American Horse Council Legislative Update
Contact: American Horse Council
AHC@horsecouncil.org

Internet Gambling Regulations Proposed

WASHINGTON, DC–October 12, 2007: Almost a year after Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA or the Act), the Department of Treasury and Federal Reserve Board (Agencies) have proposed regulations to implement it.  The Act called for these two agencies, in consultation with the Department of Justice, to propose the rules, which will guide banks, credit card companies and other payment systems on the requirements of the law and how to comply by blocking certain payments made in connection with unlawful gambling transactions through the Internet. 

Comments on the proposed regulations are due December 12, 2007.  For a full copy of the proposed rule please visit: 

http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/07-4914.pdf

UIGEA Maintains Status Quo for Racing

UIGEA does not bar Internet gambling; rather it prohibits those engaged in the business of betting or wagering from knowingly accepting payments in connection with the participation of another in unlawful Internet gambling.  The Act protects racing’s interstate activities by excluding from the definition of “unlawful Internet wagering” “any activity that is allowed under the Interstate Horseracing Act of 1978 (IHA), as amended.”  It also includes a “Sense of the Congress” provision that states that the new law is not intended to change the relationship between the IHA and other federal statutes, thus maintaining the status quo in the ongoing dispute between the Department of Justice and the racing industry regarding racing’s interstate wagering activities under the IHA.

A specific provision was added to the bill prior to passage to direct that the regulations just proposed could not be used to simply redefine “unlawful interstate wagering” to prohibit racing’s activities.  This was intended to ensure that the status quo is also maintained in the regulatory process that is going on now.

Proposed Regulations Appear to Maintain Status Quo for Racing

The rule proposal appears to be faithful to the expressed limits of the Act and the regulatory directive and also maintains the status quo for racing’s activities.

The proposed regulations implement the requirements of UIGEA by designating the payment systems that could be used in connection with Internet gambling and requiring participants in the payment systems to establish policies and procedures to identify and block transactions in connection with “unlawful Internet gambling.” 

The rule proposal specifically recognizes that three categories of gambling are exempt from the Act, including “interstate horseracing transactions (any activity that is allowed under the Interstate Horseracing Act of 1978).”  The opening narrative specifically notes that “Congress expressly recognized the disagreement over the interplay between the IHA and the Federal criminal laws relating to gambling and determined that the Act would not take a position on this issue.”  It goes on to state that “The Act also directs the Agencies to ensure that transactions in connection with any activity excluded from the Act’s definition of ‘unlawful Internet gambling,’ such as qualifying intrastate transactions, intratribal transactions, or interstate horseracing transactions, are not blocked or otherwise prevented or prohibited by the prescribed regulations.”  (Emphasis added.)

Recognizing this directive, the proposed rule does not attempt to define which gambling activities are legal or illegal for horse racing, noting “the Act does not require the Agencies to do so.”  Indeed, the rule proposal notes, “the Act itself defers to underlying State and Federal gambling laws in that regard and determinations under those laws may depend on the facts of specific activities or transactions (such as the location of the parties).”

In addition, the proposed rule specifically provides that “transactions in connection with any activity excluded from the Act’s definitions of unlawful Internet gambling [such as activities allowed under the IHA] are not blocked or otherwise prevented or prohibited by the regulations.”

The proposed regulation makes it clear that “nothing in this regulation requires or is intended to suggest that designated payment systems or non-exempt participants therein must block or otherwise prevent or prohibit any transaction in connection with any activity that is excluded from the definition of ‘unlawful Internet gambling’ in the Act as a transaction that is allowed under the Interstate Horseracing Act of 1978.” 

At the same time, the rule proposal notes that “the Act does not provide the Agencies with the authority to require designated payment systems or participants in these systems to process any gambling transactions, including those transactions excluded from the Act’s definition of unlawful Internet gambling, if a system or participant decides for business reasons not to process such transactions.”  It also makes it clear that a payment system may “for business reasons” decide to avoid processing any gambling transactions, even if lawful, because they may believe that the transactions “are not sufficiently profitable to warrant the higher risk they believe these transactions pose” because, for example they have experienced higher-than-usual losses due to assertions that gambling transactions were unauthorized.

Potential Effective Date

The rule proposal suggests that the final regulations take effect six months after the final rule is published, which would be after the agencies consider the comments filed by December 12 and finalize the rules.  That would be sometime in 2008.  But the Agencies ask for comment on whether six months is enough time to implement the new requirements.

As the national association representing all segments of the horse industry in Washington, D.C., the American Horse Council works daily to represent equine interests and opportunities. Organized in 1969, the AHC promotes and protects the industry by communicating with Congress, federal agencies, the media and the industry on behalf of all horse related interests each and every day.

The AHC is member supported by individuals and organizations representing virtually every facet of the horse world from owners, breeders, veterinarians, farriers, breed registries and horsemen's associations to horse shows, race tracks, rodeos, commercial suppliers and state horse councils.