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Dreher Tomkies LLP
Attorneys at Law
2750 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telephone: 614-628-8000
Fax: 614-628-1600

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The Department of the Treasury and the Board of Governors of the Federal Reserve System (collectively, the Agencies) have published a joint proposed rule to implement the Unlawful Internet Gambling Enforcement Act of 2006. This Act prohibits persons engaged in the business of betting or wagering from knowingly accepting payments in connection with “restricted transactions” (i.e., the participation of another person in unlawful Internet gambling). “Unlawful Internet gambling” generally means placing, receiving or otherwise knowingly transmitting a bet or wager by any means that involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received or otherwise made. The proposed rule, like the Act, does not specify which gambling activities or transactions are illegal, but rather defers to underlying state and federal gambling laws.

In accordance with the requirements of the Act, the proposed rule:

  • Defines terms used in the proposed rule (including, but not limited to, “bet or wager,” “financial transaction provider,” “card system” and “participant in a designated payment system”);
  • Designates payment systems (i.e., automated clearing house systems; card systems (including credit, debit and prepaid cards or stored value products); check collection systems; money transmitting businesses; and wire transfer systems) that could be used in connection with unlawful Internet gambling transactions;
  • Requires participants in designated payment systems to establish policies and procedures to identify and block or otherwise prevent or prohibit transactions in connection with unlawful Internet gambling;
  • Exempts certain participants in designated payment systems (i.e., all participants in the ACH systems, check collection systems and wire transfer systems, except for (i) the participant that possesses the customer relationship with the Internet gambling business and (ii) certain participants involved in cross-border transactions with foreign payment service providers) from the requirements
    to establish such policies and procedures because it is not reasonably practical for those participants to identify and block unlawful Internet gambling transactions;
  • Describes the types of policies and procedures that non-exempt participants may adopt to comply with the Act. Generally, non-exempt participants may either (i) establish their own policies and procedures or (ii) rely on and comply with policies and procedures established by the designated payment system, so long as such policies and procedures comply with the regulation; and
  • Provides, by way of example, that the policies and procedures of a card issuer would be deemed compliant if they (i) address due diligence in merchant relationships, (ii) establish and monitor transaction codes and merchant/business category codes and (iii) include remediation if a merchant receives restricted transactions through the card system.

The Federal Reserve Board’s proposed rule would be designated Regulation GG and codified at 12 C.F.R. Part 233. The Treasury’s proposed rule would be codified at 31 C.F.R. Part 132. agencies request comment on all aspects of the proposed rule December 12, 2007.

  • Judy Scheiderer