[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
INTERNET GAMBLING PROHIBITION ACT OF 2006
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
H.R. 4777
__________
APRIL 5, 2006
__________
Serial No. 109-128
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2006
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Crime, Terrorism, and Homeland Security
HOWARD COBLE, North Carolina, Chairman
DANIEL E. LUNGREN, California ROBERT C. SCOTT, Virginia
MARK GREEN, Wisconsin SHEILA JACKSON LEE, Texas
TOM FEENEY, Florida MAXINE WATERS, California
STEVE CHABOT, Ohio MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida WILLIAM D. DELAHUNT, Massachusetts
JEFF FLAKE, Arizona ANTHONY D. WEINER, New York
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
LOUIE GOHMERT, Texas
Michael Volkov, Chief Counsel
David Brink, Counsel
Caroline Lynch, Counsel
Jason Cervenak, Full Committee Counsel
Bobby Vassar, Minority Counsel
C O N T E N T S
----------
APRIL 5, 2006
OPENING STATEMENT
Page
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Crime,
Terrorism, and Homeland Security............................... 1
The Honorable Robert C. Scott, a Representative in Congress from
the State of Virginia, and Ranking Member, Subcommittee on
Crime, Terrorism, and Homeland Security........................ 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 4
WITNESSES
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia
Oral Testimony................................................. 7
Prepared Statement............................................. 8
Mr. Bruce G. Ohr, Chief of the Organized Crime and Racketeering
Section, United States Department of Justice
Oral Testimony................................................. 9
Prepared Statement............................................. 12
Mr. John W. Kindt, Professor, University of Illinois
Oral Testimony................................................. 17
Prepared Statement............................................. 20
Mr. Samuel A. Vallandingham, Vice President and Chief Information
Officer, The First State Bank
Oral Testimony................................................. 64
Prepared Statement............................................. 66
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Robert C. Scott, a
Representative in Congress from the State of Virginia, and
Ranking Member, Subcommittee on Crime, Terrorism, and Homeland
Security....................................................... 95
Response to Post-Hearing Questions from Bruce G. Ohr, Chief of
the Organized Crime and Racketeering Section, United States
Department of Justice.......................................... 97
Response to Post-Hearing Questions from the Honorable William E.
Moschella, Assistant Attorney General, Office of Legislative
Affairs, United States Department of Justice, for the April 29,
2003 hearing on H.R. 21, the ``Unlawful Internet Gambling
Funding Prohibition Act''...................................... 113
Prepared Statement of John A. Phillips, CEO, ARISTOTLE
International.................................................. 118
Prepared Statement of Kobus Paulsen, Chief Executive, UC Group... 120
Letter to the Honorable Howard Coble from the Honorable Bob
Goodlatte...................................................... 130
Letter to the Honorable Bob Goodlatte from Wendy Wright,
President, Concerned Women for America......................... 131
Letter to the Honorable Bob Goodlatte from Peter Brandt, Senior
Director, Government & Public Policy, Focus on the Family...... 132
Letter to the Honorable Bob Goodlatte from Phyllis Schlafly,
President, the Eagle Forum..................................... 133
Letter to the Honorable Bob Goodlatte from Richard D. Land,
President, The Ethics & Religious Liberty Commission........... 134
Letter to the Honorable Bob Goodlatte from Dr. Guy C. Clark,
Chairman of the Board of Directors, The National Coalition
Against Gambling Expansion..................................... 135
Press Release: Family Research Council, dated February 16, 2006.. 136
Press Release: Christian Coalition of America, Dated February 15,
2006........................................................... 137
Letter from a coalition of organizations in support of H.R. 4777. 138
News article from The Hill, entitled ``Abramoff gets payback in
gaming bills,'' dated March 29, 2006........................... 141
Transcript of speakers from the National Thoroughbred Racing
Association at the 28th Annual Symposium on Racing............. 146
INTERNET GAMBLING
PROHIBITION ACT OF 2006
----------
WEDNESDAY, APRIL 5, 2006
House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Howard
Coble (Chairman of the Subcommittee) presiding.
Mr. Coble. Good afternoon, ladies and gentlemen. The
Ranking Member--the gentleman from Virginia, the primary
sponsor, just entered the room; and Mr. Scott, the Ranking
Member, is on his way. But in the interests of time, I am going
to go ahead and give my opening statement and then recognize
Mr. Scott when he gets here.
Today, the Subcommittee on Crime, Terrorism, and Homeland
Security is conducting a legislative hearing on H.R. 4777, the
``Internet Gambling and Prohibition Act of 2006.'' H.R. 4777 is
very similar to legislation that the Judiciary Committee
considered and approved during the 107th Congress.
Currently, Federal law is unclear as to whether or not
Internet gambling is prohibited by section 1084 of title 18 of
the United States Code. H.R. 4777 clarifies the law in this
area by prohibiting Internet gambling and updates existing
language to bar use of new technologies such as wireless access
to gambling sites on the Internet, which were never envisioned
when section 1084 was originally drafted in 1961.
The dramatic explosion in Internet gambling raises complex
criminal and social issues. From a law enforcement perspective,
this new multibillion-dollar industry has attracted organized
crime because of the ease by which criminals can launder money
and increase illegal revenues without fear of prosecution or
even investigation.
Unlike authorized and regulated wagering in the United
States, the Internet gambling business is operated in an
environment free of regulatory oversight and even a remote
possibility of civil or criminal enforcement. As a result,
Internet gambling has turned into an industry ripe for
organized crime domination.
The rapid growth in this industry also raises other
concerns for our communities. Millions of Americans suffer from
gambling addiction resulting in financial debt, depression,
unemployment, bankruptcy, divorce, homelessness, and in some
cases, even suicide.
While the Internet has certainly been a boon for our
economy, our productivity and our general welfare, one downside
of the Internet has been the ease by which troubled adults and
our children gain access to addictive gambling sites. This is a
problem which must be addressed in order to protect our
communities and our youth.
We are fortunate today to have the original sponsor of H.R.
4777, the distinguished gentleman from Virginia, Representative
Bob Goodlatte, to testify and explain the details of his bill.
He is the sponsor of past Internet wagering bills and probably
knows the issue as well or better than any Member of Congress.
Mr. Goodlatte, as you know, our Subcommittee also has
experience in this issue, and we look forward to your
testimony.
I just apologized to the distinguished gentleman from
Virginia. I was not overlooking him, but in an effort to save
time, I gave my opening statement before Mr. Scott got here
because we are going to have a vote, I suspect, within an hour,
but perhaps a little longer than that. So I hope we can get to
the business at hand.
And at this point, I am pleased to recognize the
distinguished gentleman from Virginia, the Ranking Member, Mr.
Bobby Scott.
Mr. Scott. Thank you Mr. Chairman. Mr. Chairman, I noticed
that at 1 minute past 2 that you are on the third page of your
statement.
Mr. Coble. If the gentleman will yield, look at the time we
saved.
Mr. Scott. It is a pleasure to be here, Mr. Chairman; I am
pleased to join you in convening this hearing regarding Federal
regulation of gambling over the Internet.
I believe that all gambling should be tightly regulated,
and it has traditionally been done by the State regulatory
responsibilities. It should continue to be so, in my judgment,
although it is appropriate for the Federal Government to have a
role to assist the States in the total regulatory scheme.
The Federal Government took such a role in 1961 with the
Wire Communications Act as a way to assist in the fight against
gambling by organized crime syndicates. The Department of
Justice contends it can prosecute Internet gambling businesses
under that law, but clearly that law was not designed with
Internet gambling in mind.
While I appreciate the desire of my distinguished
colleague, the gentleman from Virginia, Mr. Goodlatte, to
update the ability of the Department to address illegal
gambling in today's context, I do not believe that H.R. 4777 is
likely to be effective in doing so.
Regulating anything over the Internet is problematic, even
desirable. Most law enforcement is local or jurisdictional
based. The Internet has no jurisdiction, and as a result, I
suspect that even if we were successful in closing down
business sites physically located in the United States, or in
countries where we can get cooperation, because of the nature
of the Internet and the ingenuity of people using it, the
approach of H.R. 4777 will ultimately be ineffective.
As we hear from our witness panel, this bill will create an
enforcement nightmare for financial institutions because they
would be required to look up and stop illegal gambling
transactions. Identifying Internet gambling activities will be
very difficult, if not impossible. While some companies may be
able to identify some gaming transactions by codes used, such
enforcement efforts can easily be thwarted. A business can have
one code for payment purposes, but may be engaged in several
activities, including Internet gambling.
A casino, for example, may have a hotel or gambling. A
foreign company may have a hotel, a casino, Internet gambling,
an e-cash or an electronics payment system; or any outside
escrow agent can relocate to another country and, therefore,
evade enforcement mechanisms in the bill altogether. With some
Internet gaming activities being legal, how would a financial
institution distinguish between them and legal activities?
Furthermore, we should not overestimate the cooperation we
may get from other countries. According to Christiansen Capital
Advisers, Internet gambling Web sites brought in over $14
billion worldwide last year, which is up from 8 billion the
year before. That number is expected to almost double to 24
billion by 2010.
Presently, over 85 foreign governments allow some form of
gambling online. That number is likely to grow as well. So what
governments are likely to cooperate with us in prosecuting
businesses they authorize to operate? And even if we are
successful in getting cooperation from some countries, we would
be simply increasing the profit opportunities for uncooperative
countries, especially those with whom the United States does
not have normal diplomatic relations.
This bill does not prohibit Internet gambling; it prohibits
running the Internet gambling operation. If we want to be
effective in prosecuting illegal gambling over the Internet, we
should prosecute the individual gamblers. A few sting
operations and the word would get around that if you gamble on
the Internet, you will be caught. And so long as individuals
can gamble over the Internet with impunity, a market will be
provided for them which the regulatory scheme in this bill will
not stop.
For example, Mr. Chairman, we prohibit the sales of illegal
drugs. But we see that as long as there remains a demand for
drugs, we have only limited success in the war on drugs. But if
we took the approach in this bill in enforcing drug laws, we
would be prosecuting the seller, but not the buyer and have
even less effect than we have now.
Since we are not talking about prohibiting gambling on the
Internet, but simply prohibiting the operation of the illegal
gambling site in jurisdictions that the FBI can get to, I
believe that there are more effective regulatory approaches
than the approach offered in H.R. 4777. However, the approaches
must be developed to take into account the technology and State
policies with respect to gambling and Internet gambling
practices and preferences.
This is the effect of the bill authored by the full
Committee Ranking Member, Mr. Conyers, last year, H.R. 1223. It
established a commission that would study the issue and make
recommendations for a regulatory environment for Internet
gambling that would be controlled by the individual States.
States do tend to prohibit individuals from gambling, so
Internet gambling can both be effective--can be effective in
individualized States and individualized to each State.
Under the bill's regulatory scheme, if Nevada opted to
allow Internet gambling within its borders, it could. If Utah
prohibited individuals from that State from gambling over the
Internet, it probably could, and that would be enforceable by
the Federal Government and by the States that allow gambling as
well as the States--as well as the State of Utah, because in
the fullness of time, a gambler could be required to provide a
mailing address in order to get paid.
If protection of the public is the goal of regulating
Internet gambling, it is much more likely that those who choose
to gamble over the Internet will do so under a licensed,
regulated entity under the Conyers approach than under 4777.
First, the consumer in a State where Internet gambling was
legal would have confidence that if they win, they will be paid
by the licensed, regulated operation.
A consumer would have no similar confidence in fly-by-night
offshore Casino.com. As a result, from a licensed, regulated
Internet gaming activity would drive business from the less
reputable businesses, and they would essentially drive them out
of business.
Another significant result is that States that choose to
authorize Internet gambling can tax it. At a time when
unauthorized gambling is flourishing--as I said, over $14
billion with over half of it originating in the United States--
and when most States are cash strapped, those States that have
chosen to authorize regulated gambling could receive much-
needed revenue from both the operators and the winners while
contributing to the control of the industry and protection of
the gambling public.
The overwhelming portion of those who buy--who play the
numbers buy legal lottery tickets, which are regulated and
taxed and actually pay lower odds compared to the illegal
numbers operations. For the same reason, people will choose to
gamble over Internet--who choose to gamble over the Internet
will patronize legal domestic Web sites even if they have to
pay taxes on the winnings.
I believe we should regulate Internet gambling, but we
should do so effectively. We should not subject any single
business sector to the sole or principal responsibility of
doing the bulk of the enforcement work, whether it is the
banking industry in this bill or the Internet service industry,
as we tried in prior bills. There are ways to regulate Internet
gambling effectively, and a study commission to develop those
ways is the best way to come up with them.
And, again, Mr. Chairman, I thank you for holding the
hearing and look forward to the testimony.
Mr. Coble. I thank the distinguished gentleman from
Virginia.
We have been joined by the distinguished gentleman from
Utah. While not a Member of the Subcommittee on Crime,
Terrorism, and Homeland Security, he is a Member of the full
Judiciary Committee. And we have been joined, as well, by the
distinguished gentleman from Michigan, the Ranking Member of
the full Committee.
And, Mr. Conyers, if you have a statement, I will be glad
to recognize you.
Mr. Conyers. Thank you, Mr. Chairman and Members of the
Committee and our distinguished witnesses here.
I think we have to come far more specifically to grips
about the issues raised, particularly by the gentleman from
Virginia, Mr. Bobby Scott.
Now, gambling is going on now; it is out of the barn, so to
speak. But when you start doing something as futile as carve-
outs and a ban on racing, you are on a slippery slope that is
going to create more problems.
Let me just make a few points, and I will probably not use
my full 5 minutes.
First, this measure claims to ban all forms of online
gambling, yet specifically exempts betting on horse racing,
pay-to-play fantasy sports, State-owned and -operated
lotteries. And so, we are doing a picking and choosing of which
gambling activities to sanction while disapproving many others;
and I will be looking carefully to find out how we arrived at
the decision of which gambling will be sanctioned and which
won't.
Number two, the bill is not likely to lead to any
meaningful reduction in the current number of Americans that
place bets on line. Isn't that what the legislation ought to be
about? Major financial service organizations already employ the
bill's main enforcement mechanisms, and Americans can easily
circumvent those prohibitions by using third-party payers or
even foreign banks.
Third, by eliminating a customer's access to the U.S.
financial services industry, this bill may inadvertently make
worse the most pressing dangers posed by the Internet gambling
industry. After all, credit cards play a vital role in
determining an individual bettor's wagers and tracking
potential earnings and losses. By prohibiting their use, we
effectively lose access to this key information.
And finally, the bill proposes to establish a complex
regulatory system for banks that is unworkable. It is all but
impossible to comply with. And under the provisions of the
bill, banks would be asked to determine whether a transaction
occurring online was illegal or legal based upon the type of
gambling activity involved and where the location of the
transaction occurred, and whether or not the transaction
involved interstate commerce.
Now, let's be real, my friends. If we really want to gain
effective control of the online gambling industry, we must
regulate it. Establishing a partial ban, allowing some forms of
gambling to continue without the benefit of adequate checks and
balances only will make the current situation much worse.
And I thank you, Chairman Coble, for allowing me to get
these remarks in before our witnesses start their commentary.
Mr. Coble. I thank the distinguished gentleman from
Michigan.
Gentleman, it is the practice of the Subcommittee to swear
in all witnesses appearing before it; so if you would, please
stand and raise your respective right hands.
[Witnesses sworn.]
Mr. Coble. You may be seated.
Let the record show that each of the witnesses answered in
the affirmative.
We have four distinguished witnesses with us today. Our
first witness is the Honorable Bob Goodlatte, whom I have
previously mentioned. Representative Goodlatte serves the Sixth
Congressional District in the State of Virginia and was first
elected to the Congress in 1992. He is currently cochairman of
the Congressional Internet Caucus. He was selected by Speaker
Hastert to serve on the House Republican Cybersecurity Task
Force.
Prior to serving in the Congress, Representative Goodlatte
was a partner in the law firm of Bird, Kinder & Huffman, and he
is an alumnus of Bates College and the Washington and Lee
School of Law in Virginia.
And the statement about you, Mr. Goodlatte, is missing a
conspicuous ingredient. You also serve as Chairman of the House
Agriculture Committee, unless there has been a change that is
not known to me.
Our second witness is Bruce Ohr, Chief of the Organized
Crime and Racketeering Section at the Justice Department.
Previously, Mr. Ohr served as Assistant U.S. Attorney for the
Southern District of New York and Chief of the Violent Gangs
Unit in that office. He also worked as an associate at Ohr,
Harrington and Sutcliffe. Mr. Ohr received his undergraduate
and law degrees from Harvard.
Our third witness is Mr. John Kindt, Professor at the
University of Illinois School of Law. Previously, Professor
Kindt was employed in several State and Federal Government
positions, and he also has served as a Senior Fellow at the
London School of Economics.
Professor Kindt's research has resulted in over 30 articles
in the areas of legalized gambling's economic impacts. He has
earned several graduate degrees in law and business, including
an MBA, a JD and an SJD.
Our fourth witness is Mr. Sam--sir, help me with your
surname.
Mr. Vallandingham. Vallandingham.
Mr. Coble. Mr. Vallandingham is Vice President and Chief
Information Officer at the First State Bank. And headquartered
where, Mr. Vallandingham?
Mr. Vallandingham. Barboursville, West Virginia.
Mr. Coble. Thank you, sir. Prior to serving in this
capacity, Mr. Valling--try me one more time.
Mr. Vallandingham. Vallandingham.
Mr. Coble. It is really not that difficult--worked as Data
Security Officer and Vice President of the Mortgage Department.
He is also a member of the Independent Community Bankers of
America where he serves on the Payments and Technology
Committee.
He was awarded his undergraduate degree from Florida State
University and his graduate degree from Louisiana State
University.
Gentlemen, it is good to have each of you with us. And as I
previously informed you, there will be a vote upcoming. We
comply with the 5-minute rule here, as you all have previously
been told. And when you see the amber light illuminate on the
panel in front of you, that is your 1-minute warning.
And then, when the red light appears, that is when the ice
on which you are skating has become very thin. We will not
unduly punish you; however, at that point, if you could wrap
up, we would be appreciative.
Now, Mr. Goodlatte, I am told that you have another
engagement at what time?
Mr. Goodlatte. Three o'clock, but I need to leave before
that.
Mr. Coble. We will start with you and you can depart, and
if we are still going, you are welcome to come back.
Mr. Goodlatte, you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF VIRGINIA
Mr. Goodlatte. Thank you, Mr. Chairman, for inviting me to
testify before this Subcommittee on this very important issue.
Gambling on the Internet has became an extremely lucrative
business. Numerous studies have charted the explosive growth of
this industry, both by the increases in gambling Web sites
available and via industry revenues. Internet gambling is now
estimated to be a $12 billion industry, with approximately 6
billion coming from bettors based in the United States. It has
been reported that there are as many as 2,300 gambling sites.
Virtual betting parlors have attempted to avoid the
application of United States law by locating themselves
offshore and out of our jurisdictional reach. These offshore
fly-by-night Internet gambling operators are unlicensed,
untaxed and unregulated, and are sucking billions of dollars
out of the United States. In addition, Internet gambling can
serve as a vehicle for money laundering by organized crime
syndicates and terrorists.
Contrary to what many in the gambling community would lead
you to believe, gambling is not a victimless activity. In fact,
the negative consequences of online gambling can be more
detrimental to the families and communities of addictive
gamblers than if a bricks-and-mortar casino were built next
door.
The anonymity of the Internet makes it much easier for
minors to gamble online. Furthermore, online gambling can
result in addiction, in bankruptcy, divorce, crime and moral
decline just as with traditional forms of gambling, the cost of
which must ultimately be borne by society.
In fact, I have been contacted by a constituent in my
district whose son fell prey to an Internet gambling addiction.
Faced with insurmountable debt from Internet gambling, he took
his own life. Unfortunately, financial ruin and tragedy are not
uncommon among online bettors.
Traditionally, States have had the authority to permit or
prohibit gambling within their borders. With the development of
the Internet, however, State prohibitions and regulations
governing gambling have become increasingly hard to enforce as
electronic communications move freely across borders.
Currently, Federal law already prohibits interstate
gambling over telephone wires. However, because the Internet
does not always travel over telephone wires, these laws which
were written before the invention of the Internet have become
outdated. H.R. 4777, the ``Internet Gambling Prohibition Act of
2006,'' brings the current prohibition against wireline
interstate gambling up to speed with the development of new
technology. It also makes clear once and for all that the
prohibition is not limited to sports-related bets and wagers.
In addition, H.R. 4777 will add a new provision to the law
that would prohibit a gambling business from accepting certain
forms of noncash payment, including credit cards and electronic
transfers. This bill also provides an enforcement mechanism to
address the situation where the gambling business is located
offshore, but accepts money from bank accounts in the United
States. The bill also provides an additional tool to fight
illegal gambling by giving Federal, State, local and tribal law
enforcement new injunctive authority to prevent and restrain
violations of the law.
H.R. 4777 will return control to the States by protecting
the rights of citizens in each State to decide through their
State legislatures if they want to allow gambling within their
borders. The regulation of intrastate gambling is within the
jurisdiction of the States. So this bill leaves the regulation
of wholly intrastate betting or wagering to the States with
tight controls to ensure that such betting or wagering does not
extend beyond their borders or to minors.
While my legislation prohibits online, interstate gambling,
it does not overturn previous act of Congress that address
gambling. This is a strong antigambling bill that also protects
the rights of States to determine what is and what is not
prohibited within their borders.
The opponents of this legislation have a lot to lose.
Offshore online gambling Web sites are cash cows, and the greed
that propels these companies leads them to solicit bettors in
the U.S. despite the fact that the Department of Justice
already believes this activity is illegal. The greed that
motivates many of these offshore establishments has also
motivated nefarious lobbyists such as Jack Abramoff to spread
misinformation about previous attempts of the Congress to ban
online betting.
Internet gambling is a serious problem that must be
stopped. The Internet Gambling Prohibition Act will help
eliminate this harmful activity before it spreads further.
I am happy to answer any questions from Members of the
Subcommittee and address some of the misrepresentation that is
already occurring about this legislation when that opportunity
arises.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Goodlatte follows:]
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress from the State of Virginia
Thank you, Mr. Chairman, for inviting me to testify before the
Subcommittee on this important issue.
Gambling on the Internet has become an extremely lucrative
business. Numerous studies have charted the explosive growth of this
industry, both by the increases in gambling websites available, and via
industry revenues. Internet gambling is now estimated to be a $12
billion industry, with approximately $6 billion coming from bettors
based in the U.S. It has been reported that there are as many as 2,300
gambling sites.
Virtual betting parlors have attempted to avoid the application of
United States law by locating themselves offshore and out of our
jurisdictional reach. These offshore, fly-by-night Internet gambling
operators are unlicensed, untaxed and unregulated and are sucking
billions of dollars out of the United States. In addition, Internet
gambling can serve as a vehicle for money laundering by organized crime
syndicates and terrorists.
Contrary to what many in the gambling community would lead you to
believe, gambling is not a victimless activity. In fact, the negative
consequences of online gambling can be more detrimental to the families
and communities of addictive gamblers than if a bricks-and-mortar
casino was built right next door.
The anonymity of the Internet makes it much easier for minors to
gamble online. Furthermore, online gambling can result in addiction,
bankruptcy, divorce, crime, and moral decline just as with traditional
forms of gambling, the costs of which must ultimately be borne by
society. In fact, I have been contacted by a constituent in my district
whose son fell prey to an Internet gambling addiction. Faced with
insurmountable debt from Internet gambling, he took his own life.
Unfortunately, financial ruin and tragedy are not uncommon among online
bettors.
Traditionally, States have had the authority to permit or prohibit
gambling within their borders. With the development of the Internet,
however, state prohibitions and regulations governing gambling have
become increasingly hard to enforce as electronic communications move
freely across borders.
Current federal law already prohibits interstate gambling over
telephone wires. However, because the Internet does not always travel
over telephone wires, these laws, which were written before the
invention of the Internet, have become outdated. H.R. 4777, the
Internet Gambling Prohibition Act, brings the current prohibition
against wireline interstate gambling up to speed with the development
of new technology. It also makes clear once and for all that the
prohibition is not limited to sports-related bets and wagers.
In addition, H.R. 4777 will add a new provision to the law that
would prohibit a gambling business from accepting certain forms of non-
cash payment, including credit cards and electronic transfers. This
bill also provides an enforcement mechanism to address the situation
where the gambling business is located offshore but accepts money from
bank accounts in the United States. The bill also provides an
additional tool to fight illegal gambling by giving Federal, State,
local and tribal law enforcement new injunctive authority to prevent
and restrain violations of the law.
H.R. 4777 will return control to the states by protecting the right
of citizens in each State to decide through their State legislatures if
they want to allow gambling within their borders. The regulation of
intrastate gambling is within the jurisdiction of the states, so this
bill leaves the regulation of wholly intrastate betting or wagering to
the states with tight controls to ensure that such betting or wagering
does not extend beyond their borders or to minors.
While my legislation prohibits online, interstate gambling, it does
not overturn previous acts of Congress that address gambling. This is a
strong anti-gambling bill that also protects the rights of States to
determine what is--and is not--prohibited within their borders.
The opponents of this legislation have a lot to lose. Offshore
online gambling websites are cash cows and the greed that propels these
companies leads them to solicit bettors in the U.S. despite the fact
that the Department of Justice already believes this activity is
illegal. The greed that motivates many of these offshore establishments
has also motivated nefarious lobbyists such as Jack Abramoff to spread
misinformation about previous attempts of the Congress to ban online
betting.
Internet gambling is a serious problem that must be stopped. The
Internet Gambling Prohibition Act will help eliminate this harmful
activity before it spreads further. I am happy to answer any questions
the members of this subcommittee may have regarding this legislation.
Mr. Coble. And you are to be congratulated. You beat the
illumination of the red light.
So the pressure is on you, Mr. Ohr. Mr. Ohr, good to have
you with us.
STATEMENT OF BRUCE G. OHR, CHIEF OF THE ORGANIZED CRIME AND
RACKETEERING SECTION, UNITED STATES DEPARTMENT OF JUSTICE
Mr. Ohr. Good afternoon, Mr. Chairman, Ranking Member
Scott.
Mr. Coble. Pull that mike a little closer to you, Mr. Ohr.
Mr. Ohr. Good afternoon Mr. Chairman, Ranking Member Scott,
honorable Members of the Subcommittee. Thank you for inviting
me to testify today.
I would like to commend Congressman Goodlatte, as well as
Congressman Leach and Senator Kyl for their efforts and long-
standing commitment to provide law enforcement with additional
tools to combat Internet gambling. Today, I am happy to offer
the views of the Department of Justice on H.R. 4777, the
``Internet Gambling Prohibition Act of 2006.''
I would like to begin by noting that the Government
continues to investigate and prosecute illegal Internet
gambling. Two recent examples: In January of this year, the
U.S. Attorney's office in St. Louis announced a $7.2 million
settlement with Sporting News to resolve claims that the
Sporting News promoted illegal gambling from 2000 through 2003
by accepting fees for advertising illegal gambling.
In April of last year, the U.S. Attorney's Office in the
District of Massachusetts indicted 13 individuals on
racketeering charges which included allegations that the
enterprise used an offshore gambling office and that customers
placed bets over the Internet. The operator of the offshore
gambling office has pled guilty.
I would like to say that the Department supports H.R. 4777
for several reasons. This legislation clarifies and strengthens
our position that section 1084 of title 18 applies to both
telephone and the Internet.
This bill increases the penalties for a violation of
section 1084. It prohibits the acceptance of credit cards for
Internet gambling. It provides a civil enforcement mechanism to
enforce that prohibition, and it provides a method to cut off
the transfer of funds to and from illegal Internet gambling
businesses.
The Department does have some concerns about certain
provisions of H.R. 4777 that may weaken current law, that may
allow some Internet gambling from the home. We view the
existing statutes as prohibiting interstate bets or wagers
including bets or wagers on horse races. We have previously
stated that we do not believe that the Interstate Horse Racing
Act amended the existing criminal statutes. We are currently
undertaking a criminal investigation related to potential
violation of law regarding this activity. We would have
concerns about any change in the law that could be construed as
permitting interstate wagering on horse races.
We are also concerned about the definition of intrastate
for the purpose of exempting certain Internet gambling
transactions from the reach of 1084. The definition focuses on
the location of the bettor and the betting facility, but
ignores the routing of the Internet communication placing the
bet. Under current law, the routing of the Internet
communication is of great importance in determining whether the
transmission is in interstate commerce. We are concerned that
the proposed definition might weaken existing law.
While we welcome the bill's provision of an injunctive
remedy to restrain any person from paying or assisting in the
payment of illegal Internet bets and wagers, we have concerns
over the bill's limitation or the type of injunctive relief
that may be obtained against an Internet service provider. We
believe that Federal Rule of Civil Procedure 65 should be the
sole standard used by courts in considering whether to grant
injunctive relief and what form that relief should take.
We are concerned that H.R. 4777 permits gambling from the
home, as this raises issues about gambling by minors and
compulsive gambling. We have concerns about the requirement for
the secure and effective customer verification and age
verification set forth in the bill. Online gambling businesses
cannot see the customer to do onsite age verification.
Furthermore, the residents' verification requirements set
forth in the bill may not be sufficient to ensure that the
bettor is, in fact, physically located in the same State as the
gambling business when he makes his wager.
The Department believes that Internet gambling should
remain illegal. We are concerned about Internet gambling
because of the potential for gambling by minors and compulsive
gambling, the potential for fraud and money laundering and the
potential for involvement by organized crime.
And to cite one example from this area, in January, 2005,
the U.S. Attorney's Office in New York's Southern District of
New York indicted 17 defendants in an 88-count indictment for
running an illegal gambling business that included both
telephone and Internet wagers being placed with offsite betting
facilities both in the United States and abroad. The principals
in this scheme are alleged to be associates of the Gambino
organized crime family of La Cosa Nostra.
Thank you, Mr. Chairman.
Mr. Coble. Well, you too beat the red light.
[The prepared statement of Mr. Ohr follows:]
Prepared Statement of Bruce G. Ohr
Mr. Coble. But the pressure shifts to Mr. Kindt.
You won't be unduly punished if the red light beats you Mr.
Kindt.
STATEMENT OF JOHN W. KINDT, PROFESSOR,
UNIVERSITY OF ILLINOIS
Mr. Kindt. Thank you, Mr. Chairman. I don't know of any
academic who can do this in under 5 minutes, but I will give it
a try; and I would ask for your kind permission for my written
remarks be included in their entirety, if you would, sir.
Mr. Coble. Without objection, it will be done.
Mr. Kindt. Thank you, Mr. Chairman, Members of the
Committee, participants and guests from the U.S. House of
Representatives and the U.S. Senate. Thank you for your kind
invitation to testify before the Committee.
Internet gambling destabilizes U.S. national security and
the strategic economic base. This is a State Department issue.
And I would like to raise your eyes a little bit beyond the
Beltway and look at this from an international perspective.
This was brought before the full House Committee on the
Judiciary before 1995 as an issue.
Some of the problems with Internet gambling are, first,
Internet gambling destabilizes U.S. and international
economies. Secondly, it destabilizes and threatens the
financial systems of the United States and the international
economic system.
Third, it destabilizes U.S. national security in the fight
against terrorism. Fourth, it destabilizes military readiness.
Fifth, it creates and facilitates new criminal activities.
Sixth, Internet gambling fuels the fastest growing
addiction among young people, gambling addiction. Seventh,
Internet gambling creates enormous socioeconomic costs of $3
for every $1 in benefits.
And finally, Internet gambling creates and facilitates
Government corruption in the United States and throughout the
world. Internet gambling causes immediate harm and irreparable
harm to the entire U.S. public.
If you would reference the first overhead, you will see
that we have a headline here, back in 1996, ``40 Economists
Sided Against Internet Gambling.'' Can you get 40 economists to
agree on anything? Well, they agree on this. This is a slam
dunk. Gambling is lose-lose for the public. It is $3 in costs
for every $1 in benefits.
For examples of sworn testimony by professors, academics
documenting the immediate and irreparable harm caused by
Internet gambling and the advertising of such activities, I
have appended statements from three expert witnesses, including
myself, sworn testimony from a California case; and I would
direct you to that, to those affidavits.\1\
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\1\ See also Denver University Law Review document at http://
www.ncalg.org/library/studies%20and%20white%20papers/economics/
kindtjoydenverlaw.pdf.
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Like drug addiction, the harms to the public are commonly
referred to as the ABC's of legalized gambling, socioeconomic
impacts caused by gambling activities via cyberspace and
particularly via the Internet include new addicted gamblers,
new bankruptcies and new crime.
If I could have the second overhead, please.
The second overhead here is from the Michigan State,
Detroit College of Law, Law Review. You can see there at the
bottom--this is an older statement--talks about the teen
population being addicted. And at the top, in the upper right-
hand corner, it talks about the crack cocaine of gambling. Now
this is a terminology that sociologists--this is not my
terminology; and you can see that Internet gambling is well
known as the crack cocaine of creating new addicted gamblers.
In the case of these concentrated and multiple electronic
gambling devices, the accessibility and the new acceptability,
that is, the legalization to the public, dictate that new
pathological, that is, addicted, gamblers will double from
approximately 1 percent of the public, increasing to 2 percent.
Similarly, the new problem gamblers will double from
approximately 2 percent to 4 percent of the public.
With the categories specifically focused on teens and young
adults, these rates are virtually doubled again to between 4
percent to 8 percent combined pathological, that is, addicted,
and problem gamblers. Children, teens and young adults
conditioned by the Nintendo phenomenon are already
demonstrating double the pathological and problem gambling
rates of the older adult population who matured without video
games and without accessible legalized gambling venues.
Accordingly, the 1999 Gambling Impact Study Commission
recommended that there be no legalization of Internet gambling,
actually called for a prohibition and that the U.S. laws
criminalizing gambling over the wires be strengthened and
expanded to other jurisdictions. I am sure you are familiar
with this report.
Gambling industry spokespersons have frequently referred to
Internet gambling as the killer application of Internet
technology because Internet gambling is crack cocaine to
addicting new gamblers and because the feeder market is every
living room, work station and school desk.
What are the strategic solutions? It is to eliminate
Internet gambling problems and other gambling problems by
transforming those gambling facilities into educational and
practical technology facilities, thereby stabilizing
international financial institutions. Instead of legalizing the
casino slot machine establishment at a failing racetrack in
1997, the Nebraska legislature bulldozed the racetrack, cut out
all the gambling and made it into an extension of the
University of Nebraska and a high tech office park. And they
just expanded that facility.
On October 27, 2005, the Illinois House of Representatives
voted 67 to 42 for the Senator Paul Simon memorial bill, one of
the initial sponsors of the National Gambling Impact Study
Commission. This bill was to recriminalize the Illinois
casinos. It passed the House; it is currently awaiting action
in the Illinois Senate.
Similarly, suggestions have been made to recriminalize
gambling facilities in other States and transform the gambling
facilities into educational and high tech assets instead of
giving the gambling industry tax breaks.
On December 6, 2005, Pennsylvania Representative Paul
Clymer, with 32 cosponsors, introduced a bill to recriminalize
the Pennsylvania casinos.
Finally, in conclusion, the immediate strategic solution to
eliminate or curtail many of the problems caused by gambling
activity is a total ban on Internet gambling activities.
Socioeconomic history demonstrates that the eventual solution
to the U.S. and international gambling problems is to
recriminalize gambling, wipe the slate clean and transform
gambling facilities into educational and practical technology
facilities.
Thank you, Mr. Chairman. Thank you, Committee.
Mr. Coble. And I plead guilty for having been very naive. I
should have known a professor could not have wrapped it up in
the 5-minute time frame, but you didn't do too bad.
Mr. Kindt. I did the best I could.
[The prepared statement of Mr. Kindt follows:]
Prepared Statement of John W. Kindt
STATEMENT OF SAMUEL A. VALLANDINGHAM, VICE PRESIDENT AND CHIEF
INFORMATION OFFICER, THE FIRST STATE BANK
Mr. Vallandingham. You certainly took the pressure off me.
So, Mr. Chairman, Ranking Member Scott and Members of the
Committee, my name is Sam Vallandingham. I am Vice President of
the 101-year-old First State Bank in Barboursville, West
Virginia. I am also a member of the Payments and Technology
Committee for the Independent Community Bankers of America.
Barboursville is a historical town of 3,183 people in the
far western part of the State near the Kentucky border. We have
50 employees, two branches and 127 million in assets.
I appreciate the opportunity to testify on the proposed use
of checking electronic payments systems to limit Internet
gambling. I commend this Committee and Members for fighting
against terrorism and money laundering. We urge you to
recognize that small banks like mine have a substantial
regulatory burden under the USA PATRIOT Act and the Bank
Secrecy Act to identify our customers while documenting and
reporting suspicious transactions.
ICBA believes that it is critical that our resources be
focused where risk to national safety and financial soundness
are greatest. Our concern is that the added burden of
monitoring transactions for Internet gambling will drain
resources currently engaged in antiterrorism and anti-money-
laundering compliance and divert our attention from the daily
operation of our bank.
Ultimately, we question whether this legislation will
actually reduce Internet gambling. Can Congress justify the
time and expense required by community banks to comply with
another layer of regulation?
Additionally, regulatory burden is detrimental not only to
the bank, but to the community that depends on us for economic
stimulus, small business funding, job creation and continued
community revitalization.
There are two bills pending before the House of
Representatives that attempt to end Internet gambling through
restriction of payments--H.R. 4777, sponsored by Representative
Goodlatte of Virginia, and H.R. 4411, recently passed by
Financial Services Committee. Although the bills have many
similarities, there are some important differences.
H.R. 4411 prohibits any person engaged in the gambling
business from accepting credit, electronic funds transfer,
checks or other types of payment. The bill directs the Treasury
Department, the Federal Reserve and the Justice Department to
work together to develop regulations requiring banks to
identify and block restricted financial transactions.
H.R. 4777 would update the law against interstate gaming to
include Internet gambling and criminalize acceptance of credit,
electronic fund transfers or other payments by anyone in the
gambling business.
The regulation and compliance burden created by these
proposals is substantial. Their key enforcement mechanism would
require banks to identify and block transactions between
customers and Internet gaming companies. This will not work
because it failed to recognize the differences between the
credit card systems and the check clearing and automated
clearinghouse or HCS networks.
Credit cards operate within an electronic system that
assigns codes to identify the merchants and the type of
transaction. Checks and ACH payments are routed from the
originator of the payment, the merchant, to the receiver, the
customer, using only bank routing and account numbers. The
payee is not identified. And unlike credit cards, the check
clearing and HCS networks cannot identify and block payments to
Internet gambling companies, and they cannot reconfigure to
function as a transaction monitoring service.
This legislation, therefore, should exempt check and HCS
transactions; otherwise, it would require a massive overhaul of
the check and HCS systems, create enormous regulatory burden
and give police-like powers to financial institutions to
identify and block illegal transactions.
The bill should give the Federal Reserve rule-writing and
regulatory oversight. The Federal Reserve is well acquainted
with payment system and knows the limitations of the check
clearing and HCS networks. If the check and ACH transactions
are not exempted, the resulting compliance cost to the banks
and payment system would be enormous.
The CBO's analysis of H.R. 4411 determined that the costs
to the private sector would be less than 128 million if it
applies to credit card transactions only. CBO added, quote,
``If the regulations also include the requirement for banks to
identify and block checks and other bank instruments, the
direct cost to comply with the mandates could increase
significantly,'' end quote. These costs would include the
redesign and rebuilding of the payment system structure,
increasing labor and training costs to banks, redesign the
checks and HCS formats and education of the customer, as well
as payment delays and significantly slowed payment systems.
If the Congress wants to make certain transactions illegal,
it should look for solutions that do not harm the Nation's
payment systems and do not saddle our banks with the burden of
enforcement. Responsibility for identifying and blocking
prohibited credit and debit transactions should lie with the
credit card networks, not the financial institutions. Only the
credit and debit card networks have the ability to determine
the origin of the transaction, and thus, only the credit and
debit card networks have adequate information to identify an
illegal transaction.
Neither banks nor our Nation's payment systems can function
as transaction monitoring and blocking service as envisioned by
this legislation. To the extent that this legislation attempts
to protect families and minor children, I assure the Committee,
there are processes and procedures in place that permit a
customer to rescind fraudulent HCS or check transactions.
On behalf of my community bank and nearly 5,000 members of
the Independent Community Bankers of America, I ask you to
remember this as you consider the legislation and increased
regulatory burden it would create for our industry.
Thank you.
Mr. Coble. Thank you, Mr. Vallandingham.
[The prepared statement of Mr. Vallandingham follows:]
Prepared Statement of Samuel A. Vallandingham
Mr. Cannon. Mr. Chairman.
Mr. Coble. The gentleman from Utah.
Mr. Cannon. I am not a Member of this Subcommittee, as you
know, but because of the peculiar effect that this has on my
State, I would ask unanimous consent that I be allowed 5
minutes at some point in time to question the witnesses.
Mr. Coble. Without objection, I will do this caveat, Mr.
Cannon. I will recognize you after I recognize the Members of
the Subcommittee.
Mr. Cannon. Thank you, Mr. Chairman.
Mr. Coble. Without objection. It is good to have you with
us, Mr. Cannon.
Before I start questioning, we thank each of you. And each
of the witnesses alluded to gambling oftentimes.
I am a country music fan and Merle Haggard, the popular
country balladeer, recorded a song some recent years ago
entitled ``The Kentucky Gambler,'' and the concluding words of
the chorus were these, ``But a gambler loses much more than he
wins,'' and I think with rare exception, that is true.
Now, some of these sports shows, Mr. Scott, I have seen
lately, gambling, some of these guys, I think, win much more
than they lose. But I think generally, the Haggard conclusion
is correct, more lost than won.
Mr. Goodlatte, the authority to authorize and regulate
wagering has in large part been reserved to the States. What
impact would your bill have on a State's ability to authorize
and regulate wagering over the Internet, A; and B, if a State
chose to permit wagering over the Internet, what steps would
need to be taken?
Mr. Goodlatte. Well, thank you, Mr. Chairman, as it is an
excellent question. And this bill is primarily designed to
buttress the ability of the States to do what has traditionally
always been the case in the United States; gambling has been
illegal in this country unless regulated by the States.
The States, however, because of the very nature of the
Internet find it difficult to do that; and so, by prohibiting,
modernizing the Wire Act to cover the new types of transactions
that were not contemplated in 1961 when the Wire Act was
written 45 years ago, we are recognizing that new tools need to
be provided to all levels of the Government, certainly to the
Justice Department, but also to State and local governments to
enforce the laws that the States have to regulate gambling in
those States.
Now, because we also recognize that the States have had the
primary responsibility in this area, we tell the States in this
legislation that they can regulate gambling on the Internet in
their State if they meet two criteria which, in my opinion,
today cannot be met. Perhaps some day in the future technology
may allow it, in which case then I think it would be up to each
individual State to do that.
Mr. Coble. Hurry along because we have the 5-minute rule.
Mr. Goodlatte. They have to make sure that the gambling is
restricted to the confines of the State and, two, that minors
do not participate. The technology does not exist to allow
either of those, so Internet gambling under this legislation
will nonexistent unless that technology changes.
Mr. Coble. I thank you, sir. Mr. Ohr, in your prepared
statement, you express concern over the possible weakening of
Federal law covering Internet wagering on horse racing. Are
there other industries similarly situated to horse racing and
are they addressed in this bill?
Mr. Ohr. Mr. Chairman, the Department obviously continues
to have the position that Internet gambling should continue to
be banned; and we would oppose--we would have very serious
concerns about any possible weakening of that ban. With respect
to the existence of other industries, I am not really qualified
to speak.
We would have the same concerns with respect to those other
industries as we would as to whether horse racing or any other
industry is construed under the bill as getting some kind of
permission.
Mr. Coble. Mr. Goodlatte, are industries so involved?
Mr. Goodlatte. No. I want to make that very clear. In
response to some of the comments already made, there is no
carve-out in this legislation for horse racing, for lotteries,
or any other type of gambling.
There is, however, as noted by Mr. Ohr, a separate Federal
statute that addresses the issue related to gambling on horses.
And some maintain that that legislation, that previous
legislation, allows it. The Justice Department maintains that
it does not.
This legislation takes no position on that issue
whatsoever. We do not attempt to repeal the statute. But we
also do not interpret that statute in as much a way to legalize
gambling.
Mr. Coble. And that was enacted in the early 1970's?
Mr. Goodlatte. I believe that is correct.
Mr. Coble. Mr. Kindt, in your opinion, what are the
distinct concerns related to Internet gambling versus gambling
in person or other forms of gambling, A; and B, is the better
way to cure the social ills associated with Internet gambling
to regulate the industry or to make it illegal?
Mr. Kindt. Thank you, Mr. Chairman.
First of all, let me clarify one thing you introduced me as
a law professor. I am a professor of business and legal policy.
We make more money.
Mr. Coble. I stand corrected, and congratulate you for
that.
Mr. Kindt. Thank you, Mr. Chairman.
If we can get the overheads up there, my No. 4 overhead
might help visualize this. It is entitled Annual Social Costs
Per Pathological Gambler.
Basically, we are talking about two phenomena here. One is
called the acceptability factor and the other is called the
accessibility factor. If you have the acceptability factor,
that means it is legalized or we see common today we see PR
everywhere that says gamble, gamble, gamble; and the younger
generation is getting this message everywhere that it is okay
to gamble on the Internet.
I see students walking around my campus with T-shirts
advertising illegal poker sites, and they don't know it is
illegal.
So what we are talking about here is what sociologists and
academics reference as the acceptability factor and that is,
the message that it is okay to gamble, and of course we have
legalized certain types of gambling. And that further confuses
it and sends a message.
And then there is also the accessibility factor, and that
is maximized by Internet gambling. Accessibility, you don't
have to fly out to Las Vegas anymore. You don't have to go down
to the casino anymore. It is right there at every work desk and
every school desk, in every living room.
And so you will see an explosion in the numbers of
pathological and problem gamblers, and the social costs are
enormous. These are the top studies in a table for the
Committee to review, and the social costs are at least $3 for
every $1 in benefit.
Mr. Coble. When my red light illuminates, I am going to the
recognize Mr. Scott.
But, Mr. Kindt, do you think outright illegal or
regulation?
Mr. Kindt. I think outright illegal, and I testified before
the National Gambling Impact Study Commission. They said
``prohibition''; if you can't prohibit it, you can't regulate.
Mr. Coble. And, Mr. Banker, hopefully we will have a second
round. I will get to you subsequently.
The distinguished gentleman from Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
I think--as Professor Kindt has just indicated, one of the
problems I have where you seek to kind of make it illegal--it
is not illegal to do it, but it is illegal to run the
operation--if you want to prohibit the activity, it is my view
that it ought to be illegal to gamble on the Internet and that
would clearly be enforceable.
Is that right, Professor Kindt?
Mr. Kindt. Well, I think that I would like to leave the
details of the practicality of this to the people drafting the
legislation, and I do that with respect to your question,
Representative Scott.
Mr. Scott. Well, Mr. Ohr, if it were illegal to gamble over
the Internet, would you have any problem catching people
gambling? If you busted a site, you can get their mailing list
and you can go after each and every one of them. Word would get
around, and they would stop doing it.
Mr. Ohr. Congressman, as Congressman Goodlatte has already
mentioned, the approach of the Federal Government from the
beginning of gambling legislation has been to support the
States as the primary regulators or the ones with primary
jurisdiction.
Mr. Scott. With any kind of illegal activity, you catch
both sides. You don't just go after the sellers, you also go
after the buyers; is that right?
Mr. Ohr. Well, the Government has, the Department has
traditionally focused on trying to--focusing on the large rings
and trying to go after the most sophisticated and the largest
operators; and we would continue that approach under this bill.
Mr. Scott. Is it illegal to gamble on the Internet?
Mr. Ohr. Not at the Federal level.
Mr. Goodlatte. Mr. Scott, if I might respond to that. We
have had this discussion before, and I certainly understand
your point of view. But the fact of the matter is--as Mr. Ohr
indicates, we have always at the Federal level focused on
supporting the States and targeted the entities offering
gambling services. But virtually every State has their own
regulations regarding what individual bettors may or may not
do. And so we are simply supporting their efforts in that
regard.
We don't think there needs to be a Federal law in
conjunction, in addition to the State laws that already target
the individual bettors.
Mr. Scott. Okay.
Well, Mr. Ohr, are you aware of anyone who has ever been
recently busted for gambling on the Internet?
Mr. Ohr. I am not. At the Federal level, as I said, we
don't have a prohibition; and I am not qualified to talk about
what the States have or who they have busted.
Mr. Scott. You are qualified to speak of what you ever
heard.
Mr. Ohr. I am not familiar with any such case.
Mr. Scott. In your prosecutions, have you gotten anybody
that lived and worked and didn't come within the jurisdiction
of the United States?
Mr. Ohr. Yes, we have prosecuted people who have conducted
offshore gambling sites. Yes, we have.
Mr. Scott. And how did you--where was the prosecution?
Mr. Ohr. Prosecutions took place in the district courts
here. One example----
Mr. Scott. How did you get them here?
Mr. Ohr. In one case, I think the defendant entered the
United States and stood trial.
Your question goes, I think, to the problems of
international law enforcement and----
Mr. Scott. You are familiar with--I forgot his name--
selling pot seeds in Canada.
Mr. Ohr. I am aware of that case.
Mr. Scott. And they won't extradite him, so we haven't been
able to do anything about it.
Do we expect countries to extradite people running these
sites to the United States so you can prosecute them?
Mr. Ohr. We have a number of ways of attempting to enforce
our criminal laws against people outside the United States who
violate our laws--through extradition, through----
Mr. Scott. These sites are running all over the Internet.
Who have you prosecuted that hasn't entered the United States?
Mr. Ohr. We need to get them here to the United States
before we can prosecute them. There are many ways of achieving
that.
We certainly work very hard with our international partners
to go after criminals who are violating U.S. law, even if they
are located in other jurisdictions. It is not just a problem
limited to Internet gambling.
It is related to all kinds of crimes, and certainly the
Department does not believe that the difficulties we face in
prosecuting people outside the U.S. who commit crimes within
the U.S. should stop us from trying. And we will continue to
work on this.
Mr. Scott. It is illegal now; is that right?
Mr. Ohr. Yes.
Mr. Scott. To run a gambling operation. And anybody--how
long would it take you to find a gambling site on the Internet,
a minute?
Mr. Ohr. I think anybody can find an Internet gambling
site.
Mr. Scott. And it is not illegal to do it, to gamble on the
Internet.
Mr. Ohr. There is no Federal prohibition. That is up to the
individual States.
Mr. Scott. Do you have any idea how much money is being
made by the companies with gambling, with the gambling done in
the United States both in the untaxed winnings and what we
could get in taxes from the operator if they would submit to
the jurisdiction and let us tax their operation?
Mr. Ohr. Well, the tax question I can't really answer. The
amount of business that is taking place on Internet gambling
sites has been cited in this hearing to be billions of dollars,
and I believe that is correct.
Mr. Scott. Is any of it taxed, so far that you know?
Mr. Ohr. Not that I am aware of.
Mr. Coble. I thank you, Mr. Scott.
The distinguished gentleman from Michigan and Ranking
Member, Mr. Conyers.
Mr. Conyers. Thank you, gentlemen, for your testimony. We
seem to begin this discussion with a bit of a conundrum here
dealing with horse racing. The Department of Justice asserts,
and before Mr. Ohr testified today, that horse racing is not
legal. But 4777 would make it legal.
Mr. Goodlatte is shaking his head vigorously, ``no.'' I
want it to be in the record.
Mr. Ohr, can you give us a little enlightenment on it? I
have read your position, particularly page 2. Where are we on
horse racing in terms of gambling and its illegality?
Mr. Ohr. Congressman, as I stated, the Department's
position is that betting, interstate betting on horse races is
illegal under 1084, and that was not modified by the Interstate
Horse Racing Act.
My understanding from what Congressman Goodlatte has stated
is that it is not his intention to change that. We certainly
look forward to working with Congressman Goodlatte and Members
of this Committee to effectuate that intent.
Mr. Conyers. Well, it is mentioned in the bill, though.
Members claim that an amendment to the Commerce, Justice, State
appropriations bill in 2000 legalized Internet gambling on
horse races under the Interstate Horse Racing Act.
Mr. Goodlatte. Mr. Conyers, if I might be permitted----
Mr. Conyers. You could be permitted.
What is your position on this? Is that true?
Mr. Goodlatte. What the legislation does is, it does not
attempt to----
Mr. Conyers. No. No. No. Wait. Let me pose the question.
Does--did the 2000 year appropriations bill legalize
Internet gambling on horse races under the Interstate Horse
Racing Act?
Mr. Goodlatte. I don't have an opinion on that particular
piece of legislation. This legislation does nothing to change
the status of that legislation. So if that legislation
authorizes interstate horse racing, we don't change that.
If the Justice Department's position is correct, that that
legislation has never allowed betting on horses via the
Internet across State lines, we don't change that either.
This legislation does not attempt in any way to overturn
that statute, which was passed by the Congress and subsequently
amended by the Congress, nor does it attempt to ratify the
position taken by the horse racing industry on that.
So there is no carve-out in this legislation for horse
racing.
Mr. Conyers. Well, but let's look at the bill itself,
subsection F, ``Nothing in this section shall be construed to
prohibit an activity allowed under Public Law 9515 U.S.C.
3001.''
Mr. Goodlatte. That's correct, Mr. Conyers.
Mr. Conyers. So, wait a minute, ``nothing shall be
construed to prohibit activity,'' so you are making it clear.
Mr. Goodlatte. No. No. That says, ``Nothing shall be
construed to prohibit an activity allowed,'' but the Justice
Department has already testified that they do not believe that
that statute allows that activity. The horse racing industry
will tell you to the contrary.
We don't take a position what any particular activity may
be allowed or not allowed under that act. We are making it very
clear. We are not overturning the act. We are also making it
very clear that we do not take any position on what that act
allows.
Mr. Conyers. Let me read to you from the Department of
Justice statement that they submitted:
``The Department of Justice views the existing criminal
statutes as prohibiting the interstate transmission of bets or
wagers including wagers on horse races. The Department is
currently undertaking a civil investigation relating to a
potential violation of law regarding this activity.
``We have previously stated that we do not believe that the
Interstate Horse Racing Act amended the existing criminal
statutes. H.R. 4777, however, would change current law and
amend it to permit the interstate transmission of bets and
wagers on horse races. This proposal would weaken existing
law.''
Is that essentially what you said here, Mr. Ohr?
Mr. Ohr. Congressman, that was our--that is a statement
that was, I understand, from Congressman Goodlatte; that is not
what he intended to do by this provision of the bill.
Mr. Conyers. Well, wait a minute. This was after you wrote
this, you talked to Goodlatte, and then you found out that this
is not correct.
Mr. Ohr. Right.
Mr. Conyers. So you want to change it?
Mr. Ohr. Our concern would be, we would be concerned if the
law could be construed as changing current law; and obviously
we look forward to working with Congressman Goodlatte and the
Members of the Subcommittee to make sure----
Mr. Conyers. In other words, you think think should be--
what you have given us is a change of--what you are telling us
now is a change from what you said here?
Mr. Ohr. That is correct.
Mr. Conyers. And you didn't bother to explain it during
your testimony, and--I mean, this is a very unusual situation,
Mr. Chairman. We have got the Department of Justice
representative telling us that what he has submitted to the
Committee is not accurate, because he has talked to Chairman
Goodlatte, and they have gotten this straightened out.
[2:59 p.m.]
Mr. Ohr. We remain concerned to the extent that the bill's
provision could be construed as legalizing that activity
because we think--and that is a concern. I can't say that our
concern has been fully addressed.
Mr. Conyers. I am feeling better already. This is a heck of
a way to conduct--here is a multibillion dollar subject matter
before us and I need you to please carefully resubmit to
Chairman Coble and this Committee where all of this comes out.
Because we can't have it both ways. Either there is a carve-out
here, which is widely regarded to exist, or there isn't.
I thank the Chairman.
Mr. Coble. I thank the gentleman.
I say to the distinguished gentleman from Utah, the
distinguished gentlelady from Texas, Ms. Jackson Lee, has
consented to let you precede her. So you are recognized, Mr.
Cannon, for 5 minutes.
Mr. Cannon. I thank the Chairman and Ms. Jackson Lee.
As I said earlier, Utah has a particular interest in this
issue because it is one of the few States that actually has a
total prohibition. Only one other State, like Utah, has a total
prohibition on gambling. While I am a clear, adamant opponent
to gambling, one of the things I don't want to see is the
opportunity for gambling in my State because we preempt State
law. So I have got to acknowledge I am as confused as Mr.
Conyers is about where we actually are.
Let me ask Mr. Ohr a question, and maybe we can elaborate.
I read your testimony, and it lays out the issues pretty well.
But just to be clear for the record, it is my understanding the
Department's position on Internet gambling bills, whether
Leach, Kyl or Goodlatte is those bills, should not have
exceptions or carve-outs like the ones in section 1084(d) and
(f). Is this correct this is the same policy position the
Department has articulated for at least the last 6 years?
Mr. Ohr. That is correct.
Mr. Cannon. What has that changed base had upon your
discussions with Mr. Goodlatte?
Mr. Ohr. We continue to believe that interstate gambling on
horse racing is illegal under 1084. My understanding from what
Congressman Goodlatte has said is that he does not intend to
affect the current state of the law, so obviously we want to
continue to work with him on that, but that does not change the
Department's position that we believe this activity is and
should remain illegal.
Mr. Cannon. If I have a kid in Utah that gets addicted to
games, computer games and Nintendo and the like, and he then
gets addicted to gambling and he decides he likes horse racing,
you are going to argue that whoever is providing that horse
racing opportunity is violating the law and the kid who is
doing it is violating the law.
Mr. Ohr. Certainly that the person providing that service,
if they are doing it in an interstate fashion, is violating
1084. The kid would be violating the law under the laws of the
State of Utah, as I understand it.
Mr. Cannon. You would cooperate with the State of Utah in
helping kids get a very clear understanding they should not be
gambling.
Mr. Ohr. Absolutely.
Mr. Cannon. What happens when a clever lawyer argues that
this bill ratifies because it doesn't take a clear position on
precluding horse racing?
Mr. Ohr. That is our concern, and that is why we continue
to have a concern with that provision.
Mr. Cannon. It just seems to me you sort of shifted
positions. In talking to Mr. Goodlatte, you said it not a
carve-out. This is a very difficult position because, of
course, what I want is clarity going back to the people in Utah
that you can't gamble in Utah. It is clear to me that is going
to be a tack or part of the response that anybody trying to
argue before courts that horse racing is legal, they are going
to focus on this and say everything was precluded except us;
therefore, we are obviously not precluded, and the bill says we
are not precluded. Doesn't that seriously undermine your
position?
Mr. Ohr. That is why we have concerns, and we understand
Congressman Goodlatte's statement to be that he does not intend
to legalize or change the current law which we believe
prohibits this kind of activity. To the extent that his bill
could be read or construed to permit that, that is a big
concern of ours.
Mr. Cannon. It will be argued by proponents of horse racing
that that is the meaning of this bill.
Mr. Ohr. Our concern is, if the bill passes in its current
form, it would; and that would raise the concerns I have
stated.
Mr. Conyers. Would the gentleman yield for just a second?
I just wanted to make sure that our friend from the
Department of Justice understands the Reno Justice Department
has a view that this kind of legislation that has carve-outs,
the Ashcroft Justice Department had the view that this bill has
carve-outs, the Gonzalez Justice Department has taken the same
view, and now the Ohr Justice Department agrees with all the
previous Justice Departments.
Mr. Coble. I believe the time belongs--I think the time
belongs to Mr. Cannon, Mr. Conyers.
Mr. Conyers. He yielded.
Mr. Coble. I am sorry.
Mr. Cannon. I note I only have a moment remaining, so let
me just say that I think the weight of the Federal thinking on
this issue is pretty consistent, and it is a cause for grave
concern. I don't want Utah to get bombarded with gambling that
becomes legal and back-door a system that is going to lead many
kids to the kind of difficulty that Mr. Kindt has already
talked about, which I think is an abomination.
Unfortunately, Mr. Goodlatte had to leave, so we are not
going to be able to clarify some of these things, but this is
the core problem that I have with this issue, and either we
resolve that for the sake of Utah or I have to oppose the
legislation strenuously.
Thank you, Mr. Chairman. I yield back.
Mr. Coble. I thank the gentleman.
The gentleman from Michigan.
Mr. Conyers. I just want unanimous consent to proceed for
one additional minute.
Mr. Coble. Without objection.
Mr. Conyers. Because it is very important that we
understand that this carve-out didn't just get invented this
afternoon. This has gone through several Administrations. Mr.
Ohr, I think, has come around to what is more consistent with
his written statement, submitted that there are likely carve-
outs.
Now the good intentions of an author of legislation
notwithstanding doesn't really amount to much in a Judiciary
Committee hearing. We may in good faith intend a lot of things,
but horse racing is a very lucrative business and gambling is
part of it, so we need to be very careful about this and ask
the gentleman to give us his best thinking on this, and if
there is anything he wants to submit to the Chairman after this
hearing, we would be delighted to receive it.
Mr. Coble. Mr. Conyers, we will keep the record open for 7
days. We will have a second round.
Now have you finished, Mr. Conyers?
The gentlelady--and I apologize, I didn't realize that Mr.
Cannon had yielded to you, and to you I apologize for that.
The gentlelady from Texas, Ms. Jackson Lee, is recognized
for 5 minutes.
Ms. Jackson Lee. Mr. Chairman, I appreciate the fact that
we had a Member and proponent against the legislation, and
seems that he has disappeared.
Let me, first of all, raise the question of what--very sort
of broad question.
I would be happy to yield.
Mr. Conyers. I just wanted to ask Mr. Ohr if he knows that
we have comments from the horse racing industry that confirm
that they obtained a carve-out for their industry, that that is
their attitude on the subject. Are you familiar?
Mr. Ohr. I am not familiar with their comments.
Mr. Conyers. You wouldn't be surprised if that were the
case?
Mr. Ohr. That causes us concern, yes, sir.
Mr. Conyers. Thank you very much. I thank the gentlelady
for yielding to me.
Ms. Jackson Lee. I am delighted to yield.
Mr. Ohr, I will follow up with you then. Mr. Goodlatte is
not present, and forgive me for being detained at another
meeting and engaged in another meeting in the outer office
here. Give me again the assessment that you have from the
Department of Justice on the necessity of this legislation.
Mr. Ohr. I would be happy to do that, Ms. Congresswoman.
The Department supports this legislation. We believe that,
primarily because it strengthens the position the Department
has taken throughout, that section 1084 applies both to
telephone and to the Internet gambling, interstate gambling
over telephone or interstate gambling over the Internet, and
for that reason as well as some additional tools that are
provided in the bill, the Department supports the bill.
We do have several concerns about certain provisions of the
bill, some of which we have been discussing here. They are
outlined in my written testimony.
Ms. Jackson Lee. My colleague just mentioned the carve-out
for horse racing. Are you aware or is the Department aware of
the various companies that offer online betting on horse racing
already existing, as I understand it?
Mr. Ohr. I don't have a specific--I would have to get back
to you on specific examples, if that is what you are asking.
Ms. Jackson Lee. I am looking for that kind of explanation,
if you would.
Because I guess where I am going on this questioning, and I
will include the other gentlemen in just a moment, is both the
necessity but also the discriminatory fact or discriminatory
aspects that may incur out of this particular legislation if we
don't get it right. And so I am sensing that we are not getting
it right, and even with your support I have great questions.
I understand the Reno Justice Department, Ashcroft Justice
Department and the Gonzalez Justice Department all have taken
the view that the bill has carve-outs that I think you are
concerned about, is that my understanding?
Mr. Ohr. We have concerns about any carve-outs. We
certainly believe that we would have any very serious concerns
about any bill that would create an exception to 1084 and
allow, for example, interstate gambling on horse races.
Ms. Jackson Lee. With that in mind, since we have a state
of confusion, I would be concerned about legislation that poses
more confusion than solutions.
Is it Mr. Kindt from the University of Illinois? Just
because I missed Mr. Goodlatte, give me your assessment on a
bill that seems to have a discriminatory aspect. What are you
trying to focus on on this legislation?
Mr. Kindt. I was asked to appear with regard to the
socioeconomic impacts of gambling, and to that end let me just
mention one thing that Representative Scott raised earlier and
that was about all the flow of income coming in. What I put up
here in one of the overheads were the eight leading studies,
and no matter how much money you have coming in in tax revenue,
it doesn't cover the social costs. All eight of those studies--
it is usually a three to one ratio, of $3 in cost for every $1
in benefits.
Ms. Jackson Lee. Let me make this point on your point,
which is have we challenged the industries across the board to
actually invest in correcting whatever these social ills might
bring about? Have we ever had a scenario where the industries
have been taxed, if you will, to create a better atmosphere if,
for example, some may have thought that the bill has defects in
it?
Mr. Kindt. The industry has created, sometimes voluntarily,
sometimes with the encouragement of the States, programs to
address addicted gambling, but it is usually extremely low
considering what the problems are, and when you add up the
benefits and you do a valid cost-benefit analysis, the costs
simply overwhelm the benefits. I put up two or three overheads
in this hearing to demonstrate that.
It is really a slam dunk when it comes--this is not a
debatable issue. There is no debate on this. The costs are
really just very large. It is like drug addiction. They call it
the crack cocaine of creating addiction, is this gambling
addiction. So that is not my terminology. That is the
overwhelming terminology of the majority of sociologists and
psychologists who deal with the area.
I remember Jesse Jackson, Jr., coming to Chicago on Martin
Luther King Day and saying--and this is a very contentious
statement, but he said ``these are the new economic chains on
our people.''
Ms. Jackson Lee. My time is gone. Let me conclude, Mr.
Chairman, if you would just indulge me an additional minute.
I cannot pose a question to Mr. Vallandingham, but let me
say this, even without this legislation, I think what you are
suggesting is that this legislation would go to the expansion
of what may be a vastly costly disease, which is gambling,
period. My concern would be, are we finding a solution to the
cancer or are we narrowing it to one isolated form of gambling
or one we can bring the industry in and challenge it to do a
better job, period. If we don't have Internet gambling or we
have these carve-outs, we have a fractured bill, then we are
still not getting to the sickness of gambling for those who are
sick in doing it.
So I make that point, and I make the point that the bill
seems to--as I said, the proponent is not in the room, and I am
sorry that he is not, but hopefully we will have some further
explanation. I think we went through this before, Mr. Coble;
and, to Mr. Scott, we went through this before.
I conclude by saying this, that the issue of this gambling
issue, Mr. Chairman and Mr. Ranking Member, needs to be broader
than the immediate hearing that we have. I am going to put two
questions on the record. So I am going to end, and they can
give it to me in writing.
Then I will pose a question, because I was taken aback by a
hearing by the Energy and Commerce Committee on criminal
activity with children and Internet sexual activities. Again, I
am just making a brief comment; and I would commend to the
Chairman and the Ranking Member that, since they were talking
about criminal penalties in the Energy and Commerce Committee,
that we might have a subsequent hearing dealing with the
utilization of the Internet for abuse against children.
Let me read these two questions: Does the Administration
support total ban or does it wish to permit the interpretation
of horse racing--excuse me, looks like interpretation of horse
racing to be a subject to controversy. If the exception were
deleted from H.R. 4777, would the domestic horse racing
industry stop this practice?
In any event, we will have these in writing; and I thank
the Chairman and the Ranking Member for the indulgence.
Mr. Coble. I thank the gentlelady.
Folks, we are on a stopwatch to try to meet that floor
vote, so I think we are going to have a second round.
Mr. Kindt, you indicated you might want to make a statement
during Mr. Conyer's questioning. Did you get a chance to do
that?
Mr. Kindt. No, sir. I am fine, and I know that I was
behind, going out of order. I apologize to Mr. Scott, as a
fellow Virginian in my former life, when I addressed one of my
comments to Representative Lee.
Mr. Coble. I wanted to be sure that you were heard.
Mr. Kindt. Let me just say, in response to Ms. Lee's
question, that from my limited knowledge of reading through the
bill my interpretation would be I do not believe it either
enables or overturns the horse racing. Now, again, the bill
changes rapidly, but that is my interpretation at this point.
The only other point I would make with regard to Mr.
Cannon--I hope I am not speaking out of order again--is that I
think this debate in the legislative hearing would be
introduced into any court proceeding. So Mr. Goodlatte and the
intent of Congress would in fact be determinative, I would
hope, if the court was having trouble deciding how to interpret
the particular statute.
Mr. Coble. I thank you, Mr. Kindt.
Mr. Banker--I pronounce that better. You testified, as it
pertains to banks, H.R. 4777 would create a, quote, ``an added
burden of monitoring all payment transactions for the taint of
Internet gambling.'' What section of 4777 are you stating that
would create that burden?
Mr. Vallandingham. As I understand it, Mr. Chairman, it
would criminalize anybody who was involved in the process of
transferring those payments, including the banks, knowingly or
unknowingly. So, ultimately, we would be responsible for the
monitor of those payments and the prohibition of those
payments.
Mr. Coble. Is it true, sir, that the banking industry is
already taking steps to assist in the identification of money
laundering, one of the serious concerns related to Internet
gambling?
Mr. Vallandingham. Yes, sir. The Anti-Money Laundering Act
is something that we are vigorously pursuing, and in doing so
we identify those customers which we deal with, and we also
monitor transactions of a certain threshold and report those.
But we are not responsible for making any decisions about
whether they are legal or illegal. We are only responsible for
the recording of those transactions in which another entity
makes the determination whether those are viable transactions
or not.
Mr. Coble. Thank you, sir.
Professor Kindt, I apologize for having demoted you to the
school of law. It was an innocent omission on my part.
I have exhausted my time. I will yield to the gentleman
from Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Kindt, you mentioned the question of whether the taxes
could offset the social costs. If you have got $24 billion a
year gambling on the Internet, a large portion which is from
the United States from which you are getting no taxes, some
taxes would be more than what you are getting now.
Mr. Kindt. Representative Scott, we hear this or I have
heard this argument in academic circles for years; and
basically I think you raise the issue that I tried to start out
with, which is that this is an international issue. We need to
get the State Department in on this and start talking about
this in terms of international economics and our friendship,
commerce and navigation treaties; and that would alleviate this
type of problem.
Mr. Scott. If you are going to have an international
agreement and come to an agreement, I think we are going to be
on the short end of that stick. Because in most of the other
countries it is already legal. So if there is going to be a
consensus, it is going to be to legalize and regulate.
Mr. Kindt. With respect, Representative Scott, I think what
we are really doing here, and I have provided several law
review articles just as introductions, with citations, I think
we are destabilizing----
Mr. Scott. You would simplify the thing by making it
illegal to gamble on the Internet, would you not?
Mr. Kindt. It has been illegal to gamble on the Internet
for ages past.
Mr. Scott. That is how you would address it.
Mr. Kindt. Yes. I think that is how the national commission
said they would address it as well.
Mr. Scott. Thank you.
Mr. Ohr, of the people that you have prosecuted for
gambling, have any of them been for--involving horse racing?
Mr. Ohr. I would have to get back to you on that,
Congressman. I am afraid I don't have the answer.
Mr. Scott. You believe the present law, it is illegal to
gamble on the Internet on horse racing?
Mr. Ohr. That is correct.
Mr. Scott. At one time, having read the bill before you
talked to anybody, you concluded that it would not be illegal
if the bill passed.
Mr. Ohr. We certainly have concerns that the bill's
language could being construed to permit that.
Mr. Scott. Mr. Vallandingham, do you know the average size
of a transaction for gambling?
Mr. Vallandingham. I am told about $110.
Mr. Scott. When you do drug money, you look for $10,000
transactions?
Mr. Vallandingham. Five thousand, generally.
Mr. Scott. So they kind of stick out. Hundred, couple of
hundred.
Mr. Vallandingham. Couple hundred sequential.
Mr. Scott. Do you know what the credit card entry on Paypal
would be if somebody paid for one of these bills through
Paypal?
Mr. Vallandingham. No, I would have to get back to you as
far as what--I assume you are requesting the merchant code
through Paypal for the identification of the payee, is that is
what you are asking about?
Mr. Scott. That wouldn't help you, because you wouldn't
know what it was for. If you knew it was a casino, you wouldn't
know if it was legal or illegal, you just know the payee.
Mr. Vallandingham. Which is one of the problems.
Mr. Scott. If the payee were an attorney who is serving an
escrow agent in France----
Mr. Vallandingham. The identification of the payee would
not be sufficient enough to determine whether it was a valid or
non-valid payment.
Mr. Scott. Are you aware of procedures that can identify
someone in terms of age and residence?
Mr. Vallandingham. No, I am not, not based on the Internet.
Obviously, if you meet with them in person, you do have that
information.
Mr. Scott. Mr. Goodlatte is not here. I had a question on
how they can do an interstate--legalize and regulate
intrastate. Anybody want to make a comment on that?
I yield back.
Mr. Coble. Thank the gentleman.
I will leave it up to Ms. Jackson Lee, you are next in
line, or Mr. Cannon.
Ms. Jackson Lee. I will yield to Mr. Cannon.
Mr. Coble. Mr. Cannon, you are recognized for 5 minutes.
Mr. Cannon. Thank you, Mr. Chairman.
Let me state as that I believe gambling is a pernicious
vice; and, Mr. Kindt, I agree with you entirely. From
everything I have seen, the costs of gambling far outweigh any
kind of benefits that a State or society can ever gain from
gambling. I can't understand lotteries. I think they are the
craziest thing we do. It is a tax on people that can't do math,
and they tend to be poor anyway. So it is a horrible thing,
from my point of view.
As I was speaking about Utah and the problem that we have
with having Utah law diluted, you were nodding. I take it you
would agree you would not want to see any carve-outs, horse
racing, or whether we characterize it some other way, or
lotteries online. You would like to see that not happen, I
would think.
Mr. Kindt. Are you addressing your question to me?
Mr. Cannon. Mr. Kindt, yes.
Mr. Kindt. From my limited reading of the bill and the way
I read it and I understand it, I don't believe that it enables
or overturns--I don't think it changes the status quo.
Mr. Cannon. With regard to horse racing.
Mr. Kindt. With regard to horse racing.
Mr. Cannon. You pointed out what we are doing here, we are
writing a law review article or a brief for a court. And the
problem is, and I think, Mr. Goodlatte, at the end of my time,
you may want to address this, but seems to me what we are doing
with this bill is being absolutely unclear about what we are
doing with horse racing. That makes the argument for the horse
racers when they go into court, and I believe Mr. Ohr has said
that is probably going to be the case, so this bill is going to
affect the arguments in court, at least. And I don't know how
you can say that we intend--this represents a policy against
horse racing when, in fact, what we are doing is not dealing
with horse racing.
Now that Mr. Goodlatte is back, I would appreciate if you
would address that, but not right now because I have another
couple of questions.
I have always resisted this bill only because of the narrow
interest of the States. Utah is only one of two shining stars
in the country that don't have any gambling. That has always
been my concern about this particular bill.
Let me ask, Mr. Ohr, dog racing interests have stated that
section 1084(f) will give horse racing an unfair advantage over
other forms of racing. Convenience stores have stated section
1084(f) or (d) will allow States to take their lotteries
online. Do you agree with those two statements, that is, that
it is unfair, not whether it would make horse racing legal,
but----
Mr. Ohr. We continue to oppose all forms of Internet
gambling. I think I have made that general statement.
Mr. Cannon. What about the lotteries and convenience
stories and their concerns in particular?
Mr. Ohr. I would make the same statement.
Mr. Cannon. Mr. Vallandingham, if I understand your
testimony correctly, you are concerned this bill would burden
you with trying to determine the purpose of electronic fund
transfers, and that is a concern, right?
Mr. Vallandingham. Yes, it is. Our transactions, check, ACH
transactions are uncoded. We would not only have to determine
whether it was illegal or legal but where it occurred and
several other facets in determining whether it should be paid
or not.
Mr. Cannon. You talked a little about credit card
transactions and the kind of coding they have, but ACH
clearinghouse transactions, those are much harder for you to
track.
Mr. Vallandingham. Yes. We don't collect that information
on ACH transactions. They generally contain the routing number,
the account number and the amount. Therefore, the payee is not
known, and it is not tracked, and, as we identified earlier,
identification of the payee is not enough to determine if this
is a valid transaction.
Mr. Cannon. Do you see that there would be a tendency for
people to move away from these relatively traceable
transactions? Do you see there is a tendency to move away to
less traceable transactions like e-commerce transactions or
foreign banking transactions?
Mr. Vallandingham. If it was a criminalized activity, I
think they would. Currently, I think that checks in ACH are not
a predominant method of payment for these type of transactions,
but I think most of the transactions occur through the credit
and debit card industries.
Mr. Cannon. If you track those, the ability for a person,
even a very young person, committed to gambling by setting up a
Paypal account or e-commerce transactions and maybe setting up
a bank account offshore, that is not a very difficult thing to
do for someone who has a compulsion.
Mr. Vallandingham. That is correct; and I think those
involved in the gaming industry would make that information
readily available, making it that much easier.
Mr. Cannon. In the few moments I have left, we had an
earlier discussion--and I know you had to leave, Mr.
Goodlatte--but I am deeply concerned about the idea that this
debate becomes the predicate for a legal argument that
transcends what we may have in our hearts and minds
individually or as a body; and I think that issue is sort of
enjoined again in my last question to Mr. Ohr. Would you like
to respond to that?
Mr. Goodlatte. I very much would like to respond to that.
As you know----
Mr. Coble. If Mr. Goodlatte would suspend just a moment. We
are up against the wall on this. This vote is imminent, so,
Bob, if you could be terse, I would appreciate that.
Mr. Goodlatte. Let me make one point very clear, and that
is no matter what the outcome of the dispute between the horse
racing industry and the Justice Department of another statute
not a part of this legislation authorizes or doesn't authorize,
no matter how that turns out, it would still be illegal for
Utah residents to bet on horse racing, so Utah could still
prosecute no matter what the outcome was of that dispute
between those parties.
More to the broader question about this, we had this same
legislation with some modification before this Committee 5
years ago, and if you make the perfect the enemy of the good,
you can see exactly what happens. During those 5 years,
offshore gambling, sucking billions of dollars out of this
country, including from Utah residents, has quadrupled.
Mr. Cannon. Mr. Chairman, may I make one comment in
response? I appreciate that.
Mr. Coble. Very tersely.
Mr. Cannon. We are looking at the issue of preemption. I
think we decided last cycle it would preempt Utah law. I would
like to work with you on that.
Mr. Goodlatte. We would very much like to work with you.
Mr. Cannon. How we solve the larger pernicious problem is
vital in the context of how we keep those places where we
actually reject gambling pure. Thank you.
Mr. Coble. The gentleman's time has expired.
We have been joined by the distinguished gentleman from
Ohio. Mr. Chabot, good to have you with us.
I am going to recognize the distinguished gentlelady from
Texas, Ms. Jackson Lee, but I want to say, Mr. Goodlatte, in
your absence, Mr. Scott--and I don't want to beat this race
horse to death, but horse racing has attracted much attention
in your absence.
Ms. Jackson Lee.
Ms. Jackson Lee. We welcome him back.
A lot of issues have gotten a lot of attention.
Let me just recognize the good faith, Mr. Goodlatte, of
this legislation but argue or at least make the provocative
argument as to whether or not there are elements that we are
not curing. For example, it comes to my attention--has come to
my attention that an Internet gambling industry and prohibition
thereof may prevent, or the way the legislation is written,
gaming operations from verifying, one, the age of potential
customers, identify problem gamblers, which I believe Mr. Kindt
is interested in, and preventing the use for fraudulent
activities. Your bill may, in fact, be standing in the way.
Let me, as I pose those thoughts for you, suggest that H.R.
4777 would require, as I understand, States that authorize
Internet gambling within their borders to impose secure and
effective customer ID and age verification systems to ensure
compliance with age and residence requirements. But is it your
understanding that such technology exists, technology that can
reliably prevent minors from gambling on the Internet?
If I can finish my line of questioning, I heard Mr.
Vallandingham--I didn't have a question before--talk about the
complication dealing with money laundering or banking scenarios
which leads us from one pool of dirty water into other. If you
might comment on that aspect of it.
Then let me just say that it has also come to my attention,
again, with the United Kingdom and Australia, they regulate
their Internet gaming companies. For example, companies
regulated in the United Kingdom reportedly must use special age
verification software, record all bets, place caps on how much
an individual can wager at a time and be subject to routine
audits for fraud or money laundering. Might be interesting, Mr.
Goodlatte, that we didn't take that approach. Have you taken a
look at these regulatory regimes and assessed their
effectiveness in preventing underage use and abuse by problem
gamblers and money launderers or of regulated gaming sites?
I think we should look further to both of those nation
states as to whether that has been an effective approach to
take.
Mr. Goodlatte. Thank you, Congresswoman. Those are very
good questions.
To take the last one first, we have looked at what other
countries have attempted to do, but the fact of the matter is,
as we have all acknowledged here today, the way the Internet
operates, it goes to the lowest common denominator. So the
country that is going to regulate the least is the one where
these sites are going to flock to. I think you will find that
an attempt to regulate in the United States, where we have 50
different States, that each have different forms of regulations
today would be an impossibility.
With regard to your first question, also very good, we
require States that might like to do this to be able to both
verify age so that minors don't gamble and verify that the
person betting is inside the State when they do that. Neither
of those technologies exist that are effective today; and
notwithstanding what is said about what is done in Britain,
they cannot effectively verify the age of the people placing
bets online.
So if that occurs and if that technology is there to
satisfy other States and prosecutors that a State can contain
it within their State, we don't stop recognizing States have
the right to regulate gambling as they always have, we don't
stop them here on the Internet, but they have to keep it
contained within their State.
Ms. Jackson Lee. I guess I didn't hear why we couldn't go
the route of Australia and the U.K., which seems to have some
semblance of working. I don't think I have heard clearly why we
can't go that route.
I am going to let Mr. Vallandingham answer this question
about how murky this gets for you, if you would, please, in
terms of the assessment you have to make in the banking
industry.
Mr. Vallandingham. To make sure that I answer your question
correctly, would you please indicate----
Ms. Jackson Lee. What difficulties does the bill pose for
you as presently drafted? I am reminded of an earlier hearing
we had this week on sex activity with children on the Internet,
and there was some kind of pay line they had to deal with. But
I am asking specifically how does it impact you negatively.
Mr. Vallandingham. First and foremost, our systems aren't
set up to be a payment monitoring system. So in order to do
that there would be a required major overhaul of both the check
clearing system and the ACH system and ultimately increase the
cost to the banking industry and ultimately to the consumer in
the long haul.
Additionally, I think that the continued change in the way
these sites would collect their payments would force us--it
would be a moving target. We would continue to have to alter
the systems, even if we were in some way able to make it work,
so it would be continued overhead in the long haul.
Additionally, it adds yet another layer of regulation in
trying to assess these payments and determine whether they are
valid or not valid and should we block them or not; and it
would divert attention away from things that are being
successful such as anti-money laundering and know your customer
programs that ultimately help us keep the fight against
terrorism being successful.
Ms. Jackson Lee. Mr. Chairman--and I thank you very much.
Let me, if you would allow me, to conclude very briefly.
Because I respect Mr. Goodlatte greatly. He knows that we
have been dealing now with a series of events that included the
former lobbyist, Mr. Abramoff, but I want to make sure as we
are discussing anew, and I think it is important for you to
state, are we free of the taint of the e-lottery debacle and
writing in language or not writing in language or supporting
this legislation or not supporting this legislation? Because my
particular company or client that I am representing was not
satisfied. Are we free of that now so whatever our position is
on this bill, for or against it, that we don't have this taint?
I understand he was arguing about protection of State
lotteries. We may still have that as an issue. But help us know
that we are free of that taint as the legislation is before us.
Mr. Goodlatte. If I might have leave to respond to the
gentlelady.
Mr. Coble. I hate to keep you on a short leash. I have been
advised that there is a second Judiciary Subcommittee hearing
that will commence at 4:00, so we have to wrap up.
Proceed, Mr. Goodlatte.
Ms. Jackson Lee. Thank you, Mr. Chairman.
Mr. Goodlatte. Ms. Jackson Lee, first of all, thank you.
You have been dedicated to working on this issue. You have been
working with me on this issue, and I very much appreciate that.
I will say I think it is very important Members of Congress
address the fact this legislation was derailed several years
ago because of misrepresentations by the legislation made by
Mr. Abramoff and others, and I think it is very important that
we address it now and we address it as thoroughly and
responsibly as we can. That is the effort we have made with
this legislation. I think it is very good and goes a long way
to address any problem, but we are going to work with other
Members to make sure we are getting it right and make sure this
Congress is not pulled down by misrepresentations by lobbyists
about the nature of the legislation.
Ms. Jackson Lee. I thank the gentleman. I yield back.
Mr. Coble. Thank the gentlelady.
Mr. Scott and I have one remaining question.
Mr. Vallandingham--am I getting better, Mr. Vallandingham?
Mr. Vallandingham. Getting better.
Mr. Coble [continuing]. Is it your belief that Mr.
Goodlatte's bill creates criminal penalties for banks and/or
financial institutions?
Mr. Vallandingham. It is my understanding that it would
create criminal penalties for anybody who facilitated those
payments. So I would say yes.
Mr. Coble. Mr. Goodlatte, I was thinking that the civil
penalties were only directed at gambling businesses. Now do you
want to address that, Mr. Goodlatte?
Mr. Goodlatte. Yes, I would very much welcome the
opportunity to address that and assure the members of the
banking industry that there are no criminal penalties that
apply to banks. The fact of the matter is that this is directed
at the gambling institutions, and the only authority that is
provided to law enforcement with regard to any financial
institution is the right to seek civil injunctive relief.
Mr. Coble. How about civil penalties against banks or
lending institutions?
Mr. Goodlatte. Only under what is already in existence
under laws related to failure to comply with injunctions that
might be approved by a court after they are approached by a law
enforcement agency that says that somebody is in violation of
the law and they want them enjoined from----
Mr. Coble. Mr. Vallandingham, when you return to West
Virginia, will this cause you to sleep more soundly at night
after hearing that?
Mr. Vallandingham. No, it won't. Because the bill doesn't
define gambling business other than to say the business of
betting and wagering. Other statutes use similar terms, having
construed to include within its scope anyone that conducts a
gambling business if that person performs any act, duty or
function which is necessary or helpful in operating the
enterprise. This includes waitresses and other servers, even if
they weren't paid. It included custodians, telephone clerks and
doormen, also bookkeepers and secretaries. So, clearly, a bank
can be viewed as necessary or helpful to an Internet gambling
enterprise. No bank acting prudently could ignore that risk.
Mr. Coble. This will be for another day.
I know Mr. Scott has a question, and 4 is imminent. So, Mr.
Scott.
Mr. Scott. Let me just pose the question, and we can get
the information in due course. I wanted more information on how
a State could--if a State wanted to--if Nevada wanted to
legalize gambling on the Internet, how would that work? If you
have information on that.
Also, if you are aware of identification processes where a
person over the Internet can be identified as the person who is
over 21 and possibly where their residence happens to be.
Mr. Goodlatte. Mr. Scott, thank you.
As I have indicated earlier, we don't believe that such
technology exists today. So while the legislation would
recognize the rights of States to continue to regulate
gambling, including gambling on the Internet, unless they can
meet those two criteria of being able to identify where the
person is placing the bet and whether or not they are a minor,
they will not be able to proceed.
If that technology is developed in the State of Nevada or
some other State wanted to proceed to do that, they would
proceed to do that; and if some other State believed they were
not using technology adequate to that purpose, then they would
seek the remedies under this legislation to establish that they
should be enjoined from doing that.
Mr. Coble. I thank the gentleman.
Mr. Goodlatte, you were chomping at the bit. I didn't want
to cut you off. Did you want to be heard one final minute in
response to Mr. Vallandingham?
Mr. Goodlatte. Only to ensure him that the intent of this
legislation is not to put banks in the situation he described,
and we are more than happy to work with his association to
accomplish that goal.
As the gentleman knows, another piece of legislation
similar but operating somewhat differently in its effect passed
the financial services industry and is headed to the floor of
the Congress. We want to make sure that these two pieces of
legislation are made harmonious and in the process are as
friendly to the banking industry as we possibly could make it.
Mr. Coble. This has been a productive hearing, and I thank
the witnesses and I thank those in the audience who have very
patiently endured the time with us.
We thank you for your testimony, gentlemen, and in order to
ensure a full record and adequate consideration of this
important issue, the record will be left open for additional
submissions for 7 days. Also, any written questions that a
Member wants to submit to the witnesses should be submitted
within that same 7-day period.
This concludes the legislative hearing on H.R. 4777, the
``Internet Gambling Prohibition Act of 2006.'' We thank you for
your cooperation and attendance, and the Subcommittee stands
adjourned.
[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Robert C. Scott, a Representative
in Congress from the State of Virginia, and Ranking Member,
Subcommittee on Crime, Terrorism, and Homeland Security
Thank you, Mr. Chairman. I am pleased to join you in convening this
hearing regarding federal regulation of gambling over the Internet. I
believe that all gambling should be tightly regulated. It has
traditionally been, primarily, a state regulatory responsibility. It
should continue to be so, in my judgment, although it is appropriate
for the federal government to have a role to assist states in the total
regulatory scheme.
The federal government undertook such a role in passing the 1961
Wire Communications Act as a way to assist in the fight against
gambling by organized crime syndicates. The Department of Justice
contends that it can prosecute Internet gambling businesses under that
law, but, clearly, that law was not designed with Internet gambling in
mind. While I appreciate the desire of my colleague, the gentleman from
Virginia, to update the ability of the Department to address illegal
gambling in today's context, I do not believe that H.R. 4777 is likely
to be effective in doing so.
Regulating anything on the Internet is problematic, even where
desirable. Most law enforcement is jurisdiction dependent. The Internet
has no jurisdiction and, as a result, I suspect that even if we are
successful in closing down business sites in the United States or in
countries that we can get to cooperate, because of the nature of the
Internet, and the ingenuity of persons using it, the approach in H.R.
4777 will be, ultimately, ineffective. As we will hear from our witness
panel, this bill will create an enforcement nightmare for the financial
institutions it requires to look for and stop illegal internet gambling
transactions. Identifying Internet gambling activities will be very
difficult if not impossible. While some companies may be able to
identify some gaming transactions by the codes used, such enforcement
efforts can be easily thwarted. A business may have one code for
payment purposes but may engage in several activities, including
Internet gambling. Caesar's Palace could have a hotel and a gaming
operation or a foreign company could have a hotel and a casino that
could be paid as a single account over the Internet. Or, an e-cash or
electronic payment system, or any escrow agent can relocate in another
country and thereby evade the enforcement mechanism in this bill, or
even domestically. All the bank knows is that the payment came from
``PayPal''. And with some Internet gaming activities being legal, how
would a financial institution distinguish between them and illegal
activities?
Further, we should not overestimate the cooperation we will get
from other countries. According to Christiansen Capital Advisors,
Internet gambling websites brought in $14.71 billion worldwide last
year, which is up from $8 billion the year before. This number is
expected to almost double to an expected $24 billion by 2010.
Presently, over 85 foreign governments allow some form of gambling
online, and that number is likely to grow, as well. So what governments
are likely to cooperate with us in prosecuting businesses they
authorize to operate? And even if we are successful in getting
cooperation from some countries, we would simply be increasing the
profit opportunities for uncooperative countries, especially those with
whom the United States does not have normal diplomatic relations.
This bill does not prohibit internet gambling; it prohibits running
the operation. If we wanted to be effective in prosecuting illegal
gambling over the Internet, we would prosecute individual gamblers. A
few sting operations would get the word out that if you gamble over the
Internet, you are at the mercy of law enforcement, because you leave a
trail they can follow. So long as individuals can gamble over the
Internet with impunity, a market will be provided for them which the
regulatory scheme in this bill will not be able stop. For example, we
prohibit sales of illegal drugs but we see that as long as there
remains a demand for drugs, we only have limited success in the war on
drugs. If we took the approach of this bill in enforcing drug laws, we
would be prosecuting the seller but not the buyer, and have even less
effect than we have now.
Since we are not talking about prohibiting Internet gambling but
simply prohibiting the operation of internet gambling sites in
jurisdictions the FBI can get to, I believe that there are more
effective regulatory approaches than the approach offered by H.R. 4777.
However, the approaches must be developed, taking into account the
technology, state policies with respect to gambling, and Internet
gambling practices and preferences. This was the effect of the bill
authored by full Committee Ranking Member Conyers last Congress, H.R.
1223. It established a Commission that would study the issue and made
recommendations for a regulatory environment for Internet gambling that
would be controlled by individual states. States do tend to prohibit
individuals from gambling, so Internet gambling can be both effective
and individualized to each state. Under the bill's regulatory scheme,
if Nevada opted to allow Internet gambling within its borders, it
could. If Utah prohibited individuals in that state from gambling over
the Internet, it could and that would be enforceable by the federal
government, by the states that allow gambling as well as by the state
of Utah because in the fullness of time, a gambler could be required to
provide a mailing address in order to get paid.
And if protecting the public is a goal of regulating Internet
gambling, it is much more likely that those who chose to gamble over
the Internet will do so through a licensed, regulated entity under the
Conyers approach than under H.R. 4777. First, a consumer in a state
where Internet gambling is legal will have confidence that, if they
win, they will get paid by the licensed, regulated operation. A
consumer would have no similar confidence in ``fly-by-night-off-shore-
casino.com''. So, a likely result from licensed regulated Internet
gaming entities would be to drive less reputable businesses, who do not
abide by the law, out of business.
Another significant result is that states that chose to authorize
Internet gambling can tax it. At a time when unauthorized Internet
gambling is flourishing (over $14 billion dollars with half of it
originating in the U.S.), and when most states are cash strapped, those
states that have already chosen to authorize regulated gambling could
receive much needed revenues from both the operators and winners, while
contributing to the control of the industry and protections to the
gambling public.
The overwhelming portion of those who play the numbers buy legal
lottery tickets which are regulated and taxed and actually pay lower
odds compared to illegal numbers operations. For the same reasons,
people who choose to gamble over the Internet will patronize legal
domestic websites, even if they have to pay taxes on winnings. I
believe we should regulate Internet gambling, but we should do it
effectively. And we should not subject any single business sector to
sole or principle responsibility for doing the bulk of the enforcement
work, whether it is the banking industry, as in this bill, or the
Internet service industry, as we tried in prior bills. There are ways
to regulate Internet gambling effectively, and a study Commission to
develop those ways is the best way to come up with them. Again, I thank
you, Mr. Chairman, for holding this hearing and look forward to hearing
the testimony of the witnesses.
Response to Post-Hearing Questions from Bruce G. Ohr, Chief of the
Organized Crime and Racketeering Section, United States Department of
Justice
Response to Post-Hearing Questions from the Honorable William E.
Moschella, Assistant Attorney General, Office of Legislative Affairs,
United States Department of Justice, for the April 29, 2003 hearing on
H.R. 21, the ``Unlawful Internet Gambling Funding Prohibition Act''
Prepared Statement of John A. Phillips, CEO, ARISTOTLE International
``Law enforcement and consumer protection agencies as well as
industry self-regulatory bodies have long recognized the need for rapid
online identity verification for Patriot Act and anti-money laundering
compliance, fraud prevention and risk mitigation involving age-
restricted products such as tobacco, alcohol, pharmaceuticals, video
games and mature content.
The private sector is responding to mounting public pressure in an
increasingly socially responsible manner by deploying reliable state-
of-the-art technology that effectively addresses this important need.
According to Forbes Magazine, Aristotle's INTEGRITY verification
service is the market leader in online identity and age verification
technology. INTEGRITY is utilized today by global Fortune 1000
enterprises that are required by law or best-practices professional
codes of conduct to identify individuals requesting permission to enter
a facility, a website, open an account or conduct certain transactions
online.
Institutions relying on INTEGRITY include more than 350 of the
nation's largest financial services companies, government agencies and
airport security authorities, wineries, distillers, makers of premium
cigars, video game publishers and major motion picture studios.
The Federal Trade Commission and other governmental agencies have
urged that reliable state-of-the-art methodologies available on the
market be deployed to protect children from accessing promotions
intended only for adults. In its 2003 report to Congress on the
marketing of beverage alcohol products, the FTC pointed to the
emergence of online methods, and Aristotle's service in particular, as
addressing this public need. (See FTC Report to Congress: Alcohol
Marketing and Advertising September 2003).
Aristotle's INTEGRITY verification technology is a logical response
to the acute need of responsible marketers for reliable, robust and
commercially reasonable protective screening.
INTEGRITY today is utilized, for example, to comply with the multi-
state Tobacco Master Settlement Agreement provisions that prohibit
marketing to minors. The service exceeds the strict standards of such
laws for online age-verification as California's Business and
Professions Code Sec. 22963, and Virginia Code Sec. 18.2-246.8,
governing online tobacco sales. Since adoption, not one INTEGRITY
service client has ever been found to have improperly marketed a
tobacco product to a minor.
The major motion picture studios also use INTEGRITY to comply with
the Motion Picture Association of America (MPAA) guidelines for
restricting minors' online access to studio promotions with ``R'' rated
content. Blocking underage teens from purchasing tobacco online is
another important value. The Campaign for Tobacco-Free Kids (http://
tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=425)
presents the urgency of this issue on its website.
Vendors in the beverage alcohol business use INTEGRITY as well. In
the new era of direct wine shipments, for example, online age
verification is an essential component for compliance and responsible
marketing across the United States. Without a service such as
INTEGRITY, Members of Congress, and the general public would not be
able to purchase fine cigars or quality wine, purchase lottery tickets
or an R-rated movie by mail, by telephone or online.
In the United Kingdom, INTEGRITY is widely used by licensed casino
operators to comply with the strict UK requirements for age
verification online.
In addition to the risk mitigation and child protection benefits of
age and identity verification, INTEGRITY will benefit those individuals
who acknowledge that they are problem gamblers and wish to avoid
relapse, or who, for whatever reason, do not wish to be solicited for
products or services that are potentially harmful or personally
offensive. At the INTEGRITY web site, individuals will be able to put
their own names on a confidential list of those who do not wish to be
solicited or allowed to open an account with a casino.
Many states have enacted legislation enabling each gaming venue to
maintain a list of individuals who have identified themselves as
problem gamblers. The problem is that there are many forms of gaming
available, each with its own regulatory agency and there is currently
no coordination among or between them. Some of the regulations are
written in such a way that in Nevada, for instance, you have to
register in person at every single casino where you may want to be
blocked from temptation.
Leaving aside the irony of sending people to the very places they
are trying to avoid, with hundreds of casinos in Clark County alone
you'd have to visit several per day every day to achieve comprehensive
coverage--and then start over to find the new casinos that had been
built in the interim
Aristotle is working on a proposal with the National Council on
Problem Gambling, the national non-profit advocate for programs to
assist problem gamblers and their families, to enhance INTEGRITY's
ability to address this problem. The proposed program would deploy
current technology to allow individuals to voluntarily place their
names on a self-exclusion master list--one time, at a single web site,
rather than having to seek out hundreds of separate sites or physical
locations.
The list would be strictly confidential, and the names would not be
disclosed to anyone. Individuals could remove their names from the list
after a minimum period. Should someone whose name is on the list
attempt to open an account with a merchant in the gambling industry,
INTEGRITY would not return a match (approval) code to the merchant. The
reason for the non-return of the match code would not be specified to
the merchant.
In their determination to comply with the law, market responsibly,
and meet best practice standards, a rapidly growing number of
enterprises across a broad spectrum of commerce and government use
Aristotle's INTEGRITY solution.
In its simplest terms, the case for robust ID authentication has
never been more apparent, urgent or efficient, thanks in large part to
the capabilities of Aristotle International's online service,
INTEGRITY.''
Prepared Statement of Kobus Paulsen, Chief Executive, UC Group
Letter to the Honorable Howard Coble from the Honorable Bob Goodlatte
Letter to the Honorable Bob Goodlatte from Wendy Wright, President,
Concerned Women for America
Letter to the Honorable Bob Goodlatte from Peter Brandt, Senior
Director, Government & Public Policy, Focus on the Family
Letter to the Honorable Bob Goodlatte from Phyllis Schlafly, President,
the Eagle Forum
Letter to the Honorable Bob Goodlatte from Richard D. Land, President,
The Ethics & Religious Liberty Commission
Letter to the Honorable Bob Goodlatte from Dr. Guy C. Clark, Chairman
of the Board of Directors, The National Coalition Against Gambling
Expansion
Press Release: Family Research Council, dated February 16, 2006
Press Release: Christian Coalition of America, Dated February 15, 2006
Letter from a coalition of organizations in support of H.R. 4777
News article from The Hill, entitled ``Abramoff gets payback in gaming
bills,'' dated March 29, 2006
Transcript of speakers from the National Thoroughbred Racing
Association at the 28th Annual Symposium on Racing