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who has spent time in Washington knows that Congress often passes bad laws. But
even the most widely derided laws -- think of 2003's Medicare drug benefit --
end up doing roughly what their authors set out to do.
2006 Unlawful Internet Gambling Enforcement Act (UIGEA), however, won't even get
that far. It will fail at its intended purpose of ending most Internet gambling
while simultaneously creating enormous headaches for banking institutions and
account holders. It's a bad, bad law.
Despite its name, the Act has
rather little to do with gambling. It doesn't actually outlaw any online game --
there's still no federal penalty for wagering $1,000 on the spin of a virtual
roulette wheel -- and doesn't directly create any new federal penalties for
running an online casino.
Instead, the Act imposes an obligation on
banking institutions to block transactions "related" to illegal online gambling.
At first blush, this looks like an elegant solution for those who dislike
gaming. Rather than trying to force all online gambling sites out of business
directly or penalize people who play a few hands of poker online, the law -- a
brainchild of recently unseated Iowa Republican Jim Leach -- simply threatens to
cut off the money that makes gambling possible.
In practice, the language
of the law, the nature of the Internet, and the wide availability of gambling in
the United States make the law both unenforceable and enormously
LANGUAGE FIRST: The statute's definition of "gambling"
contains dozens of loopholes. Some exceptions, like a safe harbor for stock and
insurance transactions stem from common sense. Others, like loopholes for state
lotteries and horse racing, are there because of the political power of existing
Finally -- and here is real the doozy -- the government has
decided not to create a particular list of "blocked" providers. Banks really
don't have any clearly defined law to enforce. So they're most likely to simply
leave it unenforced or, if threatened by regulators, over-enforce the law by
blocking all sorts of perfectly legal transactions.
Even if banks could
overcome these logistical hurdles -- and they probably can't -- online gambling
would continue anyway. A quick Google search shows that blatant pyramid schemes
calling themselves "high yield investment plans" flourish on the Internet even
though they're exactly the sort of financial activity, fraud, that
everyone wants outlawed.
While we're on the subject, it's worth
asking, Does a near-total de facto national Internet gambling ban makes any
sense at all? Today, 48 states have some form of legal gambling and no state
regularly enforces a law against playing cards among friends. American society,
for better or worse, has already decided in favor of legal gambling. The
relevant public policy debates involve the nature and regulation of legal
gambling, not its existence.
While outright repeal of the UIGEA would
best serve the public interest, reforms in two bills seem to have the best hope
for short term changes. Florida Rep. Robert Wexler "Skill Games Protection Act"
would clearly exempt games of skill like chess and poker from federal penalties
and the reach of Leach's legislative legacy.
Under Wexler's plan,
Internet gaming sites would have to verify players' ages, cooperate with the IRS
to collect taxes, and engage in programs to identify problem gamblers. Since the
plain language of UIEGA already seems to allow skilled games (unless states
specifically ban them), it's far better to figure out ways to regulate them than
leave the matter to inevitable, costly litigation.
supported proposal from Nevada Representative Shelly Berkley would launch a much
needed comprehensive study of Internet gambling. Given that nobody seems clear
on what goals regulation ought to accomplish, it would probably be a good idea
for the federal government to get a better handle on what it's doing before
passing more burdensome, unworkable laws.