Guide to Unlawful Internet Gambling Enforcement Act of 2006

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  • Guide to Unlawful Internet Gambling Enforcement Act of 2006

    1. 1. INTERAGENCY EXAMINATION PROCEDURES FOR REVIEWING COMPLIANCE WITH THE UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT OF 2006 Manish Mandhyan CRCM, CAMS
    2. 2. Introduction June 1 2010 The Board of Governors of the Federal Reserve System issued an interagency guidance for reviewing compliance by supervised financial institutions with the final rule implementing the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The compliance date for the final rule is June 1, 2010, which is a six-month delay. The interagency examination guidance includes an overview of the final rule under UIGEA, applicable exemptions, and non- exclusive safe harbors for compliance.
    3. 3. June 1 Summary of UIGEA 2010 Prohibits gambling businesses from knowingly accepting The designated payment systems are (i) automated clearing house (ACH) systems, (ii) card systems, payments in connection bets or wagers that involve the use of (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer the Internet. systems. Requires Treasury and Federal Reserve Board to develop regulations that require participants in payment systems to develop policies and procedures to identify and block Internet A “participant” is defined as “an operator of a designated payment system, a financial gambling transactions. transaction provider that is a member of, or has contracted for financial transaction services with, or is otherwise participating in, a designated payment system, or a third-party Requires certain participants in the designated payment processor.” systems to establish policies and procedures that are designed to identify and block, prevent or prohibit restricted transactions. Provides non-exclusive examples of acceptable policies and Non-exempt participants are those that establish or procedures that provide a safe-harbor for non-exempt maintain accounts for commercial customers and are in a position to conduct due diligence on the participants in the designated payment systems. customer.
    4. 4. Effective Dates June 1 2010 The rule’s effective date of January 19, 2009 refers only to the date of publication in the Code of Federal Regulations. Compliance with the rule is required as of June 1, 2010. As of June 1, 2010, institutions following the rule’s examples of policies and procedures should have provided notice to their commercial accountholders. As of June 1, 2010, participants relying on system policies and procedures should have obtained a statement from the operator. For all commercial accounts established on or after June 1, 2010 (including accounts for existing customers), institutions should follow established due diligence policies and procedures. Institutions should also follow due diligence policies and procedures if they have actual knowledge that an existing commercial customer is engaging in an Internet gambling business.
    5. 5. Examination Procedures Review of institution’s compliance with UIGEA may be conducted independently or together with reviews in other operational or compliance areas. Requirements of UIGEA are independent of other regulatory frameworks. UIGEA compliance should be risk risk-focused. June 1 2010
    6. 6. Designated Payment Systems and June 1 Requirements 2010 Safe Harbor Policies and Procedures: Payment System Non-Exempt Participants General Requirements - Due Diligence 1. Card Issuers - Use of codes to identify restricted 2. Merchant acquirers Card Systems (credit, debit, stored value) transactions and ongoing monitoring for 3. Operators codes; and 4. Third-party processors - Restricted transactions procedures - Due Diligence 1. RDFI, credit transactions - Restricted transactions procedures 2. ODFI, debit transactions - For inbound cross-border ACH debit Automated Clearing House (ACH) 3. Gateway operator for cross-border debits transactions, notice to correspondent bank in 4. Third-party processors for any of 1,2, or 3 case of actual knowledge of restricted transactions - Due Diligence Wire Transfer Beneficiary’s bank - Restricted transactions procedures - Due Diligence - Restricted transactions procedures 1. Depositary bank Check Collection - For cross-border transactions, notice to 2. First U.S. bank for cross-border receipts correspondent bank in case of actual knowledge of restricted transactions. - Due Diligence Operators of money transmitting businesses - Restricted transactions procedures Money Transmitting Businesses that permit initiation of funds transmissions - Ongoing monitoring by the operator to remotely, such as via Internet or telephone detect potential restricted transactions.
    7. 7. June 1 Important Terms 2010 “Due diligence” includes the following: • Written notice to all commercial accountholders that the account must not be used for restricted transactions; • Risk assessment for each commercial account opened on or after the rule’s compliance date to determine whether the accountholder poses more than a minimal risk of engaging in restricted transactions; and • Obtaining required documentation if the commercial customer presents more than a minimal risk of engaging in an Internet gambling business and cannot certify that it is not so engaged or if the institution has actual knowledge that a commercial accountholder is engaged in an Internet gambling business. “Restricted transactions procedures” are to be followed when an institution has actual knowledge that a commercial customer has received funds in a restricted transaction. Procedures should address continued transaction processing, account review, SAR filing, and account closure.
    8. 8. Quick Checklist June 1 2010 No Yes/ Question . No/NA 1 Does your institution qualify as a non-exempt participant in a designated payment system, as defined by the UIGEA? 2 Has your institution been reviewed for compliance with UIGEA in the past? If so, are the reports available? 3 Who is responsible for UIGEA compliance in your institution? Do your policies and procedures adequately determine whether a commercial customer presents a risk of engaging in an Internet gambling 4 business? Do your policies adequately address the procedure for obtaining documentation from commercial customers that present a risk of engaging in 5 Internet gambling? 6 Does your institution appropriately use a code system for card transactions to detect potential restricted transactions? Does your institution have an adequate mechanism to receive and respond to law enforcement/supervisory notices re restricted transactions 7 sent through an account at your institution? Does your institution have adequate procedures to determine the circumstances under which it should deny service, close an account, report 8 suspicious activity, conduct an account review, or continue transaction processing in instances of actual knowledge of restricted transactions? Has your institution taken appropriate steps to provide written notice to all commercial accountholders that accounts may not be used for 9 restricted transactions? 10 Has your institution incorporated UIGEA compliance measures into its processes for managing correspondent account relationships?
    9. 9. More Information... http://www.federalreserve.gov/boarddocs/srletters/2010/ sr1011.htm

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