PPA has released its UIGEA regulations comment talking points

[Legislurker]

I think it will be interesting to say the least. Gaming has never been competitive in the US. For God's sake its never been about value to the consumer. We're talking about Casinos
who think giving 1% cashback on sub90% payout slots is going to bankrupt them. Guys who spend seven figures a year lobbying to ban the lottery in places like Mississippi. They will want limited licenses in return for a garunteed amount of tax money. Its just how these guys bribe legislators. You're right it may not matter because FT and PS won't go away. I think you're also discounting their serious advantages in having great software they have long experience with, and in Stars case, great CS. And an existing base of customers. If theres a master conspiracy, I think its in jail with Abramoff or in retirement with Billy Frist.

[TheEngineer]

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I think it will be interesting to say the least. Gaming has never been competitive in the US. For God's sake its never been about value to the consumer. We're talking about Casinos
who think giving 1% cashback on sub90% payout slots is going to bankrupt them. Guys who spend seven figures a year lobbying to ban the lottery in places like Mississippi. They will want limited licenses in return for a garunteed amount of tax money. Its just how these guys bribe legislators. You're right it may not matter because FT and PS won't go away. I think you're also discounting their serious advantages in having great software they have long experience with, and in Stars case, great CS. And an existing base of customers. If theres a master conspiracy, I think its in jail with Abramoff or in retirement with Billy Frist.

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I think our legislative efforts are aided by poker sites continuing to offer services in the U.S. The U.S. can't tolerate a system long-term where offshore sites offer these services in the U.S. while domestic companies cannot. Something will give. Either the banners will win or poker will be explicitly legalized with some degree of regulation (minimal, like the Wexler bill, or something like IGREA).

As for FT and PS, I hate trying to make points without data, as everyone here knows by now. I have no data on this and won't pretend to. Still, Google, Yahoo, and MGM do have much better name recognition than PS and FT. I do think they'll at least be able to be competitive fairly quickly if they choose to be. Time will tell, but I can't see a situation where these companies try to offer services, then shut down because they were unable to compete with FT and PS.

[omgwtf]

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I can tell you a lot of effort was put into generating the points. While it may seem wonderful to have UIG undefined, the regs put banks in the position of either overblocking or of having to prove allowed transactions are "lawful". Also, the reg authors admitted they were unable to define UIG. Given this admission, it seems we could gain by pushing them in this area. There are other pro-poker reasons to support a definition as well.

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Maybe you can explain the thinking behind these talking points. I can be persuaded.

On the face of it all, UIGEA is quite ambiguous and fails to define what transactions must be blocked. At this point, I can't see any outcome to the PPA strategy other than a regulatory interpretation of UIG that includes poker.

It seems that the two available strategies are:
1) Poker doesn't fit the UIGEA definition of UIG, so regulators should officially and explicitly declare poker to not be considered UIG. (Does anyone who can win at poker really think this has better than a runner-runner chance?)
2) Make the case that UIGEA is too ambiguous and not defined enough to form regulations that would block only UIG. The regulators were given the impossible task of writing guidelines to prohibit a category of transactions, but congress didn't adequately provide the criteria for determining whether a transaction should be prohibited. The inescapable result is that legal transaction will be blocked, prohibited transactions allowed, and the compliance burden on banks will be too high. The regulations can't be written until congress properly defines how to determine which transactions are prohibited. If this argument is successful and UIGEA goes back to congress, the whole process opens up again.

One other point: I've seen several people mention "state laws". I'm definitely not a banking expert, but it seems that federal regulations should be based on federal law, not state laws.

[TheEngineer]

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I can tell you a lot of effort was put into generating the points. While it may seem wonderful to have UIG undefined, the regs put banks in the position of either overblocking or of having to prove allowed transactions are "lawful". Also, the reg authors admitted they were unable to define UIG. Given this admission, it seems we could gain by pushing them in this area. There are other pro-poker reasons to support a definition as well.

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Maybe you can explain the thinking behind these talking points. I can be persuaded.

On the face of it all, UIGEA is quite ambiguous and fails to define what transactions must be blocked. At this point, I can't see any outcome to the PPA strategy other than a regulatory interpretation of UIG that includes poker.

It seems that the two available strategies are:
1) Poker doesn't fit the UIGEA definition of UIG, so regulators should officially and explicitly declare poker to not be considered UIG. (Does anyone who can win at poker really think this has better than a runner-runner chance?)
2) Make the case that UIGEA is too ambiguous and not defined enough to form regulations that would block only UIG. The regulators were given the impossible task of writing guidelines to prohibit a category of transactions, but congress didn't adequately provide the criteria for determining whether a transaction should be prohibited. The inescapable result is that legal transaction will be blocked, prohibited transactions allowed, and the compliance burden on banks will be too high. The regulations can't be written until congress properly defines how to determine which transactions are prohibited. If this argument is successful and UIGEA goes back to congress, the whole process opens up again.

One other point: I've seen several people mention "state laws". I'm definitely not a banking expert, but it seems that federal regulations should be based on federal law, not state laws.

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Right now, banks will have the burden of proof that transactions they permit are lawful. The DoJ says interstate Internet poker violates the Wire Act. While this may not mean jack to FT and PS, it does to our banks. Combined with the fact that UIGEA shields banks for any penalties for overblocking, it seems that overblocking is a significant issue for us. Why should they spend millions to determine what's legal and what isn't when they can simply block all gaming transactions?

The authors of the regs pretty much admitted that they cannot define UIG. Seems we could get them stuck in the mud, so to speak, if we can get the right people with the right clout to try to force them to define this.

I think your item #1 is unlikely, as you said, but something we should ask for anyway. #2 is much more likely.

[Todd Terry]

Does anyone with a law degree or legislative/regulatory background believe that the Treasury Department has the right to define unlawful Internet gambling, presumably by analyzing the substantive federal (and state, which is part of the talking points) laws on gambling (which of course have nothing to do with banking), in implementing legislation (the UIGEA) which explicitly stated that its purpose was not to define unlawful Internet gambling? If so, who are they and can they point to an analogous situation where something remotely similar has ever occurred in the history of the United States? IMO it simply can't happen, setting aside the question of why we would want it to.

[TheEngineer]

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Does anyone with a law degree or legislative/regulatory background believe that the Treasury Department has the right to define unlawful Internet gambling, presumably by analyzing the substantive federal (and state, which is part of the talking points) laws on gambling (which of course have nothing to do with banking), in implementing legislation (the UIGEA) which explicitly stated that its purpose was not to define unlawful Internet gambling? If so, who are they and can they point to an analogous situation where something remotely similar has ever occurred in the history of the United States? IMO it simply can't happen, setting aside the question of why we would want it to.

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Good comments. Thanks. I don't have the background you mentioned, but I'll share my thoughts. First of all, the UIGEA does not state that it does not define Internet gaming. Rather, it states that it does not change the legal status of any Internet gaming (i.e., what was legal still is, and what was illegal still is as well). Check out http://thomas.loc.gov/home/gpoxmlc109/h4954_enr.xml (UIGEA is at the end).

As UIGEA is supposed to be enforced, it doesn't seem unreasonable for regs to specify what it is banks are supposed to enforce. The regs themselves state that UIG is too hard to define, not that they're prohibited from defining UIG. The PPA lawyers think they're permitted to.

I look forward to the lawyers here commenting on your questions as well.

[JPFisher55]

The UIGEA give the Treasury and DOJ the power to adopt regulations to enforce this law. I would argue that defining the term unlawful internet gambling is within the scope of this power. If the regulators adopted a definition that some party disputes, then that party can file litigation in federal court to resolve the matter. But with no definition and not being able to sue the bank applying the term without a definition, going to court is much more difficult. Not impossible, but much more difficult. Thus, the regulators realize that no definition is favorable to them.
The odds of them deciding to attempt a definition is about that of a 1 outer after the flop. I doubt that any adopted definition would mention poker. I think that it would define all online gambling to be unlawful or only sports betting on the federal level and expressly banned games by each state statute. The latter definition would be great and the former would start litigation that online poker would be more likely to win than lose.

[Todd Terry]

Additionally, the proposed regs say that one of the reasons they are not taking a position on what constitutes unlawful Internet gambling is that it can depend on the facts and circumstances of the particular case, including the location of the site. This is correct and unassailable IMO. For example, the answer to the question "Is PokerStars operating illegally under federal law?" would require answers to many questions, such as where are they located, what games are available, what states are they operating in, and dozens of other questions, etc.

Explicitly stating in legislation that the legislation is not altering the legality/illegality of Internet gambling practices is the same thing as not defining unlawful Internet gambling, as least as to the "unlawful" part, which is what we are talking about.

[TheEngineer]

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Additionally, the proposed regs say that one of the reasons they are not taking a position on what constitutes unlawful Internet gambling is that it can depend on the facts and circumstances of the particular case, including the location of the site. This is correct and unassailable IMO. For example, the answer to the question "Is PokerStars operating illegally under federal law?" would require answers to many questions, such as where are they located, what games are available, what states are they operating in, and dozens of other questions, etc.

Explicitly stating in legislation that the legislation is not altering the legality/illegality of Internet gambling practices is the same thing as not defining unlawful Internet gambling, as least as to the "unlawful" part, which is what we are talking about.

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This doesn't preclude the regs from defining unlawful Internet gambling. If they have to put together a 1,000 page guide, so be it. If it's so hard, the banks won't be able to do it either, so they'll overblock it. It seems this is precisely our point. This is an unfunded mandate on our banks, and they shouldn't have to absorb the costs.

[DeadMoneyDad]

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Right now, banks will have the burden of proof that transactions they permit are lawful.

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This is where you are wrong.

Read the proposed regulation again.

Even the Agencies there tell the banks they can either block for business risk reasons or use the OFAC list.

The banks have had these methods in hand for years.

One of my banks Chevy Chase Bank has had these policies in place since May of 2005.

All the UIGEA did was give the Banks the ability to use a new cover and a liability free pass to block. IMO this is a high stakes game between international bankers and whole countries. We are really just railbirds.

Congress isn't really ready for debating on-line poker and gaming until '09. The UIGEA and the proposed rule are just stop gaps until then.

D$D