Understanding the UIGEA: How It Shaped Online Poker
When most people in poker think of the end of the poker boom, they think of Black Friday. It was the Friday in April 2011 that the United States Department of Justice seized four of the largest poker sites in the world and indicted many of their executives on federal crimes. While that was the official end of the poker boom and the start of a new era in regulated online poker, the most pivotal moment in online poker history was actually the passage of the UIGEA in 2006.
The federal law – the Unlawful Internet Gambling Enforcement Act – was the start of the leadup to Black Friday. It was the law that actually changed poker in the United States market and influenced the governments of other nations to do the same.
Poker Boom: No Holds Barred
The poker boom and Chris Moneymaker are inextricably linked.
There were precursors to Moneymaker’s 2003 World Series of Poker Main Event victory, notably the release of the film Rounders in 1998 that inspired a newfound interest in the world of poker. And the 2002 WSOP Main Event victory of investment banker Robert Varkonyi for $2M garnered interest in the game. But it was the following year, when a bright-eyed accountant from Tennessee named Chris Moneymaker won the Main Event for $2.5M, that changed everything.
The difference in the payouts for Varkonyi and Moneymaker may have been just $500K, but the Tennessee accountant had a relatable story. He played a small satellite on PokerStars and won his way through to a seat to the WSOP Main Event worth $10K. His victory was widely seen on ESPN, and his story made the news rounds. And the world of online poker satellites opened up to a new generation of players who suddenly saw the potential to climb that ladder in Moneymaker’s footsteps.
What followed was the poker boom, also called the Moneymaker Era. People flocked to PokerStars, as well as other sites like partypoker and the 2004-launched Full Tilt Poker. Poker on television hit new ratings highs, and new shows debuted featuring pro poker players with captivating characteristics – think Jesus (Chris Ferguson), the Professor (Howard Lederer), the Mouth (Mike Matusow), the Godfather (Doyle Brunson), Kid Poker (Daniel Negreanu), durrr (Tom Dwan), Poker Brat (Phil Hellmuth), the Magician (Antonio Esfandiari), the Unabomber (Phil Laak), and players that needed no nicknames like Phil and Scotty, Sammy and Johnny “m****rf*cking Chan.
Live poker tournaments abounded, the World Poker Tour and World Series of Poker became must-play events, and satellites abounded to send players to poker locations around the world. Players found everything from swag giveaways at events to the ability to win cars with online poker points, and better players obtained sponsorships in droves.
There were virtually no limits to how much poker could grow.
Stop Having Fun, Kids!
While many saw the poker boom as an exciting time, and others saw new life given to an old pastime, some lawmakers saw a whole lotta gambling. They also saw companies based outside of America doing a lot of business and paying no taxes to the US government.
It was time to put a stop to the gamblers running around with money and dreams. The effort was bipartisan but belonged mainly to older members of Congress. They long sought ways to limit gambling in the United States. Senators Jon Kyl, Dianne Feinstein, Chuck Grassley, Strom Thurmond, Trent Lott, and Jesse Helms were among the dozens of sponsors of the Internet Gambling Prohibition Act of 1999, also known as S692. They sought to amend the US criminal code to outlaw any gambling business on the internet. The Senate had no problem passing that bill, but the House of Representatives halted it. While the support of the bill by conservative groups like the Moral Majority, Christian Coalition, and Focus on the Family was strong, the money of lobbyist Jack Abramoff was stronger. Backed by a company called eLottery, Abramoff led the movement – and payoffs – to stop the legislation.
After Abramoff endured Congressional and criminal investigations for corruption, he received a six-year sentence in federal prison in January 2006.
The absence of Abramoff’s influence presented a fresh opportunity to outlaw internet gambling.
UIGEA on the Down Low
US Representative James Leach took the lead by introducing the Internet Gambling and Prohibition and Enforcement Act, also known as HR4411. Initially, he introduced the bill in November 2005, but he waited until 2006 to push it forward with 35 cosponsors. It made its way through the Committee on Judiciary in 2006, and it passed the House by a wide margin (317 to 93) in July 2006.
Instead of trying to pass it through the Senate on its own, however, Leach took a different path. In partnership with Representative Robert Goodlatte in the House and Senators Bill Frist and Jon Kyl in the Senate, he added the internet gaming prohibition bill to the SAFE Port Act, a must-pass piece of legislation.
The SAFE Port Act, or HR4954, represented the “Security and Accountability For Every Port Act of 2006.” Its purpose was to prevent important US ports around the world from being coopted by foreign owners, specifically a Dubai company.
Dubai Ports World, based in the United Arab Emirates, bought the contract to operate six foreign ports, The alarm that stemmed from that contract prompted Congress to work with the Department of Homeland Security to improve maritime safety and monitor pertinent contracts. The SAFE Port Act was one of those measures.
There was no doubt that HR4954 would pass. It was a bipartisan bill that ultimately passed in the House (421 to 2) and Senate (98 to 0), and went to President George W. Bush, who signed it on October 13, 2006.
Included in the SAFE Port Act that became Public Law 109-347 was Title VIII, the Unlawful Internet Gambling Enforcement Act. It didn’t particularly fit with the rest of the sections, such as “Security of the United States Seaports,” “Security of the International Supply Chain,” and “Domestic Nuclear Detection Office,” but that didn’t matter.
What UIGEA Says
The general wording reads that the UIGEA is “prohibition on acceptance of any payment instrument for unlawful internet gambling.” It cites several findings:
- “Internet gambling is primarily funded through personal use of payment system instruments, credit cards, and wire transfers.”
- “The National Gambling Impact Study Commission in 1999 recommended the passage of legislation to prohibit wire transfers to internet gambling sites or the banks which represent such sites.”
- “Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry.”
- “New mechanisms for enforcing gambling laws on the internet are necessary because traditional law enforcement mechanisms are often inadequate for enforcing gambling prohibitions or regulations on the internet, especially where such gambling crosses state or national borders.”
There were also definitions included in the law, the most important of which were:
- Bet or wager: “staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome” and “includes any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering.”
- Unlawful internet gambling: “to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the internet where such bet or wager is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made.”
Finally, the UIGEA focused on financial institutions and payment processors that would or could facilitate transfers of money to and from online gambling sites.
- “No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful internet gambling: credit …; an electronic fund transfer …; or any check, draft, or similar instrument …”
- “Each designated payment system, and all participants therein, (must) identify and block or otherwise prevent or prohibit restricted transactions…”
- “The US government should encourage cooperation by foreign governments and relevant international for a in identifying whether internet gambling operations are being used for money laundering corruption, or other crimes.”
The assessment of many in the gambling world was that it contained a lot of ambiguous, confusing language. For example, banks don’t “represent” igaming sites, and poker had been proven to be more of a game of skill than “subject to chance.” Many financial institutions objected to the law because it put the onus on them to implement an entirely new system of identifying and prohibiting such transactions.
Legal minds had various interpretations of the law.
To Leave or Not to Leave the US
Online poker and gambling operators put their legal counsel on the case.
Publicly-traded companies, like partypoker, left the US market quickly. On October 2, 2006, PartyGaming issued a press release that read, in part:
“The company will suspend all real money gaming business with US residents, and such suspension will continue indefinitely, subject to clarification of the interpretation and enforcement of US law and the impact on financial institutions of this and other related legislation.”
Previous to its US exit, partypoker had garnered more than 40% of the global online poker market, with more than 75% of that revenue hailing from the US market alone. Shares of PartyGaming immediately plummeted, but the company stayed out of the way of US legal complications.
Another major poker operator, 888 Holdings featuring 888poker, followed out of the US market. Sports betting companies like Pinnacle Sports, BetOnSports, and SportingBet also left.
The largest companies to remain in the US market were PokerStars, Full Tilt Poker, UltimateBet, and Absolute Poker.
While PokerStars appeared confident in its decision, the Paradise Papers later revealed that international law firm Appleby and PokerStars’ in-house attorneys were aware that the US Department of Justice could go after PokerStars. They counted on legislation to fix the issue before that could happen, for the US government to legalize online poker in the near future. However, one Appleby attorney wrote to another:
“At the moment, it is an accepted fact that the DOJ, may at its own discretion, attempt to take steps to seize any monies related to online gambling conducted in the US.”
The Paradise Papers also revealed that PokerStars asked Appleby to research “offshore jurisdictions to determine which would be most likely to protect businesses from US seizure orders.” That was in 2010.
Black Friday: Using the UIGEA
On April 15, 2011, US Attorney for the Southern District of New York Preet Bharara and FBI Assistant Director in Charge New York Janie Fedarcyk announced the unsealing of an indictment against executives and founders of PokerStars, Full Tilt Poker, and Absolute Poker (UltimateBet was a subsidiary of AP). They seized internet domains and placed restraining orders for bank accounts and payment processors.
Poker players, members of the poker media, and gamblers around the world logged on to their favorite sites on that Friday only to see a seizure notice issued by the US Department of Justice, noting the arrest warrant and FBI seizures.
The charges were severe, including conspiracy to commit bank fraud and wire fraud, operation of illegal gambling businesses, and money laundering conspiracy. Two charges also pertained to the UIGEA – violation of the UIGEA and conspiracy to violate the UIGEA. All seven defendants were charged with the UIGEA conspiracy, and representatives from all three poker operators were charged with the actual violations.
Bharara invoked the harshness of legal language in his announcement:
“As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some US banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits. Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud.”
Fedarcyk used more gambling lingo than should have been allowed:
“These defendants, knowing full well that their business with US customers and US banks was illegal, tried to stack the deck. … The defendants bet the house that they could continue their scheme, and they lost.”
Essentially, they cited the UIGEA that made it a federal crime for gambling businesses to “knowingly accept” most forms of payment for unlawful internet gambling. The companies targeted by the indictment, located offshore, operated in the US and used “fraudulent methods” to process payments through banking institutions.
Online Poker Never Fully Recovered
Most people know the gist of what happened after Black Friday. PokerStars repaid players whose accounts had been seized. Full Tilt Poker folded and faced an entirely separate set of indictments for mismanagement, running its business like a pyramid scheme.
PokerStars ultimately bought Full Tilt’s assets and repaid its players. Absolute Poker, including UltimateBet, disappeared. As a part of PokerStars’ desire to show good will, it also repaid as many AP and AB players as possible.
It took years for the Southern District of New York and Department of Justice to locate and prosecute the defendants named in the Black Friday case. In fact, US law enforcement didn’t track down PokerStars founder Isai Scheinberg until late 2019, when they found him in Switzerland and extradited him to the United States.
He had long past sold PokerStars and settled with the court to plead guilty to one charge: running a multimillion-dollar unlawful internet gambling business, which violated the Illegal Gambling Business Act, not the UIGEA. For time served (in Switzerland before extradition) and a $30K fine, Scheinberg closed his case in September 2020.
That marked the official end of the Black Friday cases.
Online poker, however, was never the same. The US was one of many countries that had ousted global poker sites. Some – like France, Italy, Spain, and Portugal – required sites to operate within country boundaries, only expanded by liquidity sharing in a combined player pool approved by all parties in the same region. In the US, there was no such federal law, as legalizing online poker was left to individual states.
More than one dozen years after Black Friday, only eight states have legalized state-online poker, with all of them but Nevada also allowing online casino games. But only five of those states have issued licenses and overseen the actual launches of individual poker sites. PokerStars reentered the US market in 2016, with the government’s blessing, and its primary competition now includes BetMGM and WSOP.
There is always hope. But the likelihood that online poker will ever reach the heights of the poker boom is unlikely, at least in the United States.
