Fed, Treasury Pave Way for Internet Gambling Ban

Published February 1, 2009

The U.S. Department of the Treasury and the Federal Reserve Board released a joint final rule to implement the federal Unlawful Internet Gambling Enforcement Act of 2006. The law prohibits gambling businesses from knowingly accepting payments for unlawful Internet gambling.

The act requires the Fed and Treasury to develop a joint rule in consultation with the Department of Justice. But members of Congress, including Rep. Barney Frank (D-MA), the influential chairman of the House Financial Services Committee, are protesting the move—a sign Internet gambling regulation and banking privacy might be a hot topic in 2009.

Banks Play Net Cop

The new rule makes financial firms the enforcement arm of attempts to prevent Internet gambling, much like the role banks are asked to play under anti-money-laundering and other banking laws requiring financial firms to be the de facto enforcement arm of the government.

“The interesting thing is that the government does this all the time with tax returns and bank statements,” says Michael S. Overing, a Pasadena-based attorney who teaches Internet law as an adjunct professor at the University of Southern California. “I don’t think it’s all that unique to this area, but I don’t like it. Banking transactions should be private.”

Banking institutions, already under stress due to the financial crisis, have grumbled for years about the additional reporting requirements imposed by government—and now are grumbling about this new federal mandate.

“Banks want to respect customers’ privacy,” Overing said. “They don’t expect to have to be turning over transactions to the government. From a libertarian point of view, that’s not what our banks should be doing.”

States Pushed for New Law

Steve Titch, a telecom analyst for the Reason Foundation in Los Angeles, said the federal ban on Internet gambling is largely driven by the self-interests of several states that derive much tax money from gambling.

“The push for a federal ban is bubbling up from the state level because the states want to protect their gaming revenues,” Titch said. “You can say it’s a good example of the government getting in your face to tell you what you can and cannot do with your own money in the privacy of your own home.

“I find it offensive that the government thinks nothing of me going to Louisiana or Las Vegas to play poker, but won’t let me do it online with a Web site that I trust,” Titch said.

Titch acknowledges there have been reports of shady online gambling sites that perhaps shouldn’t be trusted, but he notes the market already helps police those sites.

“Once a site gets a bad name, everyone [in the online gaming community] knows about it,” Titch said. “[Plus,] if online gambling is legalized, then anyone [cheating online gamblers] could be prosecuted.”

Calls for Legalization

Other countries have legalized online gambling, Titch added, but in America many states oppose it, to protect horse-racing and riverboat gambling revenues.

“I find it very hypocritical,” Titch said.

Overing agrees, saying Congress ought to rethink its stance against online gambling.

“By legalizing [Internet gambling], registering gamblers, and taxing it, it would be a better use of our resources,” Overing said.

Phil Britt ([email protected]) writes from South Holland, Illinois.