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Business Formation & Payment Processing

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Business Formation & Payment Processing

With the advent of technology and increased convenience to the consumer, internet gaming (wagering) and regulation(s) related thereto are more prevalent today than at any time in history. Our office has experience in assisting lawful internet based businesses in the establishment and creation of an entity that is in lawful compliance with both state and federal regulation(s).

As an internet based gaming business, it is absolutely paramount to obtain processing through a reputable merchant servicer. Without ability to process online credit transactions from a consumer, an internet gaming business is crippled. Our office has extensive experience in obtaining merchant processing for lawfully based and established internet gaming businesses. Further insight and background into such services is provided below.

ADW, also known as “advanced deposit wagering” or “account wagering”, is a widely used form of wagering on pari-mutuel events (horse, harness and greyhound) in which bettors place funds on account with ADW providers against which wagers are debited and winnings are credited. Wagers may be placed by phone or on-line by home computer, mobile device or tablet.

A prospective online business then, desiring to offer its users option to place horse, harness and greyhound wagers via the Internet (pari-mutuel wagering) through their website may often retain our services to provide written opinion whether said operations and specifically in relation to Advanced Deposit Wagering (hereinafter “ADW”) are lawful. These opions not only provide credibility for the business, but are also necessary in order for like busineses to obtain lawful merchant processing with likes of Visa, Mastercard, Discover, etc.

The UIGEA[1] was passed and signed into law on October 13, 2006. The major rationale for the UIGEA was, “[t]hat if the government could prevent or otherwise block the flow of money from U.S. customers to online gambling operators, then the online gambling businesses would withdraw from the U.S. market because of the lack of viable payment process.”[2] The UIGEA prohibits gambling businesses from accepting payments in connection with unlawful Internet gambling.[3] On its face then, UIGEA appears to block all forms of online or internet based wagering from the U.S. market.

However, the UIGEA, despite its lack of specificity, excludes certain wagers from the definition of “unlawful Internet gambling.” To illustrate, certain sections of the Act make clear that “[t]he term ‘unlawful Internet gambling’ does not include placing, receiving, or otherwise transmitting a bet or wager where *** the bet or wager does not violate any provision of the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.).”

[1] Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. §§ 5361-5367

[2] Joseph M. Kelly, Financial Transaction providers Needn’t Worry Too Much About Complying with UIGEA Rules, 13 Gaming Law Review and Economics 196, (2009)

[3] See Unlawful Internet Gambling Enforcement Act 31 U.S.C. §§ 5361-67

Provisions of the Interstate Horseracing Act of 1978 have been amended, making remote or internet based wagers across state lines on horse, harness and greyhound racing legal, as long as the bet is legal in the states where the bettor is, where the bet is accepted and where the races takes place.

Thus, the UIGEA’s prohibition against gaming businesses accepting payments in any form from a bettor’s participation in unlawful Internet gaming, would not apply to transactions exempt under the IHA. Therefore, financial institutions need not identify and/or block payments made in connection with lawful ADW wagers made pursuant to the IHA.

Everyone in the United States is subject to two sets of laws, federal and state.  Since ADW may be conducted at the federal level pursuant to authority outlined in the IHA, state specific law and regulations must also be rationalized.  When there are no federal statutes that address a certain situation, the state has the discretion to address the situation or not. This is what is known as the “police power”.  This is the right, and perhaps the obligation, of the state to protect the health, safety, welfare and morals of its citizens.  Gambling has always come under a state’s police power.  Like other police power issues, such as fire protection and sanitation, gambling generally falls within the control of local – in this case, state as opposed to federal – governments.

It is an absolute then that any business wishing to accept or place wagers via the internet are aware of which jurisdictions lawfully permit these transactions. This is where the experience of our firm is second to none.

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