ABA Provides Testimony Voicing Concern Over Internet Gambling Laws

The American Bankers Association issued the following news release:

The American Bankers Association voiced concern to Congress today over the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) and the Prohibition on Funding of Unlawful Internet Gambling (Proposed Rule) issued recently by the Federal Reserve Board and the Department of the Treasury. The statute as enacted and the regulations as proposed are burdensome and unworkable while having little chance of actually stopping illegal Internet gambling.

Testifying before the House Committee on Financial Services, Wayne Abernathy noted that the UIGEA takes banks beyond the role of simply reporting potentially or allegedly illegitimate financial activity, into the role of policing, prosecuting and judging in the place of real enforcement officers.

"Punting the enforcement obligation to the banking industry and the other participants in the U.S. payment system is an unprecedented delegation of governmental responsibility with no prospect of practical success in exchange for the burden it imposes," said Abernathy, who is ABA executive vice president, financial institutions policy and regulatory affairs.

Abernathy explained that ABA members want to do their part to help fight financial crime. However, there are realistic limits to how the payments system can be used effectively to solve these problems.

"The Federal Reserve's most recent Payment Study reported that more that 93 billion payments were processed by financial institutions in 2006. Additionally the system does not even take the names of account owners into consideration when moving funds in the automated programs," said Abernathy.

Abernathy drew attention to the fundamental challenge of ensuring that Internet gambling businesses are identified as such and are assigned the correct merchant and transaction codes.

"The proposed rule relies primarily on Internet gambling businesses to commit to an honor system whereby they would voluntarily identify themselves to credit card networks to deny themselves payments. This is hardly a realistic expectation," said Abernathy.

Abernathy further noted that the ability to properly categorize customers operating Internet gambling businesses as unlawful gambling enterprises is severely complicated by the need to define which gambling businesses or activities are unlawful.

"The ABA believes that the flaws in the definition of unlawful Internet gambling are fatal to this proposal as a legal, policy and practical matter. Without a workable definition of unlawful Internet gambling, it is impossible to determine what constitutes an unlawful Internet gambling business for purposes of determining the customer relationship," said Abernathy.

Finally, Abernathy stated that the agencies' efforts at cross-border implementation by requiring U.S. participants to engage foreign correspondent banks in identifying and blocking unlawful Internet gambling-related transactions raises more problems than it solves.

"There is little basis upon which a U.S. and a foreign correspondent could practically agree to implement effective controls to block unlawful cross-border gambling transactions. Not only is there currently an absence of international control standards for Internet gambling transactions, there is also broad international resistance to create such controls," he said.Contact: Jonathan Snowling, 202/663-5468, jsnowlin@aba.com

TNS RG39-jf78-080404-1470232 18MASHJofrey

Jonathan Snowling, 202/663-5468, jsnowlin@aba.com