Reid/Kyl federal online poker bill reads like a love letter to Nevada

reid-kyl-online-poker-billAt long last, Senate majority leader Harry Reid (D-NV) has come down from the mountaintop bearing a draft of the US federal online poker bill he co-authored with Sen. Jon Kyl (R-AZ). (Read it here.) The Internet Gambling Prohibition, Poker Consumer Protection and Strengthening UIGEA Act of 2012 – no easy acronym for this puppy – gets right to the point, describing its mission thusly: “to ensure an effective Internet gambling enforcement structure that leads to a substantial and sustainable decrease in Internet gambling.” [Emphasis added.] The Act’s unstated mission is to put Reid’s home state of Nevada in the driver’s seat for overseeing a federal online gambling regime, while sticking it to the other states that want to blaze their own path.

In a nutshell, the Act would authorize online poker and horseracing while strictly prohibiting “house-banked games or sports betting.” Intrastate online lottery transactions are to be “limited to sales of tickets and related activities.” Strictly verboten is any lottery product that is “intended to mimic or does substantially mimic a gaming device, slot machine, poker, or any other casino game.” (So no ‘scratch-card’ tickets.) States and tribes would be prohibited from offering any other online wagers that weren’t already on their law books before May 1, 2012 (a date intended to undercut Delaware’s passage this summer of soup-to-nuts online gambling legislation). The Act would also prohibit public gambling in “online poker parlors,” even if such a facility was a restricted club that charged membership dues.

States would have to opt-in to the federal poker plan by passing fresh legislation expressing their willingness to participate. Tribes can opt-in if the “principal chief or other chief executive officer or designated authority” submits written notice that they’re okay with the plan. Tribes that don’t want to be a part of the plan can submit written notice stating as much, but simply not submitting an opt-in notice will suffice. Tribes whose lands are located in opt-out states must abide by that state’s puritanical worldview, but that doesn’t preclude these tribes from being designated as license-issuing qualified bodies. Nothing in the Act has any bearing on non-Internet gaming activities authorized under the Indian Gaming Regulatory Act (IGRA). States and tribes that opt-in won’t need to renegotiate any tribal-state compacts.

The Act calls for the establishment of an Office of Online Poker Oversight (OOPO) that will ensure regulations and standards are finalized no less than 270 days after the Act becomes law. Should it fail to meet that deadline, OOPO will go with the regulations established by “the first state agency or regulatory body of an Indian tribe that is designated as a benchmark qualified body.” Translation: OOPO drags its feet for 270 days, then institutes Nevada’s regs verbatim.

The Act envisions having “at least three” qualified bodies act as online poker license gatekeepers. High on the list of necessary attributes to become a qualified body are “a reputation as a regulatory and enforcement leader in the gaming industry,” having “regulatory and enforcement personnel with recognized expertise” and “demonstrated capabilities relevant to the online poker environment.” Another factor that will boost your bid is ”the number of years the agency or regulatory body has directly regulated casino gaming.” (Hey, look… Nevada’s blushing!)

Qualified bodies are encouraged to issue multiple licenses “to ensure a robust and competitive market for consumers and to prevent the first licensees from gaining an unfair competitive advantage.” Licensees couldn’t start accepting action until 450 days following the Act becoming law. Licenses – which are “a privilege, not a right” – would be valid for five-year terms. If a licensee is found to have violated the terms of their license, qualified bodies can impose fines of up to $250k for individuals and $750k for corporations, plus the amount involved in the violation and any other applicable amount under state or tribal law. Financial institutions would be provided a list of licensees for whom it is permissible to process online poker transactions and player funds are to be segregated from operator funds.

Licensees would pay a monthly “online poker activity fee” equal to 16% of their online poker receipts, which are defined as “any commission fee, tournament fee [minus prizes paid] or other fee or charge required or received from customers … which are directly connected to online poker.” Of this 16%, 14% goes to the states or tribes (calculated on a ratio of 70% of fees collected from customers located within that state/tribe’s jurisdiction and 30% of fees collected from the licensees of the qualified body residing within that state/tribe). The remaining 2% would stay with the feds to cover administrative charges and the odd senatorial 8-ball-and-hooker weekend.

(The Act optimistically imagines that unlicensed operators will also submit monthly payments to the feds, except these scofflaws would be required to pay 50% of their proceeds. But since such payments don’t offer immunity from criminal or civil prosecution, you might as well refer to it as the Get The Fuck Outta Here Fee, in that we can’t envision a scenario in which anyone would choose to pay it. Regardless, operating without a license will result in civil penalties of $1m per day and forfeiting the total sum of wagers taken from US players while operating illegally.)

Licensees wouldn’t be allowed to accept wagers from players outside the US unless “the entity that operates such Internet gambling facility or online poker facility is separate” from the US-facing entity and there is “no commingling of players, funds, or records of such Internet gambling facility or online poker facility with the players, funds, or records of such online poker facility licensed under this title.”

To be considered eligible for an online poker license, an applicant must own or control a casino, a qualified race track (with at least 500 gaming devices in one location OR has handled $225m in gross wagering in any three of the last five years), a card room (with at least 250 tables in one location) or a manufacturer of gaming devices (that supplies gaming joints with over 500 slot machines).

The Act defines unsuitable operators as those who’ve been “convicted of an offense that is punishable by imprisonment of more than one year” or who “knowingly accepts or knowingly has accepted bets or wagers on sporting events from persons located in the United States in violation of a provision of Federal or State law” or “has affiliated” with such a scumbag. Those ne’er-do-wells who are still serving US customers would have 30 days following the Act becoming law to stop being evil, regardless of whether or not they intend to apply for a US license. Failure to do so could result in a prison sentence of up to 10 years.

Any ‘covered person’ – aka an operator who served US customers after Dec. 31, 2006 or significant vendors who assisted their endeavors – would be required to spend five years in the ‘bad actor’ penalty box and waive any statutes of limitations on their past indiscretions before being eligible to submit a license application. (There is, however, a ‘Mr. Magoo’ clause that requires the operator to have “acted with knowledge” that they were serving US customers.)

A licensee’s use of a ‘covered asset’ — such as the software used to facilitate those illegal US-facing wagers, the brand name of the company or its database of US players – would also be prohibited. Waivers can be obtained, provided you can convince the OOPO or a qualified body that you or your assets hadn’t actually broken any state or federal law following Dec. 31, 2006. Whether or not a person or asset was ever the subject of a criminal proceeding for a violation of federal or state law won’t factor into the determination whether a waiver should be granted. If a waiver is granted, you could only apply for a license with the qualified body that issued the waiver.

As expected, licensees will be duly submitting records of players’ online poker winnings, losses, deposits and withdrawals to the gubmint for taxation purposes. In some instances, taxes will be withheld by the licensees. Players who enjoy heads-up displays should note the ban on “cheating devices”, defined as anything “designed, constructed, or programmed specifically for use in obtaining an advantage.” Software is included in this category, but there’s an exemption for anything that has been “registered” with the qualifying body, so you HUD’ers may catch a break. But bots definitely qualify as a cheating device. Cheaters face permanent bans from online action plus prison sentences of up to three years. (That sound you heard was José Macedo tearing up his visa application.)

Seeking to undo the Department of Justice’s Wire Act rethink of December 2011, Reid’s Act would amend the Wire Act by including language that directly references the Internet and modifying the definition of “bet or wager” to match that contained in this new Act. Similar changes would be made to the Illegal Gambling Business Act (IGBA) and Unlawful Internet Gambling Enforcement Act (UIGEA).

And for any operator who thought that poker was the thin end of the online gambling wedge, Reid’s on to you. Assuming the Act is passed, the Senate and House of Representatives would be explicitly barred from considering “any bill, resolution, amendment or conference report that licenses, regulates, or otherwise permits” any form of online gambling other than that which is permitted under the Act unless three-fifths of the Senate agrees to waive this clause. Given that partisanship seems to be increasing on an exponential basis, getting 60 senators to agree on anything besides increasing their salaries seems dubious. In fact, dubious would be the word we’d use to describe the chances of Reid’s Act passing, but hey, that’s why they play the games, right? Should be an interesting few months.