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Beginning June 1, credit and debit card processors must have "reasonably designed policies and procedures" in place to detect if U.S. transactions are tied to bets placed with Internet gambling sites, according to a finalized rule by the Federal Reserve.
But the intended crackdown on U.S. online wagering that was behind the 2006 law taking effect tomorrow is far from certain as its power to enforce such activity remains vague.
Moreover, online poker parlors and other betting sites commonly modify card network coding requirements to avoid detection.
The Fed itself states that the rule "does not specify when transactions must be limited or accounts closed, only that the institution should have procedures in place."
The Fed adds that the appropriate Federal financial institution regulator "has discretion to impose requirements in the course of supervision or within the context of an enforcement action."
The Fed's final rule behind the Bush Administration's Unlawful Internet Gambling Enforcement Act, UIGEA, was postponed for six months, partly under pressure from some Democrats still pushing for legalized and regulated U.S. online gambling.
There have been concerns from both parties over the UIGEA's lack of a clear distinction between illegal Internet betting and state-sanctioned sites for horse and dog racing venues or lotteries.
The Fed's rule specifies that "participants in a designated payment system are exempt unless they have direct relationships with commercial customers" - some of which may be offshore affiliates of betting sites.
In effect, much of the burden would fall on third-party payment processors and so-called "merchant acquirers" who establish merchant accounts on behalf of the top card networks, Visa, MasterCard, and their member banks. Most often, though, these processors are sponsored by financial institutions that are members of the card networks.
The Fed's rule states that an institution must conduct due diligence on "whether the customer poses a minimal risk of engaging in an Internet gambling business."
If the institution cannot make this determination, it should obtain a certification from the customer that it does not engage in an Internet gambling business.
If the customer does engage in an Internet gambling business, the following is required:
Either a copy of the commercial license from a State or tribal authority authorizing the customer to engage in the business or a reasoned legal opinion;
A written commitment by the customer of any changes in its legal authority to engage in the Internet gambling business;
A third-party certification that the customer's systems for engaging in the Internet gambling business are reasonably designed to ensure that the business will remain within legal limits.
See Related Articles:
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Fed-Treasury Move Could Re-define Online Gambling Law
