Party Poker Blog

Thanks to my imaginary internet friends who pointed out this tidbit from the NY Times.

Too cool - my pal Otis is live blogging the damn thing at UpForPoker.

Congress to Take Testimony on Internet Gambling Ban

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The Unlawful Internet Gambling Enforcement Act of 2006 made it illegal for banks and other financial institutions to process online wagers. The goal was to find an indirect way to regulate offshore casinos, which are outside the jurisdiction of American law enforcement. In short: the casinos are out of reach, but not the banks in the United States that process their transactions.

The question now is whether the banks are capable of stopping the transactions. That is the topic of a hearing scheduled for Wednesday in front of a subcommittee of the House Committee on Financial Services.

It’s a hearing that has, perhaps not surprisingly, an interesting political subtext. But first, a bit of background.

Under the gambling act, the Treasury Department and the Federal Reserve were charged with coming up with rules that financial institutions would be required to follow to block gambling transactions. The Treasury Department published its proposed rules last year, and then, as is customary, asked for public comment on the ideas.

Among those critical of the rules were some banks and their trade organizations. For instance, the American Bankers Association has asserted that its members are going to have a difficult time complying. In a letter to the Treasury Department, the organization said that even the definition of “unlawful Internet gambling” was too vague.

The ABA is among the groups scheduled to testify before the Subcommittee on Domestic and International Monetary Policy, Trade and Technology.

Advocates of the legislation have argued that, broadly speaking, an effective way to enforce a gambling ban is to go after the payment mechanism. They have been emboldened by the fact that Internet gambling activity has been hindered in the United States each time that financial services companies – from PayPal to banks issuing credit cards – have agreed to make best efforts to stop processing online wagers.

In the case of the subcommittee hearing, there is a political subtext. Congressman Barney Frank, the Massachusetts Democrat, is the chairman of the House Committee on Financial Services. He is also the author of a bill that would legalize and regulate Internet gambling – a law that would essentially override the Unlawful Internet Gambling Enforcement Act.

Ultimately the subcommittee does not have the power to tell the Treasury Department to change its rules – short of passing new legislation. But the hearing does serve to keep alive the debate about whether a ban on online gambling is enforceable, a debate that the offshore casinos are more than happy to stoke.

One organization representing offshore gambling companies said today that the banks shouldn’t be wasting their time regulating gambling because they have bigger issues to deal with.

“Rather than these companies spending their efforts on this, it would make sense to be more focused on more important issues, such as responding to what’s happening to the economy,” said Michael Waxman, who does public relations for the Safe and Secure Internet Gambling Initiative, a lobbying group backed by offshore casinos.

One could argue that financial institutions should be capable of focusing on more than one issue at a time — but perhaps that is a matter for the subcommittee to consider.