We’re A Lot Further From Legalizing Online Gambling Than You Think

online poker gambling

[credit provider=”Orin Zebest on flickr” url=”http://www.flickr.com/photos/orinrobertjohn/159757942/”]

There is a lot of media attention on a near New Year’s Eve announcement by the Justice Department to reverse its opinion formed mostly in the administration of George W, Bush that the Wire Act of 1961 prohibits most forms of gambling over the internet.The Justice Department is now willing to accept what most people including the 5th Circuit Court of Appeals a decade ago concluded; that the Wire Act only applies to sports betting and not other forms of gambling such as poker, blackjack etc. In fact some poker aficionados have argued that poker is not gambling at all.

I spent close to 20 years as a sellside and buyside casino gaming analyst and have worked in government as well. This is a subject I know a fair amount about. I think a lot of the media rush has missed some salient points and I started to write a comprehensive piece on this, but decided it would be too long, so I will break up into chunks.

The first chunk is how close are we to legal online gambling?  Not as close as most people would have you think. This DOJ opinion not withstanding and we will address whether  this opinion is really the Holy Grail another time, changes in states laws and Nevada adopting regulations for online poker not withstanding – even if Congress repealed the Wire Act, the gating issue is the UIGEA and that payment processors are not likely to jump to process even legal gambling transactions unless UIGEA Is repealed.

What is UIGEA? In October 2006,. Congress passed the UIGEA (Unlawful Internet Gambling Enforcement Act) as a last minute non-germane amendment to the Safe Port Act. The UIGEA essentially put the burden on payment processors to stop handling transactions for most internet gambling. Specifically, transactions related to “illegal gambling”, but of course that depended on what was legal and illegal which draws us back to the Wire Act. The recent indictments of individuals related to online poker and the closing of major online poker sites in April 2011 was for UIGEA violations, not the Wire Act.

Under UIGEA the banks could still be held liable if they process an “illegal” gambling transaction. This is not something banks have to deal with it in any other type of business – they don’t need to know which vendors are approved or which products they sell are approved. Imagine a hypothetical situation where some online apparel retailers were legal and some were illegal. Imagine that some were legal in some states, but not in others. Further imagine that sale of shoes was illegal totally – the shoes here would be analogous to sports betting.

Do you think banks would be processing online apparel transactions in this situation where they were held responsible for distinguishing all these things and if they got it wrong, they committed a felony? I don’t think any major banks are going to step up for this unless UIGEA is repealed and that might be a political impossibility unless Congress enthusiastically wants to embrace online gambling – don’t hold your breath.