The Department of Treasury and the Federal Reserve Board have finalized Regulation GG, to implement the Unlawful Internet Gambling Enforcement Act of 2006. The law requires financial institutions that provide services to commercial customers, such as ACH clearing, check clearing or wire transfers establish and implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in connection with unlawful Internet Gambling.
The Act’s restrictions apply only to transactions that are unlawful under applicable U.S. Federal or State law, and protect financial institution against liability.
* This rule became effective January 19, 2009
* Mandatory compliance date December 1, 2009
* Extension of compliance date from December 1, 2009 to June 1, 2010
Financial institutions must establish a due diligence process for establishing and maintaining a commercial customer relationship, to prevent or prohibit restricted transactions. Institutions are not expected to conduct due diligence on its foreign correspondent (Foreign Bank) commercial customers. The Rule provides guidance on due diligence steps that can be taken for commercial customers.
What is a “restricted transaction”?
A transaction or transmittal involving any credit, funds, instrument (checks/ drafts/ etc.), or proceeds that the Act prohibits any person engaged in the business of betting or wagering from knowingly accepting in connection with the participation of another person in unlawful Internet gambling
Includes EFTs or funds transmitted by or through a money transmitting business
Includes “credit” or “the proceeds of credit” so a loan or line of credit transaction would be applicable if it is used to make the gambling payment (extends beyond just credit cards)
The due diligence requirement is on the depositary bank or the ODFI, not the paying bank, RDFI, or card issuing bank
The Act is to regulate Internet gambling businesses; not gamblers.
Financial institutions must develop procedures for remedial action when an institution “has actual knowledge” that a commercial customer received or processed restricted transactions.
Money Service Business operators are expected to establish policies and procedures designed to identify, block or otherwise prevent or prohibit unlawful Internet Gambling transactions.
Operators of Card Systems (MasterCard, Visa, and American Express) should implement technical safeguard to identity restricted transactions. Banks may rely on a written statement or notice by the operator of a card system, or an agent, that the operator has designed or structured it policies and procedures to comply with the regulation. Regulators expect that a coding system to identify and block restricted transaction will be the method of choice. This notice will be sufficient, unless the Bank has been otherwise notified by a federal or law enforcement agency.
Banks must perform due diligence of its commercial customers to place the burden on them to prove / attest they are not engaged in the illegal gambling business.