Speaking at last week’s PaymentExpert Forum, Bryan Blake Founder & CEO of Hexopay gave SBC audiences a detailed breakdown of the current US payments landscape for gambling incumbents, and the challenges stakeholders face in interpreting and accommodating the mandate of the 1961 Wire Act…
SBC: Hi Bryan thanks for speaking at SBC’s PaymentExpert Forum. As a payments industry executive, what has caught your attention with regards to the betting industry’s first steps within the liberalised US wagering market post-PASPA?
Bryan Blake (Founder/CEO Hexopay): The US Holy Grain of legal Sports Betting, albeit on a state by state basis, is now available our industry and it’s been long in coming with the state of New Jersey finally winning its US Supreme Court case in May 2018, with a majority of justices declaring that the US federal ban on sports wagering is unconstitutional.
After the US Supreme Court’s May 14, 2018 decision to strike down the federal ban on single-game real money sports betting within the United States outside of Nevada, effectively unlocking the legislative key for states that wish to legalize and regulate sports betting within their borders to proceed and do so immediately. What this means: According to the text from the SCOTUS decision, “Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own.”
Potential implications of the US 1961 Wire Act, without online sports betting the market size lack luster and the payment providers volume and predominant business is obtained via online or mobile sports betting channel. In addition, if the new DoJ Wire Act opinion is upheld by the courts, or actively enforced by the DoJ, the implication for the payment providers could lead to exclusion as by definition most payment processing traffic has traditionally been performed via interstate routing.
There remains an issue with US Visa and Mastercard credit and debit card issuers blocking MCC 7081 (7995) entirely, some 50% of all card transactions are blocked thereby forcing Operators to educate their customers to use alternative funding methods such as:
ACH, eWallet, prepaid card, cash loaded via prepaid card at retailers like 7/11 and cash at the casino/track cashier.
To date, American Express and Diners are not permitting any card transactions for gaming and the word is that Discover is seeking to enter the gaming market soon.
SBC: Can you detail for SBC readers, how US digital payment services are monitored/regulated, and how this current set-up clashes with the arcane mandate of the 1961 Wire Act?
BB: Some history re US Sports betting (land-based and online), iPoker and iGaming:
The Wire Act, also known as the Interstate Wire Act of 1961, was drafted on the recommendation of then-Attorney General Robert Kennedy to make interstate gambling illegal in a bid to tackle organised crime in the US. His brother, President John F. Kennedy, signed the act into law on September 13, 1961.
The main then a breakthrough in communication technology was the copper cable land line telephone, this predates the US putting a man on the moon by nearly a decade…. The Wire Act is archaic and in essence at the time sought to check the then typical mobsters operating sports betting operations across the United States, specifically utilizing telephone communication across state lines.
US gambling is regulated on a state basis, and where a state permits legal gambling at terrestrial casinos, race tracks or via Tribal Casinos, there are well entrenched, established and strictly enforced gambling laws and regulations. The original digital service providers started by providing services to the terrestrial casinos by placing ATM machines on the casino floor (note there are some states with specific laws whereby the casino is not permitted to allowed gambling on credit thus these ATM’s dispense cash to be utilized on the casino floor and are supplied and operated by 3rd party suppliers
More recently until 2016, with the spread of the popular online poker explosion originally by online operators like PartyPoker fueled by large nightly or weekly poker tournament prizes and followed by poker players and enthusiasts and television programs popularizing the WSOP and other major poker competitions taking place in US casinos in Nevada.
At the time many online poker sites offered large online play for money tournaments with prizes including a player winning an all-expenses-paid and entrance ticket to the WSOP in Las Vegas. The popularity of online poker and online casino, being supplied to the US consumer by predominantly offshore providers led to the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006 and thereafter Black Friday in 2011. The thrust of these US acts was to primary stop the US consumer having access to illegal offshore betting operations and focused on the online payments aspect to stifle the flow of US consumer money to these deemed illegal websites offering no consumer protections or other problem gambling related services normally offered by regulated casinos in the US.
UIGEA 2006 is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act which otherwise regulated port security. The UIGEA “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” The act specifically excludes fantasy sports that meet certain requirements, skill-games and legal intrastate and intertribal gaming. The law does not expressly mention state lotteries, nor does it clarify whether inter-state wagering on horse racing is legal.
SBC: How much of an actual obstacle do you believe the Wire Act is for US gambling incumbents? After all sports betting has been approved by the Supreme Court of Justice – the highest US law court…
BB: The new 2019 opinion from the DoJ’s Office of Legal Counsel (OLC) broadens the scope of the 1961 federal law to include interstate transmissions involving all forms of gambling. The previous, 2011 DoJ interpretation had restricted the language to sports betting — a view judicially upheld in more than one court.
On January 15th 2019 Deputy Attorney General Rod Rosenstein subsequently issued a memo indicating that the OLC should refrain from enforcement for 90 days. Under that directive, operators would have until April 15 to bring their systems into compliance. Subsequently, On March 4th, 2019, the DoJ extended Wire Act non-enforcement window in which it will not enforce its revised interpretation of the Wire Act by an additional 60 days, as the original 90-day non-enforcement period was due to come to an end on April 15, 2019.
The risk of the Wire Act prevails regarding:
- barring any gambling business from using wire communication facilities to transmit “bets or wagers” or “information assisting in the placing of bets or wagers on any sporting event or contest”.
- barring companies or persons from transmitting wire communications that could allow them to “receive money or credit”, either “as a result of bets or wagers” or “for information assisting in the placing of bets or wagers”.
Thus, any land-based (or terrestrial) offering on a casino property or at a horse racing track or the like, a fully licensed and regulated facility can offer sports betting legally according to the specific state laws and regulations as long as all the data, servers and the like remain fully within the confides of the state. The complications are squarely pertaining to any data which crosses state lines, for instance multi-state lottery, multi-state poker compacts (like NJ, DE and NV), and the provision payment processing where data crosses outside of the specific state akin to online payment processing as the customer funds their account online (with data flowing across state lines) and not just at the cashier located on the property of the casino or race track.
SBC: With regards to Wire Act interpretations, should a legislative mandate that is 58-years old, and conceived before the digital age be interpreted by any stakeholder?
BB: Online sports wagering and mobile sports wagering – both within state lines – would be endangered. Daily fantasy sports, however, wouldn’t be impacted.
In 2001, Nevada legalized online gaming and several sites went live. However, the Justice Department issued a warning saying the activity was in violation of the Wire Act. The sites were quickly shut down.
To do the same thing now, shut down everything, would cause real complications for the gaming industry… this is a tough call
SBC: Beyond the Wire Act debate, is US gambling in need a rethink in terms of regulatory provisions governing payments for betting and protecting consumers?
BB: Yes… since US issuing banks of credit and debit cards are restricting/blocking MCC 7801 (7995) transactions, their rationale for this to date has been that the US iGaming sector is too small a percentage of their business to really be concerned re the required due diligence and compliance, thus just easier to ignore the situation and block the 7801 (7995) transactions.
However, in light of the legalisation of sports betting on a state by state basis, the US payments industry is renewing its interest in the sector.
I feel that the US payments sector should add services for the location of players, In addition, the bolstering of anti-fraud is another aspect to be reviewed, as the US cards scheme setup does not currently facility anti-fraud and card security measures like in Europe, 3DS, for instance, is the exception and not the norm.
This reshuffle will definitely help the longevity of a very stable sector while doing its utmost to mitigate risks…
Bryan Blake – Founder & CEO – Hexopay
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