The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) largely ended the early days of U.S. online gambling and remains one of the biggest handicaps still facing the industry.
UIGEA prohibits businesses from knowingly accepting payments from players who place a bet or wager via the internet and in a state that hasn’t legalized gambling. Passed by Congress as part of an unrelated port security measure, the bill effectively ended what had been a booming real-money online poker and still constrains the slow revitalization of poker and online casino gaming today.
With payment processors banned from accepting funds from all but explicitly legal online gambling sites, the free-wheeling environment around real money online gaming in America in the early 2000s essentially ended.
Since officials began their infamous “Black Friday” crackdown of the law in 2011, multiple states have passed legal gaming measures, carving new outlets for lawful gambling that aren’t subject to UIGEA restrictions. Still, with its stringent bans on accepting payments, the act remains a major roadblock for not just the fledgling legal online gaming market but for future growth.
Before UIGEA, the most consequential piece of interstate gambling legislation was the Wire Act of 1961, which prohibited the transmission of sports wagers across state lines. The internet boom of the late 1990s and early 2000s made real-money online gambling readily available, and in absence of pre-existing laws regulating the internet, all gaming (except for sports betting) via the world wide web was able to exist in a legal gray area. Though neither poker nor online casino games had been technically legalized, there were no enforcement methods to stop players or companies processing their payments.
In a further boost to the industry, courts ruled in 2002 that the Wire Act — written before the earliest days of the Internet — only applied to sports betting, not any other “internet gambling on a game of chance.” That in part allowed real-money online poker in particular to thrive, becoming a staple of mainstream sports programming and the culture as a whole.
Even prior to the court ruling, anti-gambling and religious groups had sought to curtail or outright ban legal online gambling. When prior federal legislative efforts to directly outlaw players from gambling failed, anti-gambling advocates in Congress instead focused on restricting the companies that processed payments for the industry. They did so with a legislative workaround as part of the SAFE Port Act of 2006.
The Port Act, which limited foreign ownership of U.S. ports as a national security measure, was overwhelmingly supported by both parties and both chambers of Congress. Just a few hours before Congress adjourned ahead of the 2006 midterm elections, UIEGA backers attached the bill as a rider to the unrelated port security legislation. Without enough time for lawmakers to review — or reportedly even notice — the attachment, Congress passed the entire measure and then-President George W. Bush signed it into law a few weeks later.
Though the bill alarmed gaming operators, many of which pulled out of America, the true effects of the UIEGA bill weren’t felt on U.S. players until several years later, when regulatory delays included in the bill ended.
On what the online poker industry calls Black Friday law enforcement agencies on April 15, 2011, seized the three largest online poker sites operating in the U.S., charging their owners with money laundering in violation of UIEGA. That all but ended online poker in the U.S. and sent a shock wave through the internet gaming industry that reverberates today. There have been no sustained, successful efforts in Congress to repeal UIEGA since Black Friday.
The law has no effect on legal gambling, so any state is free to approve gaming options within its own borders and payment processors are allowed to accept and dispense money (though restrictions still remain). Additionally, recent developments in online gambling as well as favorable court rulings regarding the industry have buoyed legal gambling’s hopes, but for now — and the foreseeable future — the payment processing restrictions in UIEGA remain.
Sports betting was included in UIEGA policy only as a corollary of the Professional and Amateur Sports Protection Act (PASPA). At the time it was signed into law, sports betting was already regulated via the Wire Act as well as PASPA, which effectively outlawed sports gambling everywhere outside of Nevada.
The Supreme Court ruled in May 2018 that PASPA was unconstitutional, allowing individual states to legalize sports betting. That ruling had no effect on the Wire Act, which still explicitly prohibits transmission of sports bets, online or otherwise, across state lines.
PASPA’s repeal also has done nothing to change sports betting in the eyes of UIEGA. There are now 19 states (as well as Washington D.C.) that accept bets currently or have passed laws to do so. The Wire Act still restricts interstate sports betting, but contemporary sports wagering now has little impact from UIEGA.
Online poker is steadily making a comeback since 2011, but the real money U.S. poker market remains a shell of what it was before UIEGA.
The law allowed individual states to approve regulated poker markets. New Jersey, Nevada, Delaware and Pennsylvania now offer real-money online poker games, while West Virginia is set to open its first poker sites as early as 2020. New Jersey, Nevada and Delaware have a player liquidity sharing agreement, meaning players in those three states can play for money against each other. Pennsylvania and West Virginia will likely join the compact, and Michigan is considering legislation to permit online poker.
But with just a handful of states offering real money poker, the online industry is still just a fraction of what it was 15 years earlier. The poker boom near the turn of the century has long since dissipated, meaning even should all 50 states legalize online poker (which will be years from now, if ever) it likely won’t match the high-water mark from the beginning of the 2000s.
Just five states have passed laws to regulated real-money poker, thereby exempting UIEGA, and there remains little political appetite in most statehouses to approve the games. State lawmakers could, in theory, effectively overturn UIEGA without federal intervention, but that remains unlikely.
UIEGA regulations specifically banned credit systems, automated clearing houses, wire transfers, check collections and money transmissions from accepting payments from online gambling entities if they weren’t explicitly legalized. At a state level, UIEGA allows companies in jurisdictions with legal betting such as New Jersey and Pennsylvania to accept mobile casino gaming payments. But since most states still haven’t legalized options like poker or iCasino, UIEGA prohibits payment processing for the majority of the country.
Even in states with gaming, UIEGA can complicate operations for payment processing. Since essentially every modern banking transaction crosses states in some capacity, any transaction that passes through a state without legal online gaming laws could, in theory, run afoul of UIEGA. Though some operators continue to accept and process gaming payments, it has still bogged down others.
This applies most significantly to credit card companies, which remain the most popular method for funding online gaming. Media reports indicate up to 50% of credit cards have been declined in recent years as these companies, still fearful of federal regulations related to gambling, are extra cautious when accepting gaming dollars.
With the largest payment processors in the U.S. still skittish about accepting payments, UIEGA has directly and indirectly curtailed the potential for legal gaming.
Daily fantasy sports were specifically exempted from UIGEA. Traditional player-to-player matchups where participants draft teams and score points based on their performance saw no changes under the law.
UIEGA didn’t clarify the status of daily fantasy games, which became popular after the law came into effect. States have reached varying conclusions on the legality of the games and whether or not they constituted gambling and were thus subject to state and federal law.
Since 2015, the vast majority of states have either legalized these games or have permitted them to exist in a legal gray area. In either scenario, only a handful of states don’t offer daily fantasy games. The more traditional fantasy games remain exempt from UIGEA oversight.
Illegal, offshore gambling sites were not legal before UIGEA and any accepting payments are explicitly illegal now. The law articulates ways for states attorneys general to file civil suits against overseas payment processors, a means to deter them from operating in the U.S. market. Despite the increased legal enforcement mechanisms, many of these unregulated, unlicensed sites continue to serve U.S. players, who don’t have the consumer protections inherent with a regulated site.
Interstate horse racing and lotteries, along with fantasy sports, were exempted from UIGEA. More significantly, any state with laws that permit a form of gambling are also exempt.
This means states that have legalized real-money online casinos (New Jersey, Delaware, Pennsylvania and West Virginia) are permitted to accept and distribute money from and to players. Payment processing in any other state remains illegal under UIGEA.
The history of UIGEA indicates it won’t likely be repealed anytime soon. That is further complicated by a lack of political interest and the difficulty of passing any kind of federal legislation.
In the wake of the PASPA repeal, several proposals percolated on Capitol Hill to regulate the new industry at a federal level, but none have gained any traction. Gaming legislation remains low on lawmakers’ list of priorities and a divided, increasingly partisan legislature makes passing bills difficult.
While new legislation flounders, courts are still considering an interpretation of the Wire Act, which could have an impact on legal gambling that exceeds UIEGA.
In 2011, the Obama administration ruled the Wire Act applied specifically to online sports betting, not any other online forms of gaming (bearing in mind payment processors were still subject to UIGEA). The Trump administration revised the interpretation and argued the Wire Act of 1961 applied to online lotteries and poker. Since lotteries and poker depend on interstate transactions, the latest ruling could cripple or even ban both entities.
This led iLotto and online poker stakeholders to challenge the ruling in court. An initial ruling in favor of the plaintiffs has since been challenged, and while it appears the Trump-era ruling will not be permitted to stand, the legal challenge could go beyond just the appellate level and to the Supreme Court.
The Wire Act legal limbo is just the latest uncertainty in a nascent industry that, in many ways, remains undefined by federal law. New gaming forms continue to push legal gambling in new directions, and existing federal restrictions will continue to be pushed. While a wholesale change to UIEGA or any other federal gaming statute, remains unlikely, state legislation will likely continue to pave ways for exemptions and allow real-money online gambling to expand through an increasing number of U.S. markets.