New Wire Act Causes Payment Risk for Online Gambling Market
The gambling industry shuddered as news traveled that the U.S. Department of Justice was reviewing the 1961 Wire Act again in disagreement of its 2011 opinion. The DOJ is now leaning towards the decision that this law no longer applies to just sports betting. Under the revised opinion, the DOJ concluded that the Wire Act includes all forms of interstate gambling.
Online gambling limitations of the New Wire Act
Once the DOJ revised their opinion on the Wire Act, it altered to cover all forms of interstate gambling, making it difficult to advance in certain amusements such as interstate legal online poker, interstate lotteries, and daily fantasy sports. However, the real issue at hand seems to be that of payments.
Pala Interactive CEO, Jim Ryan, suggests that payment processors and banks will begin backing off of the online gambling industry and deny the movement of funds between sites and mobile apps. Ryan had served as co-CEO of online giant bwin.party before leaving in 2013 to join Pala Interactive.
Pala CEO questions online gambling payment transactions
Ryan questions whether it would be worth it for banks to take the risk with online gaming businesses after this new opinion on the Wire Act. He explains that his long experience in the industry makes this a large concern to him.
Ryan explains that online casino and online sports betting could theoretically be entirely intrastate after a restructuring of back-end infrastructure, however, he expresses concerns for payment transactions being intrastate. He understands that the activity could potentially be intrastate, however, instrastate payment transactions pose a difficulty.
He also humbly stated, “I hope to be completely wrong on that and I self-profess not to be an expert. But I’ve been around it for long enough to know that those transactions are probably leaving the state of New Jersey to get approved in order to go through aggregators to get to the ultimate issuing bank.”
Window in motion allows online gambling businesses to breathe
There is currently a 90-day window in motion, allowing businesses to “bring their operations into compliance with federal law." This was issued by US Deputy Attorney General Rod Rosenstein on the 15th of January. During this time, the state of Pennsylvania will be moving forward with their plans to becoming the fourth state in the country to legalize regulated online gambling. This regulation will cover table games, slots, poker, and sports betting. Pennsylvania Gaming Control Board executive director Kevin O’Toole advised licensed gambling companies to adhere to the opinions of the federal law in securing that online gambling operators are all conducting intrastate business.
Downside to the New Wire Act
The downside of this reinterpretation - besides companies having to revamp their back-end infrastructure - is that the online gambling industry could end up crippled. If payment processors become too frightened to stay involved and begin backing out, the online gambling industry will start to fall back into the black market and illegal bets and sketchy offshore accounts will become more prominent.
Pala CEO keeps a positive outlook
Ryan has remained optimistic, however, declaring, “Let’s hope that we get support from the attorney generals of New Jersey and Pennsylvania – these are the guys that have got the most to lose – and they take the government to task on this and seek to get clarity for regulatory regimes.”
Ryan also explained “If a consumer is in state, the wagers are placed in state, and the servers are in state is it unreasonable to request there be a carve-out to allow the payment transactions to get processed for states where it is legal for intrastate gaming? That’s where I hope this is going and that, to a logical person, it will end up given the investments and size of the markets. But logic doesn’t always prevail. I’ve been there, seen it and done it.
Confusion stirs around online gambling and the New Wire Act
There is much confusion around this issue at the moment. In the 90-day interim, U.S. online gambling companies are trying to make sense of the situation and figure out what the reevaluation of this law really means.
Ryan describes this as déjà vu, recalling a time when the Unlawful Internet Gaming Enforcement Act (UIGEA) was signed by President George W Bush in October 2006. The law prohibited the transaction of payments in connection with online wagering to take place between banks and unlicensed operators. During this time many online gambling companies withdrew from the U.S. market, causing them to lose significant amounts of revenue in a significantly short time period. During this time, Ryan was with PartyGaming, a London-based company, who had to withdraw from the U.S. market, costing them about three-quarters of their group revenue at the time.
Online gambling companies advised to remain optimistic
Although this new opinion of the Wire Act may place harsh restrictions on the online gambling business in the U.S., it does not necessarily mean that regulated online gambling in America is over. Online gambling companies would be better off remaining optimistic as Ryan proves to be and take necessary precautions to ensure that their businesses remain in assent with the federal law.