Friday, October 06, 2006

The UnInGEn-ious Act's Non-Impact on Internet Gambling

With the Unlawful Internet Gambling Enforcement Act of 2006, Congress took aim at Internet gambling, pulled the trigger, and shot the domestic financial services industry. The regulatory bloodshed might temporarily put off American consumers of Internet gambling services. Very quickly, though, foreign financial services will step into the breach. More likely than not, Internet gambling will continue unabated. Federal lawmakers will have done little more than won a sound-bite for the upcoming elections and encouraged the widespread use of Internet-based financial systems capable of wholly escaping U.S. control. Hence my moniker for the new law: The UnInGEn-ious Act.

Congress passed the UnInGEn-ious Act as subchapter IV of the SAFE Port Act, H.R. 4954, 109th Cong., 2nd Sess. (2006). Strictly speaking, because the SAFE Port Act has yet to receive a presidential signature, it has not yet become law. It surely will, though.

The UnInGEn-ious Act does not outlaw Internet gambling per se. Instead it prohibits anyone "engaged in the business of betting or wagering" from knowingly accepting payment "in connection with the participation of another person in unlawful Internet gambling." Id. § 5363. Mere consumers face no liability under the Act. Nor, thanks to the Act's careful definition of "unlawful Internet gambling," id. § 5362, do a variety of intrastate, intratribal, or interstate horseracing gaming services. In other words, the UnInGEn-ious Act basically targets new online competitors to more traditional gambling services.

The UnInGEn-ious Act aims to stymie those upstarts not by outlawing them outright, but rather by choking off their revenue. The Act thus threatens civil injunctions, id. § 5365, and criminal penalties, id. § 5366, against gambling businesses that accept payment for illegal Internet services. Unless run or owned by a person who runs an illegal online gambling site, id. §§ 5365(c)(2), 5367, interactive computer services or telecommunications services will suffer no worse than an order to take down an offending site or link, id. § 5365(c)(1).

Domestic financial services face the threat of a bevy of new regulations, issued by the Federal Reserve in consultation with the Attorney General, designed to identify and prevent transactions prohibited by the UnInGEn-ious Act. Id. § 5364. Although the exact form of those regulations won't be known for some time, the Act limits their scope to what can "be reasonably designed to identify and block or otherwise prevent or prohibit" offending transactions, id. § (b)(1), specifies that the regulations must "to the extent practical, permit any participant in a payment system to choose among alternative means" of achieving the Act's goals, id. § (b)(2), and must "exempt certain restricted transactions or designated payment systems from any requirement imposed under such regulations, if . . . it is not reasonably practical to identify and block, or otherwise prevent or prohibit the acceptance of, such transactions . . . ."id. § (b)(3). The Act also warns regulators to "ensure that transactions in connection with any activity excluded from the definition of unlawful internet gambling," i.e., the intrastate, intratribal, or interstate horseracing gaming services mentioned above, "are not blocked or otherwise prevented or prohibited by the prescribed regulations."

What does all this mean for internet gambling? Not much. Credit card services subject to U.S. law have been blocking most internet casino and sportsbook transactions for some time. The industry has thus already begun the transition to alternative payment systems such as NeTeller and Firepay, that can escape the reach of U.S. law. Some online gambling services even offer discounts to encourage consumers to give up their credit cards.

Because they stay safely overseas, NeTeller, Firepay, and other alternatives to U.S.-based financial services can escape the reach of the UnInGEn-ious Act and other domestic regulations. Thanks to the veil of secrecy that these new financial services cast over their customers' transactions, moreover, it looks very unlikely that U.S. authorities will be able to selectively prohibit domestic transactions that ultimately end up funding Internet gambling services. The UnInGEn-ious Act thus does little more than speed up the flight of Internet-based gaming and financial services from the U.S. to more friendly homes oversea. Since U.S. consumers will still enjoy free access to those services, they will hardly notice the difference. If only we could just as freely escape from the uningenious government services of domestic politicians!

[Crossposted to Technology Liberation Front.]

2 comments:

Clyde Adams III said...

See Cringley's column today:
Congress stupidly outlawed Internet gambling and only terrorists were helped

Mark Rose said...

This recent legislation reminds me of prohibition, whereby the commercial sale of alcohol was illegal but owning and drinking was not illegal.

Lesson learned, 1920.

There's a line in "Jurassic Park" where Jeff Goldblum's character says, "Life finds a way".

Similarly, "money finds a way".

Ultimately the winds of predictive markets are much stronger that the winds of legislated morality.