The summer of 2006 was a heady one for Senator Bill Frist and a small cabal of Republican members of Congress. Frist smelled the Republican nomination for President and he needed friends in some key early primary battlegrounds. Frist wanted it and he was going to get it.

The steamy Washington D.C. summer turned Frist into an irresponsible and randy teenage boy. He wanted it. He didn't care who he had to manipulate to get it. To get what he wanted, he had to ignore the potential consequences of his actions and accept he would be saddling others with a long-term burden. He was the selfish father of a throwaway kid. Now, as Frist tries to figure out who he can count on to make him governor of Tennessee, the progeny of his carelessness and ambition has become everybody else's problem.

If you're just now learning of UIGEA or haven't yet paid enough attention, it breaks down like this: A service that provides gambling on games subject to chance, except for horse racing and fantasy sports, is now considered criminal by the federal government. The UIGEA does not provide funding for the enforcement of its mandates. Rather, it forces American financial institutions to police gambling providers, determine whether they are breaking the law, and then stop doing business with them.

The financial institutions collective, along with UIGEA detractors, say it is well nigh impossible for the banks to be responsible for policing the anti-gambling laws. One of the strongest arguments is that banks, credit card companies, credit unions, and wire transfer companies have no way of knowing from one day to the next who is a bad guy and who is not. The UIGEA does not outline, except in broad terms, which companies break the law. Further, government regulators at the Federal Reserve and Department of Treasury have not been able to come up with an adequate list they can provide to the banks. At this point, the banks would not only suffer the financial burden of policing the internet, but also the ambiguity of the law itself.

UIGEA proponents don't buy it. The national sports leagues (yes, those that benefit so grandly from fantasy sports) are strongly in favor of getting UIGEA regulations finalized tout suite. "There should be no difficulty in identifying and blocking financial transactions directed at promoting sports betting," the leagues wrote in a letter to the Committee.

Proponents, like Alabama Republican Congressman Spencer Bachus, believe it is entirely possible to create a list of offenders like that of the Department of Treasury's Office of Foreign Assets Control. Rep. Bachus, despite having a last name worthy of some envy, likely loses a lot of credibility when he puts up statistics that suggest 74% of internet gamblers became addicted and many of those have turned to crime.

Regardless, the reality is that Treasury has, in fact, built the kind of lists about which Bachus and the professional sports leagues speak. They exist. According to Bachus, the NCAA has identified a list of 900 such gambling entities that can be considered illegal from which the banks could identify the illegal companies. Moreover, there are lists the banks and Department of Treasury use to battle money laundering.

Regulators seemed duly nonplussed. "Money laundering is a global concern," said Louise Roseman at the hearing. Her point? Banking is not a business exclusive to America. Banks all over the world work together to fight money laundering. Those same banks that walk in lockstep in that battle would be put at odds if the same sort of cooperation was expected to fight gambling. After all, in most countries in the world, gambling on the internet is not illegal. What's more, it's big business.

The financial services industry is beside itself. Wayne Abernathy represented the American Bankers Association at the hearing. No one--least of all the regulators, but including the banks themselves--has any idea how much the UIGEA will cost American banks. The financial burden aside, the banking industry points out the law will result in a no-win situation for the customers. Abernathy said the UIGEA will force banks to either be unfairly restrictive or "highly intrusive." Banks would have to take a gamble of their own. They could allow customers their privacy, but in an abundance of caution be forced to close the accounts of law-abiding entities. In the alternative, they could be more diligent, but be forced to dig deeper into their customers' private transactions.

Among the bills in Congress that seek to undo the confusion caused by the UIGEA is Rep. Barney Frank's HR2046. The bill, as outlined in the official Q&A, would "establish a regulatory and enforcement framework to license companies to accept bets and wagers online from individuals in the U.S., to the extent permitted by individual states, Indian tribes and sport leagues." Frank's bill has the most support of any right now, but there is no reason to believe it has any chance of making it out of committee this year. For Frank's efforts to be successful, a new administration needs to be in place. Optimists can look to this time next year before getting excited.

For now, the only plausible option for lawmakers is to continue working with the existing law and try to work out regulations that will satisfy both the law and the reality of the situation, a proposition that very well may be impossible.

Subcommittee chairman, Luis Gutierrez said it well. "Our time would be better spent restricting predatory lending," he said. That is, lawmakers have more important work to do than babysit Bill Frist's throwaway kid.

Other coverage

UIGEA Hearing Live Blog

Associated Press

Hard-Boiled Poker

Poker Works

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1:00pm--We'll explore this more in the coming days, but the short hearing pretty much made offficial what everyone expected. Federal regulators were tasked with putting together regs on an ambiguous law and did their best with what they had. The financial services industry is beside itself that it could possibly be forced to serve in a law enforcement and judicial role in deciding what companies can do business in America. In short, UIGEA would be a tremendous burden on the American banking system, compromise its ability to do its job effectively, and, in the long run, likely not do much more than current laws do to stop the spread of internet gambling.

For people wondering about poker's role in all of this...the game did get brief mention in terms of a carve-out for its role as a skill-based game, but this hearing wasn't really geared toward that sort of discussion.

That's all for today.

12:54pm--And that's it. Hearing is over.

12:48pm--Abernathy: If UIGEA regs go forward as set up..."It continues to compromise the quality of the payment system."

12:45pm--Abernathy points out that, if forced to move forward in this manner, banks will have a choice, and neither of them food. They can be highly restrictive in transactions and cut out a bunch of legitimate folks. Or, they can be "highly intrusive" and ask a lot of questions that would end up violtating the customer's privacy.

12:37pm--Ron Paul is back to ask about potential cost to banking and financial services industries. Wayne Abernathy is the one who takes the questions. He seems to be the most vocal and hot about UIGEA. "It's difficult to put a cost on something that isn't in place yet." Again, ambiguity is the issue. Furthermore, say the reps from the banks, they would be be the judge, jury, and executioners for UIGEA...none roles they want to take.

12:34pm--Ted Teruo Kitada from Wells Fargo is up. He should be the last witness.

12:31pm--Leigh Williams from The Financial Services Roundtable...

--Difficulty in defining internet gambling increases 1000-fold if every banking institution is forced to come up with its own interpretation of the regulations.

--Legitimate business might end up getting caught up and restricted and illegal activity will get through.

--Members of his group seem to like Frank's bill to hat would essentially repeal UIGEA

12:24pm--Wayne A. Abernathy from the American Bankers Association now on the block. No surprise, the banks don't just dislike this law. They freaking hate it.

12:22pm----Short version of May's testimony.

--UIGEA is impossible to enforce unless a list of offenders is created that banks can follow
--Banks are given safe harbor, but have no clear way to prove they didn't know they weren't supoprting gambling

"Urge congress to take action to avoid hardhsips that might arise,"

12:15pm--Members of the financial services industry are now up. Frank has taken over as chariman. We're hearing first from Harriet May, speaking on behalf of the credit unions. "I relish the opportunity," she says.

12:00pm--If you don't feel like reviewing all of the stuff below, here are some Cliff's Notes. The Federal Reserve Board and Treasury have been working to put together regulations mandated by the UIGEA. After putting out the proposed regulations in October, they received a couple hundred letters from people and entities on both sides of the issue. The problems right now run the gamut. First, the UIGEA was exceptionally vague on what constitutes Intenet gambling. Second, it puts the law enforcement burden on the banking system. Although the proposed regulations have been put together, they still leave a very grey area on how banks should police the issue. Furthermore, some payment systems (like checks for interest) have no real way to be coded to stop the transactions. Proponents of UIGEA say banks and regulators could easily use existing lists and regulations (money laundering, existing gambling laws, etc) to form practices to support UIGEA. However, as regulators pointed out, America is nearly on its own in the quest to stamp out online gambling, but the banking system is global. Rep. Wexler made the first foray into the poker carve-out issue, though the issue wasn't discussed at any length. The representatives from Treasury and the Federal Reserve Board seemed rightly frustrated in being forced to build regulations for a law that is, at best, painfully ambiguous. Before banks can reasonably be held responsible for policing internet gambling, they will have to be told what internet gambling really is. With exceptions for activities like horse betting and fantasy sports, the ambiguity issue doesn't seem to be one that is easily solved.

11:57pm--Committee has been on a break for 20 minutes or so. Next up are the reps from the banking industry.

11:37am--The government witnesses are done. Gutierrez looks around the room in wonder at how many people actually showed up. He warns the regulators that people are watching.

"Be careful about where you go with these regulations," he says.

11:33am--So, what about money laundering? Why can't the UIGEA regulations be based on money laundering regulations. Roseman is ready with the perfect answer. "Money laundering is a global concern," she says. Or, to put a finer point on it, banks around the world have an interest in stopping money laundering. However, Internet gambling is actually legal in most places around the world and banks have no interest in cooperating.

11:29am--Hey, it's Ron Paul! He was late, but shows up on time to put forth the Libertarian view of the UIGEA. Thanks, Ron.

11:26am--Roseman states the obvious in terms of stopping Internet gambling. "There is going to be a proportion that will go through irrespective of our regulation."

And so, how is ambiguity affecting the formation of regulations?

"I think it is very difficult without having more of a bright line on what is intended to be included on what is unlawful Internet gambling."

11:17am--Poker mentioned for first time, and skill argument appears, courtesy of Rep. Robert Wexler

Roseman: "We did get a lot of comments for poker players that made that argument There are a number of games that involve a great deal of skill but also are subject to chance."

Wexler calls UIGEA, "Totally inconsistent system of regulation of law-abiding adults wishing to play games such as poker, or mah jong, or chess. This is all in the context of a mortgage crisis and banking crisis in Ameria."

11:13am--Though poker is not mentioned by name, Rep. Peter King brings up what many people in the poker community suggest should happen. Ambiguity could be avoided if the law and regulations were more narrowly defined to address, for instance sports betting. Roseman: "I think it would provide more clarity, except for the sites that have sports betting and other gambling at the same time." She is talking about you, Bodog.

11:08am--Well that was fast. The Reserve Board's Roseman: "I think it is going to be very difficult to enforce. Implementing regulations will not be ironclad at all. I think the law is relying on the payment system."

11:03am--The Joe's T-Shirt Shop Debate--The regs basically state that banks should keep an eye out for Internet gambling and if they become aware of gambling activity, they should stop money transactions. The point is made--online gambing institutions are pretty resourceful. What's to stop one from opening up Joe's T-Shirt Shop from taking bets and how are banks supposed to stop that?

10:55am--Barney Frank states the obvious. No one wants to touch the horse racing industry. Frank admits he doesn't always understand how the peopole on the other side of the aisle.

"I am not a biblical scholar," Frank said. "I can't find an exemption for horse racing!"

"I get a bet on horse racing. I'm a nice little bank here. Do I accept it or do I reject it?" Frank asks, and not rehetorically.

"I would assume that most institutions..." Roseman said.

Franks: "I didn't ask..."

Roseman "Unfortunately the proposed reg was silent on that issue."

Franks: "So, the answer is gamble on it?"

10:47am--Rep. Bachus is back up for questions. He submits letter from all the professional sports organizations and NCAA regarding the law, but the letter is not read out loud. Then he goes on to wonder why everyone thinks the potential regulations are so ambiguous.

Roseman: "The payment system really isn't well designed" for this kind of policing.

Bachus suggests it is, in fact, possible to create a list of offshore, illegal online gambling companies. In fact, he says, Treasury has created these kinds of lists for a lot of other laws. "I'm somewhat mystified," he says. "The NCAA has identified 900 of those."

Roseman: "In this case, it's activities, not entities." Roseman suggests Roseman might have legitimate business than cat be conducted throught the banks.

10:43am--Gutierrez is in the process of asking a series of questions surrounding ambiguity in the law. He says, "It just appears to me since several months have passed...that we would tread carefully as we pursue this issue."

10:40am--No UIGEA rules have been set in stone. All are currently in discussion and no where close to real.

10:36am--Valerie Abend from Treasury now gets a chance to speak. I don't envy her position. Treasury has received more than 200 comments from wide variety of groups and people. Treasury is still reviewing those comments. Proposed rules hit just about every kind of payment system from credit cards to wire transfers.

10:32am--The government speaks. We're now hearing from the first panel, made up of a member of Treasury and The Federal Reserve Board. The biggest issue is one we've been talking about for a while: Ambiguity. Not only is the law ambiguous about what kind of gambling is prohibited, but it is also ambiguous about how the banks will be able police it.

10:26am--Rep. Maxine Waters voted for the bill initially (like, well, just about everybody). Now she says she is reconsidering her vote. "I'm very seldom in a position where I change my vote, but this might be one of those times," she says.

10:17am--Barney Frank in the house. Not reading from a statement, Frank goes on a tear, suggesting the notion that we prohibit an activity because a few people might abuse it is a little more than silly. On Con"They really didn't like gambling and they wanted our committee to be the one to drive a stake through it's heart."

Rep. Barney Frank

10:09am--First mention of Barney Frank repeal bill from from Spencer Bachus (R-AL). Bachus, like some of his fellow Republicans, is no fan of HR2046. Bachus readers letter from 45 of his fellow detractors. He says "Internet gambling ruins lives and tears families apart. Internet gambling is a scourge on our society...that leads to moral decline." According to Rep. Bachus, a recent study shows 74% of intenet gamblers became addicited and many of those have turned to crime.

Rep. Spencer Bachus

10:04am--Chairman Rep. Luis V. Gutierrez (D-IL) is predicting a "lively debate" Department of Treasury/Federal Reserve Board vs. banking community. You think? Biggest issues at this point are the vagueness of the regulations put forth by the government. Gutierrez says... "Our time would be better spent restricting payday lending...predatory lending."

Rep. Luis V. Gutierrez

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