The Treasury and the Federal Reserve Board jointly released a final rule to implement the Unlawful Internet Gambling Enforcement Act of 2006. The Act prohibits gambling businesses from knowingly accepting payments in connection with unlawful Internet gambling, including payments made through credit cards, electronic funds transfers, and checks. Financial institutions must adopt methods to detect and block such transactions.

The Act required Treasury and the Fed to develop a joint rule in consultation with the Department of Justice. According to the final rule, unlawful Internet gambling generally would cover the making of a bet or wager that involves use of the Internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is initiated, received, or otherwise made.

This part of the rule is somewhat troublesome, as there is no clear agreement on exactly which gambling activities are illegal. Efforts to clarify federal gambling laws have been unsuccessful, and Congress carefully avoided addressing this problem when it enacted the Unlawful Internet Gambling Enforcement Act. In addition, a given transaction might be lawful within one state or within the boundaries of an Indian reservation, but be illegal elsewhere.

The final rule requires U.S. financial institutions that participate in designated payment systems to establish and implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in connection with unlawful Internet gambling.

The rule provides examples of such policies and procedures and sets out the regulatory enforcement framework. Financial institutions may adopt the regulations’ sample policies or devise their own.

Financial institutions must comply with the rule by December 1, 2009.