The 2012 Reid/Kyl draft bill
became public at the end of October. It is thought that Reid may attempt to attach this bill, either as written or amended, to must-pass legislation during the 2012 Congressional lame duck session which runs from November 7, 2012 to January 3, 2013.
The ongoing discussion of this draft bill can be found in these threads:
Draft of Reid/Kyl Online Poker Bill Obtained by PPA
The what are our chances in the lame duck thread
Here are my cliffs of the draft bill provisions:
If all you want to know is the general intent of the bill, then this summary of the Sense of Congress from the bill sums it up:
(b) Sense of Congress.—It is the sense of Congress that—
(1) Internet gambling involving house-banked games or sports betting should be strictly
(2) an online poker market should be limited to only those States and Indian tribes that
affirmatively choose to opt-in and the market should be regulated by State and tribal entities
that have an established track record of providing a well-regulated gaming market to United
States consumers, subject to a robust licensing and regulatory framework—
(A) to prevent underage wagering and otherwise to protect vulnerable individuals;
(B) to ensure the games are fair and are conducted honestly;
(C) to address the concerns of law enforcement; and
(D) to ensure that States and Indian tribes that wish to prohibit online poker may do
(3) licensed online poker operators should be limited, at least initially, to service
providers that have an established track record of complying with a strict regulatory
environment, have an established track record of providing fair games to consumers, and
have significant goodwill and assets at stake, in addition to their online poker assets, to
ensure they would comply with the strict regulatory framework and that they only conduct
business in those States that have elected to opt-in; and
(4) Congress should ensure that any intrastate lottery transactions completed through the
use of the Internet are limited to sales of tickets and related activities so that they do not
allow for the circumvention of Congressional limits on Internet gambling on house-banked
and other casino games, without unduly limiting the power of the states to offer intrastate
Here are specifics of the provisions:
Every form of online wagering site that fits the definition of Class III gambling under the Indian Gaming Regulatory Act other than licensed horse race wagering, State or Tribal lottery ticket sales (has to be traditional lottery tickets, not scratch-offs, VLT games or such), intrastate remote gaming (limited), legal skill games and licensed online poker will be illegal in the US and punishable by fines, up to 10 years in prison or both.
Office of Online Poker Oversight [OOPO]
Not later than 180 days (6 months) after enactment, the Secretary of Commerce has to create the Office of Online Poker Oversight to:
1. Enact and oversee licensed and regulated online poker in the US.
2. Be a licensing and regulatory body for online poker.
Not later than 270 days (9 months) after enactment, the Secretary (or OOPO) has to publish regulations and standard for the licensing of online poker licensing and regulations for problem gaming (and these have to be equivalent to those adopted by the initial Qualified Bodies).
If the Secretary doesn't meet that 270-day deadline, then these regulations and standards become the same as those adopted by the first Qualified Body until such time as the Secretary is able to issue federal regulations.
Not later than 150 days (5 months) after enactment, the Secretary has to publish in the Federal Register all the information necessary to submit an application to become a Qualified Body (State or Tribal agency authorized to license and regulate online poker).
State or Tribal agencies wishing to become a Benchmark Qualified Body must submit their application not later than 180 days (6 months) after enactment.
Not later than 270 days (9 months) after enactment, the Secretary (or OOPO) has to designate at least three Benchmark Qualified Bodies from those that applied by the 180-day deadline.
If the Secretary fails to designate three by the deadline, then by 300 days after enactment (10 months), the Secretary has to designate all qualified applicants who submitted an application not later than 270 days (9 months) after enactment as Benchmark Qualified Bodies.
Qualifications to become a Qualified Body must include reputation, experience, staffing, enforcement resources and “capabilities relevant to the online poker environment”; and includes consideration of years of regulatory experience, size of regulatory market, demonstrated capabilities, influence in the industry and experience working with Federal law enforcement and FinCen.
One year after appointment of the Benchmark Qualified Bodes, other State or Tribal agencies can apply to become a Qualified Body. They have to live up to the standards of the Benchmark Qualified Bodies to be accepted.
State or Tribal agencies cannot be accepted as a Benchmark Qualified Body or as a Qualified Body unless they:
1. Regulate at least 0.3 of total US gaming revenue (based on 2010 figures) for 3 out of the last 5 years.
2. Their State or Tribe has opted in.
3. None of the agency members has ties to owners of sites that haven’t yet been licensed or significant vendors that haven’t yet been found suitable, or to illegal gambling sites.
Sites need one license from one Qualified Body to offer online poker to anyone located within any opt-in state or tribal lands.
Licensees can have separate operations outside the US for online poker and/or online gambling as long as there is no commingling of players, funds or records.
License applicants must agree to be subject to US courts as well as the courts of the State or Indian tribe where their Qualified Body is located.
The bill covers significant details of how a Qualified Body determines the suitability of the license applicant and their significant vendors.
A license application will be denied if any of these are true:
1. The applicant has been convicted of an offense subject to one year or more imprisonment.
2. Is delinquent in any Federal or State tax.
3. Took bets or wagers on sporting events in violation of State or Federal law (or affiliated with anyone who has done so).
The bill covers significant details of how a Qualified Body determines the suitably of significant vendors (service providers) of a license applicant, to receive a certificate of suitability as a vendor.
For the first two years after enactment, licenses can only be issued to someone who owns or controls (and has done so for the 180-day period prior to enactment), or is owned by or controlled by someone that who owns or controls (and has done so for the 180-day period prior to enactment):
1. Casinos, riverboats or race tracks that are licensed for 500 or more gambling machines (not including pari-mutuel horse wagering) in one facility.
2. Poker rooms licensed for 250 or more tables.
3. Race tracks that have conduct live thoroughbred horse races which involved at least $225M of wagers during at least 3 of the past 5 years before enactment.
4. Licensed manufacturers who supplied facilities in #1 above throughout the 180-day period prior to enactment.
After two years, the Secretary (or OOPO) may expand licensing to other entities in any manner that is consistent with preventing public risk, subject to public notice and comment.
Licenses are for 5-year terms.
The Secretary (or OOPO) will maintain a list of all currently licensed sites, available publicly on the Internet.
No one under the age of 21, to a “reasonable degree of certainty”, “including by the use of biometric or other technologies of materially equivalent reliability at the time of registration and all logons.”
Must be physically located in an opt-in jurisdiction, to a “reasonable degree of certainty”, “including by the use of Global Positioning System or other location technologies of materially equivalent reliability in combination with screening of Internet Protocol addresses or similar techniques at the time of registration and all log ons.”
And others for: collection of site taxes; reporting of licensee fees; against financial crimes; privacy of player information; fair and honest games (including no cheating, collusion or bots); segregation of player funds and “are otherwise protected from corporate insolvency, financial risk, or criminal or civil actions against the licensee.”
Site gaming equipment must be located inside the US. Qualified Bodies can require their licensees to locate the equipment within their State or Tribal Land.
If a license is revoked, the licensee must return player funds within 30 days.
For each violation of the provisions by a licensee, the Secretary (or OOPO) or a Qualified Body can assess a penalty up to the greater of:
1. The amount involved in the violation.
2. $250K for an individual; $750K for a corporation.
3. Whatever is applicable under State or Tribal law.
For operating without a license, the Secretary (or OOPO can assess a penalty up to the greater of:
1. The total bets or wagers of the players during the period of operation while unlicensed.
2. $1m per day that players place bets or wagers.
The usual, but quite extensive, safeguarding regulations are required:
Sites make available materials on compulsive gaming at every login and by request.
Self-limiting options available to players.
Self-excluded players blocked on all licensed sites.
Self-exclusion list is kept private, except to significant vendors as required for blocking.
Prohibited persons (per court order, law, the Secretary or a Qualified Body) are blocked.
States must opt-in to participate, by vote of their state legislature. The vote must be by “a majority of a quorum of each chamber of the legislature”. This is not the same as a majority vote of each chamber, as it would take only a majority of those congresscritters attending the voting session to pass it. Also note that the opt-in provision does not require that the state bill or resolution is also signed by the state governor to take effect.
Once a state is opted in, it would take a similar state vote to change to opt out status.
A state cannot pass its own law that changes any of these terms of opting in or out.
Any Indian tribe can opt in as long as their state has already opted in. A tribal opt in is by written notice to the Secretary by the tribe’s “principal chief or other chief executive officer or designated authority”.
Once a tribe is opted in, it can later opt out by the same method.
Tribes that are located in states which are not opted in can still be designated as a Qualified Body for licensing and regulating sites.
Unlicensed Intrastate/Intratribal-land Remote Wagering
Any intrastate or intratribal-land remote wagering (other than licensed online poker under this bill) cannot be authorized or operated by any state or tribe unless:
1. It doesn’t involve any facility or service provider located outside the state or tribal land;
2. It doesn’t involve any financial institution for deposits or withdrawals; and
3. The wagering activity, including routing over the communications facility, takes place wholly within the state or tribal land.
Legal exceptions are:
1. Remote wagering by players located on the casino gambling facility premises.
2. Remote wagering authorized by state or tribal law prior to May 1, 2012.
Sports wagering, including online, continues to be illegal with the exception of the grandfathered-in wagering under PASPA. Fantasy sports wagering continues to be legal as before under applicable State and Federal law.
Internet Poker Parlors
It will be illegal to operate an Internet poker parlor (where computers are available mainly for online play), including private clubs. The criminal penalty for operating one will be fines and/or up to 5 years imprisonment.
Cheating and Fraud
It is illegal to violate a site’s terms of play “for the purpose of obtaining prohibited or unfair advantage in any game”, or to use a device similarly.
It is illegal to use a cheating device (including a bot) to cheat or defraud a site or any player.
Criminal penalties are fines and/or up to 3 years imprisonment. Persons convicted can be banned from online poker.
Other Skill Games
Online wagering on other skill games is not considered online gambling under this bill, and continues to be lawful where not prohibited by law.
The provisions of this bill supersede any existing state or tribal law.
Other Federal Gambling Law Amendments
This bill changes the Federal Wire Act and IGBA extensively to make all transmissions related to interstate or foreign Internet gambling, with the exception of legal horse race wagering, legal intrastate lottery ticket sales and licensed online poker, expressly criminally illegal. It also requires ISPs to close the accounts of any site where a Federal, State, tribal or local law enforcement agency with jurisdiction has given written notice to the ISP that the site is in violation.
The first licenses will go into effect 450 days (15 months) after enactment. Existing sites must cease US operations within 30 days after enactment and return funds to US players. Criminal penalties for violation are fines up to 3x player balances and/or up to 2 years imprisonment.
Persons who accepted online wagers in violation of Federal or State law after December 31, 2006 will not be eligible for licensing for 5 years. Licensees cannot use assets (database, software, etc.) of such persons (including business entities) for 5 years.
Amendments to the UIGEA incorporate changes to what is legalized under this bill, and include the site whitelist for use by transaction providers.
This provision in the bill specifically addresses “Bettor Forfeiture”. It states that any property, real or personal, that is involved in a transaction or attempted transaction that violates this Act is subject to forfeiture. As well, any property traceable to such property is similarly subject to forfeiture.
Here is the provision, word for word:
Here is a link
SEC. 204. BETTOR FORFEITURE.
Section 981(a)(1) of title 18, United States Code, is amended by adding at the end the
“(I) Any property, real or personal, involved in a transaction or attempted transaction in violation of section 103 of the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012, or any property traceable to such property.”.
to the referenced section of the US Code.
According to Skallagrim, this does not mean that the government can seize all your property just because you play on an unlicensed site or from an opt out state. Specifically, the terms "involved in" and "traceable to" would legally limit the applicability of the provision to site player account balances and funds in transit to or from the sites (deposits and withdrawals).
However, in the case of a professional player who earns their living from online poker, it is possible that additional personal property could be subject to forfeiture as "traceable to" transactions on the illegal sites, should the government wish to apply the provision in that manner.
Site Fees and Taxes
License applicants, significant vendors and licensed sites are assessed fees to cover the costs of operations of the Qualified Bodies and the OOPO.
Sites pay a site tax of 16% of their gross revenues (rake & fees) on a monthly basis. Of that, 14% goes to the States and Tribes and the remaining 2% to the Federal govt. The States and Tribes share gets split, 70% to the location of the players, 30% to the location of the corresponding Qualified Bodies of the sites. The 2% share can be upped to a 3 1/2% share if the 2% isn't enough to cover expenses.
Bonuses and promotional credits are excluded from revenue taxes, but I’m not sure from the wording if it means that any rake generated off them are excluded from the gross revenue figure, or that it means the total amounts of bonuses and credits are deducted from gross revenue, or something else.
$3M per year from the Federal share of the site taxes is paid out for Native American Programs. $2M per year for five years from the Federal share of the site taxes is paid out for Responsible Gaming programs. Expenses by Commerce for enforcement of this Act and the expenses by Treasury for enforcement of this Act and the UIGEA are paid from the federal share. Anything left at the end of the year in the federal share is paid out to the States and Tribes, in the same 70%/30% split.
Unlicensed and illegal sites owe a site tax of 50% of their gross revenues (in addition to any criminal penalties). Significant vendors for such sites are equally liable for this tax.
States and Tribes cannot impose additional site or wager taxes, with the exception of income taxes on sites located within their jurisdiction. States and Tribes must spend at least the lesser of ½ percent of their receipts from the site taxes or $1M per year on problem gaming programs.
The bill does not change how players are assessed federal or state income tax on their winnings. There are provisions to conform reporting and withholding for online play to existing Federal tax code. Withholding will apply to net wins when withdrawing if you do not provide your Taxpayer ID (e.g., social security number) to the site or if you are not a US resident and owe US taxes on your winnings (or don’t provide proper US tax documents). Sites will report each player’s gross wins, gross wagers, gross losses, net wins, account balances and other information after the end of each year to the Federal govt (probably a 1099 form), with a copy to the player.
Expansion to Other Gaming
It will take a vote of 3/5 of the Members of the US Senate to change the Congressional procedural rules in regards to any future bill on Internet gambling, as established in this bill, before such a bill could be introduced in Congress. This bill provision acknowledges that there may be other constitutional legal methods of changing the procedural rules in the House and/or Senate. But bottom line, any bill to create any other online gambling carve out would first require passage of a change to the Congressional procedural rules before such a bill could even be introduced to Congress.
The US Trade Representative must complete withdrawal of US commitments for regarding Internet or remote gambling under GATS within 180 days (6 months). If unable to do so, the Trade Representative must proceed with arbitration per the terms of GATS to complete the withdrawal.