A House Financial Services subcommittee met on Wednesday to hear expert testimony on the proposed regulations to implement the Unlawful Internet Gambling Enforcement Act of 2006. Congressman Luis Gutierrez, Chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology, opened by summarising the status of the regulations, subject of over 200 formal critiques.
“One of the most common complaints is that the proposed rules fail to sufficiently define key terms, leaving financial institutions with significant compliance difficulties,” Gutierrez said.
“For example, the regulation fails to adequately define what constitutes ‘unlawful Internet gambling’ or a ‘restricted transaction’ yet requires the financial institutions to make a determination on their own about what is lawful or unlawful. Consumers will be placed at risk of having lawful transactions blocked. It is easy to see how these regulations, if implemented in their current form, could wreak havoc on electronic commerce in the U.S.”
Federal Reserve and Treasury officials conceded they were struggling to craft rules to ban bank and credit card payments to illegal Internet gambling sites because the law is so unclear.
Louise Roseman, director of reserve bank operations and payment systems, said: “That is something we’re really struggling with…. The challenge we have is interpreting federal laws that Congress itself isn’t sure what they mean.”
Roseman told the subcommittee that Fed and Treasury staffs were pressing ahead with a final rule that provides ‘reasonably practical examples’ of actions by banks and payment companies to comply with the existing law. “Our objective is to craft a rule to implement the act as effectively as possible in a manner that does not have a substantial adverse effect on the efficiency of the nation’s payment system,” she said.
The Financial Services Industry Protests
“The law makes financial institutions the police, prosecutors and judges in place of real law enforcement officers,” Wayne Abernathy of the American Bankers Association told the committee. “Imposing this enormous unfunded law enforcement mandate on banks in place of the government’s law enforcement agencies is not likely to be a successful public policy,” he added.
Leigh Williams, president of the technology division of the Financial Services Roundtable, highlighted the significant compliance burdens the regulations placed on financial institutions. He argued that the failure of the US government to define unlawful Internet gambling places financial institutions in a very difficult position. “They cannot know if a transaction is restricted unless they have in hand specifics of the transaction that in almost all instances they will not have.”
Privacy Issues
Barney Frank, Chairman of the House Financial Services Committee and promoter of a bill to repeal the online gambling ban, referred to the UIGEA during the hearing as ‘a rather bizarre piece of legislation.’
He later made the point that the Treasury Department and Federal Reserve’s 52-page draft regulations for the UIGEA, used the word ‘identify’ 61 times and ‘monitor’ 18 times, yet the word ‘privacy’ did not appear even once. Speaking to financial industry representatives he added: “there is a conflict between the obligation imposed on you by the act and the privacy expectations of your customers.”
Testimony provided at the hearing can be found here.
Calculators
