PART 132—PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING Authority: 31 U.S.C. 321 and 5364. Source: 73 FR 69405, Nov. 18, 2008, unless otherwise noted. § 132.1 Authority, purpose, collection of information, and incorporation by reference. (a) Authority. See et seq. See (b) Purpose. (c) Collection of information. (d) Incorporation by reference—relevant definitions from ACH rules. http://nacha.org http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html 20002. (2) Any amendment to definitions of the relevant ACH terms in the ACH Rules shall not apply to this part unless the Treasury and the Board jointly accept such amendment by publishing notice of acceptance of the amendment to this part in the Federal Register. Federal Register § 132.2 Definitions. The following definitions apply solely for purposes of this part: (a) Actual knowledge (1) An individual in the organization responsible for the organization's compliance function with respect to that transaction or commercial customer; or (2) An officer of the organization. (b) Automated clearing house system ACH system (c) Bet or wager. (2) Includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance); (3) Includes any scheme of a type described in 28 U.S.C. 3702; (4) Includes any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering (which does not include the activities of a financial transaction provider, or any interactive computer service or telecommunications service); and (5) Does not include— (i) Any activity governed by the securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) for the purchase or sale of securities (as that term is defined in section 3(a)(10) of that act (15 U.S.C. 78c(a)(10)); (ii) Any transaction conducted on or subject to the rules of a registered entity or exempt board of trade under the Commodity Exchange Act (7 U.S.C. 1 et seq. (iii) Any over-the-counter derivative instrument; (iv) Any other transaction that— (A) Is excluded or exempt from regulation under the Commodity Exchange Act (7 U.S.C. 1 et seq. (B) Is exempt from State gaming or bucket shop laws under section 12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) or section 28(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(a)); (v) Any contract of indemnity or guarantee; (vi) Any contract for insurance; (vii) Any deposit or other transaction with an insured depository institution; (viii) Participation in any game or contest in which participants do not stake or risk anything of value other than— (A) Personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or (B) Points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or (ix) Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in 28 U.S.C. 3701) and that meets the following conditions: (A) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants. (B) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events. (C) No winning outcome is based— ( 1 ( 2 (d) Block (e) Card issuer (f) Card system (g) Check clearing house (h) Check collection system (i) Commercial customer (j) Consumer (k) Designated payment system (l) Electronic fund transfer (m) Financial institution (n) Financial transaction provider (o) Foreign banking office (1) Any non-U.S. office of a financial institution; and (2) Any non-U.S. office of a foreign bank as described in 12 U.S.C. 3101(7). (p) Interactive computer service (q) Internet (r) Internet gambling business (s) Intrastate transaction (1) The bet or wager is initiated and received or otherwise made exclusively within a single State; (2) The bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include— (i) Age and location verification requirements reasonably designed to block access to minors and persons located out of such State; and (ii) Appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with such State's law or regulations; and (3) The bet or wager does not violate any provision of— (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq. (ii) 28 U.S.C. chapter 178 (professional and amateur sports protection); (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et seq. (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq. (t) Intratribal transaction (1) The bet or wager is initiated and received or otherwise made exclusively— (i) Within the Indian lands of a single Indian tribe (as such terms are defined under the Indian Gaming Regulatory Act (25 U.S.C. 2703)); or (ii) Between the Indian lands of two or more Indian tribes to the extent that intertribal gaming is authorized by the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq. (2) The bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and complies with the requirements of— (i) The applicable tribal ordinance or resolution approved by the Chairman of the National Indian Gaming Commission; and (ii) With respect to class III gaming, the applicable Tribal-State compact; (3) The applicable tribal ordinance or resolution or Tribal-State compact includes— (i) Age and location verification requirements reasonably designed to block access to minors and persons located out of the applicable Tribal lands; and (ii) Appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with the applicable tribal ordinance or resolution or Tribal-State Compact; and (4) The bet or wager does not violate any provision of— (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq. (ii) 28 U.S.C. chapter 178 (professional and amateur sports protection); (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et seq. (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq. (u) Money transmitting business (v) Operator (w) Participant in a designated payment system (x) Reasoned legal opinion (y) Restricted transaction (1) Credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card); (2) An electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person; or (3) Any check, draft, or similar instrument that is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution. (z) State (aa) Third-party processor (1) In the case of a debit transaction payment, such as an ACH debit entry or card system transaction, has a direct relationship with the commercial customer that is initiating the debit transfer transaction and acts as an intermediary between the commercial customer and the first depository institution to handle the transaction; (2) In the case of a credit transaction payment, such as an ACH credit entry, has a direct relationship with the commercial customer that is to receive the proceeds of the credit transfer and acts as an intermediary between the commercial customer and the last depository institution to handle the transaction; and (3) In the case of a cross-border ACH debit or check collection transaction, is the first service provider located within the United States to receive the ACH debit instructions or check for collection. (bb) Unlawful Internet gambling et seq.; see (cc) Wire transfer system § 132.3 Designated payment systems. The following payment systems could be used by participants in connection with, or to facilitate, a restricted transaction: (a) Automated clearing house systems; (b) Card systems; (c) Check collection systems; (d) Money transmitting businesses solely to the extent they (1) Engage in the transmission of funds, which does not include check cashing, currency exchange, or the issuance or redemption of money orders, travelers' checks, and other similar instruments; and (2) Permit customers to initiate transmission of funds transactions remotely from a location other than a physical office of the money transmitting business; and (e) Wire transfer systems. § 132.4 Exemptions. (a) Automated clearing house systems. (1) The receiving depository financial institution and any third-party processor receiving the transaction on behalf of the receiver in an ACH credit transaction; (2) The originating depository financial institution and any third-party processor initiating the transaction on behalf of the originator in an ACH debit transaction; and (3) The receiving gateway operator and any third-party processor that receives instructions for an ACH debit transaction directly from a foreign sender (which could include a foreign banking office, a foreign third-party processor, or a foreign originating gateway operator). (b) Check collection systems. (c) Money transmitting businesses. (d) Wire transfer systems. § 132.5 Policies and procedures required. (a) All non-exempt participants in designated payment systems shall establish and implement written policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit restricted transactions. (b) A non-exempt financial transaction provider participant in a designated payment system shall be considered to be in compliance with the requirements of paragraph (a) of this section if— (1) It relies on and complies with the written policies and procedures of the designated payment system that are reasonably designed to— (i) Identify and block restricted transactions; or (ii) Otherwise prevent or prohibit the acceptance of the products or services of the designated payment system or participant in connection with restricted transactions; and (2) Such policies and procedures of the designated payment system comply with the requirements of this part. (c) For purposes of paragraph (b)(2) in this section, a participant in a designated payment system may rely on a written statement or notice by the operator of that designated payment system to its participants that states that the operator has designed or structured the system's policies and procedures for identifying and blocking or otherwise preventing or prohibiting restricted transactions to comply with the requirements of this part as conclusive evidence that the system's policies and procedures comply with the requirements of this part, unless the participant is notified otherwise by its Federal functional regulator or, in the case of participants that are not directly supervised by a Federal functional regulator, the Federal Trade Commission. (d) As provided in the Act, a person that identifies and blocks a transaction, prevents or prohibits the acceptance of its products or services in connection with a transaction, or otherwise refuses to honor a transaction, shall not be liable to any party for such action if— (1) The transaction is a restricted transaction; (2) Such person reasonably believes the transaction to be a restricted transaction; or (3) The person is a participant in a designated payment system and blocks or otherwise prevents the transaction in reliance on the policies and procedures of the designated payment system in an effort to comply with this regulation. (e) Nothing in this part requires or is intended to suggest that designated payment systems or participants therein must or should block or otherwise prevent or prohibit any transaction in connection with any activity that is excluded from the definition of “unlawful Internet gambling” in the Act as an intrastate transaction, an intratribal transaction, or a transaction in connection with any activity that is allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.; (f) Nothing in this part modifies any requirement imposed on a participant by other applicable law or regulation to file a suspicious activity report to the appropriate authorities. (g) The requirement of this part to establish and implement written policies and procedures applies only to the U.S. offices of participants in designated payment systems. § 132.6 Non-exclusive examples of policies and procedures. (a) In general. (b) Due diligence. (1) At the establishment of the account or relationship, the participant conducts due diligence of a commercial customer and its activities commensurate with the participant's judgment of the risk of restricted transactions presented by the customer's business. (2) Based on its due diligence, the participant makes a determination regarding the risk the commercial customer presents of engaging in an Internet gambling business and follows either paragraph (b)(2)(i) or (b)(2)(ii) of this section. (i) The participant determines that the commercial customer presents a minimal risk of engaging in an Internet gambling business. (ii) The participant cannot determine that the commercial customer presents a minimal risk of engaging in an Internet gambling business, in which case it obtains the documentation in either paragraph (b)(2)(ii)(A) or (b)(2)(ii)(B) of this section— (A) Certification from the commercial customer that it does not engage in an Internet gambling business; or (B) If the commercial customer does engage in an Internet gambling business, each of the following— ( 1 ( i ( ii ( 2 (3) The participant notifies all of its commercial customers, through provisions in the account or commercial customer relationship agreement or otherwise, that restricted transactions are prohibited from being processed through the account or relationship. (4) With respect to the determination in paragraph (b)(2)(i) of this section, participants may deem the following commercial customers to present a minimal risk of engaging in an Internet gambling business— (i) An entity that is directly supervised by a Federal functional regulator as set out in § 132.7(a); or (ii) An agency, department, or division of the Federal government or a State government. (c) Automated clearing house system examples. (i) Address methods to conduct due diligence in establishing a commercial customer account or relationship as set out in § 132.6(b); (ii) Address methods to conduct due diligence as set out in § 132.6(b)(2)(ii)(B) in the event that the participant has actual knowledge that an existing commercial customer of the participant engages in an Internet gambling business; and (iii) Include procedures to be followed with respect to a commercial customer if the originating depository financial institution or third-party processor has actual knowledge that its commercial customer has originated restricted transactions as ACH debit transactions or if the receiving depository financial institution or third-party processor has actual knowledge that its commercial customer has received restricted transactions as ACH credit transactions, such as procedures that address— (A) The circumstances under which the commercial customer should not be allowed to originate ACH debit transactions or receive ACH credit transactions; and (B) The circumstances under which the account should be closed. (2) The policies and procedures of a receiving gateway operator and third-party processor that receives instructions to originate an ACH debit transaction directly from a foreign sender are deemed to be reasonably designed to prevent or prohibit restricted transactions if they include procedures to be followed with respect to a foreign sender if the receiving gateway operator or third-party processor has actual knowledge, obtained through notification by a government entity, such as law enforcement or a regulatory agency, that such instructions included instructions for restricted transactions. Such procedures may address sending notification to the foreign sender, such as in the form of the notice contained in appendix A to this part. (d) Card system examples. (1) Provide for either— (i) Methods to conduct due diligence— (A) In establishing a commercial customer account or relationship as set out in § 132.6(b); and (B) As set out in § 132.6(b)(2)(ii)(B) in the event that the participant has actual knowledge that an existing commercial customer of the participant engages in an Internet gambling business; or (ii) Implementation of a code system, such as transaction codes and merchant/business category codes, that are required to accompany the authorization request for a transaction, including— (A) The operational functionality to enable the card system operator or the card issuer to reasonably identify and deny authorization for a transaction that the coding procedure indicates may be a restricted transaction; and (B) Procedures for ongoing monitoring or testing by the card system operator to detect potential restricted transactions, including— ( 1 ( 2 (2) For the card system operator, merchant acquirer, or third-party processor, include procedures to be followed when the participant has actual knowledge that a merchant has received restricted transactions through the card system, such as— (i) The circumstances under which the access to the card system for the merchant, merchant acquirer, or third-party processor should be denied; and (ii) The circumstances under which the merchant account should be closed. (e) Check collection system examples. (i) Address methods for the depositary bank to conduct due diligence in establishing a commercial customer account or relationship as set out in § 132.6(b); (ii) Address methods for the depositary bank to conduct due diligence as set out in § 132.6(b)(2)(ii)(B) in the event that the depositary bank has actual knowledge that an existing commercial customer engages in an Internet gambling business; and (iii) Include procedures to be followed if the depositary bank has actual knowledge that a commercial customer of the depositary bank has deposited checks that are restricted transactions, such as procedures that address— (A) The circumstances under which check collection services for the customer should be denied; and (B) The circumstances under which the account should be closed. (2) The policies and procedures of a depositary bank that receives checks for collection from a foreign banking office are deemed to be reasonably designed to identify and block or otherwise prevent or prohibit restricted transactions if they include procedures to be followed by the depositary bank when it has actual knowledge, obtained through notification by a government entity, such as law enforcement or a regulatory agency, that a foreign banking office has sent checks to the depositary bank that are restricted transactions. Such procedures may address sending notification to the foreign banking office, such as in the form of the notice contained in the appendix to this part. (f) Money transmitting business examples. (1) Address methods for the operator to conduct due diligence in establishing a commercial customer relationship as set out in § 132.6(b); (2) Address methods for the operator to conduct due diligence as set out in § 132.6(b)(2)(ii)(B) in the event that the operator has actual knowledge that an existing commercial customer engages in an Internet gambling business; (3) Include procedures regarding ongoing monitoring or testing by the operator to detect potential restricted transactions, such as monitoring and analyzing payment patterns to detect suspicious payment volumes to any recipient; and (4) Include procedures when the operator has actual knowledge that a commercial customer of the operator has received restricted transactions through the money transmitting business, that address— (i) The circumstances under which money transmitting services should be denied to that commercial customer; and (ii) The circumstances under which the commercial customer account should be closed. (g) Wire transfer system examples. (1) Address methods for the beneficiary's bank to conduct due diligence in establishing a commercial customer account as set out in § 132.6(b); (2) Address methods for the beneficiary's bank to conduct due diligence as set out in § 132.6(b)(2)(ii)(B) in the event that the beneficiary's bank has actual knowledge that an existing commercial customer of the bank engages in an Internet gambling business; (3) Include procedures to be followed if the beneficiary's bank obtains actual knowledge that a commercial customer of the bank has received restricted transactions through the wire transfer system, such as procedures that address (i) The circumstances under which the beneficiary bank should deny wire transfer services to the commercial customer; and (ii) The circumstances under which the commercial customer account should be closed. § 132.7 Regulatory enforcement. The requirements under this part are subject to the exclusive regulatory enforcement of— (a) The Federal functional regulators, with respect to the designated payment systems and participants therein that are subject to the respective jurisdiction of such regulators under section 505(a) of the Gramm-Leach-Bliley Act (15 U.S.C. 6805(a)) and section 5g of the Commodity Exchange Act (7 U.S.C. 7b-2); and (b) The Federal Trade Commission, with respect to designated payment systems and participants therein not otherwise subject to the jurisdiction of any Federal functional regulators (including the Commission) as described in paragraph (a) of this section. Appendix A to Part 132—Model Notice [Date] [Name of foreign sender or foreign banking office] [Address] Re: U.S. Unlawful Internet Gambling Enforcement Act Notice Dear [Name of foreign counterparty]: On [date], U.S. government officials informed us that your institution processed payments through our facilities for Internet gambling transactions restricted by U.S. law on [dates, recipients, and other relevant information if available]. We provide this notice to comply with U.S. Government regulations implementing the Unlawful Internet Gambling Enforcement Act of 2006 (Act), a U.S. federal law. Our policies and procedures established in accordance with those regulations provide that we will notify a foreign counterparty if we learn that the counterparty has processed payments through our facilities for Internet gambling transactions restricted by the Act. This notice ensures that you are aware that we have received information that your institution has processed payments for Internet gambling restricted by the Act. The Act is codified in subchapter IV, chapter 53, title 31 of the U.S. Code (31 U.S.C. 5361 et seq.