In 2006, Congress passed a law that instructed the Treasury Department and the Federal Reserve Board to write regulations aimed at preventing "unlawful Internet gambling." But Congress did not define "unlawful Internet gambling," and neither did the regulators.
Instead, IT issued rules requiring financial institutions to adopt "policies and procedures" that are "reasonably designed" to block transactions associated with unlawful Internet gambling, whatever that might be. Last week, acknowledging the difficulty of satisfying this demand, federal regulators announced that enforcement of the rules, scheduled to begin on Dec. 1, will be delayed until June 1. The six-month extension gives Congress time to reconsider its foolish and futile attempt to stop Americans from betting in their pajamas.
The regulations, required by the Unlawful Internet Gambling Enforcement Act (UIGEA), include a telling explanation of why the government chose not to create a list of bet-taking businesses that financial institutions should avoid. Because the UIGEA "does not set out the precise activities that are covered," the regulators say, "creating such a list would require the Agencies to formally interpret" the relevant state and federal laws. Since those laws are often ambiguous, "interpretations by the Agencies in these areas may not be determinative in defining the Act's legal coverage and could set up conflicts or confusion with interpretations by the entities that actually enforce those laws."
In other words, figuring out which forms of online betting are illegal is so complex and uncertain a task that federal regulators did not even attempt it. Yet that is what they expect financial institutions to do.
The reach of federal gambling laws has long been a matter of debate. While the Justice Department claims the Wire Act of 1961 bans all online gambling, for instance, operators of poker and casino Websites say it applies only to sports betting, a view endorsed by a federal appeals court. The Justice Department also maintains that online horse race betting is illegal, but the businesses that run sites like youbet.com disagree, and so do the states that license them. The UIGEA did nothing to resolve such disputes.