EDITORIAL: 'Midnight Rulemaking' on Internet Gambling

11/10/08 - Las Vegas Review-Journal - View Source

Bush administration should give up last-minute maneuvers

Despite an earlier announcement that it would not issue any new "final" regulations after Nov. 1 except in "extraordinary circumstances" -- and despite concerns raised by the nation's bankers that the proposed regulations will be hard to obey and are not likely to work -- the outgoing Bush administration appears to be racing to finalize rules to enforce a ban on Internet gambling before it leaves office.

Critics also object that the new rules -- designed to implement the Unlawful Internet Gambling Enforcement Act of 2006 -- are being orchestrated by a former National Football League lobbyist recently arrived in the Bush Administration.

The newspaper "The Hill" reported Monday that Rep. Barney Frank, D-Mass., has asked Treasury Secretary Henry Paulson to postpone issuing the new regulations.

The "midnight rulemaking" would "tie the hands of the new administration" and "burden the financial services industry at a time of economic crisis," Rep. Frank wrote in a letter to Secretary Paulson and Ben Bernanke, chairman of the Federal Reserve.

Rep. Frank opposes the ban on Internet gaming.

Concerned about public perceptions that gamblers could bribe their athletes, professional sports leagues including the NFL have favored the Internet gaming ban. Last week, Rep. Steve Cohen, D-Tenn., asked White House Counsel Fred Fielding to detail the role a former NFL lobbyist had in the administration's decision to move forward with the rules.

In a letter, Cohen said President Bush's Deputy Director of Public Liaison William Wichterman, a former NFL lobbyist, "had been a source of considerable political pressure to speed this regulation through," and that the appearance of a conflict of interest "is undeniable."

Senate records show Wichterman listed as an NFL lobbyist as recently as March of 2008.
In essence, the rules will require banks to shut down payment systems -- systems that process Online credit card transactions, primarily -- if banks determine they're being used to transfer payments for those who illegally place wagers Online.

But in congressional testimony last April, representatives of the Department of the Treasury and the Federal Reserve acknowledged it will be cumbersome and expensive -- if it's even feasible -- to comply with the UIGEA.

Since most payment systems are not designed to comply with this law, "it will be very difficult to shut off payment systems for use of Internet gambling transactions," said Louise Roseman, director of the Federal Reserve's Bank Operations and Payment Systems. "The implementing statute will not be ironclad, at all."

"The UIGEA and the Proposed Rule do not provide a rational path towards halting unlawful Internet gambling," agreed Wayne Abernathy, executive vice president of the American Bankers Association, who called the proposed rules an "enormous unfunded law enforcement mandate on banks" that will lead "to an increased cost and administrative burden."

It's become traditional for outgoing administrations to rush into effect rules and appointments which they know will be promptly set aside or reversed by the new, incoming administration. Do they hope the new president and his staff will be too busy to revoke and undo such handiwork, perhaps "missing a few"? Or -- more likely -- do these constitute paybacks for past political and financial support, allowing the outgoing party to tell their erstwhile supporters, "See, at least we tried"?

Either way, the ritual is expensive, petty and demeaning. While the hope of the sports leagues to avoid some new "Black Sox" scandal is understandable, Internet commerce is a genie not easily put back in its bottle.

Given the current state of the nation's banks and the financial sector in general, it would be hard to imagine a worse time to impose on those institutions an ill-thought-out set of rules which will balloon their compliance costs and expose them to potential fines or prosecution should they fail to divine "legal" from "illegal" transactions (a task better suited to a psychic with a turban and a crystal ball), especially when -- according to all sources -- it probably wouldn't do much to slow down Internet gaming, anyway.

The Bush administration should back off.