Rep. Frank Proposes Federal Licenses for Internet Gambling

In a surprise to those who thought his objective was simply to roll back or strike the provisions of an October law that prohibits US financial institutions in non-gambling states from transferring funds to and from Internet gambling establishments worldwide, Rep. Barney Frank (D - Mass.) introduced a new bill to the House this morning that would go several steps further, effectively creating a federal licensing board for Internet gambling establishments.

Under the provisions of the new bill - to be entitled the Internet Gambling Regulation and Enforcement Act of 2007 - the Treasury Dept., represented by the Director of the Financial Crimes Enforcement Network, would have the authority to issue federal licenses. "No person shall engage in the business of Internet betting or wagering in the United States without a license issued by the Director," the bill reads.

"The existing legislation is an inappropriate interference on the personal freedom of Americans," Rep. Frank stated this morning, "and this interference should be undone."

Under the terms of the Frank bill, the FCEN director would become a sort of "federal online gambling czar." The director would issue licenses to both businesses and individuals that wish to conduct gambling operations, with the freedom to set appropriate fees on a case-by-case basis. Individuals and companies would be subject to criminal background checks during a waiting period, similar to that currently imposed for people wishing to purchase certain firearms in the US.

But the bill would prohibit license fees from being appropriated by the government as revenue. Whether that language survives debate will be interesting to watch.

States and Indian territories wishing to prohibit gambling may exempt themselves from this legislation, which would effectively nullify its effect in their respective areas. And sporting leagues wishing not to be the subject of online bets may exempt themselves as well.

Yesterday, Rep. Frank's announcement of this legislation rallied many who were anxious for the repeal of the Unlawful Internet Gambling Enforcement Act, which does not actually ban Internet gambling. Instead, it bans certain gambling related transactions between banks and gambling establishments, holding banks responsible.

One surprise is that the Frank bill is actually not a repeal of UIGEA. Instead, it creates an exemption path through which institutions may seek licenses - for a fee. It would prevent banks and financial institutions from being held liable for transactions with licensed establishments. In so doing, rather than strike UIGEA, it leverages it to become a sort of safety shell, so that it continues to prohibit transactions. Inside that safety shell, the Frank bill becomes a sort of unseen pearl, graciously permitting exceptions that would follow new Treasury Dept. guidelines.

The bill also explicitly states that existing laws may continue to prohibit certain wagers. Included in its list is the Interstate Horse Racing Act, which was the original subject of the objections of the government of Antigua before the World Trade Organization. Those objections were later exacerbated by the passage of UIGEA, though Antigua's original "consideration" of a threat to stop enforcing violations of US-held intellectual property - clearing the way for software pirating operations in that country to proceed - may yet continue.