Treasury, Federal Reserve Issue Internet Gambling Final Rule

The UIGEA prohibits any person engaged in the business of betting or wagering (as defined in the UIGEA) from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling.¹

Final Rule Designates Certain Payment Systems, Requires Participants to Block Restricted Transactions, Etc.

The final rule adds a new 31 CFR Part 132 (under Treasury's regulations²) entitled, "Prohibition on Funding of Unlawful Internet Gambling."

The final rule designates payment systems that could be used by participants in connection with, or to facilitate, unlawful Internet gambling transactions (i.e. restricted transactions). It also requires participants in those systems performing non-exempt functions to establish and implement policies and procedures reasonably designed to prevent or prohibit restricted transactions, such as by identifying and blocking them.

In addition, the final rule exempts certain participants in certain designated payment systems; provides examples of policies and procedures for non-exempt participants in each designated payment system; sets out the regulatory enforcement framework, etc.

Compliance by Non-Exempt Participants is Not Required Until December 1, 2009

While the final rule is effective January 19, 2009, compliance by non-exempt participants in designated payment systems is not required until December 1, 2009.

U.S. Online Gambling Restrictions Were Subject of WTO Dispute, Compensation

In 2003, the World Trade Organization established a dispute settlement panel (DSP) to consider allegations by Antigua and Barbuda that U.S. measures affecting the cross-border supply of gambling and betting services were inconsistent with certain U.S. WTO obligations. The dispute panel ruled against the U.S.

The Office of the U.S. Trade Representative (USTR) later stated that since gambling or betting services are generally prohibited or highly restricted in the U.S., the U.S. never intended to make a WTO commitment covering gambling and decided to explicitly exclude gambling and betting services from certain U.S. WTO commitments.

Consequently, in July 2007, USTR began negotiations for compensatory adjustments with eight WTO Members who had notified the U.S. that their benefits may be affected by the U.S. modification. (See ITT's Online Archives or 07/17/07 news, 07071715, for BP summary.)

¹The UIGEA generally defines ''unlawful Internet gambling'' 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 the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. The UIGEA does not spell out which activities are legal and which are illegal, but rather relies on the underlying substantive Federal and State laws.

²The final rule also adds a new 12 CFR Part 233 under the Federal Reserve's regulations, which references new 31 CFR Part 132.

(See ITT's Online Archives or 10/11/07 news, 07101120, for BP summary of the Treasury/Federal Reserve proposed rule.

See ITT's Online Archives or 03/17/08 news, 08031799 2, for BP summary of the EU launching an investigation into U.S. Internet gambling laws.)

Treasury/Federal Reserve final rule (D/N R-1298, FR Pub 11/18/08) available at http://edocket.access.gpo.gov/2008/pdf/E8-27181.pdf