The Impact of the UIGEA
The Unlawful Internet Gambling Enforcement Act of 2006, better known simply as the UIGEA for short, “prohibits gambling businesses from knowingly accepting payments in conjunction with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal or state law.”
We really do need to look at the actual wording of this law in order to look to dispel all the confusion out there about it, which certainly has not been helped by authorities in the way they have laid it out.
There are several elements to this, the first being that the wagering needs to be unlawful. The UIGEA does not, in any way, make gambling unlawful, although it does pertain to unlawful gambling.
This is one of the sources of confusion about this law, and it’s not one a mistake that we would think that anyone would make, and even the government doesn’t look to promote this one, although they did make the false assumption for a number of years that the Wire Act made all internet gambling illegal under federal law.
People did think that the UIGEA made online gambling illegal in the United States though and some still do. The gambling in question has to already be illegal though by way of some other law. Washington State for instance makes it explicitly illegal, so those who operate gambling businesses and knowingly accept payments from residents of that state would at least be subject to the UIGEA, if they of course subject to U.S. law in the first place of course.
The UIGEA clearly applies to gambling businesses, and only gambling businesses, and there’s no question of that. There’s a lot of confusion surrounding this as well, and many think that this applies to financial institutions, that’s a big misconception actually, although many financial institutions have steered well clear of processing gambling transactions for the reason that this law does create the opportunity for these transactions to be messed around with.
The UIGEA explicitly excludes intermediaries such as banks and internet providers from this, even under the concept of aiding and abetting, so there is actually no legal risk to financial institutions, although many think this law is geared primarily toward them.
There are some people that have had the belief that the UIGEA in any sense applies to players, although like the Wire Act before it, it is geared solely to companies in the business of gambling, in other words online gambling sites and their parent companies.
So in a nutshell, the law prohibits online gambling sites from taking deposits or transferring money in conjunction with illegal online wagering.
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Does The UIGEA Even Have Any Legal Effect?
A certain perspective shows this law is actually vacuous from a legal standpoint anyway, and does not add anything meaningful. Instead now, it has been viewed by many as a real game changer, even though it changes nothing as far as the law goes, but it does possess some actual practical implications. Such shifts happen rarely in legal matters.
Whether it applies to gambling itself is illegal or not is wholly apart from this regulation. If offering the gambling is unlawful, it really doesn’t matter whether engaging in financial transfers with players would be lawful or not, because the law would already be offended and the government would already possess all the authority it would need to prosecute, if it could do so.
Thus the Wire Act if it really did apply universally to online gambling, the federal authority could already target these people, like they did with some sports betting figures who were foolish enough to visit the U.S. while facing indictment. They did restrict their activities to sports betting nevertheless because charges involving other forms would not have held up in court. Such legal processes can be tedious at times.
There’s also the challenge of whether or not these individuals involved in the business of gambling are subject to U.S. law in the first place. So what this comes down to when we combine these two factors together, from the perspective of federal law, is if anyone who is based in the U.S. offers sports betting wagering over the internet, and also handles financial transactions, which they all do, they could be charged both under the Wire Act and the UIGEA.
Looking at state law, things can get significantly more interesting, especially as the law is somewhat unclear in many states. As it turns out, however, it doesn’t even matter, as the UIGEA stops at the country’s limits, as do all American regulations, so while this legislation was intended to target foreign businesses, that actually is a ridiculous notion, so the UIGEA fundamentally is equally ridiculous, at least legally. Understanding laws is quite complex.
What Actually Happened with the UIGEA
For whatever reasons, the passing of the UIGEA caused the majority of online gambling sites to exit the U.S. market. The UIGEA may not have any meaningful legal effect, but it sure caused a ruckus and people did hear the loud drum beating even though there may not have been anything of substance behind it.
So shortly afterward, American online gamblers had a whole lot less selection of sites that they could play at, because a lot of online gambling sites simply did not want to bother with the market anymore.
It wasn’t that they were afraid of the U.S. government, it was mostly because they realized that the normal channels of transaction processing, which did reside in the United States and were subject to U.S. law, were set to significantly dry up.
The reason is that the UIGEA does give the government power to block suspected transactions, and that’s the last thing payment processors want to deal with. This was the main goal of the UIGEA actually, the threat of interfering with the day to day business of financial institutions, which are generally pretty conservative, and the profit derived from these transactions isn’t significant enough generally to want to take on all this trouble.
As it turned out later, this actually did happen in a few instances, where funds were seized, and questions of whether or not this was done with full legal justification or not didn’t really factor into things. All you need is a magistrate who may not have a full appreciation of the law here to sign some documents and you are off to the races, which is what we saw with the event known as Black Friday.
So there have been some practical implications of the UIGEA for sure, although the Department of Justice’s admission that only sports betting is illegal under federal law has lessened things and this has led to more stability now.