30-10-2007 UIGEA regulations to impose significant additional burdens to US payments system

According to a legislative and public policy advisory published by law firm Alston & Bird, the proposed UIGEA regulations will require all participants in the US payments system, including the ACH, card payments, check collection systems, money transmitting businesses and wire transfer systems, to prevent the processing of internet gambling transactions implementing policies and procedures similar to those required by the Bank Secrecy Act, with the risk of creating significant tension between domestic and financial institutions in foreign jurisdictions, where the blocked transactions may be legal.

In addition, the UIGEA regulations include immunity provisions for designated payments, with the potential of exacerbating the existing dispute between the DOJ, which takes the position that all internet gambling is illegal under the Wire Act of 1961, and the horseracing industry, which states that the Interstate Horseracing Act permits pari-mutuel betting that occurs interstate via telephone or Internet, provided the activity is lawful in each state involved.

Since neither the UIGEA nor the proposed regulations define or clarify what is and is not legal, there is likely to continue to be disagreement and dispute over the the underlying definition of which transactions are legal and which are not, creating uncertainty for financial institutions required to identify and block unlawful transactions.

Alston & Bird explains that despite the regulatory effort to prevent all unlawful internet gambling transactions, even under the proposed regulation, it would still be possible for a US resident to gamble online. The most obvious way for a US resident to circumvent the proposed regulations would be to open a foreign bank account in a jurisdiction where internet gambling is legal.