The Unlawful Internet Gambling Enforcement Act (UIGEA)
Of the trio of prominent federal anti-gambling laws, 2006’s Unlawful Internet Gambling Enforcement Act, or UIGEA, is perhaps the most redundant and otherwise ineffectual in its attempt to curtail legal sports betting in America. Never mind the existential absurdity of a law designed to encourage the enforcement of other laws, the UIGEA just doesn’t really do anything. Not anymore, anyway.
As stated in 31 USC § 5363, the UIGEA holds that “No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling,” any credit payment, electronic fund transfer, check, draft, or proceeds from any other manner of financial transaction. In other words, US banks – if they know you’re making or receiving a payment involved in sports betting – are not allowed to process said payment. If they violate this mandate, the financial institutions in question can be fined or otherwise deterred. New York City, as the capital of the financial world, was forced to take the UIGEA seriously, and it put an immediate damper on the private online transactions of many legal New York sports betting and casino gambling enthusiasts. Indeed, at the very beginning, the Unlawful Internet Gambling Enforcement Act had a similar effect on folks all across America.
Of course, since most banks do not and are not expected to know exactly how you make your money and what you spend it on, enforcement of the UIGEA simply doesn’t come up that much these days. Who would have thought that a law about “enforcement” would be so...hard to enforce?
Conceived at the height of the Internet poker boom after the US Fifth Circuit Court of Appeals ruled in 2002 that the Interstate Wire Act applied only to sports wagering and not to other forms of gambling, the UIGEA sought to remind America that gambling was for Las Vegas, and only Las Vegas. It was supposed to happen there, and it was supposed to stay there.
However, knowing there was no way to enforce the existing Internet gambling bans due to the pastime’s millions of participants across the entire United States, the federal government decided instead to go after the middleman. In this case, that middleman was the banking industry that processed payments to and from Internet-based gambling and sports betting businesses.
All that said, the Unlawful Internet Gambling Enforcement Act didn’t have the chops to stand on its own merit before Congress. The law was added as a rider to Title VIII of the SAFE Port Act, which had nothing to do with Internet casinos or online sports betting, and it was passed sight-unseen on the eve of the 2006 Congressional elections. Senator Frank Lautenberg (D, NJ) claims that nobody in the Senate-House Conference Committee saw the PORT Act’s final language – including the UIGEA – before they voted on its passage. Congressional luminaries including New York’s very own Steve Israel, Peter T. King, Gregory Meeks, Chuck Schumer, Hillary Clinton, and Anthony Weiner all voted in favor of the UIGEA.
Nobody. Well, maybe the banks. Evidently, the banking industry, headquartered in New York City, had some concerns about their culpability in processing payments to and from online sportsbooks and poker rooms and the like, so it sought clarification on the subject. Now, all a bank must do in order to absolve itself of any legal responsibility for its customers’ sports betting habits is to claim ignorance. As long as they don’t “knowingly” process those gambling payments, they’re in the clear. That’s why, despite the UIGEA, US banks continue to process tens of billions of dollars in online gambling and sports betting transactions each year.
As an unintended consequence, the Unlawful Internet Gambling Enforcement Act also benefits Bitcoin, even though the cryptocurrency wasn’t around until several years after the law’s passage. As an interesting side note, there are many industry experts who believe that Bitcoin was created as a direct response to the inconvenience of the UIGEA (and as a safeguard against similar laws in other industries). In any case, Bitcoin is widely used at legal online sportsbooks and Internet gambling sites as a way to safely and anonymously fund recreational and professional betting activities.
One thing the Unlawful Internet Gambling Enforcement Act “successfully” did, early on, was to drive several high-dollar domestic businesses out of business or out of the country. The popular online poker rooms so prevalent on TV and in the mainstream media suddenly had to close up shop, and many of them abandoned their users without honoring their payouts or refunding their account balances before shuttering. Others, however, simply moved their operations overseas and continued serving American customers from areas that were not under US jurisdiction.
This latter approach has established itself as the standard practice going forward, and there are now hundreds (if not thousands) of legal online sports betting and casino gaming websites available to US residents. In the grand scheme, the UIGEA was – and is – little more than a speedbump on the superhighway that is online sports betting, poker rooms, and casino-style gaming. With the advent of cryptocurrencies like Bitcoin, the UIGEA has been rendered virtually obsolete.
Early on, yes, some prominent brands went under and never recovered (Planet Poker, PokerStars, Full Tilt Poker, Absolute Poker, IPN, Entraction, etc.), but many more moved, rebranded, and prospered. Today, US bettors have far more options for online sports wagering and casino gambling than they ever did before the UIGEA became law. And while New York was one of the first states to feel the effects of the Unlawful Internet Gambling Enforcement Act since it wasn’t included in most services’ 30-day “reprieves” prior to account suspension, there have been no significant lingering aftereffects.
While there are no UIGEA loopholes per se, the shortsightedness and subjective nature of the law created a very limited opportunity for enforcement, and that only at the outset. Going forward, the accelerating obsolescence of the UIGEA is perhaps the law’s biggest so-called loophole.
The first blow to the UIGEA was that online sportsbooks and other gambling outfits simply moved overseas and continued operating as normal. Beyond customers having to wait a few months for this process to work itself out, there was no dramatic impact from the Unlawful Internet Gambling Enforcement Act. Soon, NY residents were back on the Internet betting on sports and playing poker at online casinos. The rest of the country followed in lockstep.
However, the single most powerful UIGEA loophole is how the move to scare traditional banks off of processing “known” gambling transactions resolved itself through the rise of cryptocurrency. Bitcoin, in a few short years, has become not only the number-one way to enjoy legal, Internet-based New York sports betting and legal sports wagering throughout America, but it’s revolutionized the fundamental assumptions and machinations of the global financial marketplace itself. Bitcoin, in its ability to sidestep the UIGEA and similar laws, has become a bona fide economic revolution, and it has thrust cryptocurrency to the forefront of popular culture. Arguably created as a legal sports betting workaround, crypto is literally changing the world. Even on Wall Street in the heart of New York City, those changes are becoming undeniable.
The Unlawful Internet Gambling Enforcement Act is still federal law, but you’d be hard-pressed to find anyone who cares. The banks sure don’t, and since the Unlawful Internet Gambling Enforcement Act doesn’t actually criminalize the customers of legal online sportsbooks and Internet-based casinos, nobody else seems to, either. With so many easy, natural ways to simply sidestep the law, there’s very little reason to even acknowledge it. Yes, it’s a good idea for anyone interested in legal online sports betting to understand the laws that nominally govern the industry, but as a deterrent, the UIGEA has been a monumental failure.
There are a couple of key UIGEA exemptions. Several states, including Nevada and New Jersey, allow online casinos to operate inside their borders, provided they’re limited to physical guests and residents of those states. For New York casino gamblers, that means that a quick jaunt south to New Jersey is all it takes to get in on Atlantic City’s online action. Other states with legal casino industries can offer in-state online gambling at their discretion, and the Unlawful Internet Gambling Enforcement Act exempts these. The UIGEA also exempts Daily Fantasy Sports.
The Unlawful Internet Gambling Enforcement Act has an explicit exemption for Daily Fantasy Sports (DFS). In 31 USC § 5362, the UIGEA specifically says that, among other things, a bet or wager “does not include...participation in any fantasy or simulation sports game or contest.” Provided the winnings from these fantasy leagues are made known to the contestants and are not based only upon the number of participants or their entry fees, the UIGEA unambiguously allows their continued operation. In fact, FanDuel, one of the largest DFS operators in the world, is headquartered out of NY, and the billion-dollar business’ continued presence in the Big Apple is a huge local boon.
Naturally, the genius who wrote this law, Rep. Jim Leach (R, IA), now complains that the above was never his intent. Why? Because at the time of the UIGEA’s creation, he believed that “while unconstrained Internet gambling could change the nature of America’s savings and investments patterns, fantasy sports would be a ‘de minimus’ footnote.” LOL.
There haven’t been any notable challenges to the Unlawful Internet Gambling Enforcement Act in regards to legal New York betting, but that doesn’t necessarily mean that the future is bright for the law. In fact, should New Jersey et al. successfully challenge the Professional and Amateur Sports Protection Act (PASPA) at the Supreme Court, the UIGEA could well be the next federal anti-gambling law to fall.
Or maybe not. States might instead use the UIGEA to their benefit in a post-PASPA world. Should PASPA be overturned or repealed, each individual state will likely set their own sports betting and online gambling laws. Some states will want to keep this industry insulated from outside competition, so there might not be a big push for interstate online sports betting or gambling (which would, it should be noted, require the Federal Wire Act to be eliminated as well). Regardless of what ultimately happens, the UIGEA will probably remain on US books for at least the next few years. And if anything changes with the law, you can bet that New York will be helping to lead the charge.