As expected, the U.S. Senate approved the proposed Unlawful Internet Gambling Enforcement Act of 2006 (the "Act") today as part of the adoption of the Safe Port Act, H.R. 4954. The Act amends Chapter 53 of Title 31 of the United States Code (the "Code") You can download a copy here Download unlawful_internet_gambling_enforcement_act.pdf. Some of the key amendments are as follows:
Several new terms are defined in the Code and are intended to capture all the components of the activity of Internet gambling from the placing of bets, the handling of funds and the use of the Internet.
(a) "Bet or Wager" (i) means to stake something of value on the outcome of a contest of others, a sporting event or game of chance on the understanding that either the better or someone else will receive something of value in the event of a certain outcome; (ii) includes purchasing a chance or
opportunity to buy a lottery ticket or other prize; and (iii) includes giving instructions or information in connection with the establishment or movement of funds by a gambler in, to or from an account with the Business of Betting or Wagering.
(b) "Business of Betting or Wagering" is not defined except that it excludes Financial Transaction Providers or interactive computer service and telecommunications service providers.
(c) "Designated Payment System" means a system used by a Financial Transaction Provider that could be used in connection with, or to facilitate, a Restricted Transaction. There are no "Designated Payment Systems" yet. The Federal Reserve System and the U.S. Attorney General will develop a list of designated payment systems by the Summer of 2007.
(d) "Financial Transaction Provider" means a creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer can be initiated, money transmitting business, payment network used for credit transactions, electronic fund transfers or money transmitting service or a participant in a Designated Payment System.
(e) "Restricted Transaction" means a transmittal of money or transaction involving a credit, instrument or proceeds of Unlawful Internet Gambling.
(f) "Unlawful Internet Gambling" means to place, receive or transmit a Bet or Wager involving the use, in whole or in part, of the Internet for unlawful gambling.
Prohibition on Accepting Funds for Unlawful Internet Gambling
No one in the Business of Betting or Wagering may accept credit (including credit extended through credit cards), an electronic transfer of funds, cheques or other instruments or the proceeds of any form of financial transaction, in connection with the participation of another person in Unlawful Internet Gambling.
Policies & Procedures to Identify & Prevent Restricted Transactions
The Federal Reserve System, in conjunction with the AG, will prescribe regulations that require each Designated Payment System and its participants to identify and block Restricted Transactions. The participants will be required to implement policies and procedures that: (a) identify a Restricted Transaction by using authorization codes or other means; and (b) block coded Restricted Transactions. This will work substantially in the way described in my earlier post here.
In that post, I described how financial intermediaries could use credit or charge card merchant codes to block restricted transactions. The description was for the proposed Leach-Goodlatte Anti-Online Gambling Bill (HR 4411) but is applicable to this Act as those provisions are substantively similar in this Act. Under the Federal Reserve System regulations that will be developed, a charge card issuer, such as American Express, will likely be required to develop policies and procedures to ensure that online gambling businesses will be identified (coded) via their merchant codes. Once coded, any transaction coming through to any authorization centre worldwide would be referred to an authorizer for approval or denial. If the referral to the authorizer involves a U.S. issued charge card and a blocked or restricted merchant code, presumably the authorizer would automatically deny the charge request. The more difficult task for American financial institutions that operate globally and issue charge or credit cards in currencies from different countries will be developing policies for their non-U.S. issued cards. These financial institutions will have to address the issue of coding their merchant codes to block unlawful Internet gaming transactions originating from the U.S., or originating elsewhere but involving U.S. cardholders, and at the same time, not blocking transactions with the same merchant originating from locations where Internet gambling is not prohibited and that involve non-U.S. cardmembers.
Civil Remedies & Criminal Penalties
The Act gives the federal court exclusive jurisdiction to prevent and restrain Restricted Transactions and provides for a fine or imprisonment for up to 5 years, or both, for any violation of the Act.