Internet Gambling Regulation, Consumer Protection and Enforcement Act

Internet Gambling Regulation, Consumer Protection, and Enforcement Act

On May 6, 2009, Barney Frank introduced his bill (the "Bill") to legalize, license and regulate online casinos and pokerrooms. Sportsbetting is specifically prohibited. No new, specific taxation provisions are contained in the Bill.

Here is a first look at the Bill, with a few initial observations. This bill is monumentally better and more comprehensive than the bill that Rep. Frank introduced in the prior Congress.

Licensing

The Bill provides:

"(1) LICENSING REQUIRED FOR CERTAIN INTERNET GAMBLING. - No person may operate an Internet gambling facility that knowingly accepts bets or wagers from persons located in the United States without a license issued by the Secretary..." The "Secretary" is the Secretary of the Treasury, or his designee. Licenses are issued for a five-year period.

An applicant is required to agree to submit to United States jurisdiction and abide by all applicable state and federal laws relating to taking bets over the Internet from persons located in the United States and all associated activities.

Suitability

Applicants are deemed unsuitable for licensing, among other possible reasons:

1) If they have been convicted of a felony (that is, "has been convicted of an offense punishable by imprisonment of more than 1 year") or

2) Are delinquent in filing any applicable Federal or State tax returns or in the payment of any taxes, penalties, additions to tax, or interest owed to a State or the United States.

• This provision may ban the existing offshore online gambling businesses from becoming licensed since it is probably that none of them have filed U.S. or state tax returns relating to the portions of their businesses that arose from dealing with U.S. residents.
• The Bill does not have any taxing provisions. This omission will keep the bill under the exclusive jurisdiction of Barney Frank's House Financial Services Committee and deprive the House Ways and Means Committee of jurisdiction.
• The lack of stated taxing provisions does not mean that the federal and state governments will not try to enact taxes on the gambling businesses of the licensees. Rather, it means that such taxes will be the subject of separate legislation, and will be enforceable under the delinquency and payment provision in the Bill.

3) "If the Secretary finds that an individual owner or holder of a security of a licensee, or of a holding or intermediary company of a licensee or any person with an economic interest in a licensee or a director, partner, or officer of a licensee is not suitable for licensing, the Secretary may determine that the licensee is not qualified to continue as a licensee."

Safeguards

Operational safeguards dealt with in the bill include:

• Assurance of legal age;
• Assurance that player is not in a prohibited state;
• Collection of applicable taxes from players
• Collection of applicable taxes from the operator/licensee
• Safeguards to combat fraud, money laundering and financing of terrorists;
• Safeguards to combat use by compulsive gamblers;
• Privacy safeguards;
• Appropriate mechanisms to assure that the operator/licensee pays the costs of various permitted assessments made by the Secretary against the operator/licensee.
• "Such other requirements as the Secretary may establish by regulation or order."
• Establishment of a list of persons who have self-excluded themselves from playing at licensed sites, which list will not be subject to public inspection.

Alternative Licensing Certification

The bill contains a provision allowing state and tribal licensing authorities to certify the suitability of applicants if the Secretary accepts the bona fides of such agency.

Payment Processors Exempted

Payment processors providing services to fund player accounts are exempted from liability for processing such transactions.

Opt Out Provisions

States are allowed to opt out. The bill provides: "No licensee may engage, under any license issued under this subchapter, in the operation of an Internet gambling facility that knowingly accepts bets or wagers initiated by persons who reside in any State which provides notice that it will limit such bets or wagers, if the Governor or other chief executive officer of such State informs the Director of such limitation, in a manner which clearly identifies the nature and extent of such limitation, before the end of the 90-day period beginning on the date of the enactment of [this Bill]"

• No opt out standard of illegality is set forth. Thus, it is not clear whether a given governor can merely decide to not allow licensees to operate in his state, or whether there must be a determination that such operation would be illegal under that state's law.
• The 90-day period may be unreasonably short for submission of reasoned opt out notices. For example, most state attorneys general take far longer than that to issue legal opinions to members of the various branches of state governments.

Sports Betting Prohibited

Sports betting is prohibited under the Bill. The provisions of the Wire Wager Act (18 U.S.C 1084) are not applicable to bets made with a licensee.

Cheating Prohibited

Cheating devices are prohibited to the extent a licensee sets forth rules banning such devices. Using such devices is felony punishable by fine and up to five years in prison.