.................................................. ...................
(Original Signature of Member)
110THCONGRESS
2DSESSION
H. R. ll
To ensure that implementation of proposed regulations under subchapter
IV of chapter 53 of title 31, United States Code, does not cause harm
to the payments system, and for other purposes
IN THE HOUSE OF REPRESENTATIVES
Mr. FRANKof Massachusetts (for himself and Mr. KINGof New York) intro-
duced the following bill; which was referred to the Committee on
lllllllllllllll
A BILL
To ensure that implementation of proposed regulations under
subchapter IV of chapter 53 of title 31, United States
Code, does not cause harm to the payments system,
and for other purposes
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Payments System Pro-
tection Act of 2008’’.

SEC. 2. PROHIBITION.

The Secretary of the Treasury and the Board of Gov-
ernors of the Federal Reserve System, whether acting
jointly or separately, may not propose, prescribe, or imple-
ment any regulation under subchapter IV of chapter 53
of title 31, United States Code, or otherwise give effect
to such subchapter or any such regulation, including the
proposed regulations published in the Federal Register on
October 4, 2007, except to the extent as any such regula-
tion pertains to wagering of the type that is prohibited
(as of the date of the enactment of this Act) under chapter
178 of title 28, United States Code (relating to profes-
sional and amateur sports protection) or except as pro-
vided in section 3.

SEC. 3. RULEMAKING TO IMPLEMENT SUBCHAPTER ON
PROHIBITION ON FUNDING OF UNLAWFUL
INTERNET GAMBLING AND DEFINE UNLAW-
FUL INTERNET GAMBLING.

(a) INGENERAL.—Notwithstanding section 2, the
Secretary of the Treasury and the Board of Governors of
the Federal Reserve System, in consultation with the At-
torney General, shall jointly develop and implement regu-
lations (which the Secretary and the Board jointly deter-
mine to be appropriate), on the record after opportunity
for agency hearing involving an administrative law judge
or similar official, under subchapter IV of chapter 53 of
title 31, United States Code, that shall include a definition
of the term ‘‘unlawful Internet gambling’’ for purposes of
such subchapter and such regulations, after conducting a
full economic impact study of the proposed regulations
under chapter 6 of title 5, United States Code (commonly
referred to as the ‘‘Regulatory Flexibility Act’’).

(b) COORDINATIONWITHPROHIBITION.—Upon the
effective date of final regulations under subsection (a),
section 2 shall cease to apply.

I think the above is what Frank is planning on marking up on Tuesday.

IMHO, this is a really smart move by Frank and should be a great benefit to poker players. It will also keep the Litigation wing of the PPA quite busy .

It immediately creates a situation where banks will no longer feel threatened by poker transactions - only sportsbetting transactions are covered by the UIGEA until and unless a different ruling is issued by the Administrative Law Judge (ALJ). The ALJ will have his work cut out for him, but there is plenty of opportunity for input from the PPA and others in such a process. And of course his decisions can be appealed, in one way or another.

A poker only e-wallet will be able to conduct business openly at least until there is an adverse ruling. And the likelihood of an adverse ruling to Poker is small, IMHO, except for a handful of states (and there is still the commerce clause argument in those states).

Sports Leagues have no reason to complain, and even our Anti-gambling opponents should be quieted: if it is already illegal then the ALJ should say so right? This just insures that the final result will (eventually) be clear and unambiguous.

Everyone should show support for this, I am assuming TE is working on a new draft letter as we speak.

Skallagrim

Well, if the ALJ judge is honest, they would have to acknowledge there is no federal law against placing any bet, poker or sports.

If the ALJ is enlightened, they may rule that the US needs to honor its treaty obligations.

Did you catch the part that says, "After an economic impact study?"

I think Frank is definitely looking to have something through a committee so he can jam it on to something at the end of the year.

Who is the ALJ? What is his/her political persuasion?

Is this an appointment affected by what type of administration is in place? In other words, how important will the next election be to this specific matter?

I see this as a positive development. The problem is what if online poker is determined to be Internet gambling?

The FOF has got to be F R E A K I N G out.

Porter gets a letter today. I hope everybody writes, even if their member isn't on the committee.

Dear Representative Capito,

I am writing and faxing you today as a follow-up to my phone caller earlier today asking for your support of HR 6870, The Payment System Protection Act.

This bill itself conforms to and requires exactly the request your fellow HRFC members Christopher Shays, Jim Gerlach, Judy Biggert and Kevin McCarthy asked for in a letter dated July 25, 2008 and addressed to Chairmen’s Henry Paulson and Ben Bernanke.

Unlike prior bills, this bill provides a means for those charged with writing regulations for the Unlawful Internet Gambling Act (UIGEA) to provide clarity to banks and payment processors while at the same time imposing immediate restrictions on Sports Wagering, an activity we all agree is clearly illegal.

Many other forms of Internet Gaming are not illegal in all states; even the UIGEA itself in the definitions section states Fantasy Sports, Educational Games and Contests are not considered illegal wagering. These are in addition to other games classified as “Skill” games by the Federal Trade Commission that has their own rules concerning these under sweepstakes laws along with the Interstate Horse Racing Act passed by congress.

The UIGEA itself even requires regulations to not prohibit lawful transactions but provides no means to determine legal except the opinion of the Department of Justice, which believes ALL Internet Gaming is illegal including games congress, has stated to not be illegal with no regard to state laws as well.

For instance our own WV State code though banning “Games of Chance” also lists in the same code section games not chance and states Bowls, Chess, Backgammon (a dice game though craps games are illegal) Checkers and other licensed games are not illegal gambling.
Many companies offer and I enjoy skill gaming, games offered by licensed companies both in the U.S. (Massachusetts, Florida and California have many) and some from our friend Great Britain and others countries.

Clarity is needed for banks and payment processors and an Administrative Law Judge can provide that guidance to the Federal Reserve Board and Department of Treasury so they may write effective regulations rather than have legal counsel for various banks and processors attempt this on a state-by-state basis, which in the end will only lead to greater confusion.

If you have any questions I may try and answer, feel free to call me or contact me via the phone number or e-mail address below.

Sincerely,

obg

While you are right about the placing of a sports bet Jay Cohen, it would be disingenuous to not remind folks that the ACCEPTING of a sports bet is illegal under the wire act.

Poker, however, is most likely to be held to not be covered by the wire act at all.

I doubt the ALJ will be open to considering treaty obligations based on the way the UIGEA and the treaty are worded, but it may well be worth a try (nothing to lose but the time and effort trying).

Assuming the ALJ agrees the wire act does not cover poker, then every argument we have will be before him concerning whether state laws make online poker illegal - this will MOST LIKELY result in online poker being declared legal in at least a few states, probably most, maybe all.

And while I am not certain exactly who gets to appoint the ALJ, it is certainly someone in the executive branch (maybe with Senate approval? - if no one else does I will look it up later). So yes, who is president next will likely make a difference.

Skalalgrim

The Senate does not confirm ALJ's. From what I can find out, they are selected by a committee consisting of some ALJs, some reps from the American Bar Association and a rep from the Office of Personal Management. This should be better for online poker than someone appointed by Pres. Bush or Pres. McCain. In fact, the ABA is about as liberal as it gets (sorry Skall).

I really like online poker chances under federal law and most states. Also, because the economic cost study will take a long time (another good thing about this bill), the Rousso case may have been adjudicated by a competent court by the time the regulations are made final. This may overturn all the state laws prohibiting online gambling. Of course, if the final regulations define online poker to be UIG, then this can be appealed in some federal court. Online poker needs some hearing in some court so that the DOJ cannot intimidate all its entities without actually prosecuting a pure online poker entity.

Sorry, Jay about sports betting, but I was surprised to find out how many sport betting sites still accept US citizens. Unlike a lot of online poker sites, the sports betting sites do not seem to be afraid of the DOJ or US law anyway. In addition, I really doubt that the UIGEA will be able to prevent money transfers to and from sports betting sites. Most, outside of Bodog (I am waiting for check from them because I played poker there), most sports betting sites seem to be able to accept credit card deposits and payout by check.

I really hope that somehow, someway this bill becomes law this year. Sen. McCain is leading and the Generic Ballot is essentially tied.

Skall,

Yes, I have at least an updated letter after the markup to reflect this new bill. As for now, the grassroots effort is focusing on phone calls (due to time constraints and because FoF is working the phones as well). PPA sent an alert to every member who resides in the district of a HSFC member.

The noise we all made after the HR 5757 King Amendment loss was heard in D.C. loud and clear. So, hopefully all of us will call our congressman before the vote, regardless of he/she is a committee member, and then we all need to be ready to respond after the vote.

I am not subtle...

To the Honorable Jon Porter:

Sir,

Congressman Barney Frank is introducing House Bill HR6870 in committee next week. I realize you are not a member of this committee, but do have influence among members of your caucus who may be. I urge you to support Congressman Frank's measure to alleviate the pressure which the entire system is under due to the terrible legislation which is the UIGEA.

I play poker and I vote.

I will remember who supported us and who did not in November.

Sincerely,


Like I said, not subtle. (I'm not voting for Porter, anyway.)

This is wrong. The first words of the Wire Act are "Whoever being engaged in the business of betting or wagering..." Operating a sportsbook that uses the wires may violate federal law, but I'm not aware that any kind of gambling does. Gambling /= operating a gambling business.

So I went to Citizen Link to read their commentary and noticed they posted a link to the HFSC. I clicked the link and left a message urging the committee to support Frank's bill. I went back to Citizen Link clicked on their "Contact Us" link and left the following.

Thank you for providing the link to the HFSC so I could inform them of my support of Rep Frank’s new Bill.

Respectfully,

I thought it only fair that I should thank them for their help.

But the text of HR 6870 says:

"may not propose, prescribe, or implement any regulation... except to the extent as any such regulation pertains to wagering of the type that is prohibited (as of the date of the enactment of this Act) under chapter 178 of title 28, United States Code (relating to professional and amateur sports protection)"

HR 6870 seems to be saying that sports betting is illegal under that statute. But, like the Wire Act, it only applies to the operator: "sponsor, operate, advertise... a lottery, sweepstakes, or other betting, gambling, or wagering scheme based... on one or more competitive games in which amateur or professional athletes participate..."

So is the Frank bill making sportsbetting (as opposed to operating a sportsbook) illegal? Or was the drafter just overly casual and this won't change the law?

That is from the PPA talking points memo to those of us in a district of a HRFC member.

obg

This area of law is not simple. Both OBG and Self Made are right to some extent.

The key is this: the Wire Act does not make a criminal of the person making the bets, but does of the person accepting the bets (over a wire, while engaged in the business. etc...). So is the act "illegal"? Its a matter of semantics.

What is going on here is not that placing a sports bet somehow becomes a crime with this bill, but that the UIGEA REGULATIONS will, at least at first, only cover sportsbetting. In other words, the person making the bet is still not a criminal, the person or Business accepting the bet is a criminal (except for the Treaty argument mentioned by Jay, but which has yet - but it aint all over - to win in a court), and the banks and financial service providers will be instructed (by the initial regulations) to block any transaction they can identify as sports bet related.

Skallagrim

Great points and as a legal eagle in this I pose the folowing for thought:

1. It is not illegal even under the "Safe Harbor" of the Wire Act to place bets. This was even testified to before the HFSC by a DoJ rep.
2. In the BoS case (and another I recently) over Money Laundering does bnot include disbursement of funds to individuals who are due wagering wining funds (in the BoS case it was reccomended those charges be dropped as well).
3. If 1 & 2 are correct then someone should have standing, either a site (though I doubt they would) or an individual to challenge the blocking of payment processors from RECEIVING funds on a players behalf or even applicability of this under even UIGEA as these rulings came after its passage.

Thoughts?

obg

I live in Kanjorski's district. He will be receiving a telephone call Monday.

I'm not sure how. Under the UIGEA, the online gambling would have to be illegal under a state's law for the receipt of funds to be a crime, since there is no federal law making any gambling a crime. And since the gambling has to be a crime for the UIGEA to apply. Maybe this would restrict it to sportsbetting, but they'd still have to show it's illegal under a state's law?

I'm not sure the actual law matters to what they'll do though.

Nothing in the UIGEA prohibits players receiving funds, only gaming businesses receiving funds wrt illegal online gambling. Unfortunately, most of the payment processor problems aren't a function of actual legal action against them. They can voluntarily refuse to process gambling payments. And in a case like Zip Payments, the money didn't belong to the players, did it? So it may be difficult to find an effective way to challenge this.

Sorry Self Made, if one ignores for a second the foreign treaty argument, there is no doubt that an online sports book ACCEPTING an online sports bet violates the FEDERAL Wire Act. The fact that there is no criminal charge available for the player does NOT make this act "legal."

Imagine that there is no crime for posssessing weed but selling it was still a major felony: weed is thus still an "illegal" substance when its being sold. Similarly, sports betting is "unlawful internet gambling" under the Wire Act.

Skallagrim

I've never understood the UIGEA that way. As I understand it, the betting has to be illegal where the bet initiates. There are a slew of analyses of it here that seem to disagree with you as well.

Giving the executive branch the power to define unlawful internet gambling would currently result in a defintion unfavorable to poker, right? So presumably the intent of this bill is to try to get it passed only if Obama wins the election? And are we even sure that an Obama Treasury/DoJ would not adopt the same untenable position as the current DoJ?

As I read the proposed legislation, the role of the ALJ or similar official is to preside over an "agency hearing", not to issue a definition of unlawful Internet gambling, which is the role of the Treasury. But I don't know what an "agency hearing" is.

I interpret HR 6870 to mean that the ALJ determines the definition of UIG. This may, or may not, include online poker. If it does then most likely some type of appeal will be available at the agency level. If the agency affirms the ALJ decision, then litigation in court can decide the issue.

IMO, online poker needs a final determination on the issue whether it is covered by the Wire Act and UIGEA. The DOJ has deliberately declined to prosecute any pure online poker entity to set up a test case. Maybe they are afraid of the result given the precedent of In Re Mastercard. So passage of HR 6870 provides a determination of this issue. IMO, most likely an ALJ will not rule against In Re Mastercard.

Is this vote going to be on the net?