The Unlawful Internet Gambling Enforcement Act (UIGEA) is legislation which prohibits US banks from processing financial transactions for unregulated online gambling operators. The bill was created for the purpose of driving gray market, offshore iGaming websites out of the US, and was used to effectively shut down the US online poker industry in 2011.
Before we delve into the UIGEA, however, it’s important to note that later in 2011, the Department of Justice issued an opinion on another piece of anti-gambling legislation, the Federal Wire Act of 1961, which paved the way for US states to individually regulate online gambling if they so pleased. Currently, New Jersey (bill A2578), Nevada and Delaware have legalized the industry, with other states exploring the possibility of doing the same.
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Online Gambling and Terrorism
If you’re asking yourself what online gambling has to do with terrorism, the answer is nothing at all. The UIGEA was passed on September 30, 2006, the last day before Congress adjourned for the 2006 elections, as part of a larger bill entitled the SAFE Port Act, which, as its name implies, was focused on port security against terrorism. The SAFE Port Act was signed into law by then President George W. Bush on October 13, 2006.
In retrospect, although the SAFE Port Act easily passed the House by a 409-2 vote and received a unanimous vote in the Senate, the UIGEA’s inclusion within it has at times become the subject of controversy. The specific language of the UIGEA was added in a Conference Report late in the evening on the day before the vote, and reportedly, no members of the Senate-House Conference Committee ever saw the final language of the SAFE Port Act before it passed.
Origins and Carveouts
The UIGEA had its origins in H.R. 4411 – Internet Gaming Prohibition and Enforcement Act, a bill introduced by Representative James A. Leach back in November 18, 2005. That legislation defined “bets and wagers” to include bets for contests, sporting events, games predominantly subject to chance, and lotteries.
As per its language, it carved out the following exemptions: (1) activities governed by securities laws: (2) transactions under the Commodity Exchange Act; (3) over-the-counter derivative instruments; (4) contracts of indemnity or guarantee; (4) contracts for life, health, or accident insurance; and (5) reward programs or contests conducted by businesses.
H.R. 4411 would eventually go on to pass successfully through the House of Representatives but later stalled in the Senate. This interruption in its progression ultimately led to the UIGEA being attached to the SAFE Port Act, since the latter was considered “must-pass” legislation.
By the point in which the UIGEA’s language was formulated and inserted into the SAFE Port Act, there had been changes made, and the existing carve-out for fantasy sports was one such amendment. Notably, at the time the bill was passed, season-long fantasy sports was the only mainstream form of the activity.
Purpose and Exemptions
The overriding purpose of the UIGEA as written is to prohibit “gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” Therefore, it can be accurately stated that the UIGEA’s intent was to further criminalize the processing of payments for online gambling activities.
As written, the UIGEA specifically exempts “fantasy sports that meet certain requirements, skill-games and legal intrastate and intertribal gaming.” The UIGEA does not furnish any opinion on the legality of state lotteries, nor does it offer any clarity on the legality of inter-state wagering on horse racing and specifically states that no part of its language “may be construed to preempt any State law prohibiting gambling.”
The UIGEA’s final regulations were released on November 12, 2008 and went into effect January 19, 2009. Compliance with the regulations was not required until December 1, 2009, and a bill later delayed that compliance deadline to June 1, 2010.
Criminal Penalties
The criminal penalties as set forth by the UIGEA read as follows:
- Any person found to be in violation of Section 5363 (Prohibition on acceptance of any financial instrument for unlawful internet gambling) shall be fined under title 18, imprisoned for not more than 5 years, or both.
- Any person convicted for such a violation may be subject to a permanent injunction “enjoining such person from placing, receiving, or otherwise making bets or wagers or sending, receiving, or inviting information assisting in the placing of bets or wagers.”
Black Friday
The online poker world became intimately familiarized with the UIGEA on April 15, 2011, a date that would come to be known within the community as Black Friday. On that date, the United States Department of Justice unsealed a 52-page indictment against the founders of PokerStars, Full Tilt Poker and Absolute Poker, the largest internet poker companies at the time that were accepting U.S.-based players.
The United States Attorney in New York charged the companies with violating the UIGEA by utilizing a variety of payment processors that misrepresented gambling-related transactions as purchases for unrelated products.
Although a number of online gaming companies – such as Playtech/iPoker, Ongame, Party Poker, PKR, Lucky 31 Paradise Poker, Entraction, Boss Media and 888 – left the U.S. market after the passage of the UIGEA, the aforementioned trio of sites and a handful of others continued accepting transactions from U.S. players even after the final regulation date had passed, thereby putting them in violation of the law. At the time of the indictment, UIGEA-related infractions were only part of the overall puzzle, as the sites were also charged with bank fraud, money laundering and illegal gambling.
Why States Can Now Legalize Online Gambling
Contrary to what might initially be interpreted by the UIGEA, the law does not federally prohibit online gaming and in fact, provides individual states with the latitude to legalize and regulate the activity. The following language from within the law itself elaborates further:
(B) Intrastate transactions— The term “unlawful Internet gambling” does not include placing, receiving, or otherwise transmitting a bet or wager where—
(i) the bet or wager is initiated and received or otherwise made exclusively within a single State;
(ii) the bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include—
(I) age and location verification requirements reasonably designed to block access to minors and persons located out of such State;
Three states – Delaware, Nevada and New Jersey – already permit online poker, with Delaware and Nevada sharing an online poker network. Legalization efforts in New York and Pennsylvania have also ramped up as of 2017, and Michigan, while not as far along as the aforementioned pair of states, is also making a push.
