I have spent the last day or so researching the new Unlawful Internet Gambling Enforcement Act. Here is what I’ve found out, and some conclusions I’ve drawn.

First, here is the legislation in its entirety:

http://www.rules.house.gov/109_2nd/text/hr4954cr/hr49543_portscr.pdf

The first thing you’ll notice after clicking that link is that nothing about internet gambling is mentioned until page 213 of 244. That is because the Unlawful Internet Gambling Enforcement Act was snuck through the Senate as an attachment to the Safe Port Act. If you think Maritime Safety and Internet Gambling seem like very different topics, well, you’re not the only one.

I’m not going to pretend that I know anything about how the Senate typically operates, and I’m not going to pretend that I understand the ins and outs of bi-partisan politics. Here are some comments from someone who does.

[kml_flashembed movie=”http://www.youtube.com/watch_video?v=nb1pzayqPaI” height=”350″ width=”425″ /]

What is clear is that the topic of internet gambling was never debated on the Senate floor, and that some kind of back room deal turned this proposed legislation into law. Actually, I’m getting ahead of myself. This Act will not become law until President Bush signs it in the coming days. And the odds of Bush vetoing it are longer than the odds of being dealt a royal flush.

The Act Itself

The Act starts out by defining a bunch of terms, and in the process clearly states that it aims to prohibit sports betting. It also explicitly carves out exceptions for horse racing, state lotteries, and fantasy sports leagues. The word “poker” does not appear anywhere. The clause that would appear to pertain most to poker states that the “purchase of a chance to win a prize (which is predominantly subject to chance)” is prohibited.

The Act does not go after anyone who gambles on the internet. Individual gamblers will not be prosecuted by the federal government. Instead, it attaches criminal and civil penalties to any entity that sends or accepts funds for the purpose if illegal internet gaming. The targets are thus internet gaming sites and banks. A new class of illegal banking transactions are created by this Act.

Along with these new illegal gambling-related transactions comes the burden of identifying them. This burden will rest with the banks, who will now be expected to police themselves. To that end, the Act instructs the Federal Reserve’s Board of Governors to create new regulations on this topic within 270 days of the Act’s enactment.

The Act’s Impact on Poker Players

Internet poker playing is about to change. The questions are when and to what degree.

It is clear that enforcement of the Act will be impossible until the regulations go into effect. This means that internet poker, with some notable exceptions, is unlikely to change for up to 9 months while the banks prepare to meet their new duties. The only thing that might accelerate things is voluntary compliance with the Act before the regulations are agreed upon. So far, Party Poker, which not coincidentally is the only publicly traded poker site, has already issued a statement indicating that they will no longer accept business from any US-based poker players starting on the date President Bush signs the Act. It is unclear whether other sites will follow suit, but several others have emphatically indicated that they will not.

A curious aspect of the Act is that poker is neither explicitly banned (like sports betting) nor exempted (like horse racing). Many state courts have already considered the question of whether poker meets the definition of a “game of chance” and thus falls under the ambit of various state gambling prohibitions. In some cases, most notably in California, Nevada, Florida, and Arizona, poker has been held to be a game of skill and thus exempt from those states’ gambling prohibitions. It would seem likely that litigation on the topic of whether poker is a “game predominantly subject to chance” will now take place at the federal level. If poker players were to prevail in such a lawsuit, obviously the Act could be more or less disregarded. This would not take place for awhile, however.

The most obvious loophole in the Act is the possibility that services like Neteller and FirePay, which are internet fund transferring companies (essentially go-betweens) incorporated in foreign jurisdictions are beyond its reach. The way almost all serious online poker players (including myself) currently fund their poker accounts is by making payments from their banking accounts into Neteller or Firepay, which in turn transmit the funds into the poker accounts. This became a necessity once all the major US credit cards began to refuse to fund gambling sites on their own accord several years ago. The Act certainly prohibits direct transfers from credit cards and bank accounts, and the Act certainly attempts to prohibit transfers from Neteller and Firepay, but can the government enforce the act with respect to these foreign entities? My guess is no. The real problems would arise if Neteller and Firepay, large companies which make only a small portion of their revenue from gambling transfers, voluntarily chose to comply.

For people like me, the biggest problem with this new legislation might be less technical and more practical. The publicity generated by the Act and Party Poker’s subsequent stateside shutdown could be crucial. If the general consensus amongst Americans is that online poker is now illegal, many current recreational players will withdraw, and fewer new players will arrive.

I make my living preying on inexperienced, part-time players. If that well runs dry, whatever survives of online poker might include only the strongest players, who will beat up on each other instead of the fish. And online poker, contrary to popular opinion, has a symbiotic relationship with brick & mortar poker, acting as a hatchery for real life, brick & mortar fish. So it would seem that this legislation might have a real negative impact for guys like me even if online poker survives.

Brace yourselves for the unknown, fellow internet gamblers.

Hey, I can still write legal memoranda. Who knew?