The Department of the Treasury and the Federal Reserve today issued new joint regulations regarding Prohibitions on Funding of Unlawful Internet Gambling, which implement the Unlawful Internet Gambling Enforcement Act of 2006.
The regulations, which become effective on January 19, 2009 and require compliance by December 1, 2009, set forth specific requirements for U.S. financial firms regarding establishing and implementing policies and procedures to prevent payments to gambling businesses in connection with unlawful Internet gambling. Perhaps most notably, the final rule defines "Internet Gambling", but provides no definition of "unlawful internet gambling," relying instead on the UIEGA's definition. The UIEGA defines "unlawful internet gambling" generally as placing, receiving, or otherwise knowingly transmitting 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 which the bet or wager is initiated, received, or otherwise made. The lack of a more specific definition in the regulation thus leaves it to financial institutions to navigate conflicting state and federal laws, court decisions, and Department of Justice interpretations in order to determine what transactions it should or should not process.
The agencies' action comes only a few days after House Financial Services Committee Chairman Barney Frank (D-Mass.) sent a letter to Treasury Secretary Henry Paulson asking that Paulson put a stop to issuing these regulations. Frank called the proposed rules "deeply flawed" and reminded Paulson that testimony from Treasury Department and industry representatives indicated that it would be "particularly difficult to craft workable regulations." Furthermore, Frank's letter specifically cited the lack of a definition for "unlawful internet gambling," as a reason for delaying issuance and implementation of the rules and identified the great burden the lack of such a definition would place on financial institutions.