The Unlawful Internet Gambling Act (UIGEA) Explained

The UIGEA law does not prohibit online gambling in the United States.  The intent of the law is to make it illegal for banks to process any transactions related to online gambling.

LawbookThe UIGEA was passed in the House of Representatives on 5-4-2006, strategically attached to the Safe Port Act in order to guarantee its passing. It was then passed in the Senate under title VII of the "Port Security Improvement Act of 2006" on September 14, 2006. President Bush signed it into law on October 13, 2006, making it the law of the land.

Despite popular belief, this law does not prohibit US players from participating in online gambling. In fact, it doesn't prohibit US players from doing anything. This is because it does not target or address player activity. The law is directed at online gambling site operators and payment processors with the intent of curtailing money laundering, fraud and other illegal financial crimes being committed through unscrupulous online gambling activities hosted by non-reputable gambling sites.

What Exactly Does UIGEA Law Prohibit?

According to the US Treasury Department, the law "prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." In other words, it dictates regulations on how online gambling transactions can be processed.

Below, we discuss the impact that this law has had and continues to have on players and the gambling industry in general. The law was fueled largely by the controversial findings from the National Gambling Impact Study Commission. Among other determinations, the findings asserted that online gambling was a growing problem for banks and credit card companies, but many did not buy into this.

Gambling Venue Exclusions From the UIGEA

There are several venues specifically excluded from the UIGEA law in which online payment processing is not restricted by its terms. There are also several venues that are simply not addressed in the law. Fantasy sports betting is specifically exempted as long as it meets certain requirements.

Other exemptions include legal intrastate and inter-tribal gaming. The language in the act does not mention state lotteries or provide any type of clarification concerning interstate betting on horse racing. The law specifically dictates that it cannot change any other laws, most specifically tribal laws.

The World Trade Organization's Response to the UIGEA

The United States and Antigua have been engaged in a longtime dispute concerning USA restrictions of online gambling. In January of 2007, the WTO handed down a ruling that the United States was violating treaty obligations by prohibiting full market access to online gambling businesses that are based in Antigua.

The US lost the case officially on March 30, 2007. Both Antigua and the European Union filed compensation claims against the US after the ruling. The WTO dispute was settled through the granting of concessions that were kept secret on the basis of national security.

How the UIGEA Bill Affected the Online Gambling Industry

The initial response to the bill's passage was for many gambling sites and payment processors to exit the US gambling market and no longer provide their services to US players. While most of the brands listed on the London Stock Exchange were among those to depart, several prominent privately owned businesses continued to accept USA players.

All of the digital wallet companies exited the US market, and US based credit card companies and banks began rejecting all gambling related transactions. Enactment of the UIGEA definitely caused a stirring in the industry that resulted in reduced selection for US players regarding both reputable online gambling sites and viable payment processors.

The market has since stabilized, and there are once again online payment solutions that facilitate the processing of online gambling-related transactions for residents of the United States and a healthy selection of online gambling sites offering wagering services to American players.

Some of the positive results of the UIGEA law include a safer and more reliable online gambling payment infrastructure, with both gambling site operators and payment processors improving their standards and their investments in the industry in order to provide a quality gambling environment that is viable for US players. In essence, offshore gambling sites that are legally operational outside of the US are not subject to US federal laws and can legally offer their services to US players.

There is nothing in the UIGEA bill that prohibits American residents from participating at legally sanctioned online gambling sites that are operating within the industry legitimately. While the law did cause reduced selection of services and difficulty in using credit cards to fund online gambling accounts, it did not curtail the right to participate at legal offshore Internet gambling destinations.

Does the UIGEA Apply to US Based Online Gambling?

With state-regulated online gambling being so new, the application of the UIGEA law has not been modified to accommodate the industry, causing some challenges for Nevada, Delaware and New Jersey as they launched their state-based online gambling initiatives (just to name a few).

This has driven alternative banking solutions such as prepaid cash cards, prepaid debit cards, and digital e-wallets to reemerge in the US gambling market, though at this time they are restricted to state-licensed online gambling only.

Will I Be Breaking the Law if I Gamble at an Offshore Online Gambling Site?

Absolutely not. The law only addresses the processing of gambling-related transactions and does not address player activity. Nowhere in the UIGEA does it prohibit US players from engaging in responsible online gambling at legal international gambling sites.

Is the UIGEA Law Enforced?

As we saw on Poker Black Friday in 2011, the Department of Justice does indeed enforce the UIGEA law. It seized several prominent online poker sites under the suspicion that they were violating the UIGEA. At no time were players investigated, targeted, or punished in any way. They were, however, inconvenienced as operator assets were frozen, delaying access for many players to the funds in their account.

Eventually, all players received their money, with some players receiving additional restitution from the gambling sites. This action triggered another wave of payment processors and gambling site operators exiting the US market, leaving a slightly smaller selection of brands and payment services for US players to consider.