Top Dem Doubles Down in Online Gambling Fight

On the eve of a new administration, the fight over Internet gambling is coming down to the wire.

While officials from the Federal Reserve and the Treasury Department work on creating regulations to enforce a law that targets illegal gambling, a top House Democrat is calling on the Bush administration for a delay — warning that making rules based on what some call an ill-defined law could disrupt the already precarious financial system.

Massachusetts Rep. Barney Frank, the chairman of the House Financial Services Committee and a critic of an ban on Internet gambling, blasted Treasury Secretary Henry Paulson in a strongly worded letter for “unseemly haste in issuing regulations” overseeing online gambling.

“This midnight rulemaking will tie the hands of the new administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee,” Frank wrote.

But a delay on making rules may enable the next administration to get a whack at making its own rules on illegal Internet gambling — potentially narrowing the scope of sites that may be affected.

Frank’s criticism marks the latest turn in the protracted fight over online gambling, a saga that has seen no shortage of lobbying on both sides from a diverse group of interested parties, including the banking industry and pro-sports leagues like the National Football League.

At issue is the Unlawful Internet Gambling Enforcement Act (UIGEA) that Congress passed in 2006, which requires the Treasury Department and Federal Reserve Board to establish rules defining illegal online gambling. The bill prohibits banks from processing payments to sites deemed unlawful — with a criminal penalty of up to five years imprisonment.

But since its passage, regulators have struggled to come up with a clear definition of how the law should be applied. And in spite of criticism from lawmakers like Frank, finance officials plan to continue pressing ahead on establishing rules.

Responding to Frank’s letter, a spokeswoman for the Treasury Department told that “Treasury and the Fed are working together to get a considerable public comment and to complete these regulations as directed by Congress.”

In the meantime, pro sports leagues have been pushing aggressively to move forward with rules that would allow the government to enforce the ban. But the ban’s rivals are also moving aggressively, too.

In a letter last week, Rep. Steve Cohen, a Tennessee Democrat who, like Frank, believes online gambling should be legal, accused White House Counsel Fred Fielding of overlooking a conflict of interest with one of Bush’s top aides, who used to lobby for the NFL.

Cohen charged that William Wichterman, who was registered as a lobbyist for the NFL as recently as March, exerted “considerable political pressure” on the administration to move forward with the guidelines, Politico reported.

Cohen asked the White House to detail its policy on staffers who advise on issues they have previously lobbied for.

On the other side of the issue is the banking industry, which has argued that the law is overly vague, making compliance a cumbersome proposition. Of course, the banks also have something to gain from a narrowing of the requirements: Reducing the number of gambling sites impacted by the law would ensure they retain a greater share of the fees they collect from processing transactions.

At a hearing Frank held in April, officials from the Treasury Department and the Fed admitted that they were having trouble with the definition. Representatives of the banking industry and other groups warned that unclear regulations would disrupt the payments system.

Eleventh-hour effort

The latest developments come as the administration scrambles to articulate rules that would take effect following a 60-day review period. With 71 days until President-elect Barack Obama takes office, time is of the essence if the Bush administration is to put its stamp on Internet gambling.

In his letter, Frank criticized the administration’s rush to implement rules before resolving issues with the law, and asked them to allow that task to pass to the next administration.

“I strongly urge you to delay implementation of these major, and deeply flawed regulations to permit the incoming administration the ability to review the consequences of such a significant policy decision, rather than unfairly being denied that opportunity,” he said.

After the April hearing, Frank introduced legislation that would define the term “unlawful Internet gambling” through a formal rulemaking process, instead of leaving it up to the Fed and Treasury Department. The Financial Services Committee signed off on that bill in September, but it never came to a vote in the House or Senate.

“The proposed regulations, like the underlying UIGEA statute, fail to define the term ‘unlawful internet gambling,’ leaving it to each financial institution to reconcile conflicting state and federal laws, court decisions and inconsistent Department of Justice interpretations when determining whether to process a transaction,” he said in his letter.

Frank opposed the bill from the beginning, arguing that in addition to placing an undue burden on banks, the ban would apply the flawed logic of the Prohibition era to online gambling.

“When people abuse a particular practice, the sensible thing is to try to deal with the abuse, not outlaw it,” he said in a floor speech when the bill was under debate.

In April 2007, he introduced a bill that would establish a licensing and regulatory framework for online gambling, effectively reversing many of the provisions of the UIGEA. That bill remains stuck in the Committee.

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