Proposed Internet Gaming Regulations And Players 

Gambling and the Law®

The federal government has issued proposed regulations to enforce the ban on money transfers for unlawful Internet gambling transactions.  The most important thing for online poker players to know is that nothing has changed.  And nothing will, for many, many months. 

The proposed regs are the result of a bill rammed Congress through last year.  Then Senate Majority Leader Bill Frist (R.-TN) attached his Unlawful Internet Gambling Enforcement Act to the SAFE PORTS Act.  Frist refused to let Democrats even read the bill.  If they didn’t like it, they could vote against port security. 

A good indication of how quickly the law was written is that it does not even have a good acronym.  Since UIGEA is unpronounceable, I’ll call it Prohibition 2.0. 

Prohibition 2.0 is often characterized as outlawing Internet gambling in the U.S.   Although it scared the bejesus out of publicly traded companies, it actually does only two things:  It creates one new crime, being a gambling business that accepts money for unlawful Internet gambling transactions, and it calls for new regulations for banks and other payment processors. 

What it doesn’t do is make it a crime to play poker on the Internet.  It doesn’t directly restrict players from sending or receiving money.  It doesn’t spell out what forms of gambling are ”unlawful.“  Specifically, it does not do what the federal Department of Justice (”DOJ“) wanted, which was to ”clarify“ that the Wire Act covers Internet casinos, lotteries and poker. 

The new felony it creates is greatly limited.  Only gambling businesses can be convicted, not players.  Bizarrely, for a law designed to prevent money transfers, the financial institutions involved in those transfers, including banks, credit card companies and e-wallets, are expressly defined as not being gambling businesses and so cannot be convicted of this new crime. 

The Act also required the U.S. Treasury and Federal Reserve Board, in consultation with the DOJ, to make regulations by mid-June, requiring payment processors to identify and block restricted transactions.  Four months late, the regs have finally been proposed.  The general public now has until December 12 to make comments.  The agencies will then make changes in the proposed regs.  The final versions will then be published, supposedly giving everyone six months to set up their procedures. 

This is not going to happen. 

It took ten months just to draw up the proposed regs.  In part, this is because the agencies given the job of writing the regs don’t agree on what should be done about Internet gambling.  The DOJ wants all internet gambling outlawed; Treasury, including the IRS, does not really want it outlawed, it wants to tax it; and the Federal Reserve Board is expressly against any regulations on banks that would put them at a competitive disadvantage with their foreign competitors. 

The proposed regs put the burden entirely on the payment processors to come up with procedures for identifying and blocking restricted money transfers.  But this can’t be done in six months.  In fact, it can’t be done at all. 

The problem is defining ”unlawful Internet gambling.“  Even the DOJ admits that some forms of online wagers are perfectly legal.  For example, I can sit in my home in Encino, and, using my credit card, make bets by computer with a California licensed racebook.  The system is called Advanced Deposit Wagering (”ADW“), since I have to fund my legal bookie account in advance.  Congress, in December 2000, amended the Interstate Horseracing Act (”IHA“) to make it legal for ADW on horse races, so long as the bets and races were legal under state laws. 

And here’s an example of why it is impossible to know what is an unlawful gambling transactions.  The DOJ agrees that I can make ADW bets with a California licensed bookie on races held here or in any of the 20 other states that have legalized ADW.  But everyone else who has read the IHA, including state racing commissions, believes it is perfectly legal for me to set up my ADW with a licensed bookie in another state.  So, how is a credit card processor supposed to handle my request to fund an ADW in Oregon ? 

Everyone agrees that I could not make online bets on horseraces if I were in Utah .  So payment processors would have to have cyber-border software to ensure that I don’t try to make a bet with my laptop from Salt Lake City .  How else will a credit card company or my California bank know not to transfer the money even to a California licensed horsebook? 

And what about poker?  California has had legal cardrooms since the Gold Rush.  But 157 years of bad cases and obscure statutes make it a crime to participate, as a player, in any poker game where the pot is raked more than four times.  If the state’s laws apply to online poker – a big if – how many payment processors even know what it means to rake a pot four times? 

The proposed regs have so many exceptions that, when they do finally get officially promulgated, Americans will still be able to play poker online for money.  For example, the federal agencies understood that banks do not, and cannot, read paper checks.  So in the worst case, players can always reload or receive their winnings by snailmail. 

But there are more loopholes.  All parts of all payment processing systems are exempt, except the financial institution that deals directly with the gambling operation.  

The regs also clearly do not directly cover financial institutions in other countries.  So, anyone who uses a credit card issued by a foreign bank should encounter no trouble.  If I send a check from Bank of America to pay off my Hong Kong issued Visa, neither the B of A nor the Hong Kong bank are required to ask whether I’m using the card for gambling.

American payment processors are required to check out payments going in and out of the country.  So, a clearing house is supposed to have procedures in place to check that the money it is forwarding is not used for unlawful gambling.  This might be possible if the funds went directly to an online operator or even the operator’s bank.  But what if the money went to a foreign clearing house, that cannot possibly know what the funds are used for?

That is the good news for players.  The bad news is that we are dealing with banks and other financial institutions that are basically conservative.  Also, the DOJ has been waging a war of intimidation on both operators and payment processors – Neteller joined PayPal and credit card companies in voluntarily barring all gaming transactions. 

The proposed regs make it clear that payment processors should not block money transfers for legal gambling.  They specifically note that some Internet wagers have been declared legal under Prohibition 2.0.  These include not only interstate horseracing, but all forms of gambling, including poker, if done correctly and conducted entirely within a single state or on tribal land. 

But there is no real downside in telling bank customers and credit card holders that they cannot send any funds to any gambling site.  The only thing the banks lose are possibly some customers.  But allowing patrons to send funds to a gaming site that turns out to involve an unlawful transaction opens the banks to fines and other government punishments. 

The financial institutions wanted the feds to give them a list of who not to send funds to.  The agencies refused, saying that such a list would be too difficult to create; plus, some operators may handle legal as well as illegal transactions.  So, all large payment processors are going to take the least risky path and block all gambling transactions, even ones that are indisputably legal.  There is no law forcing them to transmit funds for legal gambling. 

But, in the end, Prohibition 2.0 and its regulations will be as successful in preventing people from gambling and playing poker online as the first Prohibition was in preventing people from drinking. 

© Copyright 2007.  Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law.  His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.

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The Casino Of The Immediate Future

by I. Nelson Rose

            The casino of the future can be found today, in the most unexpected places – in countries like Vietnam and Cambodia.

            It is not unusual for communist countries to have casinos.  I played at a casino at the top of the Hilton in Budapest in the 1980s, when Hungary was still part of the Soviet Bloc.  Gaming is a way to extract hard currency from tourists.  Then all bets had to be made in German Deutschmarks.  In the Socialist Republic of Viet Nam, it is U.S. dollars.

            And many countries as poor as the Kingdom of Cambodia have allowed casinos, restricted to foreign tourists.  The ones I visited were in hotels in Siem Reap, near the famous ruins of Angkor Wat.

            What is unusual is to see table games like roulette and baccarat.  In a majority of jurisdictions in the world today, casinos are limited to slot machines.

            I didn’t see any human dealers in Hanoi or Ho Chin Min City.  But the casinos had the latest in gaming technology, which includes innovative ways to get around the prohibition on table games.

            The sold-out gaming conference, G2E Asia, in Macau in June 2007, was as much about computer technology as it was about gambling.  Most of the exhibit space was devoted to conventional slot machines, although there were no machines with actual reels and handles, and the slots were for players’ cards, not coins.  The casino of today has video games, linked to central computers to allow instant auditing and market analysis.  The slot machines of tomorrow will be downloadable, allowing managers to change the appearance of their gaming devices with the press of a button.

            Conventional table games are also about to be updated.  At least four manufacturers were selling RFID (radio-frequency identification) gaming chips.  Although these look and feel the same as conventional poker chips, each one contains a tiny transmitter that allows the casino to know exactly where the chip is at all times.   When used at tables that are equipped with playing card readers, these can prevent most cheating and dealer errors.  Tied in with player loyalty cards, the casino can know as much about its table players as it now knows about its slot players.

            The casino of the immediate future has gaming fusion:  machines that allow patrons to play table games.  Exhibitors displayed gaming devices for virtually every game found in western and Asian casinos:  blackjack, poker, baccarat, sic bo and fan tan.  There were at least a dozen manufacturers of automated roulette wheels.

            The technology ranged from simple to ingenious.  Most common was linked video screens.  For example, each player at a Texas Hold ‘Em table has his own video screen for his down cards and a larger screen in the center for the community cards.  A more sophisticated version allows a player to play using his BlackBerry.

            Asian players have historically disliked slot machines.  So, much thought has been put into how to make games ”real,“ and yet automated.  All of the roulette games had real spinning wheels; some had video cameras to allow players to actually see the ball drop into the slot.

            To introduce Asian players to gaming devices, a Hong Kong company has developed the multi-station ”LIVE Baccarat.“  There is a real human dealer dealing real paper cards.  But her image is projected on a large screen.  And players bet on their own video monitors.  I saw 40 machines linked in one game in a casino in Macau.  Up to 100 patrons can play at one time in stadium-style seating. 

            The next step is to eliminate the player and cards.  Blackjack with holographic dealers has been around for years.  But in the land of anime and manga, the dealers were animations.  My favorite was the cartoon blue-eyed blond at the Wynne Macau, who spoke perfect Cantonese on one screen, and perfect Mandarin on another.

            A Taiwan company took another route.  Its ”Robot Casino“ has an automatic shuffler and a cute robot arm deal real paper cards.  The game is baccarat, so everything is behind glass.  The robot shows the cards to the players, who are betting on terminals.  I saw a simpler version in a Cambodia casino, where the gaming device simply dealt cards face up.

            Necessity, in the form of local laws, is the mother of invention.  The law in Taiwan prohibits anyone from touching the gaming tools.  So, bars use bingo ball blowers with 52 balls painted to look like playing cards to play baccarat.

            Are these slot machines?  Usually operators argue that they are, because table games are prohibited.  But at least three card clubs have convinced regulators in California that a video poker table is still poker, because players are playing against each other, not the machine.

            Regulators are finding it difficult to keep up with these changes.  Most jurisdictions don’t have clear statutory definitions of what is allowed, let alone standards for testing these gaming devices.

            Private enterprise can act, and react, faster than government.  So the independent Gaming Laboratories International is already testing and certifying many of these inventions.

            Large, established gaming jurisdictions are more cautious.  And the procedures for promulgating regulations can drag out the process.

            In the past, states and nations looked to Las Vegas and Monte Carlo for their models of what a casino should look like.  But if you want to see a casino of the immediate future today, you have to go to Vietnam.

NOTE: A month after I wrote this column, the New Jersey Casino Control Commission amended its regulations to let Atlantic City casinos try out electronic table games.  The Commission said it approved the test of roulette and poker without human dealers in response to the gaming devices being put in racinos in Pennsylvania and Delaware.

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© Copyright 2007.  Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law.  His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website,  www.GamblingAndTheLaw.com.