Unlawful Internet Gambling Enforcement Act Of 2006

Since passing in 2006, the Unlawful Internet Gambling Enforcement Act has had a major impact on the world of online gaming in the US and beyond.

History of the UIGEA

[toc]The Unlawful Internet Gambling Enforcement Act (UIGEA) is an anti-gambling law that passed Congress on September 30, 2006. President George W. Bush signed it into law on October 13, 2006.

The UIGEA was one of the most controversial gambling bills in history, but not because of its contents. Many US citizens took issue with how Congress passed the law.

It all started in the US House of Representatives on November 18, 2005. That’s when Rep. Jim Leach of Iowa introduced the Internet Gambling Prohibition and Gambling Enforcement Act as HR 4411.

The original bill would have changed several definitions under the Wire Act of 1961. It would have expanded “communication facility” to mobile and wired networks. It would have also redefined a bet as any game subject to chance, including lotteries.

Rep. Shelley Berkley of Nevada did make an attempt to amend HR 4411. Berkley wanted to expand the definition of banned online gaming to include games that may have fallen under skill exemptions under state laws. This amendment failed. In July 11, 2006, HR 4411 passed the House of Representatives.

The bill stalled in the US Senate and was unable to gain traction. Senate Majority Leader Bill Frist fully supported banning online gambling. Frist decided the only way the UIGEA could pass the Senate is if it became a rider to must-pass legislation.

They toned down the final version of the bill. Then the UIGEA became a rider to the Safe Port Act of 2006, a funding bill to counter terrorism. It passed Congress nearly unanimously after no debate on Sept. 30, 2006. Lawmakers were anxious to adjourn to hit the campaign trail before the November elections. President George W. Bush signed the bill into law two weeks later.

Immediate effect of UIGEA

At the time, nearly every offshore gaming company accepted US players. Betfair, Ladbrokes and 32Red were notable exceptions to this rule.

Sites serving the US online poker and casino markets immediately began deciding what to do in the wake of UIGEA. It became clear that publicly traded companies would drop US players.

Cryptologic started the parade of sites withdrawing from the US market by not allowing Americans to claim the monthly poker and casino bonuses that were typical on the network in October 2006. They did this in anticipation that the bill would become law later in the month.

Other online gaming companies that left the US market included Playtech/iPoker, Ongame, Party Poker, PKR, Lucky 31 Paradise Poker, Entraction, Boss Media and 888.

Paradise Poker permitted existing players in 39 states to play for 30 days after UIGEA became law. During this period, there was a suspension of player deposits. This forced players in the other 11 states to cash out immediately.

States exempt from the reprieve

Upon signing the UIGEA, Microgaming took an unusual approach. It banned the same 11 states that Paradise Poker did, but continued to permit players in the other 39 to give action to its poker and casino sites. Kentucky and Utah were late additions to the list of states where players were unwelcome at Microgaming sites.

In 2008, Microgaming stopped accepting new players from any state amid payment processing issues. A year later, it kicked all remaining Americans off the network, even those that already held accounts and had funds on deposit. Microgaming paid all players in a timely manner.

Difficulties faced by sites remaining in US market

The post-UIGEA era proved to be difficult for several sites that stayed in the US market. Planet Poker suspended real money operations in March 2007. Payment processing issues contributed to this decision.

Bugsy’s Club faltered in the post-UIGEA period and closed in 2009. It needed PokerStars to bail out its players.

Jet Set Poker saw UIGEA as a time to run away with deposits. A relatively minor poker site, it catered to mostly freeroll and penny players. There were some big games during prime-time hours. At the stroke of midnight on the eve of President Bush’s expected signing of UIGEA, Jet Set Poker closed the site permanently. It gave players just five minutes’ notice. A message popped up at 11:55pm server time warning players that the site would close at midnight. It never paid out a dime.

Some poker networks never recovered from banning Americans

US players accounted for more than half of the world’s online poker traffic. Many poker networks were subsidiaries of publicly traded companies when UIGEA became law.

Publicly traded companies with poker networks banned Americans immediately. This caused an instant loss of traffic.

Failed Poker Networks

Tribeca Tables was once a vibrant US-friendly poker network. Playtech purchased it within days of the UIGEA becoming law. Its traffic collapsed without American traffic. Several skins moved to iPoker, while others moved to the Tain Network, which shuttered in 2007.

GamesGrid was a niche site that catered mostly to Americans until UIGEA. When it banned US players, its traffic collapsed. Tony G Poker, an iPoker skin, purchased the remaining handful of players.

Cryptologic was a network that catered to Americans looking for great poker bonuses. Each site gave players a favorable monthly bonus offer at both its poker and casino platforms. The Cryptologic poker network limped along until January 2009 when it closed permanently.

Most of its skins abandoned the network by the time it shuttered. Interpoker, its flagship, moved to the International Poker Network (IPN) at that time. The casino platform continued operations after the poker side failed.

IPN struggled after UIGEA. Its software was subpar; European players had far better options. IPN closed in April 2014; however, it continued to license its poker platform for lottery networks in Canada, Austria and Sweden.

Entraction was a sports betting company that also offered online poker to Americans until UIGEA. It continued to operate in most other markets for many years after that. IGT, an American slot manufacturer, acquired the poker software in 2011 in the hopes of using it in the legal US market.

That plan never came to fruition. IGT banned several questionable markets from its software to remain compliant with its US licenses.

That policy finished off the network and it closed in December 2012, although traffic was nearly at zero when it finally closed its virtual doors.

American online poker post-UIGEA

After the UIGEA became law, several big names remained in the US online poker market for a few years. PokerStars immediately became the No. 1 site for cash games. It already held that spot for tournaments and quickly became a favorite site for cash game players.

That all came to an end on April 15, 2011, a date now known as Black Friday. Legal maneuverings cost PokerStars the US market. It became the first victim of criminal prosecution under the UIGEA. PokerStars re-entered the US market when it opened its NJ online poker site in 2016.

Full Tilt Poker was the second largest site post-UIGEA. It was nearly irrelevant before its competitors fled the US market. Full Tilt Poker was also named in the Black Friday indictment with the UIGEA becoming a prosecutorial weapon. It was unable to pay players. This led to the uncovering of a Ponzi scheme, according to the US Attorney’s Office in the Southern District of New York.

It took a PokerStars bailout to make Full Tilt players whole.

Absolute Poker was the other site named in the Black Friday indictment. It was home to an insider cheating scam, as was its sister site, Ultimate Bet. Brent Beckley, the head of payment processing at Absolute Poker, served a nine-month sentence related to Black Friday. Scott Tom, who was named as the main cheater in the insider cheating scandal, as well as head of Absolute Poker operations, remains at-large.

The main participants these days in the US online poker offshore market are Bovada, Winning Poker Network, Chico Poker and Merge Gaming. Each specializes in sports betting and casino games. Poker is just a side business. Companies related to Bovada and Winning Poker are under indictment in Maryland for illegal gambling, yet continue to operate in the US.

Sports book changes post-UIGEA

There were several changes in the US sports betting market as a result of UIGEA. Sporting Bet and its sister site Paradise Poker left the US market almost immediately. Jazette Enterprises purchased its customers for $1 in addition to player balances on deposit.

The main brand under the Jazette umbrella is Sportsbook.com, acquired from Sporting Bet under the terms of the sale. Carbon Poker, Carbon Sports and PlayersOnly are other brands that operate under this company.

BetCris, one of the largest and most respected sportsbooks in the world, dropped US players after UIGEA. It created a secondary site known as Bookmaker.com to protect its main business. In May 2011, the unsealing of the Maryland indictment revealed the inclusion of Bookmaker. This incident became known in the online gambling world as Blue Monday.

Bookmaker and its related poker sites known as Winning Poker remain in the US market. Brands include Americas Cardroom and True Poker.

Other major sports betting organizations that left the US market after UIGEA include The Greek and Pinnacle Sports. These sites remain large players in the international online gambling market.

Payment processing in the post-UIGEA era

One of the biggest issues for sites that remained in the US market post-UIGEA was a lack of payment processing options. Neteller decided to remain in the US market despite the issues.

Neteller had a reputation as a reliable processor. However, in January 2007 an indictment was revealed on the company and two of its founders. The charges were not related to UIGEA. The investigation was already underway at the time.

Credit card processors abandoned the US online gambling market well before the UIGEA went into effect. This was due to high chargeback levels and legal concerns. This left poker, casino, and sportsbook sites with alternatives that were often of questionable integrity.

Two ewallets that continued to stay after UIGEA were ePassporte and eWalletXpress. ePassporte was originally a payment processor providing payment methods for adult websites.

In April 2008, it was widely reported that ePassporte received a received a cease-and-desist notice from the US Government to stop processing payments.

Players received payment, but ePassporte later failed without paying its customers related to its other niches. eWalletXpress lasted a bit longer. It was reportedly seized in November 2010. Players never received a dime. An ewallet known as EcheckUS suffered the same fate in May 2011.

The final straw

The most interesting ewallet failure was UseMyWallet. It became a flagship in the online gambling industry. UseMyWallet was able to process online gambling payments when its competitors could not. It turned out that it was using a bogus payment processor known as Linwood Payment Solutions. That processor was actually a part of a federal sting operation related to the Maryland Blue Monday indictments.

There are no ewallets available to US players that give action to offshore sites these days. Americans wanting to play offshore poker, casino or sports betting must often send cash through services like Western Union and MoneyGram.

Withdrawals are typically returned in the same fashion, although checks and ATM are also used as a form of payment to players.

The UIGEA and fantasy sports

The daily fantasy sports industry claims that its companies operate under an exemption of the UIGEA. It does exempt daily fantasy sports from its reach with the following definition:

“Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:”

(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III) No winning outcome is based—

(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or

(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

How state law, the UIGEA and fantasy sports interact

While there is a carve-out for daily fantasy sports in the UIGEA, there is one major flaw with its assertion of legality under federal law. The rule of construction in the UIGEA states: “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”

The most important caveat in the UIGEA’s fantasy sports language is the “relative knowledge and skill” passage, which, when coupled with the rule of construction, leaves the legality of daily fantasy sports contests up to each individual state. DFS relies on the idea that it’s a “game of skill” under the law in most states, a notion that has not received a court challenge.

States have a variety of different approaches to gambling in their code, and what constitutes a game of skill vs. a game of chance is different in many jurisdictions. The UIGEA only states that it cannot be used to enforce other gambling laws under the conditions listed for fantasy sports. State law still determines whether fantasy sports is legal.

Only two states — Kansas and Maryland — have expressly passed laws dealing with fantasy sports; both laws mimic the UIGEA language.

The Nevada Attorney General’s office mentioned the UIGEA in a October 2015 opinion. It notes that the “UIGEA did not legalize fantasy sports.”

The actual usefulness of the UIGEA safe harbor is being questioned as more and more states — most notably New York — consider whether DFS contests are actually gambling under state law or are legitimate games of skill.

Everything you wanted to know about the UIGEA

A closer look at the Unlawful Internet Gambling Enforcement Act:

What is the UIGEA?

The UIGEA received an 11th hour vote by Congress on September 30, 2006, immediately before they adjourned for the 2006 election recess. The UIGEA did not make anything new illegal. It was a punitive measure adding a layer of enforcement against individuals and companies processing payments for illegal internet gambling, which was not defined by the law.

There were several exemptions for the UIGEA. This included activity protected by the Horseracing Act of 1978, certain forms of fantasy sports and intrastate gambling specifically permitted under state laws. It also included language that excluded forms of insurance and financial instruments traded on a public stock exchange.

Why was the UIGEA passed?

Unregulated internet gambling exploded in the years prior to the passage of UIGEA. Online poker was extremely popular during this era. Online poker and casino games operated in a gray area of the law.

While the UIGEA’s intent was to make payment processing for these industries illegal, it was already unlawful to do so before UIGEA. UIGEA simply created additional punishment for those found guilty of the activity.

What was the UIGEA trying to do?

The goal was to encourage offshore gambling sites to exit the US market by creating a specific law to punish individuals and companies that processed payments to these entities.

What did the UIGEA actually do?

It only pushed about two-thirds of the companies out of the US market. It created a black market of unregulated sites that often were not legitimate businesses. Many of the sites that remained in the US market turned out to be scams.

Who supported passage of the UIGEA?

Conservatives, sports leagues and bricks-and-mortar gaming interests were among those that were proponents of the UIGEA.

Who did not support the UIGEA?

Online poker and casino players, as well as governments of countries and that spread online gambling to the US were among those that opposed the UIGEA.

UIGEA Timeline

The UIGEA was first introduced by Rep. Jim Leach in November 2005. The first serious debate occured in July 2006. It passed the US House of Representatives by a super majority.

There was no support for the UIGEA in the US Senate. It was set to die there. Instead, the UIGEA was attached to the must-pass Safe Port Act by Senate Majority Leader Bill Frist. The UIGEA passed the Senate without any debate. It was signed into law by President George W. Bush on October 13, 2006.

The imposition of banking regulations occurred in 2009. This was due to the debate on repealing the UIGEA under proposals sponsored by Rep. Barney Frank.

What is the Safe Port Act?

The Safe Port Act was a bill that was a counter-terrorism measure. It created funding to secure US ports. The Safe Port Act is completely unrelated to the UIGEA. However, they attached the UGIEA rider without debate. Many US senators voting for the Safe Port Act had no idea of the inclusion of the UIGEA.

Why do some California special interests reference the UIGEA in state online poker bills?

Some tribal gaming interests use the UIGEA as a benchmark for whether a company or individual should face exclusion from the potential online poker market in California. December 31, 2006 used used as the cutoff date. The reason for this date is unknown, as October 13, 2006, is when the bill was actually signed into law. California special interests that use this language hope to keep PokerStars out of the state.

Why does the daily fantasy sports industry use the UIGEA in its legal defense?

There is an exemption for some forms of fantasy sports in the UIGEA. The law defines fantasy sports in which skill is the predominant factor as outside the purview of the UIGEA. Daily fantasy sports did not exist at the time.

These sites still point to the carveout as justification of its legality. While the UIGEA does give the industry an exemption, it does not preempt state law. If a form of fantasy sports is illegal under state law, the UIGEA does not offer safe harbor. This fact is often omitted from the assertions of the daily fantasy sports industry’s legal position.

Have there been any rulings/major cases referencing UIGEA?

The UIGEA was implemented for the first time on what is now known as Black Friday for online poker. Black Friday is the indictment unsealed on April 15, 2011 that related to three poker sites and many payment processors.

How can states offer legal online gambling?

One exemption in the UIGEA permits states to explicitly legalize online gaming. This includes the sale of lottery tickets, online poker and online casino games. Online sports betting is available in only four states under the Professional and Amateur Sports Protection Act.

Even these four states – Nevada, Oregon, Montana and Delaware – only permit sports betting legal prior to 1992. For Nevada, this means all forms of sports betting. The largest US gaming market already licenses mobile and online sports betting.

Delaware, Nevada and New Jersey have already legalized online poker. Delaware and New Jersey also permit online casino games. Michigan and Georgia are among the states that sell online lottery tickets. These two states also offer internet scratch off tickets that resemble slot machines and keno.

UIGEA specifically gives states the freedom to legalize online gaming. Intrastate is among these options. Three states – Delaware, Nevada and New Jersey – now permit online poker. Delaware and Nevada share an online poker network. Delaware and New Jersey now also have legal online casinos. Nevada also permits sports betting through mobile devices, as well as the Internet.

Recommended reading about the UIGEA