Anybody who has spent time in Washington knows that Congress
often passes bad laws. But even the most widely derided laws —
think of 2003’s Medicare drug benefit — end up doing roughly
what their authors set out to do.
The misbegotten 2006 Unlawful Internet Gambling Enforcement Act
(UIGEA), however, won’t even get that far. It will fail at its
intended purpose of ending most Internet gambling while
simultaneously creating enormous headaches for banking
institutions and account holders. It’s a bad, bad law.
Despite its name, the Act has rather little to do with gambling.
It doesn’t actually outlaw any online game — there’s still no
federal penalty for wagering $1,000 on the spin of a virtual
roulette wheel — and doesn’t directly create any new federal
penalties for running an online casino.
Instead, the Act imposes an obligation on banking institutions to
block transactions “related” to illegal online gambling. At first
blush, this looks like an elegant solution for those who dislike
gaming. Rather than trying to force all online gambling sites out
of business directly or penalize people who play a few hands of
poker online, the law — a brainchild of recently unseated Iowa
Republican Jim Leach — simply threatens to cut off the money
that makes gambling possible.
In practice, the language of the law, the nature of the Internet,
and the wide availability of gambling in the United States make
the law both unenforceable and enormously burdensome.
LANGUAGE FIRST: The statute’s definition of “gambling” contains
dozens of loopholes. Some exceptions, like a safe harbor for
stock and insurance transactions stem from common sense. Others,
like loopholes for state lotteries and horse racing, are there
because of the political power of existing industries.
Finally — and here is real the doozy — the government has
decided not to create a particular list of “blocked” providers.
Banks really don’t have any clearly defined law to enforce. So
they’re most likely to simply leave it unenforced or, if
threatened by regulators, over-enforce the law by blocking all
sorts of perfectly legal transactions.
Even if banks could overcome these logistical hurdles — and they
probably can’t — online gambling would continue anyway. A quick
Google search shows that blatant pyramid schemes calling
themselves “high yield investment plans” flourish on the Internet
even though they’re exactly the sort of financial activity,
fraud, that everyone wants outlawed.
While we’re on the subject, it’s worth asking, Does a near-total
de facto national Internet gambling ban makes any sense at all?
Today, 48 states have some form of legal gambling and no state
regularly enforces a law against playing cards among friends.
American society, for better or worse, has already decided in
favor of legal gambling. The relevant public policy debates
involve the nature and regulation of legal gambling, not its
existence.
While outright repeal of the UIGEA would best serve the public
interest, reforms in two bills seem to have the best hope for
short term changes. Florida Rep. Robert Wexler “Skill Games
Protection Act” would clearly exempt games of skill like chess
and poker from federal penalties and the reach of Leach’s
legislative legacy.
Under Wexler’s plan, Internet gaming sites would have to verify
players’ ages, cooperate with the IRS to collect taxes, and
engage in programs to identify problem gamblers. Since the plain
language of UIEGA already seems to allow skilled games (unless
states specifically ban them), it’s far better to figure out ways
to regulate them than leave the matter to inevitable, costly
litigation.
Another widely supported proposal from Nevada Representative
Shelly Berkley would launch a much needed comprehensive study of
Internet gambling. Given that nobody seems clear on what goals
regulation ought to accomplish, it would probably be a good idea
for the federal government to get a better handle on what it’s
doing before passing more burdensome, unworkable laws.
