"In legislative action taken on the eve of its mid-term election recess in 2006, Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), 31 U.S.C. §§ 5361-5367, as part of unrelated homeland security legislation known as the SAFE Port Act. Rather than targeting Internet gaming operators or players, the UIGEA restricts and/or prohibits financial institutions from processing "unlawful Internet gambling" transactions, and provides civil remedies and criminal penalties for violations.

The UIGEA left the promulgation of regulations interpreting exactly which transactions are prohibited as part of "unlawful Internet gambling" until 2007. The administrative process for issuing those proposed and final regulations was not completed until 2008, with the final regulations taking effect in January 2009. However, full compliance with the regulations was postponed and not required until the regulations finally became fully enforceable on June 1, 2010. Before the regulations were implemented, domestic financial institutions took a conservative approach that they would not risk prosecution and would not process any transaction that potentially violated the UIGEA. As a result, Internet gaming shifted off-shore, ultimately creating a multibillion-dollar industry.

While the UIGEA was being implemented, Rep. Barney Frank (D-MA) took up the issue of legalizing Internet gaming. Rep. Frank has long tried to repeal the UIGEA and last year attempted to replace it with legislation – known as the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2267) – that would legalize, regulate through the issuance of operator licenses, and permit the taxation of Internet gaming. H.R. 2267 contained provisions permitting tribes and states to opt out, i.e., giving them the ability to refuse those Internet gaming operators with federal licenses the right to offer such gambling within their tribal territory or state, respectively. Frank's bill was approved by the House Financial Services Committee last summer but did not move any further during the last Congress.

Also in the last Congress, Rep. Jim McDermott (D-WA) introduced H.R. 4976, the Internet Gambling Regulation and Tax Enforcement Act of 2010. Rep. McDermott's bill would have amended the Internal Revenue Code to impose a federal tax on domestic licensed Internet gaming operations permitted under Rep. Frank's bill. The McDermott bill also would have imposed a punitive federal tax on unlicensed domestic Internet gaming operations. However, the bill never made it out of committee."

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Timothy Q. Evans and William Wood: Update on Internet Gaming and Indian Tribes (Mondaq.com 10/27)
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