UIGEA "BITES THE WRONG ASS"

Frist's law likely to create more problems than it prevents

The UK publication The Register analysed the ponderously titled American anti-online gambling law the Unlawful Internet Gambling Enforcement Act in an article this week, commenting that it has its teeth "in the wrong ass".

In an introduction heavily laden with sarcasm, the article remarks: "Now that the Unlawful Internet Gambling Enforcement Act has been passed in the United States, those billions of dollars once spent on online gambling will now go to children's recreation centers, programs to care for the elderly, and humble decorations for Mother Theresa's grave. More importantly, those evil mega-casinos that have emerged offshore will finally be swept from the Earth, like Sodom and Gomorrah.

"Of course, it could just as easily be said that the Act has its teeth in the wrong ass."

After describing the essentially financial thrust of the measure, The Register examines the purpose as originally laid out in the House of Representatives as "to stop the 'debt collection problems for insured depository institutions and the consumer credit industry'" but points out that the law actually attempts to legislate morality beyond the borders of the US in a way the 1961 Wire Act Act never intended. It concludes that "...the consequences will hurt everyone but the fraudsters."

"The thrust of the Wire Act has long been to protect innocent victims from the effects of gambling - these historically have come in the form of greater organized crime syndicates, brutal interest rates, and anatomical re-arrangements by a fellow named Rocco," the piece continues.

"But the current amendment has nothing to do with the fear of organized crime, and more to do with stopping regular Joes from running up lots of credit card debt. The protected parties here are actually those poor, waif-ish credit card companies."

The author of the piece goes on to describe the immediate impact of the new legislation on public companies and countries involved in offshore gambling, and goes on to assert that the act of criminalising the acceptance of money by online casinos scares off only one type of gambling enterprise: the legitimate kind that doesn't cheat.

"What has probably been lost in all the hoopla is the fact that these companies even have shareholders, and refuse to engage in what has become illegal activity, despite the fact that they do their business in the UK and are outside US criminal jurisdiction. The vacuum left can and will be quickly filled by companies who, at the very least, do not share a similar respect for US law. And that is really the start of where this legislation goes horribly awry," the author remarks.

"Since these companies are, by necessity, outside of US jurisdiction, there is nothing the US can do to stop a company whose sole purpose is to defraud American gamblers. Rigging computerized versions of card games is certainly nothing new, and making sure the house always wins is not an incredibly difficult enterprise when you hold all the figurative cards. And the new US system assures gamblers that large, established online gambling havens which benefit from repeat business and good reputations will be eradicated from the picture. This is tantamount to asking fraudulent startups to please rip-off every sucker they can find."

The Register then takes a long look at the enforcement of the Act, the provisions for which have still to be drawn up by the US Treasury and the Federal Reserve in a 270 day window starting on October 13 2006. Charged with "identifying and preventing restricted transactions" these US federal government departments have a monumental task that will have to involve an already busy US banking and financial sector.

The author argues that the Act calls for a set of regulations to be drawn up by the Department of the Treasury and the Federal Reserve to "identify and prevent restricted transactions," within a 270-day period. "Of course, this leads to the second serious flaw in the Act." In typical US political style, the article comments, the UIGEA provides a mandate "...but leaves no clear apparatus to support its enforcement. The Fed and the Department of the Treasury can do their best to identify which international businesses are gambling fronts, but given the fluidity with which international businesses of all types can arise, small sham businesses can pop up in all sorts of places with relative ease. Both agencies will have to create and manage a world of banking data where international banks will use payment processing systems as straw men to funnel money, creating all sorts of new money-laundering crime that didn't exist before."

Further complicating matters is the fact that these online gaming companies may even choose to set up banks that appear legitimate to handle their online transactions. In fact, these companies may even be able to have well-established banks within the borders of their own countries handling their transactions, since the activity may not be regulated there.

Gamblers will also be able to use payment processors that are not as sophisticated as large banking institutions. Payment processors function like online banks, storing users' cash and performing online transactions more fluidly with ready money.

"The totality of these factors, when viewed realistically, paints a picture of a world where American gamblers find themselves gambling online with companies created for the sole purpose of making a quick, treacherous buck. Far from stopping fraud, it seems that the Act promotes it," the The Register opines.

"As long as it's legal somewhere (and even if it's not), enterprising non-US citizens will find a way to bring those dollars out of the US through online gambling. By eradicating groups that have shown that they are at least sensitive to US regulations, those poor little credit card companies will still lose their money, but this time, to sham businesses that have everything to gain through cheating.

"Finally, the bill does nothing to combat the real problem, which is gambling addiction itself. Of course, this follows a long line of US policy that criminalizes behavior without really offering a solution to the fundamental problem, joining prohibition, prostitution, and the war on drugs," the article concludes.

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