Great first step towards legalized US internet wagering

The Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006. UIGEA does not prohibit Internet wagering; it bars banks and credit card companies from processing payments for such wagering by prohibiting the use of credit in connection with unlawful Internet wagering. The law excludes from the definition of “unlawful Internet wagering” “any activity that is allowed under the Interstate Horseracing Act of 1978,” thus protecting racing’s interstate wagering activities by maintaining the status-quo with respect to such activities under the Interstate Horseracing Act.

Senate Internet bill introduced

Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) introduced the Bipartisan Tax Fairness and Simplification Act of 2010 (S. 3018). Although the bill is principally a tax bill, including provisions to make the federal tax code simpler, fairer and fiscally responsible, it also includes provisions that would permit Internet wagering with federally licensed operators and tax it. Presumably the Internet tax would pay for some of the other tax changes proposed in the bill. The bill was referred to the Senate Committee on Finance.

Basically, the bill is identical to Congressman Barney Frank’s Internet Gambling Regulation, Consumer Protection and Enforcement Act (H.R. 2267).

The new Senate bill would not repeal the Unlawful Internet Gambling Enforcement Act. Rather it would create a federal regulatory and enforcement framework under which Internet gambling operators/licensees could obtain federal licenses from the Department of Treasury authorizing them to accept wagers over the Internet from individuals in the U.S. The bill applies to both foreign and domestic operators, including those offering advance deposit wagering on horse racing.

The bill defines an Internet gambling facility as one that manages or controls “an Internet site through which bets are initiated, received, or otherwise made, whether by telephone, satellite, or other wire or wireless communication.”

Operators would be licensed by the Department of Treasury, which would have authority to adopt regulations; authorize, suspend and terminate licenses; employ agents; and enforce the Act.

In order to receive a license, operators, including those offering wagering on horseracing, would have to apply to the Secretary of Treasury and:

• Subject themselves to U.S. jurisdiction and all U.S. laws related to Internet wagering;
• Provide information for review of their financial condition, structure, experience, suitability and criminal background checks; and
• Agree not to accept any type of bet that is initiated or terminated in a state or tribal land that prohibits Internet gambling.

A state regulatory authority may certify to the Secretary that applicants for licenses meet the qualifications for licensing. Licenses would be good for five years.

To be granted a license, Internet gambling operators would have to have safeguards in place to:

• Ensure that a bettor is of legal age in the jurisdiction in which located;
• Ensure that a bettor is physically located in a jurisdiction that permits Internet gambling;
• Combat fraud, money laundering and terrorist finance;
• Ensure that all taxes and fees are collected from operators and individual bettors; and
• Combat compulsive Internet gambling.

“Opt-out” and other gambling statutes

Individual states and Indian tribes would be able to “opt-out” and thus prohibit or limit Internet gambling within their borders by notifying the Secretary that they will limit such bets. Bets could not be taken from any such state or tribal land. Violations would subject operators to loss of license, fines and/or criminal penalties of up to five years.

The bill provides that the federal wire statute (18 U.S.C. 1084) would not apply to any wagers with an operator licensed by the Secretary under the Act.

Fees and taxes

The bill authorizes Treasury to assess “user fees” to administer the act and to meet the expenses of reviewing license applications and administering the Act.

The legislation would impose a two percent fee on any company licensed by Treasury to offer Internet wagering. The fee would be paid by the operator every 30 days based on funds deposited with the operator by bettors during that period. The fee could not be paid out of funds deposited by bettors or their winnings. The fees would be paid into the general fund of the Treasury.

In order to receive a license, the operator must implement measures to ensure that all taxes applicable to Internet gambling are collected from individual bettors and from the operators and paid to the Treasury.

The legislation would impose new record-keeping requirements on operators and require them to disclose the name, address, social security number of any person placing a bet. It would also mandate the disclosure of the bettor’s gross winnings, gross wagers, gross losses and net winnings for the year. Licensee/operators would be required to withhold on the bettor’s winnings.