Viewpoint: Financial Firms Not Proper Enforcers of Web Gambling Law

By Sorcher, Ala E.; Schwartz, Gilbert T. | American Banker, December 21, 2007 | Go to article overview

Viewpoint: Financial Firms Not Proper Enforcers of Web Gambling Law


Sorcher, Ala E., Schwartz, Gilbert T., American Banker


The end result of the Federal Reserve and Treasury Department's recently proposed rules to enforce the Unlawful Internet Gambling Enforcement Act is likely to be an excessively complex process that will require banks to adopt burdensome and ineffective procedures.

The act, passed by Congress in 2006, prohibits gambling enterprises from accepting payments involving unlawful Internet wagering. The legislation was Congress' attempt to combat online gambling, after concluding that traditional law enforcement mechanisms were inadequate.

Besides imposing criminal sanctions on unlawful Internet gambling businesses, the act also prohibits financial institutions from processing illegal transactions through designated payment systems, such as check and wire payments. As a result, the agencies' rule proposal requires virtually all U.S. banks, money transmitters, credit and debit card companies, and other financial institutions participating in these payment systems to establish policies and procedures to identify and block prohibited transactions.

The rules suffer from several fatal flaws. Though the agencies require banks to prevent payments involving unlawful Internet gambling transactions, they fail to give clear guidance on what types of gambling transactions are unlawful. Congress was of little help on this score, leaving it unclear when Internet gambling violates federal law.

The problem is worsened because state anti-gambling laws are all over the lot. Financial institutions will be faced with the impossible task of guessing the meaning of federal and 50 state laws. As a result, financial institutions will run a real risk of inadvertently processing unlawful Internet gambling payment transactions and blocking many that are lawful.

The agencies could have devised a list of unlawful Internet gambling businesses, similar to the list the Office of Foreign Asset Control maintains on suspected terrorists and drug dealers. …

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