US Regulators Encounter Problems with Gambling Rules

US Federal Reserve and US Treasury officials said on Wednesday they were struggling to craft rules to ban bank and credit card payments to illegal Internet gambling sites because federal law is unclear about what type of gambling is illegal online.

Congress passed a bill in 2006, when Republicans were still in control of the Senate and the House of Representatives, that prohibits companies from accepting payments in connection with "unlawful Internet gambling." It also instructed the Federal Reserve and the Treasury Department, in consultation with the Justice Department, to come up with rules to enforce the act.

But, rather than define what types of gambling are illegal online, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) relied on existing Federal and state laws to answer that question. It also still allowed any online horserace betting permissible under the Interstate Horseracing Act of 1978.Now, both gambling and financial industry companies want to be told specifically which transactions should be blocked.

The payment system that companies rely on to do business "isn't frankly well designed" to identify an illegal Internet gambling transaction from a legal one, which is another challenge to crafting a rule, Roseman said.

Valerie Abend, deputy assistant secretary of Treasury, said regulators were striving to craft a rule that comes as close as possible to what lawmakers intended. But the question of which forms of Internet gambling are illegal is an issue regulators "are struggling with and trying to figure out what, if anything, we can do," Abend said. The 2006 law has incurred the wrath of the European Union, which argues that it discriminates against European gambling operators. U.S. Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, has proposed legislation to repeal the ban.

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