Congressmen Concerned about UIGEA Sends Letter

Congressmen Barney Frank, Ron Paul, Luis V. Gutierrez and Peter King have sent a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke expressing their concerns about the Unlawful Internet Gambling Enforcement Act (UIGEA).

The letter is a consequence of a hearing on the proposed rules of the UIGEA that took place April 2, a hearing where both members of Congress, banking officials and even Treasury and Federal Reserve employees panned the UIGEA. Click here to read about the hearing.

A week after the hearing, Frank and Paul introduced a bi-partisan bill that, if passed, would stop the UIGEA by preventing employees of the Federal Reserve System and Treasury Department  from “proposing, prescribing, or implementing any regulation that requires the financial services industry to identify and block internet gambling transactions.”

Frank also introduced the Internet Gambling Regulation and Enforcement Act last year. If passed, the bill would do exactly as its title suggests and would allow online gambling at a Federal level. The bill is stuck in committee.

Here’s the letter sent to Bernanke and Paulson in its entirety on Monday:

As you know, on Wednesday, April 2, the Committee on Financial Services Subcommittee on Domestic and International and Monetary Policy held a hearing entitled, “Proposed UIGEA Regulations: Burden Without Benefit?” to examine the regulations issued last year by your agency and the Federal Reserve on the Unlawful Internet Gambling Enforcement Act (UIGEA).  At that hearing, the testimony of your representatives and the industry made it clear that the regulations are unworkable.  Subsequently, we introduced new legislation, H.R. 5767, which would prohibit their implementation. 

The regulations, like the underlying legislation, fail to define the term “unlawful internet gambling,” leaving it to each financial institution to reconcile conflicting state and federal laws, court decisions and inconsistent Department of Justice interpretations, when determining whether to process a transaction.  Furthermore, some of the information needed to make this determination would likely be unavailable to banks, because customers or financial institutions in foreign jurisdictions will likely be unwilling or unable to provide it.  At the hearing, representatives from your agency and the Federal Reserve admitted that there are substantial problems in crafting regulations to implement the UIGEA in a manner that does not have a substantial adverse effect on the efficiency of the nation’s payment system. 

Your agency and the Federal Reserve have been struggling to issue these regulations, but as the hearing made clear, the underlying statute makes your job extremely difficult, if not impossible.  Given the many other priorities that are pending at your agencies, including the mortgage crisis, HOEPA, and UDAP rulewriting and many other issues, we believe it would be imprudent for you to devote additional agency resources to this Sisyphean task, especially as we intend to vigorously pursue legislation to prevent the implementation of these regulations