Internet Gambling Regulation and Tax Enforcement Act of 2011

The Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006.  UIGEA does not prohibit Internet wagering directly.  The law bars banks and credit card companies from processing payments for such wagering by prohibiting the use of credit in connection with unlawful Internet wagering, effectively outlawing such gambling.  The law excludes from the definition of unlawful Internet wagering “any activity that is allowed under the Interstate Horseracing Act of 1978,” thus protecting racing’s interstate wagering activities by maintaining the status-quo with respect to such activities under the Interstate Horseracing Act.

Since its passage, opponents of the ban and supporters of licensed, regulated Internet wagering have been pushing for its repeal in every Congress.

House Bill

The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011 (H.R. 2366) was introduced by Representative Joe Barton (R-TX) on June 24, 2011.  The bill would establish a program for state licensing of Internet poker that would be administered by the federal government through the Department of Commerce. 

The bill would authorize only Internet poker for operators licensed by a state or tribal agency.  Licenses may be issued for five years.  The bill calls for fines up to $250,000 and/or criminal penalties of up to five years for violations. 

Department of Commerce Given Oversight

The bill gives the Secretary of Commerce the authority to write regulations, approve the state and tribal agencies authorized to issue licenses, exercise oversight over the agencies and enforce the prohibitions.  The Secretary will establish an Office of Internet Poker Oversight within the Department and appoint a Director.  The bill requires the Director to maintain a list of unlicensed Internet gambling enterprises and keep it updated. 

The Secretary is required to issue regulations to carry out the provisions of the Act within 180 days after enactment.  Annual reports are to be issued no later than a year after enactment and annually thereafter.

Application Process

Operators that wish to operate an Internet poker facility must apply for a license with either a qualified state or tribal agency or with the Office of Internet Poker Oversight.  Applications must include financial information, structure of the operator, criminal history of the applicant and senior management, and a plan as to how the entity will comply with the requirements under the regulations.  The applicant must also demonstrate that it has appropriate safeguards and mechanisms in place to ensure that bettors are 21, are physically located in a jurisdiction that has not prohibited Internet wagering, that all taxes are collected or reported, that procedures are in place to prevent fraud, money laundering and terrorist financing, that games are fair, and privacy is maintained, among other requirements.

The state and tribal agency with jurisdiction will address an applicant’s suitability.  In making this determination, the state or tribal agency will take into consideration whether the applicant operated an Internet gambling facility prior to the enactment of the Act and the scope of the gambling.  This could exclude companies that had operated illegally from being licensed. 

Licensed operators would be permitted to accept Internet poker bets from any state that had not prohibited Internet wagering or limited it.  Individual states and Indian tribes would be able to “opt-out” and thus prohibit or limit Internet poker within their borders by notifying the Secretary.  Bets could not be taken from any such state or tribal land.  Violations would subject operators to loss of license, fines and/or criminal penalties of up to five years.

User fees shall be charged by the state agencies to administer the new requirements, including the review necessary for granting licenses, and general administration.  Fees would be set and remitted to the Secretary but made available to the qualified state agencies for their part in the licensing process. 

License Limitations

Under the bill, for the first two years after enactment licenses to operate Internet poker sites may only be issued to applicants that had owned or controlled a casino gaming facility (defined as a facility with 500 machines), a “qualified race track,” or a card room for the five years before submitting an application through 10 days before the date the Act was passed by Congress.  The bill defines a “qualified race track” as a track or other pari-mutuel wagering facility that is licensed by a state to accept pari-mutuel wagers and has “at least 500 gaming devices at 1 physical location” or “processed at least $200,000,000 or more in gross wagering” on horse racing during any 3 of the 5 years preceding enactment.

Horseracing Provisions

The bill also includes several provisions beneficial to pari-mutuel horse racing.

• The industry and the Department of Justice have had a long-standing disagreement regarding the application of the federal Wire Act (18 U.S.C. 1084) to racing’s interstate wagering activities.  The bill would clarify that the Wire Act does not prohibit activities allowed under the IHA.  The bill also provides that the federal wire statute would not prohibit any wagers with an operator licensed under the Act to offer Internet poker. 

• The bill exempts from the licensing requirements of the Act any interstate wagers under the IHA “whether made by telephone, Internet, satellite, or other wire or wireless communication facility, service, or medium.”

• The bill exempts horseracing (and Internet poker under the Act) and the financial transaction providers presently processing bets for racing from the Unlawful Internet Gambling and Enforcement Act (UIGEA) and the regulations adopted under UIGEA by the Federal Reserve Board and the Department of the Treasury. 

Congressional Action

This bill has eleven cosponsors and has been referred to three committees, the Committee on Energy and Commerce, the Committee on Financial Services and the Committee on the Judiciary.

On October 25, 2011 the Subcommittee on Commerce, Manufacturing, and Trade of the House Energy and Commerce Committee held a hearing on this bill and Internet wagering in general entitled “Internet Gaming: Is There a Safe Bet?”

AHC Position

The AHC is monitoring all legislation affecting Internet wagering to ensure that there is no action taken that would affect the interstate wagering that racing presently enjoys under the Interstate Horseracing Act, whether on the Internet or otherwise.