The Bad Actor Clause and Arguments for It

Poker LawState lawmakers will at some point during 2015 examine the issue of online poker legalization in New York. One important clause that poker players and legal experts will keep an eye out for is the dreaded “bad actor” clause. It is the source of much controversy in many states considering the issue and is a primary reason that California has yet to legalize the game.

In the first of a two-part series, we will take a look the bad actor clause and reasons why lawmakers favor it. Later in the week, we will give some arguments against such a clause in online poker legislation.

What is the Bad Actor Clause?

A bad actor clause is essentially a portion of an online poker bill that will prevent companies from operating in the state if they took bets after the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006.

When the UIGEA was passed in late 2006, controversy arose whether or not online poker operators could still offer services in the United States. The UIGEA explicitly made it illegal for U.S. banks to process online gambling transactions and that included online poker.

Several legal opinions were given to online sites that they could operate in the United States. However, the problem of funding accounts caused some to use criminal methods to get funds processed. Some companies used online payment processors that used fake transaction codes to allow deposits to be made. Others would make false statements as to where withdrawals were coming from, such as claiming that they were “investment dividends.”

Over time, the United States Department of Justice collected sufficient evidence to indict PokerStars, Full Tilt Poker and Absolute Poker on violations of the UIGEA and money laundering. Full Tilt was unable to repay their players and eventually was sold to PokerStars as part of their settlement with the DOJ. Absolute Poker went bankrupt and players will never see a dime of their former deposits.

Under the majority of bad actor clauses, any online poker site that took bets in the United States after December 31, 2006 is permanently banned form operating in that state.

Arguments for the Bad Actor Clause

There are several primary reasons behind including a bad actor clause in legislation. The first is that supporters of the clause do not want to allow companies to profit from breaking U.S. laws. They feel that companies that operated in the U.S. post-UIGEA will have a distinct advantage over companies in regulated markets, including access to prior player pools and the ability to pull from prior profits made “illegally.”

Next, most supporters of the clause believe that they cannot compete with the sites that operated post-UIGEA because they have had several years to build their software, develop their brand and instill customer loyalty in players. Would the average player rather player at PokerStars or Desert Rose Bingo? PokerStars is the recognized brand and one that became popular under less than honorable pretenses, at least that is the argument.

PokerStars is the Primary Target of Most of These Clauses

It is no secret that PokerStars is the main target behind the drafting of a bad actor clause. While there are other companies that have and some that still operate in the United States unregulated, PokerStars is by far the largest and the one most likely to thrive in a legal marketplace.

PokerStars is the #1 online poker site in the world and they had the resources to buy their way out of Black Friday. The company was purchased last year by Amaya, Inc and while they are under new ownership, some feel that Amaya should not be able to profit under what is now being called “tainted assets.”

PokerStars has even had difficulty getting into New Jersey despite the state not having an official bad actor clause. Their past have left them open to scrutiny and while Amaya is currently under reconsideration to operate PokerStars in the state, the process has been slow and there are few legitimate signs they will open in the near future.

Next time, we will look at arguments against the bad actor clause and some compromises that states could take to allow PokerStars to operate in the United States.