What Exactly is the Wire Act?

Many punters, especially from the United States are still not sure what the Wire Act entails and its ties to the UIGEA (Unlawful Internet Gambling Enforcement Act). In this article I’m going to give an explanation about it and its impact on the online gambling industry.

History of the Wire Act

Attorney General, Robert F. Kennedy enacted the Wire Act of 1961 to combat organized crime. Its main purpose was to cut the telegraph wires illegal bookies used to get results of horse races before their bettors. It’s against the law to use a telephone line to place bets across state lines. Online poker is mentioned nowhere within the statute, it explicitly prohibits wagering on any sporting event or contest. 

The Department of Justice (DoJ) believed that the Wire Act of 1961 criminalized all forms of gambling online including Internet poker. Industry experts claim that the Wire Act is rather restricted.  

The Origins of the UIGEA

In 2011, the DoJ stated that the Wire Act only applies to sports betting and not to online poker. In 2006, Republican senator, Bill Frist who opposes online gambling, arranged to have the UIGEA added as an amendment to the Security and Accountability of the Every Port Act-also known as the Safe Port Act.

What is the Safe Port Act?

The Safe Port Act donated $300 million to protect US ports from possible terrorists attacks. It was viewed as a ”must-pass” bill by members of congress. On the 13 October 2006, president Bush signed the UIGEA into law. After its enactment, many members of parliament were surprised to learn that the UIGEA was connected to the Safe Port Act. 

The Aim of the UIGEA?

The UIGEA focuses primarily on Internet gambling operators, it stops financial institutions from transferring punters’ funds to operators. It’s a felony if any financial institution such as e-wallets conduct transactions with online gambling sites. If found guilty the crime is punishable by up to 5 years in prison. The Act states:

”No person engaged in the business of betting may knowingly accept, in connection with the participation of another person in unlawful Internet gambling, credit, or the proceeds of credit and electronic transfer, or funds transmitted by or through a money transmitting business. Any cheque, draft or similar instrument, or the proceeds of any other form of financial transactions.”

To be honest it’s ambigious. Why? Although the UIGEA prohibits financial institutions from receiving funds generated from online gambling, it is silent on prohibiting the actual act of placing bets and participating in online poker. Its definition of what constitutes ”unlawful Internet gambling” is vague at best.

Some scholars noted that the UIGEA is bizarre since it’s designed to stop the flow of money but not to send it or transmit them. Whether good or bad, the UIGEA does nothing to dispel the general confusion over the legality of online poker. At best it’s still considered a grey area and an unnecessary burden on financial institutions. 

UIGEA’s Impact

Once the UIGEA was signed into law, many operators adhered to the new statute and stopped servicing American players immediately. The most noteworthy company to exit the US market was PartyGaming-a listed company that traded on the UK stock exchange. It derived 77% of its revenue from US-based players. Since it no longer accepted American punters its shares dropped by 57%.

Poker sites that continued to serve the US market were PokerStars and Full Tilt Poker. Due to PartGaming’s exit, traffic to their sites increased substantially. These companies believed that US federal gambling laws including the UIGEA did not pertain to online poker. 

Poker companies were not the only entities to fall victim to the UIGEA. The statute had a profound impact the way players transferred funds into and out of poker sites: the e-wallet industry. Prior to the passing of the UIGEA, Neteller, a company listed on the London Stock Exchange, provided payment-processing to roughly 80% of online poker sites. 

According to statistics, Neteller processed more than $7 billion in 2007. Once the UIGEA was enacted, Neteller withdrew from the US market. Similar to PartyGaming, the online payment processor did not walk away from the US market unscathed. Founders Stephen Lawrence and John Lefebvre were charged with promoting illicit gambling and had to pay a penalty of $100 million.