WSR 06-17-084

PROPOSED RULES

GAMBLING COMMISSION


[ Filed August 14, 2006, 1:52 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 06-01-083.

Title of Rule and Other Identifying Information: Amendatory sections WAC 230-02-205 Gambling service supplier defined and 230-03-210 Applying for a gambling service supplier license; and new sections WAC 230-02-203 Defining lending agent, loan servicer, or placement agent, 230-02-204 Defining regulated lending institution, 230-03-211 Defining "lending agent," "loan servicer," or "placement agent," and 230-03-212 Defining "regulated lending institution."

Hearing Location(s): Inn at Gig Harbor, 3211 56th Street N.W., Gig Harbor, WA 98335, (253) 851-5402, on October 13, 2006, at 9:30 a.m.

Date of Intended Adoption: October 13, 2006.

Submit Written Comments to: Susan Arland, Rules Coordinator, P.O. Box 42400, Olympia, WA 98504, e-mail Susana@wsgc.wa.gov, fax (360) 486-3625, by October 1, 2006.

Assistance for Persons with Disabilities: Contact Shirley Corbett by October 1, 2006, TTY (360) 486-3637 or (360) 486-3447.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This proposed rule change clarifies which type of financiers need to be licensed and which do not; requiring businesses that analyze gambling equipment be licensed; and requiring businesses that enter into ongoing financial relationships with manufacturers to provide "gambling related software" to be licensed. "Gambling related software" affects the results/outcome of games or directly interfaces with, or controls, the operation of the gambling equipment.

Statutory Authority for Adoption: RCW 9.46.070.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Washington state gambling commission, governmental.

Name of Agency Personnel Responsible for Drafting: Susan Arland, Rules Coordinator, Lacey, (360) 486-3466; Implementation and Enforcement: Rick Day, Director, Lacey, (360) 486-3446.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement has not been prepared pursuant to RCW 19.85.025, and/or the proposed rule change clarifies language of rules without changing the effect.

A cost-benefit analysis is not required under RCW 34.05.328. The Washington state gambling commission is not an agency that is statutorily required to prepare a cost-benefit analysis under RCW 34.05.328.

August 11, 2006

Susan Arland

Rules Coordinator

OTS-9072.1


AMENDATORY SECTION(Amending Order 456, filed 3/14/06, effective 7/1/06)

WAC 230-02-205   Gambling service supplier defined.   A "gambling service supplier" is any person who provides gambling related services for compensation, whether directly or indirectly.

(1) Gambling related services include at least the following:

(a) Providing consulting or advisory services regarding gambling activities;

(b) Providing gambling related management services;

(c) Providing financing for purchases or leases of gambling equipment or for providing financing for infrastructure or facilities, or equipment that supports gambling operations for more than one licensee. For purposes of this section, financing by any bank, mutual savings bank, or credit union regulated by the department of financial institutions or any federally regulated commercial lending institution shall not be deemed as providing gambling related services;

(d) Acting as a lending agent, or loan servicer, or placement agent as defined in WAC 230-02-203;

(e) Providing any other service or activity where influence may be exerted over any gambling activity licensed by the commission;

(((e))) (f) Providing assembly of components for gambling equipment under a contract with a licensed manufacturer or entering into an ongoing financial arrangement for gambling related software with a licensed manufacturer;

(((f))) (g) Providing installation, integration, maintenance, or any other service of digital surveillance systems that allows direct access to the operating system; ((or

(g))) (h) Training individuals to conduct authorized gambling activities; or

(i) Performing the testing and certification of tribal lottery systems as meeting requirements specified in the tribal-state compact.

(2) The term "gambling services supplier" does not include the following:

(a) Universities and colleges that are regulated by the Washington state board of community and technical colleges and the higher education coordinating board which train individuals to conduct authorized gambling activities;

(b) Licensed manufacturers or distributors who service and repair pull-tab dispensing devices, bingo equipment or any other authorized gambling equipment;

(c) Attorneys, accountants, and governmental affairs consultants whose primary business is providing professional services that are unrelated to the management or operation of gambling activities; ((and))

(d) Persons that only provide nonmanagement related recordkeeping services for punch board and pull-tab operators, when the combined total gross billings from such services does not exceed twenty-five thousand dollars during any calendar year;

(e) Persons who provide names, images, artwork or associated copyrights or trademarks, or other features that do not affect the results or outcome of the game, for use in gambling equipment; and

(f) Regulated lending institutions as defined in WAC 230-02-204.

[Statutory Authority: RCW 9.46.070. 06-07-084 (Order 456), 230-02-205, filed 3/14/06, effective 7/1/06; 04-19-069 (Order 436), 230-02-205, filed 9/16/04, effective 1/1/05; 00-05-102 (Order 380), 230-02-205, filed 2/16/00, effective 7/1/00; 98-19-133 (Order 361), 230-02-205, filed 9/23/98, effective 1/1/99; 97-24-031, 230-02-205, filed 11/25/97, effective 1/1/98.]

OTS-9070.1


NEW SECTION
WAC 230-02-203   Lending agent, loan servicer, and placement agent defined.   A person or entity, other than a regulated lending institution, that finds, places, administers, facilitates, or services loans to licensees and whose services include, but are not limited to, one or more of the following:

(1) Charging an ongoing fee for their services;

(2) Maintaining rights as the lender;

(3) Determining when the loan is in default; or

(4) Maintaining access to collateral.

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OTS-9071.1


NEW SECTION
WAC 230-02-204   Regulated lending institution defined.   A regulated lending institution is any state or federally regulated organization primarily in the business of lending money. An organization must demonstrate that it is a regulated lending institution by meeting all of the following criteria:

(1) Is registered and actively regulated by the Securities and Exchange Commission or any other United States federal or state governmental banking or financial regulatory agency. Lending institutions must demonstrate to the commission that they are actively regulated by at least:

(a) Annually reporting information on their lending activities to the regulatory agency; and

(b) Receiving regular audits or inspections by the regulatory agency; and

(c) Owners and officers undergo criminal history background checks.

(2) Is acting as a passive investor in the licensed establishment to which they are lending money. For the purposes of this rule, passive investors are those who do not have actual or potential influence over the operations of the licensed entity. A lending institution will not be considered a passive investor if they:

(a) Appoint or have the right to appoint officers, directors, consultants, or other positions with the licensed establishment; or

(b) Require the licensed establishment to seek their approval or authorization in making business decisions for the organization; or

(c) Have full access to records of the establishment; or

(d) Have the ability to convert the debt into shares which would result in the lender becoming a substantial interest holder per WAC 230-02-300(4).

(3) A majority of its outstanding loans receivable are from businesses not engaged in gambling activities.

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OTS-9012.2


AMENDATORY SECTION(Amending Order 457, filed 3/22/06, effective 1/1/08)

WAC 230-03-210   Applying for a gambling service supplier license.   (1) You must apply for a gambling service supplier license if you perform any of the following gambling-related services for compensation:

(a) Consulting or advisory services regarding gambling activities; or

(b) Gambling management services; or

(c) Financing for purchases or leases of gambling equipment or financing for providing infrastructure or facilities, or equipment that supports gambling operations for more than one licensee; or

(d) Acting as a lending agent, or loan servicer, or placement agent; or

(e) Providing the assembly of components for gambling equipment under a contract with a licensed manufacturer or entering into an ongoing financial arrangement for gambling related software with a licensed manufacturer; or

(((e))) (f) Installing, integrating, maintaining, or servicing digital surveillance systems that allow direct access to the operating system; or

(((f))) (g) Training individuals to conduct authorized gambling activities; or

(((g))) (h) Providing any other service or activity where influence may be exerted over any gambling activity licensed by the commission; or

(i) Performing the testing and certification of tribal lottery systems as meeting requirements specified in the tribal-state compact.

(2) You do not need a gambling service supplier license if you are:

(a) A bank, mutual savings bank, or credit union regulated by the department of financial institutions or any federally regulated commercial lending institution; or

(b) A university or college regulated by the Washington state board of community and technical colleges and the higher education coordinating board that trains individuals to conduct authorized gambling activities; or

(c) An attorney, accountant, or governmental affairs consultant whose primary business is providing professional services that are unrelated to the management or operation of gambling activities; or

(d) A person ((that)) who only provides nonmanagement-related recordkeeping services for punch board and pull-tab operators, when the combined total gross billings from such services does not exceed twenty-five thousand dollars during any calendar year; or

(e) A person who provides names, images, artwork or associated copyrights or trademarks, or other features that do not affect the results or outcome of the game, for use in gambling equipment; or

(f) Regulated lending institutions.

[Statutory Authority: RCW 9.46.070. 06-07-157 (Order 457), 230-03-210, filed 3/22/06, effective 1/1/08.]

OTS-9013.2


NEW SECTION

WAC 230-03-211   Defining "lending agent," "loan servicer," or "placement agent."   (1) "Lending agent," "loan servicer," or "placement agent" means any person or entity, other than a regulated lending institution, that finds, administers, facilitates, or services loans for a licensee.

(2) The services of lending agents, loan servicers, or placement agents include, but are not limited to:

(a) Charging an ongoing fee for their services;

(b) Maintaining rights as the lender;

(c) Determining when the loan is in default; and/or

(d) Maintaining access to collateral.

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OTS-9014.1


NEW SECTION

WAC 230-03-212   Defining "regulated lending institution."   (1) "Regulated lending institution" means any state or federally regulated organization primarily in the business of lending money for investment purposes.

(2) "Regulated lending institutions" must:

(a) Register with the Securities and Exchange Commission or any other United States federal or state governmental banking or financial regulatory agency.

(b) Be actively regulated by the Securities and Exchange Commission or any other United States federal or state governmental banking or financial regulatory agency. "Active regulation" means:

(i) Reporting annually on lending activities to the regulatory agency;

(ii) Receiving regular audits or inspections by the regulatory agency; and

(iii) Undergoing criminal history background checks of owners and officers.

(c) Act as passive investors in the licensee. "Passive investors" mean investors who have no actual or potential influence over the operations of the licensee. A "passive investor" does not:

(i) Appoint or have the right to appoint officers, directors, consultants, or other positions with the licensee;

(ii) Require the licensee to seek approval or authorization in making business decisions;

(iii) Have full access to the records of the licensee;

(iv) Have the ability to convert debt into shares which would result in the lender becoming a substantial interest holder; or

(v) Have any other influence or control over the licensee.

(d) Have nongambling-related businesses as a majority of their outstanding loans receivable.

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Washington State Code Reviser's Office