UIGEA Explained - Unlawful Internet Gambling Enforcement Act
The UIGEA, properly known by its full name, the Unlawful Internet Gambling Enforcement Act of 2006, enjoys the dubious distinction of being not only the law that nearly singlehandedly killed the domestic US online gambling industry but also one of the most controversial bills of any kind in recent history. The UIGEA, also called the Leach Act after the bill’s primary sponsor, Rep. Jim Leach of Iowa, was controversial enough in and of itself, being at best a vaguely worded proscription against gambling businesses should they accept payments for a bet placed online. What gives the UIGEA its real infamy is the underhanded way in which it was passed.
In essence, the UIGEA was tacked on to a completely unrelated ports security bill the day before members of Congress adjourned for the 2006 Congressional elections. At the time UIGEA was passed out of Senate-House Conference Committee, it is highly likely that almost none of the legislators who voted on it had ever read the bill’s official language if they had ever heard so much as heard of it before. The bill was then quickly passed through both the full House (which returned a 409-2 vote) on Sept. 29, 2006, and the full Senate (which voted unanimously) the following day. This all came about despite the fact that the language of the bill was entirely different from its previous form, which had been debated and passed by the House on May 4 and the Senate on Sept. 14. Then-President George W. Bush Signed the bill that would become the UIGEA into law, attached as it was the SAFE Port Act, on October 13 to complete the deed.
As might be imagined, the upheavals wrought on the country’s booming internet gambling industry were massive, with many operators electing to leave the country outright. However, the aftershocks of the controversial law can still be felt to this day, as it was the UIGEA, more than any other piece of federal legislation involving sports betting that paved the way for legal offshore sportsbooks and casinos that still fill the niche left by the departure of US companies. In order to better understand the repercussions the UIGEA had and the role it continues to play in shaping the future of online gambling, we’ll first take a closer look at the law’s history and then dive into the particular prohibitions – and exemptions – of this controversial law.
The History Of The UIGEA
The UIGEA was the first serious attempt at a federal anti-gambling law in almost 15 years. While the now defunct Professional and Amateur Sports Protection Act of 1992 (PASPA) did serve to limit sports betting to just four states – Delaware, Montana, Nevada and Oregon –it did little to stop American bettors from wagering on sports at websites based overseas. The even older Federal Wire Act, passed some five decades before, was outdated in the age of the internet, having applicability solely to interstate transmission of gambling information by way of telephone, and then with the intent of breaking up mafia sports racketeering schemes.
Precipitating the creation of the legislation that would eventually become the UIGEA was a 2002 ruling by the US Court of Appeals for the Fifth Circuit that Wire Act had no legal authority to prevent online gambling of any kind. The Wire Act, which was conceived of in the 1950s, when commercial availability of anything resembling the internet was a pipe dream, had been for years the subject of various attempts by conservative politicians at the federal and state level to reinterpret the law to suit their aim of banning online gambling.
On November 18, 2005, Iowa Rep. Jim Leach, a staunch opponent of internet betting, accordingly introduced the Internet Gambling Prohibition and Gambling Enforcement Act. This proposed legislation, among other things, proposed changing the Wire Act’s definitions of “communication facility” to include cellular phone networks and “betting” to include any game subject to an element of chance, even lotteries. Democratic Nevada Representative Shelley Berkley was an early opponent of Leach’s bill and a proponent of regulated online gambling, but, seeing the momentum building behind the bill in the House, she tried unsuccessfully to get an amendment through that would have also banned “games of skill” like daily fantasy sports.
The Internet Gambling Prohibition and Gambling Enforcement Act made it through the House behind a wave of popular support from conservative lawmakers and those with younger casino industries that saw internet-based gaming as a threat. However, the bill was stymied in the Democrat-controlled Senate. Leach, previously chairman of the House Banking Committee, and his closest ally, Virginia Rep. Robert Goodlatte, who co-authored H.R. 4411 (as the Internet Gambling Prohibition and Enforcement Act was officially entered into the record) needed help in the Senate if they were going to get their anti-gambling bill passed.
To achieve their goals, they recruited Minority Whip Jon Kyl former majority leader Bill Frist, who had cast some of the few senatorial votes in favor of the earlier bill. It would take a year before Congressional supporters of a law to widely prohibit gambling over the internet could seized their opportunity, but that opportunity came in 2006, when the SAFE Port Act appeared on the congressional docket. The SAFE Port Act, the abbreviated form of the Security and Accountability For Every Port Act of 2006, was a piece of legislation that made several port security provisions aimed at preventing US ports from falling under the effectual control of foreign owners. Best of all for Leach, Goodlatte, Kyl, Frist and their compatriots, because the SAFE Port act was a totally non-controversial anti-terrorism spending bill, it was the perfect vehicle for their failed anti-gambling bill.
Frist, seeing that the SAFE Act would pass in the Senate without any opposition, both due to its must-pass nature and his congressional colleagues’ eagerness to get on the road for the 2006 campaign, tacked on the UIGEA language in the Conference Report on Sept. 29, at 9:29 p.m. Now officially Title VIII of the SAFE Act, the UIGEA rider was a slightly modified form of the old Internet Gambling Prohibition and Gambling Enforcement Act language, but with all text relating to the Wire Act removed, presumably to avoid inquiry from Senate Democrats. After a move to waive by Texas Rep. Pete Sessions to waive reading of the Conference Report containing the UIGEA language, the SAFE Port Act passed with a near-unanimous vote in the House and with a unanimous consent in the Senate on Sept. 30.
It wasn’t until three months after President George W. Bush had already signed the SAFE Port Act into law just a few weeks later, on Oct. 13, 2006, that Senate Democrats, including Sen. Frank Lautenberg of New Jersey, realized what had happened. Lautenberg was recorded in Volume 10, Issue 6 of the Gaming Law Review as saying “no one on the Senate-House Conference Committee had even seen the final language of the bill.”
What Does The UIGEA Actually Do?
After all the discussion in previous sections about what the UIGEA is and how it came to be, it would be worthwhile to explain in greater detail the exact powers and provisions of this controversial bill, and in particular how it applies to online sports betting. The main area of influence the UIGEA has is with regard to the allowable activities of the financial institutions (banks, credit card companies and so on) that process online gambling-related transactions for players.
The UIGEA, unlike its predecessor, the proposed Internet Gambling Prohibition and Gambling Enforcement Act, does not make it illegal for individuals to access legal offshore sports betting sites or other gambling websites – instead the law prevents US players from depositing their bankroll or withdrawing their winnings via credit card. In the relatively brief span of time between the arrival of high-speed internet (and with it online gambling) and the passage of the UIGEA, the primary means of exchanging money on internet gambling sites was, as might be imagined, credit cards like Mastercard, VISA or American Express. Now, however, in the wake of the UIGEA, users often have to go through alternative (and usually slower) methods like person-to-person transfers, money orders and checks in the mail or, more recently, the speedier but more complicated process of buying Bitcoin to exchange.
While millions of American bettors using USA online sportsbooks like Bovada, BetOnline, SportsBetting and 5Dimes, which are legal and regulated by the gaming authorities in their home countries though not beholden to US law, can still bet and win real money, they might occasionally have their deposits or withdrawals denied. Unlike domestic online gambling operations, the UIGEA’s passage has actually enabled the legal offshore sportsbooks to thrive, though unfortunately the US and the individual states with strict antigambling laws don’t get the benefit of increased tax revenues on the hundreds of billions of dollars spent on sports betting.
It should be noted that the UIGEA has no provision for and certainly has no power of regulating payment processors in foreign countries, US courts do have the power to issue temporary restraining orders and to file permanent injunctions to prevent transactions from restricted internet service provider addresses. However, ISP providers can be ordered by court to remove or block hyperlinks to sites transmitting money to prohibited gambling sites. The UIGEA also establishes criminal penalties for violators, including sentences of up to five years in prison and a total ban from gambling activities. ISPs and financial institutions are also liable if they themselves operate illegal gambling sites. Finally, harkening all the way back to the original anti-mafia intent of the Federal Wire Act of 1961, the UIGEA includes language requesting that the executive branch powers “encourage cooperation [with the bill] by foreign governments” in the identification of internet gambling related to organized criminal activity.
What Is And Isn’t Betting According To The UIGEA?
Firstly, it bears repeating that the UIGEA defines a bet or wager as “the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.” It also includes lottery ticket purchases and “any instructions or information pertaining to establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering” in this definition.
So, what does that mean? Basically, what it does is prohibit internet gambling as far as sports betting, games of chance, and lottery purchases go. It is a huge deal in the places where it takes effect and is one of the biggest historical impediments to the gambling industry in the United States. There are, of course, legal options for gambling still, but finding them got a fair bit harder after the UIGEA passed.
Not included in the UIGEA are things like insurance contracts as well as contests in which the participants don’t risk anything of value other than their “personal efforts” or “points or credits” freely given out by the sponsor of the contest that can be redeemed only for playing more games or contests offered by the sponsor.
What Effect Did The UIGEA Have On The Online Gambling Industry?
In short, the UIGEA dismantled much of the US’ domestic online gambling industry, including the industry leaders. For instance, PartyGaming, then an online gaming giant thanks to its hugely popular PartyPoker.com brand, saw its publically traded stock values drop nearly 60 percent within 24 hours of the passage of the UIGEA after it voluntarily left the US market, which comprised 80 percent of its business. The company never recovered. This trend was repeated elsewhere, with many other top online gambling sites vacating the US market.
Though passed in late 2006, the UIGEA’s banking-related impositions didn’t take effect until January 19, 2009, the day before Barack Obama was sworn in as the 44th President of the United States. This delay was due to a position adopted by the Bush administration that it would not finalize any rule made after Nov. 1, 2008, and since the UIGEA’s final regulations were released on Nov. 12 of that year, the whole process was kicked down the road until Obama took office. At any rate, compliance by the financial institutions was not required until Dec. 1, 2009, in order to give “non-exempt participants“(that is, the newly illegal online gambling entities) an opportunity to take appropriate action to avoid prosecution.
The reactionary steps from the online gambling community were mixed, with some, particularly the publically traded gaming websites, exiting the US market altogether. Most of the privately held online gaming sites like the legal offshore sports betting sites we recommend for US bettors – Bovada, BetOnline, SportsBetting and 5Dimes – all continued accepting American account holders and still do to this day. However, some online poker services remained in the US market, perhaps viewing the passage of UIGEA as a “shot across the bow” at online gambling sites still accepting American players.
The foolishness of that move was revealed on April 15, 2011, a day referred to in internet gaming circles as “Black Friday.” The Department of Justice crack down hard on five of the biggest online poker companies (Absolute Poker, Full Tilt, PokerStars and Ultimate Bet), indicting their owners, payment processors and even employees, and seizing 70-odd bank accounts held by the companies. These operators and their financial processors were charged with multiple violations of the UIGEA, and even got slapped with money laundering charges – enough to get many of the individuals charged with life sentences.
What Does The UIGEA Say About Daily Fantasy Sports?
Interestingly, the UIGEA devotes a sizeable amount of space to laying out exactly how daily fantasy sports (DFS) contests are excluded from its definition of online sports betting. This is of crucial importance for the DFS industry, which operates unregulated in most states and uses the UIGEA’s definitions as a hedge of protection against being ousted from key markets or even as the basis for a possible legal defense. The differentiation between illegal online betting and DFS lies in the designations “game of chance” and “game of skill.”
DFS falls into the latter category because no fantasy team (or “simulation sports team” as the UIGEA says) is based on the current membership of an actual professional or amateur sports organization and because:
- •All prizes and awards offered to winners of DFS contests are established and made known to all participants prior to the beginning of the contest, and the amount of the prize isn’t contingent on the number of players as in pool betting or on a fee paid by players,
- Securing a winning outcome in a DFS contest reflects “the relative knowledge and skill of the participants” and because the outcome is also primarily determined by accumulated statistical results of individual athletes across multiple real-world sports events, and
- Therefore, no winning outcome is based on the score, point-spread or any one-time performance of a single real-world team, any combination of real-world teams or any single performance of a real-world athlete in a real-world sporting event.
Despite the way that the DFS industry clings to the protection afforded by these carve-outs, it’s interesting to note that Iowa Rep. Jim Leach, one of the UIGEA’s authors and its biggest proponent, was not in favor of any exclusion for fantasy sports in his bill. Rather, the DFS carve-out was added later on in the process of surreptitiously incorporating the UIGEA language in the must-pass, non-controversial, anti-terrorism SAFE Harbor Act as a means of gaining support for what was essentially an unrelated piece of anti-gambling legislation. What makes this revelation interesting is that Leach, although he didn’t want to include DFS protections in his bill, did so because he allegedly didn’t believe fantasy sports was going to ever become a “large-scale activity” or that daily fantasy contests would ever be a real thing.
Even though Leach’s reasoning might seem odd to us more than a decade on, we should remember that in 2006 the DFS industry wasn’t really all that viable compared to season-long fantasy sports. If anything, the passage of time has shown that more and more lawmakers are starting to agree with Leach’s assessment that DFS is a form of sports gambling and should be regulated as such. To date, the Nevada Attorney General’s office wrote a 2015 opinion that the UIGEA “did not legalize fantasy sports,” while only Kansas and Maryland have passed laws directly mentioning fantasy sports, and in both cases the state law is almost a word-for-word copy of the UIGEA’s DFS section. What kind of ripple effect all this talk with have on what is now a burgeoning, multi-billion-dollar DFS industry remains to be seen.
Opposition To The UIGEA
As you might imagine, the UIGEA has a lot of enemies. Almost immediately after the passage of the bill in 2006, lobbying efforts began in earnest to have it stricken down, protests were formed, funds were raised for public-facing messaging to counter-signal the UIGEA and so on. Former Democratic Massachusetts Rep. Barnett “Barney” Frank led the fight against the UIGEA on the legislative front during his tenure as chair of the House Financial Services Committee. Frank, along with former Texas Rep. Ron Paul, a libertarian Republican, had both supported online gambling rights all the way back to the time of initial debate surrounding the legislation that would become the UIGEA.
Following the UIGEA’s passage, Frank sponsored H.R. 2046, the Internet Gambling Regulation and Enforcement Act, a bill that would have established rules for licensing and regulating online gambling and provided consumer protections like age restrictions and restrictions for compulsive gamblers. When H.R. 2046 fell through, Frank and Paul accordingly introduced H.R. 5767, the so-called Payment Systems Protection Act, which would have placed a one-year moratorium on Department of Justice enforcement of the UIGEA until the United States Treasury Department of the Federal Reserve could come up with a definition of “unlawful internet gambling.” This second bill was implemented, but UIGEA regulations were only stayed until June 1, 2010.
Whether or not congressional efforts will be taken up again in the future is a matter of doubt, as both Frank and Paul, who became heroes of sorts in the online gaming community, retired as of 2013.
Another entity that came into dispute with the US over the issue of the UIGEA’s prohibitions against the online gambling industry was the national government of Antigua. The tiny Caribbean country was one of the first nations to broadly legalize and regulate online gambling, and, most importantly for the purpose of this discussion, to issue licenses for the incorporation of online gambling companies. Antigua argued that the UIGEA criminalized offshore gambling operators that accept US bettors in violation of a World Trade Organization (WTO) treaty obligation, and thus the small island nation sought $3.5 billion from the US government in order to recoup lost revenues. Though Antigua received some fairly favorable rulings from the WTO’s arbitrators, the US only ended up paying $21 million in damages.
The Future Of Online Gambling In the Post-UIGEA World
Although, as has been thoroughly demonstrated, the UIGEA had a deleterious effect on much of the online gambling industry, the good news is that there are still plenty of options at which US bettors can enjoy their pastime legally. The World Trade Organization win for Antigua as detailed in the previous section gave a lot of credence to the legal standing of offshore sports betting sites, among other forms of internet-based gambling. In the intervening years since the passage of the UIGEA, much has changed, both in regard to the possible legislative actions that could obviate many of its provisions and in the growing grassroots, public-level support for broader gambling legalization – not just online gambling and not just sports betting.
Actions taken by New Jersey to repeal the Professional and Amateur Sports Protection Act of 1992 (PASPA) either by Congressional act or to have the Supreme Court strike it down as unconstitutional have finally come to an end. The Supreme Court deliberated on this case in early 2018 and came to a decision that has opened the door for widespread sports betting regulation. On May 14th, 2018, the Justices of the U.S. Supreme Court ruled 6-3 that PASPA was unconstitutional by violating the Tenth Amendment rights of the states. “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not,” stated Justice Samuel Alito on the decision.
Now, there are several states that have already begun taking advantage of the global sports betting industry that has been valued at hundreds of billions of dollars. Delaware was the first state to launch live sports betting following the SCOTUS ruling, which makes sense considering the state already had the necessary infrastructure in place. West Virginia, Rhode Island, New York, Mississippi, and of course, New Jersey, also legalized sports wagering within a few months of the decision. According to Eilers & Krejcik Gaming LLC, a gaming and technology research firm, 32 states are likely to regulate sports gambling over the next few years. It is estimated that the regulated industry would bring annual gaming revenues of up to $6 billion by 2023, showcasing just how profitable the widespread expansion of the industry could be. As more states begin to legalize online and land-based sports betting, the market will continue to reach its full potential.