclusively within a single State;
(ii) the bet or wager and the method by which the bet
or wager is initiated and received or otherwise made is expressly authorized by
and placed in accordance with the laws of such State, and the State law or
regulations include-
(I) age and location verification requirements
reasonably designed to block access to minors and persons located out of such
State; and
(II) appropriate data security standards to prevent
unauthorized access by any person whose age and current location has not been
verified in accordance with such State's law regulations; and
(iii) the bet or wager does not violate any provision
of-
(I) the Interstate Horseracing Act of 1978 (15 U.S.C.
3001 et seq.);
(II) chapter 178 of title 28 (commonly known as the
'Professional and Amateur Sports Protection Act');
(III) the Gambling Devices Transportation Act (15 U. S.
C. 1171 et seq.); or
(IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701
et seq.).
(C) INTRATRIBAL TRANSACTIONS.
The term 'unlawful Internet gambling' does not inelude
placing, receiving, or otherwise transmitting a bet or wager where-
(i) the bet or wager is initiated and received or
otherwise made exclusively-
(I) within the Indian lands of a single Indian tribe
(as such terms are defined under the Indian Gaming Regulatory Act; or
(II) between the Indian lands of 2 or more Indian
tribes to the extent that intertribal gaming is authorized by the Indian Gaming
Regulatory Act;
(ii) the bet or wager and the method by which the bet
or wager is initiated and received or otherwise made is expressly authorized by
and complies with the requirements of-
(I) the applicable tribal ordinance or resolution
approved by the Chairman of the National Indian Gaming Commission; and
(II) with respect to class III gaming, the applicable
Tribal-State Compact;
(iii) the applicable tribal ordinance or resolution or
Tribal-State compact includes
(I) age and location verification requirements
reasonably designed to block access to minors and persons located out of the
applicable Tribal lands; and
(II) appropriate data security standards to prevent
unauthorized access by any person whose age and current location has not been
verified in accordance with the applicable tribal ordinance or resolution or
Tribal-State Compact; and
(iv) the bet or wager does not violate any provision
of-
(I) the Interstate Horseracing Act of 1978 (15 U.S.C.
3001 et seq.);
(II) chapter 178 of title 28 (commonly known as the
'Professional and Amateur Sports Protection Act');
(III) the Gambling Devices Transportation Act (15 U. S.
C. 1171 et seq.); or
(IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701
et seq.).
(D) INTERSTATE HORSERACING.
(i) IN GENERAL—The term 'unlawful Internet gambling'
shall not include any activity that is allowed under the Interstate Horseracing
Act of 1978 (15 U.S.C. 3001 et seq.).
(ii) RULE OF CONSTRUCTION REGARDING PREEMPTION.
Nothing in this subchapter may be construed to preempt
any State law prohibiting gambling.
(iii) SENSE OF CONGRESS.
It is the sense of Congress that this subchapter shall
not change which activities related to horse racing may or may not be allowed
under Federal law. This subparagraph is intended to address concerns that this
subchapter could have the effect of changing the existing relationship between
the Interstate Horseracing Act and other Federal statutes in effect on the date
of the enactment of this subchapter. This subchapter is not intended to change
that relationship. This subchapter is not intended to resolve any existing
disagreements over how to interpret the relationship between the Interstate
Horseracing Act and other Federal statutes.
(E) INTERMEDIATE ROUTING.
The intermediate routing of electronic data shall not
determine the location or locations in which a bet or wager is initiated,
received, or otherwise made.
(11) OTHER TERMS.
(A) CREDIT; CREDITOR; CREDIT CARD; AND CARD ISSUER.
The terms 'credit', 'creditor', 'credit card', and
'card issuer' have the meanings given the terms in section 103 of the Truth in
Lending Act (15 U.S.C. 1602).
(B) ELECTRONIC FUND TRANSFER.
The term 'electronic fund transfer'
(i) has the meaning given the term in section 903 of
the Electronic Fund Transfer Act (15 U. S. C . 1693a), except that the term
includes transfers that would otherwise be excluded under section 903(6)(E) of
that Act; and
(ii) includes any fund transfer covered by Article 4A
of the Uniform Commercial Code, as in effect in any State.
(C) FINANCIAL INSTITUTION.
The term 'financial institution' has the meaning given
the term in section 903 of the Electronic Fund Transfer Act, except that such
term does not include a casino, sports book, or other business at or through
which bets or wagers may be placed or received.
(D) INSURED DEPOSITORY INSTITUTION.
The term 'insured depository institution'—
(i) has the meaning given the term in section 3(c) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)); and
(ii) includes an insured credit union (as defined in
section 101 of the Federal Credit Union Act)
(E) MONEY TRANSMITTING BUSINESS AND MONEY TRANSMITTING
SERVICE .
The terms 'money transmitting business' and 'money
transmitting service' have the meanings given the terms in section 5330(d)
(determined without regard to any regulations prescribed by the Secretary
thereunder).
§ 5363. Prohibition on acceptance of any
financial instrument for unlawful Internet gambling
No person engaged in the business of betting or
wagering may knowingly accept, in connection with the participation of another
person in unlawful Internet gambling-
(1) credit, or the proceeds of credit, extended to or
on behalf of such other person (including credit extended through the use of a
credit card);
(2) an electronic fund transfer, or funds transmitted
by or through a money transmitting business, or the proceeds of an electronic
fund transfer or money transmitting service, from or on behalf of such other
person;
(3) any check, draft, or similar instrument which is
drawn by or on behalf of such other person and is drawn on or payable at or
through any finanvial institution; or
(4) the proceeds of any other form of financial
transaction, as the Secretary and the Board of Governors of the Federal Reserve
System may jointly prescribe by regulation, which involves a financial
institution as a payor or financial intermediary on behalf of or for the benefit
of such other person.
§ 5364. Policies and procedures to
identify and prevent restricted transactions
(a) REGULATIONS.
Before the end of the 270-day period beginning on the
date of the enactment of this subchapter, the Secretary and the Board of
Governors of the Federal Reserve System, in consultation with the Attorney
General, shall prescribe regulations (which the Secretary and the Board jointly
determine to be appropriate) requiring each designated payment system, and all
participants therein, to identify and block or otherwise prevent or prohibit
restricted transactions through the establishment of policies and procedures
reasonably designed to identify and block or otherwise prevent or prohibit the
acceptance of restricted transactions in any of the following ways:
(1) The establishment of policies and procedures that-
(A) allow the payment system and any person involved in
the payment system to identify restricted transactions by means of codes in
authorization messages or by other means; and
(B) block restricted transactions identified as a
result of the policies and procedures developed pursuant to subparagraph (A).
(2) The establishment of policies and procedures that
prevent or prohibit the acceptance of the products or services of the payment
system in connection with a restricted transaction.
(b) REQUIREMENTS FOR POLICIES AND PROCEDURES.
In prescribing regulations under subsection (a), the
Secretary and the Board of Governors of the Federal Reserve System shall-
(1) identify types of policies and procedures,
including nonexclusive examples, which would be deemed, as applicable, to be
reasonably designed to identify and block or otherwise prevent or prohibit the
acceptance of the products or services with respect to each type of restricted
transaction;
(2) to the extent practical, permit any participant in
a payment system to choose among alternative means of identifying and blocking,
or otherwise preventing or prohibiting the acceptance of the products or
services of the payment system or participant in connection with, restricted
transactions;
(3) exempt certain restricted transactions or
designated payment systems from any requirement imposed under such regulations,
if the Secretary and the Board jointly find that it is not reasonably practical
to identify and block, or otherwise prevent or prohibit the acceptance of, such
transactions; and
(4) ensure that transactions in connection with any
activity excluded from the definition of unlawful internet gambling in
subparagraphs (B), (C), or (D)(i) of section 5362(10) are not blocked or
otherwise prevented or prohibited by the prescribed regulations.
(c) COMPLIANCE WITH PAYMENT SYSTEM POLICIES AND
PROCEDURES.
A financial transaction provider shall be considered to
be in compliance with the regulations prescribed under subsection (a) if-
(1) such person relies on and complies with the
policies and procedures of a designated payment system of which it is a member
or participant to-
(A) identify and block restricted transactions; or
(B) otherwise prevent or prohibit the acceptance of the
products or services of the payment system, member, or participant in connection
with restricted transactions; and
(2) such policies and procedures of the designated
payment system comply with the requirements of regulations prescribed under
subsection (a).
(d) NO LIABILITY FOR BLOCKING OR REFUSING TO HONOR
RESTRICTED TRANSACTIONS.
A person that identifies and blocks a transaction,
prevents or prohibits the acceptance of its products or services in connection
with a transaction, or otherwise refuses to honor a transaction-
(1) that is a restricted transaction;
(2) that such person reasonably believes to be a
restricted transaction; or
(3) as a designated payment system or a member of a
designated payment system in reliance on the policies and procedures of the
payment system, in an effort to comply with regulations prescribed under
subsection (a), shall not be liable to any party for such action.
(e) REGULATORY ENFORCEMENT.
The requirements under this section shall be enforced
exclusively by-
(1) the Federal functional regulators, with respect to
the designated payment systems and financial transaction providers subject to
the respective jurisdiction of such regulators under section 505(a) of the
Gramm-Leach-Bliley Act and section 5g of the Commodities Exchange Act; and
(2) the Federal Trade Commission, with respect to
designated payment systems and financial transaction providers not otherwise
subject to the jurisdiction of any Federal functional regulators (ineluding the
Commission) as described in paragraph (1).
§ 5365. Civil remedies
(a) JURISDICTION.—In addition to any other remedy under
current law, the district courts of the United States shall have original and
exclusive jurisdiction to prevent and restrain restricted transactions by
issuing appropriate orders in accordance with this section, regardless of
whether a prosecution has been initiated under this subchapter.
(b) PROCEEDINGS.
(1) INSTITUTION BY FEDERAL GOVERNMENT.
(A) IN GENERAL.
The United States, acting through the Attorney General,
may institute proceedings under this section to prevent or restrain a restricted
transaction.
(B) RELIEF.
Upon application of the United States under this
paragraph, the district court may enter a temporary restraining order, a
preliminary injunction, or an injunction against any person to prevent or
restrain a restricted transaction, in accordance with rule 65 of the Federal
Rules of Civil Procedure.
(2) INSTITUTION BY STATE ATTORNEY GENERAL.
(A) IN GENERAL.
The attorney general (or other appropriate State
official) of a State in which a restricted transaction allegedly has been or
will be initiated, received, or otherwise made may institute proceedings under
this section to prevent or restrain the violation or threatened violation.
(B) RELIEF.
Upon application of the attorney general (or other
appropriate State official) of an affected State under this paragraph, the
district court may enter a temporary restraining order, a preliminary
injunction, or an injunction against any person to prevent or restrain a
restricted transaction, in accordance with rule 65 of the Federal Rules of Civil
Procedure.
(3) INDIAN LANDS.
(A) IN GENERAL.
Notwithstanding paragraphs (1) and (2), for a
restricted transaction that allegedly has been or will be initiated, received,
or otherwise made on Indian lands (as that term is defined in section 4 of the
Indian Gaming Regulatory Act)-
(i) the United States shall have the enforcement
authority provided under paragraph (1); and
(ii) the enforcement authorities specified in an
applicable Tribal-State compact negotiated under section 11 of the Indian Gaming
Regulatory Act (25 U.S.C. 2710)shall be carried out in accordance with that
compact.
(B) RULE OF CONSTRUCTION.
No provision of this section shall be construed as
altering, superseding, or otherwise affecting the application of the Indian
Gaming Regulatory Act.
(c) LIMITATION RELATING TO INTERACTIVE COMPUTER
SERVICES.
(1) IN GENERAL.
Relief granted under this section against an
interactive computer service shall-
(A) be limited to the removal of, or disabling of
access to, an online site violating section 5363, or a hypertext link to an
online site violating such section, that resides on a computer server that such
service controls or operates, except that the limitation in this subparagraph
shall not apply if the service is subject to liability under this section under
section 5367;
(B) be available only after notice to the interactive
computer service and an opportunity for the service to appear are provided;
(C) not impose any obligation on an interactive
computer service to monitor its service or to affirmatively seek facts
indicating activity violating this subchapter;
(D) specify the interactive computer service to which
it applies; and
(E) specifically identify the location of the online
site or hypertext link to be removed or access to which is to be disabled.
(2) COORDINATION WITH OTHER LAW.
An interactive computer service that does not violate
this subchapter shall not be liable under section 1084(d) of title 18, except
that the limitation in this paragraph shall not apply if an interactive computer
service has actual knowledge and control of bets and wagers and-
(A) operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may be placed, received, or
otherwise made or at which unlawful bets or wagers are offered to be placed,
received, or otherwise made; or
(B) owns or controls, or is owned or controlled by, any
person who operates, manages, supervises, or directs an Internet website at
which unlawful bets or wagers may be placed, received, or otherwise made, or at
which unlawful bets or wagers are offered to be placed, received, or otherwise
made.
(d) LIMITATION ON INJUNCTIONS AGAINST REGULATED
PERSONS.
Notwithstanding any other provision of this section,
and subject to section 5367, no provision of this subchapter shall be construed
as authorizing the Attorney General of the United States, or the attorney
general (or other appropriate State official) of any State 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.
§ 5366. Criminal penalties
(a) IN GENERAL.
Any person who violates section 5363 shall be fined
under title 18, imprisoned for not more than 5 years, or both.
(b) PERMANENT INJUNCTION.
Upon conviction of a person under this section, the
court may enter a permanent injunction enjoining such person from placing,
receiving, or otherwise making bets or wagers or sending, receiving, or inviting
information assisting in the placing of bets or wagers.
§ 5367. Circumventions prohibited
Notwithstanding section 5362(2), a financial
transaction provider, or any interactive computer service or telecommunications
service, may be liable under this subchapter if such person has actual knowledge
and control of bets and wagers, and-
(1) operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may be placed, received, or
otherwise made, or at which unlawful bets or wagers are offered to be placed,
received, or otherwise made; or
(2) owns or controls, or is owned or controlled by, any
person who operates, manages, supervises, or directs an Internet website at
which unlawful bets or wagers may be placed, received, or otherwise made, or at
which unlawful bets or wagers are offered to be placed, received, or otherwise
made."
(b) TECHNICAL AND CONFORMING AMENDMENT.
The table of sections for chapter 53 of title 31,
United States Code, is amended by adding at the end the following:
SUBCHAPTER IV-PROHIBITION ON FUNDING OF UNLAWFUL
INTERNET GAMBLING
5361. Congressional findings and purpose
5362. Definitions
5363. Prohibition on acceptance of any financial
instrument for unlawful Internet gambling
5364. Policies and procedures to identify and prevent
restricted transactions 5365. Civil remedies
5366. Criminal penalties
5367. Circumventions prohibited.
SEC. 803.
INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.
(a) IN GENERAL.
In deliberations between the United States Government
and any foreign country on money laundering, corruption, and crime issues, the
United States Government should
(1) encourage cooperation by foreign governments and
relevant international fora in identifying whether Internet gambling operations
are being used for money laundering, corruption, or other crimes;
(2) advance policies that promote the cooperation of
foreign governments, through information sharing or other measures, in the
enforcement of this Act; and
(3) encourage the Financial Action Task Force on Money
Laundering, in its annual report on money laundering typologies, to study the
extent to which Internet gambling operations are being used for money laundering
purposes.
(b) REPORT REQUIRED.—The Secretary of the Treasury
shall submit an annual report to the Congress on any deliberations between the
United States and other countries on issues relating to Internet gambling.
Unlawful Internet
Gambling Enforcement Act - Analysis
by I. Nelson Rose
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-N.J.), 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 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
Netteller.
"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
transactions, 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.
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.
--
©Copyright 2006, all
rights reserved worldwide. GAMBLING AND THE LAW® is a registered trademark of
Professor I Nelson Rose
GamblingAndTheLaw.com
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.קרא גם על
מיסוי הימורים
בישראל על פי חוזר רשות המיסים >
