Internet Gambling: The Regulators to the Rescue

Implications: The Federal Reserve Board and Treasury issued a joint proposed regulation to implement the Unlawful Internet Gambling Act.  The Act potentially could have imposed expensive and burdensome requirements on the financial services industry.  However, the proposal is quite limited, and provides flexibility for members of the payment system.  It also includes broad exemptions design to ensure that the payments system is not burdened by the new law.

Analysis: The proposed regulations indicate that both the Treasury and the Federal Reserve are not interested in establishing new burdens and costs for the payments systems or for the financial institution members of that system.  Unless a bank has a direct customer relationship with an internet gambling concern, compliance will be a non-event.  As a result, the burdens on the financial services industry will be minimal.  Further, through the use of intermediaries, internet gambling companies may be able to have continued access to U.S. markets.  The Justice Department may continue to  prosecute off-shore internet gambling owners under the theory that they are violating other laws.