Home > Features > The Morality Dictators: 2 • Bookmark   • Newsletters   • Register Search Options


The Morality Dictators: 2

The Morality Dictators: 2

December 15, 2006
Text size: 
Get XBIZ News
XBIZ Research
Will virtual reality boost the paysite market?
Yes, it will soon
Yes, but in a few years
Out of 150 votes. Results based on votes submitted by members of XBIZ.net social network.

" Fortunately, the Act does not treat free games as gambling "

In part one, we began our look at the recent flurry of last-minute legislation passed by Congress. In this conclusion, we'll look at The Unlawful Internet Gambling Enforcement Act of 2006 and more.

Unlawful Act Of 2006
The Unlawful Internet Gambling Enforcement Act of 2006 is a serious law with serious consequences for noncompliance. Each separate violation of the Act is punishable by incarceration for up to five years and the imposition of a fine. Additionally, §5363(b) provides that, "Upon conviction of a person under this section, the court may enter a permanent injunction enjoining such person from placing, receiving, or otherwise making bets or wagers or sending, receiving, or inviting information assisting in the placing of bets or wagers."

Now that, I must say, is one of the finest legislative examples of moral dictatorship that I have ever seen. It means that if you violate this law, the judge, in his or her discretion, can take away your right to bet on anything anywhere in the U.S., forever. I must admit that on first inspection, I thought that this provision was, well, more than a little over the top. But upon reflection, I soon realized that the good and moral people who voted for the law, like Foley, must be better at protecting my immortal soul than I could possibly be.

The Act's primary prohibitory provisions are set forth in §5362:

"No person engaged in a gambling business may knowingly accept, in connection with the participation of another person in unlawful Internet gambling —

(1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card);

(2) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person;

(3) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or

(4) the proceeds of any other form of financial transaction, as the Secretary and the Board of Governors of the Federal Reserve System may jointly prescribe by regulation, which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of such other person."

The Act defines "unlawful Internet gambling" as betting, receiving or transmitting a bet or wager that is prohibited under federal, state or tribal law. For the purposes of the Act, a "bet or wager" can be virtually anything that comprises the risking of something of value on the outcome of a contest, sports event or a game subject to chance. The definition of betting and wagering under the Act also includes the purchasing of an "opportunity" to win a contest, such as a lottery. Betting and wagering also includes the giving and/or receiving of instructions or information. This provision seems to be clearly directed at foreclosing a defense that might otherwise be effective in situations where, for example, overseas operators conduct business with contestants in the U.S. using wager funds that were already in accounts in the foreign country. If not for the inclusion of the concept of sending and/or receiving instructions as part of the Act's definition of betting or wagering, a good argument might otherwise be made regarding the preceding example that no bet took place in the U.S.

Fortunately, the Act does not treat free games as gambling, but the Act allows sites to offer points or credits to players only if these are redeemable for more games. Consequently, operators of free games that offer valuable prizes can no longer give points for wins that can be redeemed for cash.

Fantasy leagues are also not prohibited by the Act, but they are subject to detailed restrictions. For example, a fantasy team cannot be "based on the current membership of an actual team." Prizes, which cannot be based on fees paid by the participants, must be publicized in advance. Additionally, the law requires that statistics used in fantasy league games must be derived from more than one play, more than one player and more than one real-world event. But the Act does not impose a limit on the cost of entering a fantasy league.

In sum, the prohibitory provisions of the Act impose, by design, a virtual, if not actual, ban on online gambling as it existed prior to the enactment of the law. One way it accomplishes this is by prohibiting a broad range of methods and means to fund the betting and wagering process. But the Act also criminalizes specified activities "in connection with the participation of another person in unlawful Internet gambling." As this prohibition implicates relationships between persons and companies in addition to the money flow, webmasters participating in gambling site affiliate programs should be aware of the hidden prosecutorial dangers for affiliate marketers that are created by the Act.

Risk of Promotion
While most adult entertainment websites are not gaming sites, many adult sites promote gambling sites through one or sometimes several affiliate programs. Such adult sites may not actually take bets or transfer funds, but as an affiliate marketer of the gambling site, adult website companies may nevertheless be vulnerable to prosecution if the promoted gambling site is operating in violation of the Act. This is because affiliate marketing relationships can often expose an affiliate to a form of criminal liability known as "vicarious criminal liability" for violations of law committed by the company controlling the site that is being promoted by the affiliate.

For example, if an affiliate is compensated for the referral of traffic to a gambling site by receiving a share of the money banked, wagered, won or lost at the site, then participating in such a program in connection with a gambling site that is not in compliance with the Act could expose the affiliate to the full force of the Act's penalty provisions. This form of projected vicarious liability is a well-rooted principle in our legal system. For example, knowingly being an accomplice to, and sharing in the proceeds of, a crime — in this case, violation of the Act — can subject the accomplice to prosecution for "aiding and abetting" the criminal activity.

Vicarious liability can also arise if a party is operating a search engine that displays search results and paid ads. For example, a party might be criminally liable for violation of the Act if the search engine site displays a paid ad linked to a search request for a prohibited activity such as sports betting. This is because receipt of money for the ad might be deemed to be one of the prohibited types of funds transfer "in connection with the participation of another person in unlawful Internet gambling."

In addition to criminal penalties, the Act provides for limited civil remedies against interactive computer services. For example, the Act provides the authority for a court to order Internet service providers to remove sites and block hyperlinks to sites that are transmitting money to unlawful gambling sites. The Act does not, however, require ISPs to undertake any duty to monitor patrons' activities to determine whether they are sending funds to payment processors or gambling sites.

Because of the inherent difficulty of regulating overseas payment processors, the Act allows both federal and state attorneys general to bring civil actions in federal court. The Act also provides courts with the power to issue temporary restraining orders and preliminary and permanent injunction, and to prevent restricted transactions.

Finally, we can look forward to many more regulations associated with the Act. Similar to the way the Justice Department was empowered to promulgate regulations pertaining to 18 U.S.C. §2257 by 2257 itself, the Act also requires that specified federal agencies promulgate regulations addressing the issues of how financial institutions and others will be required to identify and block money transactions to gambling sites.

A full analysis of the Act and how it might affect your business is, of course, well beyond the scope of this article. Consequently, if you operate an online gambling site or are in any way associated with or "in connection with the participation of another person in Internet gambling," I strongly suggest that you immediately seek the advice of competent counsel familiar with online gaming law.

Gregory A. Piccionelli, Esq. is one of the world's most experienced Internet and adult entertainment attorneys. He can be reached at Piccionelli & Sarno at (310) 553-3375 or www.piccionellisarno.com.


E-Stim Basics: Selling Customers on Powerboxes as Pleasure Tools

Electrosex is a commonly misunderstood pleasure practice for good reason: Most of us have negative associations with electricity; maybe we’ve been shocked after rubbing our feet across a carpeted... More »

Search Oftentimes Is Left to Chance

Adult content is frowned upon in search, whether in paid, organic or social. With the big algo updates from the past few years, Google has cleaned up search, trying to get rid of spammy and low-quality... More »

Five Tips to Generate Repeat Business

A $50 sale is great. But what if you could get that same $50 sale to come back four times in the next few months? Here are some ideas how to achieve that. 1) On your receipts, you should have an option... More »
Stay informed of the latest industry developments. Get XBIZ newsletters delivered to your inbox. Subscribe today!
Enter email address:

* To manage existing subscriptions click here.

Submit your press release to
multiple news outlets with 1 click.
Subscribe to RSS news feeds or
add free content to your website.
Access XBIZ news and articles
with your mobile device.
Subscribe to XBIZ World magazine, the industry's leading e-commerce trade publication, delivering in-depth coverage of the online, mobile and ancillary digital markets.



Nov 04 - Nov 06
Edison, New Jersey

2016 Inked Awards

Nov 05 - Nov 05
Edison, New Jersey

XBIZ 2017

Jan 09 - Jan 13
Hollywood, CA

XBIZ Awards 2017

Jan 12 - Jan 12
Los Angeles, CA
Everyday thousands of business professionals browse XBIZ's industry directory for quality products and services. Not listed yet? Your company could be losing potential new business. Submit your company today!
Use XBIZ RSS feeds to stay informed of the latest industry developments or as a content syndication tool for your website!