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07 Sep

How does Pennsylvania’s New iLottery Affect Financial Institutions?

How does Pennsylvania’s New iLottery Affect Financial Institutions?

On June 4 the Pennsylvania Lottery launched interactive games played online – computer, tablet or mobile devices – for chances to win up to $250,000.  Players must first sign up for an account and add a payment method via a debit card or linked bank account.  Credit cards are not accepted.  Prizes are automatically paid back to the registered account.  The iLottery features player-controlled settings, time limits, deposit limits, and spend limits to promote responsible play.

We’ve been asked if there’s any interplay between iLottery and the FRB’s Regulation GG – Prohibition on Funding Unlawful Internet Gambling.  First, PA’s lottery is not illegal.  It is funded by the state and proceeds are used to benefit older residents.  The FRB’s statement says: “For purposes of the rule, unlawful Internet gambling generally would cover the making of a bet or wager that involves use of the Internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is initiated, received, or otherwise made.”

Secondly, the focus of Regulation GG is on the payment systems involved in gambling businesses.  It prohibits gambling businesses from knowingly accepting payments in connection with a bet or wager that involves the use of the Internet. Yes, it designates 5 payment systems: (i) automated clearing house (ACH) systems, (ii) card systems, (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer systems, but it’s those payment systems that are responsible to block or prevent the restricted transactions.  Financial institutions are indirectly exposed as participants in those systems.

So, it would be our opinion that financial institutions are not unduly exposed to Regulation GG by having Pennsylvania’s iLottery transactions pass through their institution.  However, that does not preclude financial institutions from monitoring for such gambling transactions in their AML risk management programs.

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