USA Poker History
To cut to the chase, as of February 1st 2012, US laws do not currently make online poker illegal at the Federal level, although certain States have their own seperate legislation which punters should be aware of (USA Poker Law). What IS illegal is for banks and other financial institutions, including online cash processors, to facilitate the transfer of money from USA residents to offshore gambling companies. Let’s have a look at how we got to this point.
The UIGEA Brings Online Poker Into The Spotlight
Prior to October 2006, online poker was pretty prevalent and hugely popualar in the USA. Poker rooms such as Pokerstars, Full Tilt Poker and the controversial Absolute Poker had a huge market share but all of these were “offshore companies” and at that time, no US-based business was active in the market, due largely to The federal Wire Act of 1961.
The Wire Act explicitly forbade any business to use a “wire communication facility” to provide or facilitate the “transmission…of bets or wagers“. By some this was interpreted to include the Internet by definition, although clearly the Web as we know it was not around until at least 30 years later. Due largely to extensive and lucrative land-based operations in the United States, the larger companies felt that the online market for poker in the USA was not worth the risk, despite potentially lucrative returns. As it turned out, the Department of Justice (“DOJ”) shared the same view.
The Unlawful Internet Gambling Enforcement Act (“UIGEA”) was a cut down version of a previous Bill which due to it’s extensive remit was not likely to pass through Senate. Indeed, in 1999, a previous Bill aimed at prohibiting online gambling had failed at the same stage. The UIGEA stopped short of making online gambling illegal and instead put the onus on financial providers to ensure that they didn’t “knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet“.
The UIGEA was never going to pass on it’s own before the 2006 elections and was instead tacked onto the “must pass” SAFE Port Act ensuring it’s smooth passage into law. It was challenged on it’s way through but any amendment would have held up this otherwise “vital” piece of anti-terrorism legislation so it was signed into law on the 30th September 2006, the last day before recess for the elections.
The Knock-On Effect
The online poker now had some decisions to make. Although in most States, online poker was still not illegal per se, the message that had been sent to the industry from the Federal Government was clear: online gambling, including poker, was not in favour. Until such a time as the US could see a financial benefit through taxation and regulation, this wasn’t going to change either.
Some poker rooms and gambling software providers made the decision to pull out of the USA. This initially affected casino players far more than it did US poker players as the big poker rooms such as Pokerstars, Full Tilt and Absolute Poker decided to remain. Microgaming and Playtech, software providers to the industry made the decision for their licencees, pulling the plug on the US market with one eye on the future: being seen to react positively might well see them in with a shout when regulation does – inevitably – arrive.
The biggest and most immediate casualty of the UIGEA was the publically traded Partygaming PLC who operated one of the biggest US poker rooms: Party Poker. The value of their shares dived overnight tby almost 60% of it’s value and as a result, the company lost it’s position on the FTSE 100 in mid October.
For many US players, the online poker and casino market suddenly changed shape with rogue outfits seizing the opportunity to gain – or regain in some cases – the market share they had previously lost through an inability to compete with the reputable online gambling companies. Now the latter had gone, the US online gambling market was likened to many as a second period of prohibition.
The situation was exacerbated as the banks and processors gradually started to implement the rules of the UIGEA (after much grinding of teeth it might be added) with many players finding the process of depositing and withdrawing fraught with difficulties. New payment processors appeared almost every month with many disappearing just as quickly, along with players funds. Then to add to the confusion, the DOJ decided it wantd to send a clear message to the industry.
A Message from The DOJ
The period between 2007 and 2009 was a roller-coaster ride for online poker and gambling in general. The DOJ decided to make examples of companies who continued to flout what they saw at the time as a ban on Internet gambling. By later admission, the DOJ were using the Wire Act of 1961 to go after companies and individuals with several high profile arrests, almost exclusively from the world of Sports Betting which the Wire Act most closely alluded to.
As a backdrop to thiese actions, several prominent politicians, among them the Chair of the Financial Services Committee, one Barney Frank were attempting to instigate legislation to reverse the UIGEA and/or bring about the regulation of online gambling, specifically poker which many saw as a game of skill and with the most chance of being accepted due to it’s unwaning popularity. Sen. Frank had another agenda in that the UIGEA put undue pressure on the banks to effectively police the industry and he did manage to delay the implementation of the UIGEA to June 2010 through a seperate Bill.
Meanwhile, the actions of the DOJ were having the desired effect. The arrests and public show of strength forced more companies out of the US market although still, some of the larger poker sites remained. many of the charges bought were far removed from facilitating online gambling with fraud, money laundering and various other reasons declared. Many of which were met with a degree of scepticism by those who felt the DOJ were simply clearing the way for US companies to dominate the online gambling space. Then, in 2011, came what was later dubbed (somewhat unoriginally) “Black Friday“.
In April 2011, Black Friday effectively killed online poker in the USA. It constituted of indictments by the DOJ on the three biggest poker rooms: Pokerstars, Absolute Poker and Full Tilt effectively shutting them down, freezing their assets and bringing online poker to an end for hundreds of thousands of US players, many of whom have still to see their money. Although Pokerstars is still trading in Europe, the US operation is a no-go area and the only real options left to USA poker players are companies whose reputation needs careful examination.
DOJ U-Turn on The Wire Act
While online gambling started to thrive through regulation in some European territories and after years of negative publicity and a seemingly downward spiral for the ndustry in the USA a sudden announcement from the US DOJ on December 23rd 2012 changed the perspective. In the announcement, the DOJ outlined that following legal advice taken a couple of months prior, it had decided that the 1961 Federal Wire Act did not make online gambling illegal. This announcement was a direct response to questions posed by certain State lotteries who wanted to know if they could sell tickets online. The answer was “yes”.
Considering the Wire Act had been the foundation of the DOJ’s incessant attack on the industry this effectively said that the war was at an end. To some observers, this was less an admission than a statement to the effcet that the DOJ had set out to do what they wanted to do – clear the market of offshore gambling companies – and that they wouldn’t stand in the way of US businesses looking to take advantage.
USA Poker: The Future
So it seems as if the online poker market in the USA is being prepared. As early as 2010, many US gambling institutions were making announcements that they were investigating the possibility of online gambling. With global recession, the industry was starting to be seen as a cash-cow that could rescue businesses and help bolster dwindling State coffers. Black Friday did impact this too mind you, with several potential deals between land-based companies and online gambling companies being scuppered as a result, none more prominent than Steve Wynn’s deal with Pokerstars which in itself was fascinating considering Wynn was previously seen as an opponent of online gambling.
In 2012, I would expect to see the first shoots of poker take hold in the USA. It will require individual States to provide a legislative framework for this to happen and that will take some time but it is now inevitable that a safe online gambling environment will arrive for US poker players. Undoubtedly it will be taxed and a fairly strictly controlled environment but for those who see the bigger picture, both those make perfect sense.