The Department of the Treasury and the Board of Governors of the Federal Reserve System (collectively, the Agencies) have published a joint final rule to implement the Unlawful Internet Gambling Enforcement Act of 2006. This Act prohibits persons engaged in the business of betting or wagering from knowingly accepting payments in connection with “restricted transactions” (i.e., the participation of another person in unlawful Internet gambling). “Unlawful Internet gambling” generally means placing, receiving or otherwise knowingly transmitting a bet or wager by any means that involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received or otherwise made. The final rule, like the Act and proposed rule issued in October 2007, does not specify which gambling activities or transactions are illegal, but rather defers to underlying state and federal gambling laws.

    The final rule:

    • Defines terms used in the regulations (including, but not limited to, “bet or wager,” “financial transaction provider,” “card system” and “participant in a designated payment system”);
    • Designates payment systems (i.e., automated clearing house systems; card systems (including credit, debit and prepaid cards or stored value products); check collection systems; certain money transmitting businesses; and wire transfer systems) that could be used in connection with unlawful Internet gambling transactions;
    • Exempts certain participants in the designated payment systems from the requirements to establish written policies and procedures to prevent or prohibit restricted transactions;
    • Requires non-exempt participants in designated payment systems to establish and implement written policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit restricted transactions;
    • Provides non-exclusive examples of the types of policies and procedures that non-exempt participants (including, specifically, among others, credit card issuers and third-party processors) may adopt to comply with the Act; and
    • Authorizes federal functional regulators and the Federal Trade Commission to enforce the rule against payment systems subject to their respective jurisdictions.

    The Federal Reserve Board’s rule is designated Regulation GG and codified at 12 C.F.R. Part 233. The Treasury’s rule is codified at 31 C.F.R. Part 32. Compliance with the final rule is required by December 1, 2009.

    There has been ongoing debate about the efficacy of the joint proposed rule issued last year. On November 10, 2008, House Financial Services Committee Chairman Barney Frank wrote to Treasury Secretary Henry Paulson and Federal Reserve Board of Governors Chairman Ben Bernanke asking them to postpone issuing regulations pursuant to the Unlawful Internet Gambling Enforcement Act. He noted in his letter that on September 16, 2008 the Financial Services Committee passed H.R. 6870 to replace the rule with a formal rulemaking process that would define the term “unlawful internet gambling.” H.R. 6870 was reported to the House with an amendment on October 3, 2008.

    • Judy Scheiderer