Barton Introduces the Internet Poker Freedom Act

Rep Joe Barton (R – TX) introduced the latest attempt to regulate online gambling at the federal level today with the Internet Poker Freedom Act (IPFA).

Much of what we see in this bill echoes past legislative efforts. But the bill is completely distinct from Rep. King’s recent bill to regulate online gambling.

Read the entire bill here.

What follows is more of a highlights than a cliffs, although I did make an effort to at least touch on all essential sections of the bill.

If you’re wondering about my opinion of the bill, these tweets sum it up pretty well:

Another moribund federal #Internet #gambling bill hardly constitutes momentum. Merely a placeholder to keep #lobbying dough flowing.

— Chris Krafcik (@CKrafcik) July 11, 2013

@OPReport Meet the New Bill, same as the Old Bill. But at least this keeps the conversation going and the lobbyists from starving on K St.

— Ian J. Imrich, Esq. (@ijiLaw) July 12, 2013

Key aspects of IPFA

• The bill seeks to regulate online poker only.
• “Bad actors” – or anyone who buys their assets – are locked out for 5 years – but it appears a felony conviction – or at least some criminal conviction – is required to qualify.
• Bill is an opt-out system, effectively meaning states participate by default.

Section 1 – Table of contents

Just as it sounds.

Section 2 – Findings

Not much of note here, basically provides context and general justification for the bill.

The section references the UIGEA, DiCristina, the legal ambiguity surrounding online poker and the unique peer-to-peer nature of poker.

The section then lays out the fundamental components of a regulatory scheme for online poker and the economic benefits of regulation.

TITLE I—PROHIBITION ON UNLICENSED INTERNET POKER AND PROTECTIONS FOR INTERNET POKER CONSUMERS

Section 101 – Definitions

A few things worth noting here:

1. Interstate horseracing and intrastate online gambling licensed prior to the passage of the Internet Poker Freedom Act are exempted from the definition of “bet or wager,” as are intrastate lottery games.
2. Lottery games are defined pretty broadly – basically any game of chance. But the following definition of “casino gaming”  may provide some limits.
3. “Significant vendors” are also defined pretty broadly. If you accept bets, manage or control the games, develop or maintain the software, provide any of the IP for the operator or – and this is the big one – anyone who is paid a percentage of gaming revenue in exchange for their services.
4. A definition of “internet poker facility” clarifies the issue of where a bet placed on the Internet actually happens – it’s where “a bet or wager is initiated, received, or otherwise made.”

Section 102 – Prohibition on unlicensed internet poker

This section makes it illegal to operate a US-facing online poker room without a license as required by IPFA.

Section 103 – Dept of Commerce qualification and oversight of qualified regulatory authorities

This section establishes The Office of Internet Poker Oversight (The Office) under the Dept of Commerce.

The Office has a number of powers, including:

• Identifying qualified regulatory authorities at the state / tribal level. These are the authorities who will effectively handle the day-to-day of regulating online poker.
• Establishing “minimum standards” that regulatory authorities must meet.
• Rescinding authorization if regulators don’t meet minimum standards.

The Office is required to “conduct meaningful consultation with federally recognized Indian tribes regarding all aspects of this title which affect federally recognized Indian tribes.”

Section 104 – Licensing by qualified regulatory authorities

This section covers a variety of issues, including who must be licensed, the issue of state participation and more. A few key points:

• Significant vendors do not have to be licensed if they acquire a “certificate of suitability” from a regulator.
• States – via their Governor or other “chief executive officer” – must notify The Office via letter if they wish to prohibit licensed operators from accepting bets by residents. Same basic procedure for tribal lands.
• Tribal lands located within states are not subject to state prohibitions or opt-outs with regard to online poker.

Licensing details

A few key requirements regarding applications

• Operators have to be licensed where their servers are located.
• Applicants will need to provide a laundry list of information. There’s all of the usual information (financial details, compliance plan, etc).
• Applicants will also have to submit to the jurisdiction of both the federal government and the relevant state government.
• Not only applicants must be found suitable, but also “any person deemed to be in control of the applicant, all significant vendors of the applicant, and any other person determined by the qualified regulatory authority as having significant influence on the applicant.”
• Applicants are unsuitable if they have been convicted of an offense that carries a jail sentence of more than one year.
• And if they owe any tax.

Requirements for operation

• Prevent underage gambling.
• Confirm location.
• Collect tax information.
• Pay taxes.
• Combat money laundering, etc.
• Stop cheating and “bots”

Bad actor clause

If you’ve been convicted of a felony involving accepting bets over the Internet, you’re shut out for 5 years. And if you purchase the assets of a bad actor, you’re shut out for the same 5 year period.

Other vendors

Companies and individuals who don’t meet the threshold of “significant vendor” may still be required to go through suitability checks. In any case, operators are required to notify regulators of any “other vendor,” a term that covers quite a bit of ground.

Most important for affiliates, it includes those who: “direct, provide, or solicit customers to or for the licensee’s Internet poker facility, or materially assist in any of those 9 tasks, in return for a commission or other fee;”

Having an “other vendor” that doesn’t meet suitability can put an operator’s license in jeopardy.

Limitations on operator license approvals

IPFA basically seeks to limit operator licenses to existing casinos, card rooms and tribal gambling facilities. But the section appears to be written in a broad enough way to make the limitation somewhat moot. And in any case, the section can be done away with after two years.

Misc

• Game servers must be located in the U.S.
• Licenses are good for 5 years.
• If regulatory authorties conflict on an issue – like the suitability of a licensee – The Office breaks the tie.

Section 105 – Enforcement

The law of the regulatory body that issued a license is the controlling law when licensees run afoul of the IPFA.

When licensees are appealing an action, they can continue to operate if they can convince the court hearing their appeal to allow them to do so.

If an operator loses their license, they have 30 days to return all funds. Funds that can’t be returned must be placed in escrow overseen by The Secretary.

Violations of the IPFA by licensed operators carry an (effective) minimum civil penalty of $250k for individuals and $750k for corporations – for each violation.

Violations by unlicensed operators – i.e., unregulated US-facing sites – face a minimum fine of $1mm per each day the site takes bets without a license, up to the total amount wagered by U.S. players.

Section 106 – Problem gambling, etc

This section covers the minimum requirements regarding problem gambling controls, responsible gambling promotion and self-exclusion.

IPFA contains some common-sense and potentially effective requirements, but then gives state and tribal regulators such broad latitude as to render this section basically meaningless.

The Secretary will keep a master self-exclusion list consisting of all individual self-exclusion lists.

Individuals on the self-exclusion list get very little in the way of protection from IPFA. But the operator certainly does – they don’t have to pay self-excluded players their winnings should the player come back on site during the self-exclusion period.

Anyone delinquent on child support payments is automatically placed on the self-exclusion list.

This section requires The Office to accumulate and “make public” a wide array of aggregated data regarding online poker activity, including “gender, age and region of residence, player behavior including frequency of play, length of play, speed of play, denomination of play, amounts wagered and, if applicable, number of lines or hands played and characteristics of games played.”

Section 107 – Prohibitions and restrictions

What can’t you do under IFPA?

• You can’t bend the definitions of poker to offer other games.
• You can’t accept credit card deposits.
• You can’t run an “internet poker parlor” – so no clubs, no commercial enterprises built around allowing access to Internet poker play.

Section 108 – Safe Harbor

You can’t be hit for violation of another law if you’re following everything under IPFA.

Section 109

Exempts activity permitted by IFPA from UIGEA regulations.

Section 110 – Cheating

Cheating is generally prohibited. But what constitues an “unfair advantage” is left up to the licensee. That’s an area that a lot of poker assistance software could potentially fall under.

But bots are specifically identified as cheating devices under the IFPA. And use of them carries a potential criminal penalty

Section 111 – Construction

Generally, this section makes clear the the IFPA won’t impact existing law – with one key exception (bold mine):

Except as otherwise expressly provided in this title and excluding any prohibitions described in section 104(a)(3), the provisions of this title shall supersede any provisions of the law of any State or federally recognized Indian tribe expressly relating to the permitting, prohibiting, licensing, or regulating of Internet poker facilities, including Internet poker facilities, and the law of any State or federally recognized Indian tribe expressly relating to the permitting, prohibiting, licensing, or regulation of gambling, except to the extent such State or tribal laws are not inconsistent with this title.

The IFPA also won’t have any impact on tribal compacts, status or or the IGRA.

Section 112 – Regulations

The Secretary has 180 days after the passage of IPFA to propose regulations.

Section 113 – Annual reports

Requires a variety of annual reporting.

Section 114 – Effective Date

The law comes into force 30 days after passage, but licenses can’t be issued until regulations exist.

TITLE II—STRENGTHENING OF UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT OF 2006

This title edits the UIGEA for two purposes: First, to make it comport with the IFPA.

Second, to identify and investiage a list of violators, who will then be added to the Specially Designated Nationals and Blocked Persons list.

There’s a lot of detail in this section, but that’s the gist.

The remainder of the bill involves some clerical housekeeping.

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