Treasury Department tries to clarify rules about online gambling

Treasury Department tries to clarify rules about online gambling

Treasury Department tries to clarify rules about online gambling

Congressman seeks delay in online gaming regulations

One of Congress’ leading supporters of online gaming urged Bush administration officials today to hold off on instituting regulations to outlaw the games in the final days of the presidency.

Democratic Rep. Barney Frank, chairman of the House Financial Services Committee, asked Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to postpone the “flawed” regulations until President-elect Barack Obama’s administration can review the rules.

Congress passed a bill in late 2006 essentially banning the online games, and the administration has drafted regulations needed to put the legislation in place. Frank’s committee passed a bill this fall that would stop the rules in favor of a new process.

“I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act,” Frank wrote.

“This midnight rulemaking will tie the hands of the new Administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee.”

Kentucky’s TwinSpires Goes From Internet Gambling Boycott to Ban

Governor Steve Beshear of Kentucky argues that online gambling is dangerous to children and consumers, so he is attempting to seize the domain names of 141 online casinos. Despite the muddied reasoning of his case, some in the federal government agree, and are pursuing the finalization of regulations implementing the UIGEA before the change of Presidencies.

The irony is that Beshear, whose ill-conceived court case has drawn calls across the Internet for boycotts of Kentucky industries in general and Churchill Downs and its online entity, TwinSpires, in specific, now faces a more complete move against online gambling than he desired. Beshear wanted to use protectionist policy to defend TwinSpires from competition, and excepted the site from his order.

But the feds have made no such distinction. Even though the UIGEA allows for horse race wagering online, banks have said part of their difficulty enforcing the payment ban is distinguishing legal from illegal online gambling. Thus, the regulations being reviewed give protection to banks who simply refuse all gambling payments, effectively including TwinSpires and other Internet racing sites.

Now Beshear finds himself in the unenviable position of defending TwinSpires as a legitimate, acceptable site for online gambling, while explaining how the sites facing his forfeiture order are any more dangerous to society than the home-grown Kentucky one.

As Beshear’s move was generated by money in the form of state taxes, the rumor is that undue pressure applied by a White House official acting to protect National Football League interests may be the cause of the sudden developments at Treasury. William Wichterman is currently a top aide in the White House, but as recently as March he was paid to lobby against online casinos for the NFL.

Beshear could escape the quandary of his position by dropping the pursuit of the order in Judge Thomas Wingate’s court and allying with the numerous Congressional Democrats supporting the legalization and regulation of online gambling. He would save face by using regulation as the reason for reversing his public position regarding protecting children and patrons. And TwinSpires would not be driven out of business.

Microgaming Online Gambling Software Website To Block All US Traffic

We have learned that effective Monday, Microgaming – a leading software provider for online casinos and poker sites based in South Africa and the Isle of Man – will begin blocking all US-based traffic.  The commonwealth of Kentucky has listed Microgaming among its web domain names to forfeit later this month.

Microgaming Software Systems Ltd has been a leading software providers to the online gambling industry, with just under 100 casinos listed on its website. Online casino operators such as the Carmen Media Group, Fortune Lounge Group, Ladbrokes, 32Red, Fairground Gaming, Vegas Partner Lounge and Golden Star Lounge are among those who use Microgaming’s software.

Microgaming also has an online poker subsidiary called Microgaming Poker, which is the network used by Doyles Room.   Doyles Room’s domain registrant, GoDaddy.com, already announced it had turned over the website’s operating certificate to the commonwealth of Kentucky.

The state of Kentucky claims that several dozen online gambling websites have cut into their economic well being and will hold a forfeiture hearing in two weeks.  Original reports suggested that Microgaming would only block Kentucky residents, however, the degree of difficulty in blocking a single state within a country appears too overwhelming for the firm.

There were no immediate indications that Microgaming would require its actual licensees to block US traffic as of press time.

Many Microgaming licensed companies restrict individuals from playing for real cash originating from certain states, however, the actual websites are not blocked.

China, Singapore and some Arab countries engage in similar blocking efforts and Australia is looking to follow suit.

Bush Treasury Seeks UIGEA Implementation On Online Gambling

Despite testimony from a rainbow cross-section of society, including leaders of financial institutions, government departments,Congressional members, Internet experts, and foreign policy observers, the Department of the Treasury is intent on implementing the UIGEA before the coming change of administrations.

Treasury officials finalized regulations which would define which online gambling activities were illegal to transact payments through banks and credit card companies. On October 21st, the new rules were forwarded to the Office of Management and Budget for review before implementation.

Representatives from various gambling industries, along with Treasury officials, are meeting all week with OMB personnel to voice opinions about the regulations before they are enacted. Letters signed by a group of Congressmen have asked that the implementation process be stopped.

Horse and dog racing industry reps have already had meetings to attempt to retain exemptions in the new definitions that were provided in the UIGEA. Members of the Interactive Gaming Council have also attended at least one discussion, and Executive Director John Pappas of the Poker Players Alliance is scheduled to have a say on Friday.

Pappas said, “It’s really remarkable that this administration would try to push this out given the burden it would place on financial institutions at this time of financial crisis.”

If the Treasury succeeds in placing definitions on what constitutes online gambling and improper payments, the transaction process for online casinos will become even more awkward and muddied for American players.

The Bush administration is following a tradition of imposing controversial regulations before the end of term, a process which allows the incoming administration a clear desk and no pressure to immediately deal with the liability of handling a hot potato. But there is also the belief that the Obama Executive Branch will be friendlier to Internet gaming, thus leading hardcore religious Republicans to push this agenda now.

Obama Should Support Overturning the UIEGA and Use Online Gaming as a New Revenue Stream

When Barack Obama was campaigning for the presidency, he listed three main areas of domestic policy he planned to focus on: health care, education and tax cuts for the middle class. Asked how he planned to pay for it, Obama stated that he would go through the budget line by line and stop funding for any programs or initiatives that were ineffective or impractical and implied he would find new revenue sources that were feasible. In light of those statements, Obama must readdress the USTR’s decision to withdraw its WTO commitments regarding gambling services.

For anyone who isn’t familiar with the case, Antigua has fought with the United States for almost a decade, arguing that the U.S. attempts to block online gambling to Americans from operators in Antigua violates a GATS commitment the U.S. made previously. The U.S. government stated that the commitment was made in error and wasn’t bound by it, but the WTO courts ruled that the U.S. indeed was in violation of the agreement and the decision was upheld by an appellate body. Instead of living up to its commitments, the U.S. government instead chose to rewrite its commitments and in doing so had to compensate all countries that could have been affected by that decision. Antigua, Canada, India, Macao, Costa Rica and Japan asked for compensation, along with the EU. To date the government has come to agreements with Canada, Japan and the European Union, while the other governments are still in negotiations. No details were given on the agreements, although it has been reported that the European Union agreed to concessions in the areas of shipping and storage in exchange for allowing the U.S. to rewrite the commitments. The amount that it will cost the States in potential lost duty is unknown, although a representative from the EU did tell me it was “substantial” and that shipping and storage were areas the EU has been trying to get the United States to budge on for years. At the same time, it was far less than the $100 billion in compensation many experts believed the EU would demand. As well, because the country of Antigua was directly affected by the U.S. reneging on its commitments, and because they brought the case to the WTO, Antigua was granted $21 million in sanctions against the United States which it could apply by ignoring U.S. copyrights and trademarks (Antigua had asked for $3.4 billion in annual compensation). The WTO’s compensation amount was based on what it felt Antigua could have made if horse racing was allowed to be offered by Antigua to the United States. Thus far, Antigua hasn’t attempted to impose those sanctions.

While the U.S. came to this agreement, it’s clear that the countries that asked for compensation weren’t happy about it. Antigua and Costa Rica still clearly want the United States to open its borders to offshore wagering, and Peter Mandelsson, the EU trade commissioner, has been taking heat for the agreement ever since he signed it. Many in the United Kingdom feel that he let the U.S. off too easy and that he should have forced the United States to live up to its agreements, as the U.S. has demanded of other countries on numerous occasions under similar circumstances; plus, they feel he should have demanded that all lawsuits against European operators be dropped as a condition of the agreement. Furthermore, UK gambling companies still want access to the lucrative U.S. market, and now Bermuda is looking at online gambling as a possible revenue generator (so the U.S. will have another friend it will probably antagonize). According to a source at the WTO, the U.S. still has the opportunity to change its mind about rewriting its commitments without any repercussions. If they agree to simply abide by the old agreement, then the agreed to compensation would be withdrawn—Obama’s new government should seriously look at that option. Don’t forget, Obama has stated that he is going to look for any programs that are impractical and this is indeed an initiative that makes no sense. Aside from the fact that it will cost the U.S. several billion each year in lost duty, the decision could also have long term effects on trade, as countries could deem the U.S. as a country that doesn’t take its commitments seriously (as Barney Frank and others pointed out last year when they asked the USTR not to follow through with their plans to rewrite the commitments). Many countries like Canada, Mexico and the EU are already worried that Obama may be protectionist, given his comments about scrapping the North American Free Trade Agreement, so stating they won’t renege on this WTO agreement could actually show those who are concerned that his government isn’t protectionist.

More importantly, this is a frivolous expenditure that makes no sense. Granted, it isn’t “a program” per se, and it isn’t money coming directly out of U.S. coffers, but obviously the amount lost to the government must be significant or shipping and storage wouldn’t be on the WTO exclusion list now. Many accounts I have read indicate its worth is in excess of $3 billion to the industry. But what is the point anyway? The agreement, if passed, is only meaningful if the UIGEA remains in tact, and it seems clear that the UIGEA as it stands is coming under fire. The banks and the House financial committee have deemed the bill ineffective and impractical and have argued that trying to implement it would be virtually impossible, and very costly, even if it could be implemented. Barney Frank, Robert Wexler et. al., (who now have a much larger Democratic presence in the House and Senate) have passed a motion demanding that the UIGEA spell out exactly what is deemed an illegal transaction to make things easier for the banks, and they want exclusions for all forms of online gambling except sports. Frank, Wexler and other’s arguments are that if horse racing, lotteries and fantasy sports are excluded from the UIGEA, then poker needs an exemption too—anything other than that is discriminatory. The DOJ has thus far dismissed the notion and claims it will continue to go after all online gambling, but shortly the DOJ will have a vastly different look, and indications are that those being considered for the new jobs don’t think chasing offshore gambling companies is a good expenditure of time or money. So if the UIGEA is amended to allow poker, and possibly casinos, then the U.S. will essentially be throwing away many concessions they obviously deem important to protect for the ability to block online sports betting, which is a tiny percentage of the total online betting handle (not to mention it has already been found to be illegal by U.S. courts under the Wire Act back in 2000). As well, even finding the few sports gambling transactions will be very costly to the banks since checks aren’t written under the sportsbook’s name, and that expense is certainly one banks can’t afford, not to mention that many of these banks are going to be bought out by the U.S. government anyway, so it will become a direct taxpayer expense.

Furthermore, California is going to legalize online poker sometime in 2009, whether the DOJ likes it or not. California feels this will provide the state needed revenue, and it is confident that it is not in violation of any federal laws. Other states will certainly follow suit, and before you know it you’ll have an interstate poker network in the U.S. All gambling lawyers and pundits agree that it isn’t a matter of whether it will happen next year, but when. Furthermore, Nevada, which is getting killed in the current financial climate, is seriously looking at offering online gambling and taking their chances with the courts. In fact the Palms Group is on the verge of bankruptcy, and Hilton and MGM aren’t in great shape either. Online gambling may not be an option, but rather a necessity. That, of course, brings Antigua back into the equation. Antigua hasn’t started with the trademark sanctions for two reasons. First, it is hoping the U.S. will change its mind; and second, it knows that the small damages given to it by the WTO courts were based on a hypothetical situation whereby horse racing could be offered stateside by Antiguan gambling operators. If, and when, interstate poker is offered in the U.S., Antigua will surely go back to the WTO and demand the settlement be revisited because the situation changed. At that point, given the enormity of poker, the WTO may indeed award Antigua something closer to the $3.4 billion per year Antigua originally sought. That is a lot of money that could be used for healthcare and education, not to mention it could affect many companies like Microsoft and Apple that are already struggling in this economy.

Without question, therefore, the pursuit of rewriting the WTO gambling commitments and the implementation of the UIGEA are faulty policies—not to mention that prohibition doesn’t work. Obama said where he sees a bad policy that costs money he’ll change it, and he should start here. He certainly has the mandate for it, and the overwhelming wins in Congress by the Democrats should give them the votes to overturn the UIGEA if they see fit to do so. Aside from the fact that the UIGEA can’t work, it also puts a stranglehold on the country if the U.S. ever decides it wants to delve into the area of online gambling in the future. In the UK, Germany and many other countries the United States would consider close allies, online gambling is allowed and actually encouraged. And in all countries, including the United States, a large percentage of land based gambling revenue almost always is used for health care, education and amateur sports. Before the UIGEA was passed, it was estimated the online gambling revenues from the U.S. would approach $20 billion by 2012. If that is indeed the case, then a legal, regulated and taxed online gambling industry could be a huge windfall for the country. The U.S. could follow Austria’s lead, whereby Americans betting at all sites would pay a tax on all wagers equal to a percentage of the stake if they lose. Half the stake could go to the State and half could go to the federal government to be used for health care and education.

Also, don’t forget that the UIGEA was a Republican initiative that couldn’t pass Congress under normal voting procedures and was only rammed through by Bill Frist by attaching it to an unrelated bill, with the full knowledge of other Republicans like Jon Kyl, Robert Goodlatte and George Bush who were upset they weren’t getting their way. Overturning this ridiculous law and stopping a very dangerous decision to purposely renege on a WTO commitment will show the Republicans that Obama and his party won’t be pushed around and will get things done the right way. Obama made a commitment to find additional revenue and stop funding on bad initiatives. Here are a couple that are staring him right in the face.

Treasury Regulations For Online Gambling Due By End of November

The Internet gambling world is asking why the Treasury Department of the United States government is pushing to enact regulations enforcing the UIGEA now, after two years of debate.

Online Casino Advisory has contacted an inside source with the Bush administration. From the administration point of view, he said, it is not a rush to suddenly and hastily promote rules, but a culmination of two years’ work at defining illegal online gambling, and illegal payment procedures.

The insider said his office was not responsible for writing law, but for attempting to “faithfully execute the law” as written by Congress. This did seem to ignore that the UIGEA could not be enforced as written, due to the vague and confusing use of undefined terms. By defining those terms, the Executive Branch is ignoring previously established and existing definitions, which only the Congress can change.

The source continued by saying he expected the review by the Office of Management and Budget to be finished and the regulations to be published and therefore effective by the end of November. He did caution that that estimate may be off by a week or two, but probably not more than that.

While the insider insisted that the timing of the finalization of regulations against Internet casinos was purely coincidental with the end of the Bush administration, others thought it represented one last chance for radical Republicans to attempt to leave in place long-lasting public policy.

Certainly, rules already in effect are much harder to change than merely proposed rules. Meanwhile testimony before OMB officials continues by Treasury representatives, as well as animal racing leaders, members of the Interactive Gaming Council, and members of the Poker Players’ Alliance. What is being said in those meetings will be available in the final, published report.

Senator changes view on gambling, bingo

A state senator who blocked legislation to change the rules for bingo in Greene County and had spoken out against gambling’s influence in Alabama, is now the attorney for a group planning to open a gambling hall that would compete with nearby Greenetrack.

Sen. Hank Sanders, D-Selma, is the legal counsel for the Eatman School Alumni Association, which announced in September that it had obtained a bingo license from the Greene County sheriff.

Alumni association president James Morrow said the group hopes other non-profit groups will join them to establish a new Greene County bingo parlor.

Morrow said he’s most interested in opening on the site adjacent to the Cotton Patch restaurant, where construction has begun on a new building on the 30-plus acres of land now owned by Sidetrack, LLC.

‘The last thing I heard from Sen. Sanders was that Sidetrack was going to provide that facility for us,’ Morrow said. ‘I imagine the building will be going up in the next week or so. I’m just waiting on word to go ahead with the organization.’

Morrow also said he had yet to speak to anyone from Sidetrack himself. Rather, Sanders has been his liaison with Sidetrack.

Morrow also said Sanders was providing the legal work at no cost.

‘He’s doing it pro bono because, you know, right now we don’t have the necessary funding,’ Morrow said. ‘If we can get the operation

going, then his fees will be paid at that point.’

Sanders did not return several calls to his home and law office on Thursday and Friday seeking comment.

Sanders broke with Senate protocol earlier this year by blocking a bill that would have changed the rules for bingo in Greene County. Ordinarily, legislators do not interfere with local bills outside their district if the local legislative delegation is united.

The bill, introduced by Sen. Bobby Singleton, would have removed authority over bingo from Sheriff Ison Thomas and given it to the Greene County Racing Commission.

Under the constitutional amendment that legalized electronic bingo in Greene County in 2003, only charitable organizations can be licensed to operate bingo.

Yet questions have arisen over the legality of bingo operations at Greenetrack, a private company. Greenetrack officials have said that it serves only as the host site of the games and does not operate them. They maintain that the actual bingo operators are the more than 80 Greene County charities and non-profit groups that have licenses for that purpose.

Sanders, too, has previously questioned the legality of bingo, noting that its profits are unknown because Alabama does not require public disclosure of gambling profits.

In April, he voiced concerns over bingo operations in Alabama in one of the regular columns that he has published in several newspapers in his nine-county district for the past 20 years.

‘Electronics have made bingo parlors into low-scale casinos,’ Sanders wrote in April in the weekly column titled ‘Senate Sketches.’

He went on to write that bingo’s power influences everyone from lawmakers to the news media, which ‘does not aggressively raise how gambling is unregulated, that it does not benefit the state and that it ties up the Legislature.

‘Bingo is so powerful it has friends distrusting friends, allies turning against allies, and members of both the Republican and Democratic caucuses threatening to bolt …,’ Sanders wrote. ‘I hope it’s not too powerful for Alabama.’

Sanders also described in that entry why he stood in the way of another senator’s bill during this year’s Legislative session.

Sanders cited the Greene County sheriff’s objection to relinquishing oversight of Greenetrack, West Alabama’s only legalized gambling facility, to a three-member gaming commission. This was one element of Singleton’s sweeping bill that would have changed many of the rules regarding Greenetrack’s operation.

‘Sheriff Thomas contacted me when he heard that local legislation had been filed to transfer his authority to regulate bingo,’ Sanders wrote on April. ‘He said that no one had talked to him about it. I agreed to help. I just could not contribute to the injustice.’

But a document obtained by The Tuscaloosa News shows otherwise.

Thomas did not return calls seeking comment, but his signature is on a March 19, 2007, document that says he has no concerns about the racing commission assuming oversight duties of Greenetrack.

‘I, Ison Thomas, Sheriff of Greene County,’ the document says, ‘do not oppose current legislative efforts to change the regulating of bingo in Greene County to the Greene County Racing Commission.’

It’s not clear why Thomas changed his mind, and the reversal also confused Singleton.

Singleton, D-Greensboro, described in September the drama that unfolded in the Senate once he and a Macon County senator introduced similar bills regarding bingo operations in their respective counties.

Once Singleton and Sen. Myron Penn, D-Union Springs, learned of Sanders’ opposition, they spoke with him, Singleton said.

‘At that time, [Sanders] said he was not in support of the bill because the sheriff of Greene County had contacted him and stated he was not aware of the bill and, therefore, wanted Sen. Sanders to represent him in that manner,’ Singleton said. ‘We knew that not to be true, because the sheriff of Greene County had already signed a letter saying he was in support of the bill removing him from the regulator of bingo and moving the oversight to a three-member commission.’

Sanders, in his ‘Senate Sketches,’ said he attempted to compromise with Singleton to allow Thomas to appoint the racing commissioners.

‘The powers that be would not agree,’ Sanders said. ‘I held on to my vote.’

At the end of his ‘Senate Sketches No. 1090,’ Sanders reflected on his acquired understanding of what bingo means to the state.

‘Sometimes,’ he wrote, ‘we think we know about something but we don’t. When we face it in struggle, we know it differently. I have known about gambling in Alabama for years but did not perceive its dimensions clearly.

‘Now, my eyes are opened wide.’