UIGEA: An Acronym Against Online Gambling

by Jamie Hancock, MLIS

For the last five years, I have been the mastermind of a criminal operation. My business has been largely successful because: 1) there is a high demand for these types of services and 2) I always conduct secret transactions with my clients. I’ve also been extremely lucky, in terms of profit and evading federal prosecution. However, if someone were to report my illegal activity, I have ways of dealing with them...

Halftime warmup for USC & Arkansas in the first round of NCAA March Madness (Spokane 2007).

Fortunately, it has never come to that. This spring, I’m running a March Madness tournament pool for the sixth straight year. I’m using the CBS Bracket Manager to track the results of client picks for 64 games. With 24 participants at $15 a pop, I stand to make a pretty good bonus if I pick the right teams. In the second week of action, my Final Four predictions look strong, with Florida, Texas A&M, Kansas and Georgetown in the mix.

Still, I’m concerned for my livelihood and the financial security of my family and friends. On October 13, 2006, President George Bush signed the Safe Port Act. Attached to this legislation is the “Unlawful Internet Gambling Enforcement Act (UIGEA),” which prohibits the funding of illegal online gambling sites and services. In particular, it states “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...any check...which is drawn by or on behalf of such other person...” Violation of this act could carry a stiff prison sentence. Luckily the government is incapable of monitoring check transactions to private persons for gambling purposes (which means my homegrown operation is in the clear, as long as nobody talks).

The feds have bigger fish to fry. UIGEA primarily targets designated payment systems (i.e. PayPal, Google Checkout, WebMoney) in order to cut the money flow from gamblers to Internet gambling sites. On January 15, 2007, the FBI arrested Stephen Lawrence and John Lefebvre, two founders of Neteller, an Internet payment services company. Even though Neteller is based on the Isle of Man, the company has allowed the transfer of billions of dollars in illegal gambling proceeds from American citizens to overseas gambling merchants. By its own account, Neteller provided services to at least 80% of online gaming companies. Both men were apprehended when they stepped on American soil and are awaiting a hearing on April 16th. Following their arrests, Neteller has cut off services to all U.S. citizens and the federal government has seized $55 million from customer accounts.

Like many other gambling websites, Bodog and Full Tilt Poker have not been deterred by the legislation. The former is housed in Antigua and the both companies hold gaming licenses from the Kahnawake Gaming Commission in Canada. Besides falling outside the jurisdiction of the U.S. government, these websites accept credit cards and money transfers (through Western Union or MoneyGram). On the other hand, some companies such as Party Poker have caved in to the restrictions of UIGEA and no longer accept U.S. players. But even Hollywood Poker, which has cut off U.S. business, still allows American celebrities like James Woods to continue playing poker games.

While offshore companies currently remain unaffected, it is unknown how the Secretary of Treasury, the Board of Governors of the Federal Reserve System, and the Attorney General plan to identify and block illegal transactions. These officials have until July 2007 (270-day period after the bill’s passage) to establish procedures for regulating money transfers to overseas gambling merchants. Critics of the bill say that it’s an immense technological challenge. The Automated Clearing House network (ACH), a processing system utilized by the Federal Reserve, can’t distinguish between a gambling transaction and a car payment; nor can any other kind of payment system. In simple terms, a bank that sends money to another bank account does not keep records on the person who holds the receiving account. One option under consideration is to assign a merchant code to online gambling operators and forbid banks and payment systems from sending money to companies with this code (VISA created the 7995 code to prevent credit card use on gambling sites in 2001). This problem with this method is that it may block legitimate transactions unrelated to gambling. In addition, the U.S. law will not extend to overseas payment systems like Neteller (unless, of course, the CEO is caught on American soil).

Another unresolved issue is the bill’s impact on Internet service providers (ISPs) and search engines located in the U.S. Depending on how far the federal government extends its reach, officials may ask ISPs to remove sites and block hyperlinks that permit money transfers to illegal gambling companies. Or perhaps the U.S. will order Google, Yahoo! and other search engines to block certain links or advertisements. Although gambling sites can sidestep these obstacles by changing their website addresses, this kind of regulation would restrict certain information from reaching American citizens.

Not surprisingly, the international community has not been supportive of the U.S. efforts to crack down on Internet gambling. The European Internal Union Market Commissioner said he has no intentions to push forth legislation that complements UIGEA. In January, the World Trade Organization (WTO) sided with Antigua in its trade dispute with the U.S. The appellate body claims that the U.S. is violating its treaty obligations. Under GATS (General Agreement on Trades in Services), all services inside Antigua and the U.S. are open to free trade. A final ruling is due from the WTO in March 2007.

Congress believes that Internet gambling is a problem, but it wants to preserve the Interstate Horseracing Act of 1978.

One of the reasons the WTO objects to the UIGEA is that the U.S. applies the prohibition of Internet gambling inconsistently. According to the bill, a bet or wager is “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...” Under this definition, sports gambling, online poker, online blackjack, and other casino games are illegal. Exempt from the ban are horseracing, lotteries, tribal gaming, and fantasy sports that offer cash prizes. It’s curious that the law makes a distinction between betting on individual teams/players/games versus fantasy teams. Somehow, legislators concluded that a fantasy team is less real and therefore more acceptable than other forms of betting. And why is it more permissible to bet on a bunch of horses than the San Diego Chargers?

The UIGEA is intended to curb Internet gaming fraud and gambling addiction, prevent ease of access to children, and eliminate fronts for money laundering, drug trafficking, and terrorist financing. There is no question that the online gambling industry is well established in America. Half of the $12 billion sent to offshore casinos every year comes from American citizens. Young people, not to mention problem gamblers, have 24-hour access to gambling sites at home. Placing bets with credit cards (instead of chips at a real blackjack or roulette table) also distorts perceptions of cash value. But Title VIII of the Safe Port Act will not effectively alter the gambling habits of Americans. Internet gambling companies can find technological loopholes to combat federal legislation. As long as there is one safe harbor overseas, online sports wagers and casino bets will not go away. Gambling is intrinsically tied to all sporting events and the last decade has seen tremendous growth in the popularity of poker.

Party Poker no longer allows paying American customers at its virtual tables.

In all fairness to the politicians, a legitimate businessman like myself should be respected and not admonished. Just because I let my 11 year-old cousin participate in the March Madness contest (and he picks Duke to win every year) does not mean I’m being irresponsible. I am offering him an opportunity to win a great deal of money and someday he will be victorious. Until then, I’m going to keep taking his money.

(By the way, $200 out the total $360 in my tournament pool is being donated to charity).


Bibliography (all electronic resources were retrieved March 14-20, 2007)

Bell, Tom. (May 21, 1998). Internet Gambling: Prohibition vs. Legalization (Congressional Testimony before National Gambling Impact Study Commission).

Brunker, Mike. (October 17, 2006). Will Ban End Internet Gambling? Don’t Bet On It.

Doyle, Charles. (October 2, 2006). Internet Gambling: Two Approaches in the 109th Congress (CRS Report for Congress).

Garcia, Michael. (January 16, 2007). U.S. Charges Two Founders of Payment Service Company with Laundering Billions of Dollars of Internet Gambling Proceeds.

Henderson, Hartley. (January 24, 2007). WTO Ruling on Antigua Due Out Soon.

House Approves Boucher-Goodlatte Legislation to Combat Illegal Gambling. (July 11, 2006). .

H.R. 4954: Safe Port Act (Enrolled as Agreed to or Passed by Both House and Senate). (2006).

Lessani, Andrea. (May1998). How much do you want to bet that the Internet Gambling Prohibition Act of 1997 is not the most effective way to tackle the problems of online gambling?

Rose, I.N. (2006). Gambling and the Law: The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed.

For more information on Internet gambling, visit the University of Nevada-Las Vegas Center for Gaming Research.



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Page last updated: June 8, 2007