Just before the election period went to recess at the end of September 2006, the Republican leadership sneaked the Unlawful Internet Gambling Enforcement Act through Congress, attached to the Safe Port Act (aimed at increasing security at United States ports). The Safe Port Act is a bill totally unrelated to online gambling and, in fact, most (if not all) members of the Senate-House Conference committee did not even see the final language of the UIGEA bill.
The bill's sponsor was Republican Robert W. Goodlatte who drafted the legislation in the summer of 2005, following his opinion that all gambling, but especially internet gambling, leads to 'ill effects on society'. Senate Majority Leader, Bill Frist (R-Tennessee), attached the bill to the Safe Port Act.
In a nutshell, the UIGEA forbids American financial institutions, including banks and credit card companies, from doing business with online casinos. In other words, it is illegal for these financial institutions to handle transactions from American citizens who take their business to internet gambling sites. Violation of this act is a crime. A financial transaction covers practically everything, including electronic funds transfers, drafts and checks. In case anybody manages to find another means of payment, the law goes on to specify, "proceeds from any other financial transaction."
The law does not specifically ban individuals from gambling online. However, besides major online casino operators, it also targets hundreds of small websites that make their living from affiliation to these sites. If sites such as watchdog groups, sports wagering information sites or other gambling affiliate sites have links to online gambling sites, the law states that these small sites are 'in the business of betting' and could be requested to remove these links from their sites. In addition, Internet Service Providers could be asked to remove these sites from the internet.
Any gambling activity that was legal before the Unlawful Internet Gambling Enforcement Act was brought into effect, remains legal. On the other hand, the act does not legalize any wagering activity that was illegal before it came into being.
Not only the classic gambling games such as slots and roulette fall under the new law. Even skill games such as poker, backgammon and chess are considered gambling activities. Financial institutions are thus forbidden to allow transactions at sites that allow players to wager for money on these games of skill.
The UIGEA exempts certain forms of gambling from the new law. These include intrastate lotteries, horse racing, legal intrastate gambling, Indian reservation wagering and Fantasy sports.
The law states that a specially elected government board has 9 months from the date of the bill being signed (ie. until July 2007) to formulate new regulations that can be followed by banks, financial institutions and payment processors.
Since the law was passed, United States legal experts are struggling to define what entails wagering and which pastimes fall under the new legislation. The results are still murky, to say the least, but the effect of the law can already be felt by the sheer number of online casino companies that have been forced to close their doors to American companies, and the drop in share prices of many publicly trading companies on international stock markets.