FRANKS BILL A SURPRISE FOR ONLINE GAMBLING INDUSTRY

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The Internet Gambling Regulation and Enforcement Act proposed is a little different to a repeal of the UIGEA

The chairman of the House Financial Services Committee, Congressman Barney Franks has launched his much anticipated proposal to amend the Unlawful Internet Gambling Enforcement Act....and it's not the repeal most industry people were expecting.

The bill does not challenge the Unlawful Internet Gambling Enforcement Act 2007 directly. Instead it seeks to establish a regulatory and enforcement framework for licensed gambling operators to accept bets and wagers from individuals in the US.

At a press conference in Washington today (Thursday) the Congressman introduced his long-awaited Internet gambling bill, taking a completely unexpected approach not unlike the recent Washington State amendment that provides an "affirmative defense" for online gamblers. However the Frank proposal is considerably more complex and introduces the possibility of licensing and regulation....and taxation.

The Franks bill, titled the Internet Gambling Regulation and Enforcement Act, does not seek to set aside the UIGEA but leaves it in place, together with the Wire Act.

The ban against financial transactions with online gambling companies stays, qualified by its application to sites regarded as "illegal" or in other words unlicensed in the USA.  However, Section 5370 of the new proposal provides a defense against the UIGEA regulations that have yet to be promulgated following interaction between the Treasury and the Attorney Generals office.

And Franks proposes to introduce a system of federal licensing and regulation that will be open to suitable offshore Internet gambling companies.

This aspect is handled through legislation that seeks to amend Chapter 53 of Title 31, United States Code (Monetary Transactions), by adding a new sub-chapter titled Regulation of Lawful Internet Gambling.

The Financial Crimes Enforcement Network (FinCEN) is to be given exclusive authority to issue and enforce licenses and regulations, if the Franks proposals are accepted. Applicants would be subject to both financial and corporate probity scrutiny - including criminal background checks of corporate officers - during the licensing process. And applicant companies will have to set up a corporation in the USA for taxation purposes.

The taxation provision is no surprise Industry observers expected to see tax used as a sweetener to bring politicians on board, and some experts have anticipated that the harvest from taxation could be of the order of $20 billion over a five year period, given the continued growth of a regulated and licensed market.

The Franks bill proposes a 1 percent license fee, and a 1 percent user fee paid to the U.S government during each 30-day period of operation, based on revenues received from player deposits.  The fees, however, are drawn and paid from company funds and not from customer funds. It also requires the US licensed companies to adhere to federal and state income tax laws.

In another move to head off opposition, the Internet Gambling Regulation and Enforcement Act stresses that licenses will only be granted if appropriate safeguards are in place for preventing underage gambling, fraud and money laundering.

Licenses are to be renewable each year and may be revoked if the company fails to comply with the regulations or any U.S. federal laws.

The proposal shows sensitivity to the important aspect of individual state authority over gambling laws and does not target any specific form of gambling.  This too was expected, and the poker sector appears from recent statements to be prepared to shift its stance of trying for an exception for the game.

Individual states can choose to regulate certain forms of gambling and not others, and if the powerful national sports leagues don't want any form of wagering to occur on a particular sport this is possible, too. Tribal gambling authorities, another strong lobby, are given equal rights to the states.

These sensitivities - a wide diversity of gambling is available in over 50 of the states of the Union - will make the amendments more palatable to a wider range of politicians. America accounts for around 48 percent of the total world gambling market of approximately $260 billion annually.

Congressman Frank does not seem to have changed his opinion of the UIGEA, which he has dubbed a "great mistake" and "one of the stupidest laws ever passed," but his proposals have clearly been carefully thought through with likely opposition factions in mind.

Online gambling is likely to be very much front-and-centre in Congress in the coming months - Nevada Representatives Shelley Berkley and Jon Porter have indicated that they intend calling for a year-long non-partisan study of Internet gambling that could delay the enactment of the forthcoming UIGEA regulations, and the Democrat Representative from Florida, Robert Wexler, is understood to be about to launch a bill seeking a carve-out for online poker on grounds that it is a game of skill.