UIGEA Final Rule Facts, Analysis and Speculation

Chris Grove : November 3rd, 2009

UPDATE: The compliance date for the UIGEA Final Rule has been pushed back 6 months – full story on that here. The new date: June 1st, 2010. The general facts and impacts of the UIGEA remain much the same, details below.

There’s been a good deal of chatter on poker forums about the day that banks will be forced to comply with the Unlawful Internet Gambling Act (UIGEA) or face potential penalties from the US Federal Government. Talk runs the gamut, from those who believe the metaphorical online poker sky is falling to others who perceive the event as little more than another bump in the already potholed road of internet gambling.

Which side is right? It’s important to note that anyone who speculates about the ultimate impact of the compliance deadline is doing exactly that – speculating. The financial industry is a tremendously large and complicated entity made up of thousands of operators, each with their own systems and processes. Essentially, how one bank interprets and reacts to the UIGEA may be quite different that how the bank across the street does.

What we’re attempting to do with this article is address the most commonly asked questions regarding the UIGEA and lay out what appear to be the most likely scenarios for online poker in the immediate aftermath of the deadline. Where possible, we’ve provided links to sources for further reading; if you know of a resource that should be included or a question we’ve ommitted, feel free to contact us.

So What Exactly Happens on the day UIGEA compliance becomes mandatory
There’s a good deal of misinformation surrounding December 1st. The UIGEA has been in effect since January 1st, 2009. December 1st does not bring with it any new laws, per se’ – it is simply the deadline for banks (and other financial institutions) to be in compliance with UIGEA regulations (also referred to as the ‘Final Rule’ of the UIGEA) or face penalties. Online poker does not become illegal on December 1st, nor does cashing out or depositing money into an online poker room (unless any of the preceding was already illegal where you live).

The UIGEA Final Rule is simply the final draft of UIGEA regulations.

What Will My Bank Be Doing Differently?
The Final Rule of the UIGEA primarily directs banks to screen new commercial customers and reject applicants who plan to operate as an illegal gambling entity.

Banks are not required nor directed to review individual accounts (or existing commercial accounts). Nothing about the Final Rule of the UIGEA (for banks) suggests that transactions made by individual account holders will be subject to any additional scrutiny above the status quo. From the American Bankers Association’s UIGEA FAQ:

Your bank is not required to block ACH, wire, or check payments related to unlawful Internet gambling to be in compliance with the Final Rule. Your bank will be allowed to rely on the policies and procedures established by the card networks to block restricted debit and credit card transactions. In other words, if your customer is the gambler, you do not have to block gambling transactions except for debit and credit card transactions. In those cases, you may rely on the network policies and procedures and merchant codes [...] Banks will not be required to make blocking decisions on individual transactions.

Will My Bank Close My Account Because I Play Online Poker?
It’s important to note that each individual bank is likely to have their own policy regarding online gambling, and that an individual bank can choose to reject customers due to online gambling deposits (or for a number of unrelated reasons) regardless of whether or not a law requires it.

That said, absolutely nothing about the UIGEA requests or requires banks to identify non-commercial customers engaging in online gambling deposits or withdrawals or to penalize account holders found to be doing so. Again from the ABA FAQ:

Does my bank have to monitor my customers’ accounts to make sure that they are not gambling illegally on the Internet? No [...] Your bank is not required to monitor or determine whether its customer is a gambler except that it must ensure that unlawful credit and debit card transactions are blocked.

Will I Still Be Able to Deposit After Compliance With the UIGEA Becomes Mandatory?
It might be a bit hairy in the immediate aftermath, but once the kinks are worked out it seems reasonable to assume that card rooms will be able to continue to stay a step ahead of credit card company coding schemes and accept deposits with relative ease.

That fairly optimistic view is based on the following logic: that it’s difficult for a credit card company to be penalized by the US Government for not blocking deposit transactions, as the companies are generally only required to do so if they have direct knowledge that a transaction is for that purpose. As a result, companies will be fairly unmotivated to proactively squash such transactions, as it will require time, resources and money to do so and the penalty for doing nothing seems minor or nonexistent. Meanwhile, non-US processors will continue to provide a backbone of deposit support.

The Treasury Dept reached a similar conclusion:

The Agencies expect that a coding system to identify and block restricted transactions will be the method of choice for the vast majority of card system participants to comply with the Act. In addition, the Agencies note that most Internet gambling businesses that use card systems for funding do so through non-U.S. merchant acquirers that are not subject to the Act or the final rule and likely would not conduct due diligence regarding Internet gambling on their merchants [...] While card system operators may choose to create new codes for such transactions, the Agencies believe that the establishment of codes for particular merchant transactions is a business decision for the
card system operators and their participants. Accordingly, the final rule does not specify the establishment of such codes in the coding example for card systems.

Will I Still Be Able to Cash Out?
It’s important to note that online poker rooms are not banks, so you don’t have any ironclad guarantee of access to your funds at any point. That said, the Final Rule of the UIGEA does not require banks to screen existing commercial customers, only to screen new applicants. It also does not request or require banks to monitor individual consumer transactions (i.e. you depositing a check from a poker room). Basically, nothing about compliance with this law on the part of banks, on face, should prevent you from cashing out. From the Treasury Dept regarding the UIGEA Final Rule:

Under the final rule, the term “restricted transaction” would not include funds going to a gambler, and would only include funds going to an Internet gambling business.

It cannot be overstressed that different banks will approach compliance in different ways, with some being far more aggressive when dealing with any gambling-related transactions than others. Your best bet is to keep an eye on conversations in poker forums regarding individual player experiences with banks after December 1st and to use that information to help you decide how to handle your personal banking choices.

I Heard Banks Were Sending Out Notices About the UIGEA. What’s That About?
Banks are required by the regulation to notify all commercial customers that restricted transactions are prohibited.

Is it Illegal to Play Online Poker After the UIGEA Final Rule Becomes Mandatory?
Not because of the UIGEA Final Rule. Nothing about the UIGEA makes any type of gambling legal or illegal. From the Treasury Department regarding what the UIGEA thinks “unlawful internet gambling” is:

After consulting with the Department of Justice and representatives from the offices of several State attorneys general regarding this issue, the Agencies have determined that a single, regulatory definition of “unlawful Internet gambling” would not be practical. The Act’s definition of “unlawful Internet gambling” relies on underlying Federal and State gambling laws. The States have taken different approaches to the regulation of gambling within their jurisdictions and the structure of State gambling law varies widely, as do the activities that are permitted in each State. Accordingly, the underlying patchwork legal framework does not lend itself to a single regulatory definition of “unlawful Internet gambling.”

Shorthand: If you could gamble before the UIGEA legally, you’ll still be able to after compliance becomes mandatory.

Who Does The UIGEA Final Rule Impact?
The primary target of the UIGEA Final Rule is undoubtedly the casino operator and not the individual player. The first line of the UIGEA Final Rule makes that focus quite clear:

The Act prohibits any person engaged in the business of betting or wagering (as defined in the Act) from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling

Is Anything Being Done to Stop or Delay This Deadline?
Yes, visit the Poker Player’s Alliance webpage for updates and action items.

How Will Online Poker Rooms Be Impacted?
It’s hard to say. Most assessments seem to agree that payment processing will become an even trickier business, so the real question is exactly how much trickier it will become. An optimist could argue that with the amount of money at stake, poker rooms and payment processors will have a significant enough incentive to develop creative methods for keeping the flow of money in and out of rooms relatively undisturbed. A pessimist could make the case that getting funds to / from players, already a lengthy and expensive process for many rooms, could become prohibitively so for rooms and force them from the US market sooner than later.

Who’s right? Considering the aggressiveness of the DOJ in pursuing online gambling payment processors over the last year, it does seem as if the UIGEA Final Rule will have some teeth and as a result make it more difficult (perhaps effectively impossible) for payment processors to set up shop financially in the US. The likely impact for poker rooms is a higher tab for payment processing. The costs could be significant enough that some sort of charge on cash outs could become standard operating procedure in the industry, although larger rooms might absorb the additional cost as a way to secure player loyalty (and rake).

How Will Online Poker Players Be Impacted?
Online poker players aren’t directly impacted, but will almost certainly see some indirect impacts. It seems quite possible that cash outs and deposits will both be very unreliable in the weeks immediately following the deadline as poker rooms and their processing partners fully asses and absorb the impact of financial institution compliance with the UIGEA Final Rule.

Long-term, players should probably anticipate some sort of fee being placed on cash outs at some, if not all poker rooms. Players should also anticipate occasional ‘hiccups’ in processing similar the check cashing issues experienced by Stars and FTP in the summer and should prepare for a world where cash outs are more restricted in terms of size and frequency than they are in the status quo, and are possibly subject to longer holds at their bank upon deposit.

Where Can I Get Additional Information?

Here are some useful links:

- ABA’s FAQ for Banks on UIGEA Compliance (PDF, 4 pages)

- Full Text of Final Rule of UIGEA (PDF, 121 Pages)

- Poker Player’s Alliance Home Page