In 2006, to the outrage of millions of Americans, the US Senate passed the Unlawful Internet Gambling Enforcement Act, which some commentators said would spell the end for US gambling online as we know it.
Anyone paying attention to the legal battle around Daily Fantasy Sports has surely heard of the Unlawful Internet Gambling Enforcement Act of 2006, otherwise known as UIGEA. The law was a big blow to online gambling in the United States when it first took effect, and has gained new relevancy thanks to the exception for fantasy sports included within it, which directly led to the rise of daily fantasy. So what, exactly, is UIGEA?
Prior to UIGEA’s adoption in 2006, the Federal Wire Act of 1961 was the primary legal statute regarding online gambling in the United States. The Wire Act was originally aimed at older telecommunications, but still applies to the World Wide Web despite predating the latter by nearly three decades. The Wire Act prohibits electronic transmission of information for sports betting, but a 2002 ruling crucially ruled that “in plain language” it does not prohibit internet gambling on a game of chance. For a brief period this led to a bit of a “wild west” approach to internet gambling in America, which motivated the creation of UIGEA.
The relative need for the bill is and was debatable, but the passage of it was undeniably shady. The Act was passed on the final day before Congress adjourned for the 2006 elections, and was attached at the last minute to the completely unrelated SAFE Port Act. One Senator has said that at the time of its passage, no one on the Senate House Conference Committee had seen the final language of the bill. Despite that fact (and the criticisms that came with it) the bill was signed into law by then President George W. Bush in October 2006. The eventual rules and regulations of the law were not finalized until November 2008, and went into effect on January 19, 2009, the day before President Obama took office.
The overarching purpose of the law is to prevent gambling companies from partaking in “restricted transactions,” which means they cannot accept payments related to wagers using the internet if to do so would run afoul of any federal or state laws already extant. UIGEA primarily contains five different sections in pursuit of this goal.
Another section, 5366, outlines the possible penalties for violators. These include fines, being barred from involvement in gambling, and up to five years in prison. Further sections make ISPs and financial institutions liable if they operate gambling sites on their own. The Act concludes by urging the executive branch of the government to encourage foreign nations to assist in enforcement.
The passage of UIGEA led all gambling sites listed on the London Stock Exchange to discontinue accepting players from the United States. The case of partygaming, which ran the then-ubiquitous partypoker in the USA, illustrates the effect the Act had on companies that attempted to remain in the American market, as their publicly traded stock dropped almost 60% within 24 hours of the bill’s passage. The company pulled out of the US market entirely later that year, as did 888’s Pacific Poker, the iPoker Network’s CD Poker, and several other major poker sites.
The reaction from poker companies was interesting, as it has been continually pointed (even by the Department of Justice in 2011) out that UIGEA did not clarify exactly what counted as unlawful gaming, meaning that the bill could only realistically be applied to sports betting as defined in the Wire Act. Despite this oversight, UIGEA was first used in a pair of connected cases in 2010 and 2011, the latter of which effectively shut down the online poker industry in America and spawned the name “Black Friday” as a reference to the day the indictment was unsealed and some of the biggest poker websites in existence saw their domains seized by the DOJ.
The reason the government was able to make take such action lies in the aspect of UIGEA that states that illegal gambling is also anything that violates state gambling laws, so while the bill did not make internet poker illegal on a federal level, U.S. Attorney for the Southern District of New York brought charges on the grounds that the offending companies were breaking the law in New York State, where poker qualifies as a game of chance, which is a Class A misdemeanor if bets are placed. Since committing such a misdemeanor via the internet constitutes a violation of UIGEA, a federal law, he is then able to bring felony charges. Charges included money laundering and fraud, with the government presenting evidence that those indicted had laundered payments through investment in a Utah bank, which then was used to intentionally mis-code transactions to bypass UIGEA.
For years, the United States and the nation of Antigua have been in a World Trade Organization dispute over American restrictions on online gambling. Essentially, Antigua believes that the U.S. barring their players from accessing gaming companies based in Antigua violates treaty obligations, something the WTO agreed with and later upheld in 2007. Antigua then filed a claim for several billion in sanctions against the United States (following a model first put forth by the European Union in regard to the same issue), but eventually settled for concessions in other sectors.
Those concessions were not disclosed by President Bush’s administration, however, which led Congressmen Barney Frank and Ron Paul to call for them to be made public. The administration kept the nature of the concessions secret in the face of these challenges, even blocking a Freedom of Information Act request for them.
In part because of those concessions, as well as his general opposition to UIGEA, Congressman Frank introduced a bill to overturn the gambling portions of the bill in 2009, as well as a bill to delay the implementation of UIGEA for one year. The former never became law, while the latter was implemented, but only for six months as opposed to the proposed one year.
While UIGEA is rarely utilized, the structure of the law has proven to make it a very formidable one when the government has seen fit to enforce it, as it practically eliminated the online poker industry in the United States overnight. The vocal opposition of European nations as well as those closer to the U.S. is an encouraging sign for potential repeal in the future, as is the efforts at just that from Congressman Frank and others. However, at this time there is little evidence to point to any significant change in the bill or the overall landscape of internet gambling in America in the near future.
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