"I am not a biblical scholar," Rep. Barney Frank admitted of his inability to understand. The conservative mores of his colleagues on the other side of the aisle are confounding to some members of Congress. "But I can't find an exemption for horse racing!" The sport of kings' absence in the good book notwithstanding, Frank had a point.
The scene was Wednesday's House Financial Services Committee's Subcommittee on Domestic and International Monetary Policy, Trade and Technology hearing and a debate that should've been conducted before the Unlawful Internet Gambling Enforcement Act became a reality (UIGEA live blog ).
Frank, one of the UIGEA's most vocal opponents, was pointing out a common theme in America's stance on federal gambling law enforcement: hypocrisy. It's an environment where gambling on juiced up athletes and ponies is perfectly acceptable, but betting on a skill game over which the player can affect the outcome is not.
The Committee hearing was one of the--if not the first--public discussions of the UIGEA, a law attached to must-pass port security legislation and spirited through the halls of the Capitol in the waning moments of the 2006 Congressional summer session. After nearly two years of being a burden only on confused government regulators, the law now threatened to disrupt the lives of many more people.
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.