Stephen A. Murphy
E-mail Author
"Future of Online Poker"
From Card Player Magazine
© Sep 11, 2009

In what has been a roller coaster of a decade for the poker industry, the final few months of 2009 have the potential to be as important as any recent stretch for the game.

Banks have begun preparing for Dec. 1, when they will be legally responsible for complying with all UIGEA regulations. IMEGA has been thinking over its next move after its challenge of the UIGEA fell short in the U.S. third district court of appeals last week, considering options that include anything from an appeal to the Supreme Court to a re-energized focus on state battles in the months ahead. And poker players look to Rep. Barney Frank’s bills with cautious optimism that the federal government will finally move to explicitly legalize and regulate the game.

Card Player takes a look at the major issues facing the industry today, and talks to some of the people who are in the best position to accurately predict what’s in store in the months ahead. In the first part of a multi-part series, we will examine the banks’ preparation for Dec. 1, 2009 — a date that has some poker players fearful and even more players angry.

Getting Serious — The Banks Prepare for Dec. 1

It seems like ages ago that the Unlawful Internet Gambling Enforcement Act was rushed through Congress as an addendum to the SAFE Port Act. In fact, President George W. Bush signed it into law almost three years ago, on Oct. 13, 2006.

But the actual regulations for the UIGEA weren’t drafted until much later, and it wasn’t until November 2008 that the Office of Management and Budget approved and finalized the bill, ensuring that the mandatory 60-day-review for the Act would be completed just before President Bush left office and establishing Dec. 1, 2009 as the date that all banks would be legally obligated to comply with all of the regulations of the UIGEA.

That date has been circled on the calendars of banks and online poker operators for months now. While Rep. Frank has introduced a bill that would delay the implementation of the regulations, debate concerning the bill has been quiet on Capitol Hill, as Congress has focused on much more high profile issues such as the tenuous financial system and potential health care reform in recent months.

With just 80 days until Dec. 1, Card Player tracked down Steve Kenneally, the vice president of the American Bankers Association (ABA), to discuss what exactly the banks have done to prepare for Dec. 1.

Kenneally speaks from a position of significant authority on the topic. The ABA is the largest banking association in the United States. With more than 4,000 member banks, it represents approximately 95 percent of all of the banking assets in the country.

“The banks are not going to be responsible for monitoring transactions going in and out of individual accounts. So, they are not going to be tracking ‘Joe Smith’ to see if his check, which was written to ‘Johnny’s Cards,’ is going to a Hallmark store on an online gambling site in Aruba,” said Kenneally.

“Where they are responsible for monitoring and blocking transactions are with debit and credit cards, and that is most likely going to be where you see banks blocking whatever falls into the category of both lawful and unlawful wagering,” he continued.

Kenneally says that the banks will likely block both lawful and unlawful gambling transactions because it is virtually impossible for the banks to differentiate and identify which companies are legal and which are illegal.

While the Department of Justice has claimed in the past that all online gambling is illegal, most lawyers and virtually all of the poker industry believe that the Department has no federal law or any legitimate ground to stand on for that position. No individual has ever been charged for playing online poker, and the U.S. third circuit court of appeals even made it clear that the UIGEA did not make any kind of gambling illegal.

Only six states have laws against Internet gambling, according to the Interactive Media Entertainment & Gaming Association.

“There’s no way for the card networks, either Mastercard or the bank, to differentiate between what’s lawful and unlawful when it comes zipping through the computer network at 10,000 requests a minute,” said Kenneally, who pointed out that there were 90 billion payments in 2007 alone.

That’s why Kenneally expects banks to ban all credit and debit card transactions from companies that are coded as ‘online wagering,’ — whether they are legal or not — and he believes most banks are already doing this. Kenneally clarified that every merchant that accepts a credit card, from grocery stores to gas stations, is assigned a specific code. Banks are expected to refuse to process any transaction with a code of ‘online wagering’ after Dec. 1.

“Part of the problem is there’s no definition of what’s unlawful, and what’s unlawful for one state for one user may not be unlawful in another state under different state laws. By putting it all into one basket, you either have to accept it all or block it all,” said Kenneally. “I think a lot of banks are going to be blocking all wager codes just to play it safe.”

iMEGA Chairman Joe Brennan, Jr. says that the banks are in “an impossible situation.”

“That’s why the UIGEA is a crappy, insidious law,” said Brennan. “The law is not about saying ‘yes’ or ‘no’ to the legality of Internet gambling. These guys avoided the question because in six prior years in Congress, they couldn’t get laws passed saying gambling on the Internet was illegal because even people who didn’t gamble on the Internet weren’t comfortable with government saying what people could do on the Internet.”

Kenneally has also made it clear that from the banks’ perspective, the UIGEA is a “frustrating” piece of legislation.

“In general, we’re not in favor of laws that try to enforce some kind of behavior using the payment system as the choke point,” said Kenneally. “The UIGEA is creating an awful lot of work to block what’s probably a very small percentage of transactions when you look at the payment system in general.”

The ABA vice president says that while the banks will not be forced to retroactively question companies that have already created accounts, the new regulations will now obligate them to specifically ask if a new company trying to create a bank account is in any way involved with online gambling.

Lying during this line of questioning could constitute bank fraud, one of the charges listed against Douglas Rennick, who was indicted by the Southern District of New York last month. Rennick is accused of providing payment services to online poker players through several shell companies.

“By recognizing that you can’t insert a clerk to look at each check…what the regulations writers did was they shifted the emphasis to the account-opening process,” said Kenneally. “Their sort of indirect regulatory intent was to say — if we can block unlawful Internet gambling casinos from opening up an account, that’s as good as monitoring and blocking transactions to unlawful gambling entities, because if we deny them a bank account, that’s the same as blocking payments to them.”

What effect will this have for online poker players?

Is this the beginning of the end? Hardly — although poker players may find that it takes a little bit more time to both deposit and withdraw money to and from their accounts. At least that’s the general opinion of iMEGA’s Brennan.

“You won’t see the panic that there was in ’06 when the law passed, but I think you will see a chilling until people come up with alternate offshore funding,” said Brennan. “Players may have to get used to a longer timeline for deposits and withdrawals because of the law.”

While Dec. 1 is the mandatory date that banks must begin its compliance with the regulations, Kenneally said that most banks have already begun blocking anything that is coded as Internet gambling. And still, there has not been a noticeable uproar from players in terms of how long it takes to withdraw or deposit money.

Both Kenneally and Brennan reiterated that the law does not target individuals.

Brennan believes that while the implementation of the regulations could cause a short-term dip in new players and new deposits to the sites, the industry is too robust to significantly falter.

“Online gambling — even in the face of a hostile Department of Justice, the UIGEA, the Southern District of New York going absolutely crazy, an aggressive governor in Kentucky, an aggressive attorney general’s office in Minnesota — continues to have double digit growth every year,” said Brennan.

He believes that it’s only a matter of time before states grow hungry for a cut of that booming revenue. As for when and how that situation might come to fruition, that is the topic for next installment of this series.

FINISH ARTICLE IN CARDPLAYER MAGAZINE