Inside the UIGEA Regulations, Part 3: Deputizing the Banks

Among the key implications of the Unlawful Internet Gambling Enforcement Act is its imperative to force American banking institutions to abandon their own private-enterprise interests and become de facto agents of the government in investigating and policing certain types of transactions.

The issue of cross-border relationships becomes of utmost importance, because of the nature of offshore gambling sites themselves. They do not do business directly with U.S. banks, but instead use intermediary banks, which then submit the transactions into the system, which work their way toward or away from the U.S. customers. The use of these intermediaries is not money laundering; it is instead the very natural way in which business and private customers were designed to use the international banking system itself.

But expecting a U.S. bank to know (and to act on) all the potential customers that each of its international banking relationships might have is a daunting, perhaps ridiculous task. The crafters of the UIGEA rules recognize this, too. Here’s what the notice contains on the topic:

The Agencies recognize that the extent of a bank’s responsibility to have knowledge of its respondent bank’s customers is a difficult one, which also arises in the context of managing money laundering and other risks that may be associated with correspondent banking operations. The Agencies specifically request comment on the likely effectiveness and burden of the proposed rule’s due diligence and remedial action provisions for cross-border arrangements, and whether alternative approaches would increase effectiveness with the same or less burden.

In other words, there’s a problem here, even if elsewhere in the notice the rules crafters did their best to hide it. Later on, in estimating the hours each financial institution must devote to upkeep of records related to the Act, the oft-bandied number “25 hours” appears. However, it’s actually 25 hours each for the Treasury and Federal Reserve paperwork, making it 50 hours, and that’s multiplied by the approximately 270,000 banking-industry pencil-pushers who have to do the work. Wanna do the math? The notice includes the average estimated labor cost alone at $14.60/hr. for every banking worker involved, so even the minimal level of compliance called for by the UIGEA (which shies away from one other aspect entirely), works out as 50 x 270,000 x $14.60, or $197,100,000. That’s a $200 million hit on an unfunded mandate for the banking industry, and that doesn’t included dollar one on the government side.

Oh, and there’s another 24 hours per recordkeeper off the top, to get the system up and running. Wave bye-bye to another $95 million, banking folks.

Thank God for all the pious souls on the religious right who think that government’s true purpose is to protect us from ourselves.

And that’s without any sort of list of businesses or sites, either. The Treasury repeatedly makes note of the possibility of doing so, and repeatedly backs away from the idea as being neither cost-effective or productive. Mild mention is made of creating a list which would be updated annually, with the immediate caveat that an annual list would be all but useless, noting how rapidly an online business can change its name (or even create a new “skin” to complement an existing business line). In addition, the creation of any list would require “considerable fact-finding and extensive legal analysis to determine whether the gambling website is used, at least in part, to place, receive or otherwise knowingly transmit unlawful bets or wagers.” In short, it’s a morass Treasury wants no part of. Besides requiring the Treasury to interpret the mess of possibly applicable state and federal laws, they’d have to then determine the banking information for each foreign entity, then perhaps publish notice to that entity that they were about to be blocked. This would have to be done for each and every entity, too, with a list that would constantly change. Treasury takes due process seriously, it seems, even if the Kyl and Goodlatte crowd can’t be bothered with it.

It would be like trying to play whack-a-mole with both hands tied, is the gist of it.