November 11, 2008

Controversy Ensues Over Internet Gambling Rules

On Monday, the Bush administration was accused of rushing to implement Internet gambling rules that have raised concerns among banks before leaving office in January.

House Financial Committee Chairman Barney Frank, a Massachusetts Democrat, said in a letter to U.S. Treasury Secretary Henry Paulson: "I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act."

Frank said the midnight rulemaking would tie the hands of the new Administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee.

A bill passed by Congress in 2006 "” when Republicans were still in control of the House of Representatives and the Senate "” said the U.S. Treasury Department and the Federal Reserve were required to issue new rules on Internet gambling.

That bill prohibited companies from accepting payments in connection with "unlawful Internet gambling." It eventually cost EU Internet gambling companies billions of euros in lost market value

However, the bill relied on existing Federal and state laws to define what types of gambling are illegal online. It also still allowed any online horserace betting permissible under the Interstate Horseracing Act of 1978.

Soon after, both Treasury and Federal Reserve officials told Frank's committee during a hearing in April they were "struggling" to determine what type of online gambling was illegal under the bill.

"The challenge we have is interpreting ... federal laws that Congress itself isn't sure what they mean," said Louise Roseman, the Fed's director of reserve bank operations and payment systems.

Legislation by the House Financial Services Committee was passed in September that would block implementation of the new regulations, but neither the full House nor the Senate has followed up with a vote on the measure.

A Treasury spokeswoman said in response to Frank's letter to Paulson that the Treasury and the Fed were working together "to gather considerable public comment and complete these regulations as directed by Congress."

The European Commission has also been investigating whether the U.S. Justice Department was unfairly singling out EU Internet gambling companies for enforcement in response to the 2006 law.

A report by the EU team who visited Washington to investigate the issue is expected by the end of the November.

The European Commission could bring action against the United States at the World Trade Organization, depending on the reports findings.