On October 1, 2007, the Federal Reserve and the Department of Treasury (the Agencies) released their joint proposal for rules to implement the applicable provisions of the Unlawful Internet Gaming Enforcement Act. While the proposed rules clarify some of the enforcement requirements for the UIGEA, those seeking all the black and white answers may be left wanting after wading through the 52 page document. Interested parties have until December 12, 2007 to comment on the proposed rules. Some elements of the rules proposal follow:
- The rules, as proposed, govern only those that are participants in a designated payment system or are a financial transaction provider. An end-user or customer is not defined as a participant and is not effected by the proposed rules.
- It affirms that neither it nor the UIGEA define which online gambling activities are legal and which are illegal, deferring instead to existing state, federal, and tribal laws.
- Some restricted transactions will be exempt from regulation if the Agencies determine that "it is not reasonably practical to identify and block, or otherwise prevent or prohibit the acceptance of such transactions." For instance the proposed rules exempt all participants in the ACH (automated clearing house), check collection systems, and wire transfer systems, except the beneficiary's bank, or the bank acting on direct behalf of an illegal gambling business.
- At this point in time, there will be no master list of unlawful internet gaming businesses. While the Agencies have stated some of the benefits to participants by creating such a list, they also cite the cost, accuracy issues, and liabilities associated with its creation. Just the time to accurately research and interpret all of the state, federal, and tribal gaming laws was cited as an impediment.
The specific process and procedures financial institutions were to follow to prevent restricted transactions, or what they should do when they came across one, was left somewhat vague. Clearly one of the biggest issues the banks will face is exactly how to determine if a transaction is restricted under the law or laws. If the Agencies felt the task too labor intensive, liability prone, and costly, to compile a list of illegal online gambling companies, how will the banks accomplish the task?
As comments about the proposed rules will be made public, we'll be able to monitor the response by the banking industry and other interested parties between now and December 12, 2007.