Thursday, October 19, 2006

 

Internet Poker

Uncertainty and confusion, but the games will go on

As an avid online poker player, I was livid when President Bush's signed the Internet Gambling Enforcement Act of 2006. Its a terrible bill that simultaneously constitutes a:
  1. Gross infringement of American liberty.
  2. Hypocritical form of protectionism/extortion by the federal and state governments.
  3. Counterproductive waste of regulatory and legal recourses.
  4. Blatant GATT violation certain to alienate some of our best friends and trading partners.
  5. Stimulus for the creation of undetectable/untraceable methods of moving money.
  6. Huge business opportunity for hustlers and cheats.
  7. Example of a law which undermines general respect for the rule of law.
Wittier Law School Professor Nelson Rose analyzes The Unlawful Internet Gambling Enforcement Act of 2006:
The great unknown is how far into the Internet commerce stream federal regulators are willing to go. The Act requires institutions like the Bank of America and Neteller to i.d. and block transactions to unlawful gambling sites, whatever they are. But, while the Bank of America will comply, Neteller might not, because it is not subject to U.S. regulations. Will federal regulators then prohibit U.S. banks from sending funds to Neteller? And would they then prohibit U.S. banks from sending funds to an overseas bank, which forwards the money to Neteller?

For financial institutions within the U.S, the Act provides that exclusive regulatory enforcement rests with their federal regulators, like the Federal Reserve Board. The Federal Trade Commission is supposed to enforce regulations on everyone else. It is extremely doubtful whether the F.T.C. will ever try to do anything about the Netellers of the world, who are beyond regular U.S. regulatory control. ยง5365 Since there is no way to regulate overseas payment processors, the Act allows the U.S. and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders, preliminary and permanent injunctions, to prevent restricted transactions. The only problem with this enormous power is that it is, again, practically useless against payment processors who are entirely overseas.

It is difficult to serve a company with the papers necessary to start a lawsuit, a summons and complaint or petition, if the company has no offices, or officers, in the U.S. Even if the papers for such a lawsuit can be served, there is normally no requirement that foreign countries enforce these types of orders. Other countries are particularly reluctant to enforce a T.R.O., which does not even require that the defendant be present. Preliminary injunctions are also often ignored, because they are issued without a full trial and can be modified at anytime by the trial judge. Neteller operates out of the Isle of Man. I do not know of any treaty or other law which would require the Isle of Man to enforce even a permanent injunction against one of its licensed operators.
I agree that the ultimate effect of the bill is almost entirely unknowable until a regulatory regime is established and our trading partners, particularly the Eurpoean Union, react to it. And until the courts invevitably have their say.

Neteller's recent press release (in pdf format) is here. Unfortunately they intend to comply with the provisions of act. Bettingmarket.com summarizes:
Neteller reiterates its previously stated opinion that the obligations of financial transaction providers such as Neteller, remain unclear at this point in time, and that clarity will only be achieved when the Secretary of the Treasury and the Board of Governors of the Federal Reserve System issue the regulations they are required to prescribe within 270 days. However, the company says that it will now accelerate its review of this process;
...
In the interim period, the company states that US-resident customers will still be able to use the Neteller service as per normal. The company highlights the fact that US-resident's funds are held in trust accounts and will be available for withdrawal, on demand. The ability to withdraw funds will exist regardless of the customer's location or ability to transfer to any site.
The The Volokh Conspiracy's David Post and Orrin Kerr offer their takes on the matter. Post's argument that the act simply won't work in practice is correct.

In the wake of the bill's signing accurate information regarding the current status of online poker has been difficult to find. Countless blogs dedicated to gambling or poker seem to have sprung up overnight. Most seem like propaganda for gambling interests. Though from one of these new blogs, this post seems to offer a succinct and accurate overview of the current state of internet poker, with links to news articles. This post from bettingmarket.com is informative, too. If anyone has information that either of these links or my post contain any inaccuracies, please let me know in the comments section.

My favorite site, Party Poker, immediately stopped service to its US customers once the bill was signed. I've played only at Tradesports Poker since, where I've been the only American at the table every time. Via Neteller, I plan on funding accounts at Full Tilt Poker and Poker Stars in the next few days. As far as I can tell they are the highest profile sites with the most traffic that plan on remaining in the US market. Again, anyone with more or better information please let me know in the comments section.

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