SPEAKERS CONTENTS INSERTS
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INTERNET GAMBLING PROHIBITION ACT OF 1997
SUBCOMMITTEE ON CRIME
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FEBRUARY 4 AND JUNE 24, 1998
Serial No. 133
Page 2 PREV PAGE TOP OF DOCPrinted for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
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MARY BONO, California
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
THOMAS E. MOONEY, SR., Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
Subcommittee on Crime
BILL McCOLLUM, Florida, Chairman
STEPHEN E. BUYER, Indiana
Page 4 PREV PAGE TOP OF DOCSTEVE CHABOT, Ohio
BOB BARR, Georgia
ASA HUTCHINSON, Arkansas
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LINDSEY O. GRAHAM, South Carolina
CHARLES E. SCHUMER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
PAUL J. MCNULTY, Chief Counsel
GLENN R. SCHMITT, Counsel
DANIEL J. BRYANT, Counsel
NICOLE R. NASON, Counsel
DAVID YASSKY, Minority Counsel
C O N T E N T S
February 4, 1998
June 24, 1998
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McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime
DiGregory, Kevin, Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice
Donn, Douglas, Member, Board of Directors, National Thoroughbred Racing Association
Fahrenkopf, Frank Jr., President and CEO, American Gaming Association
Horn, Bernard P., Director of Political Affairs, National Coalition Against Gambling Expansion
Jemmett, David, President, WinStar GoodNet, Commercial Internet Exchange Association
Page 6 PREV PAGE TOP OF DOC Matheson, David, Chief Executive Officer of Gaming, Couer d'Alene Tribe
McGettigan, Marianne, Counsel, Major League Baseball Players Association
Miller, Frank, Past President, North American Gaming Regulators Association
Saum, William S., Gambling and Agent Representative, National Collegiate Athletic Association
Schneider, Sue, Chairperson, Interactive Gaming Council, and Managing Editor and CEO, Rolling Good Times Online
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Bell, Tom W., Director, Telecommunications and Technology Studies, Cato Institute: Letter to Hon. Bill McColllum dated February 2, 1998
Article from Dow Jones News/Retrieval dated January 6, 1998
DiGregory, Kevin, Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice: Prepared statement
Donn, Douglas, Director, National Thoroughbred Racing Association: Prepared statement
Page 7 PREV PAGE TOP OF DOC Ellis, Peggy J., Director of Government Affairs, Cato Institute: Letter dated February 2, 1998
Fahrenkopf, Frank Jr., President and CEO, American Gaming Association: Prepared statement
Gibbons, Hon. James A., a Representative in Congress from the State of Nevada: Prepared statement
Goodlatte, Hon. Bob, a Representative in Congress from the State of Virginia and LoBiondo, Hon. Frank A., a Representative in Congress from the State of New Jersey: Prepared statement
Horn, Bernard P., Director of Political Affairs, National Coalition Against Gambling Expansion: Prepared statement
Jackson Lee, Hon. Sheila, a Representative in Congress from the State of Texas: Prepared statement
Jemmett, David, President, WinStar GoodNet, Commercial Internet Exchange Association: Prepared statement
Matheson, David, CEO, Gaming, Couer d'Alene Tribe: Prepared statement for hearing on February 4, 1998
Prepared statement for hearing on June 24, 1998
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McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime: Prepared statement
McGettigan, Marianne, Counsel, Major League Baseball Players Association: Prepared statement
Miller, Frank, Past President, North American Gaming Regulators Association: Prepared statement
National Association of Attorneys General: Letter to Hon. Bill McCollum dated February 3, 1998
Platt, Ronald L., Greenberg Traurig, Attorneys at Law: Letter to Hon. Bill McCollum dated February 25, 1998
Saum, William S., Gambling and Agent Representative, National Collegiate Athletic Association: Prepared statement
Schneider, Sue, Chairperson, Interactive Gaming Council, and Managing Editor and CEO, Rolling Good Times Online: Prepared statement
Sutin, Alan, Attorney, Greenberg Traurig, Attorneys at Law: Prepared statement
Page 9 PREV PAGE TOP OF DOCAPPENDIX
Material submitted for the record
INTERNET GAMBLING PROHIBITION ACT OF 1997
WEDNESDAY, FEBRUARY 4, 1998
House of Representatives,
Subcommittee on Crime,
Committee on the Judiciary,
The subcommittee met, pursuant to notice, at 9:39 a.m., in Room 2237, Rayburn House Office Building, Hon. Bill McCollum, chairman of the subcommittee, presiding.
Present: Representatives Bill McCollum, George W. Gekas, Stephen E. Buyer, Steve Chabot, Bob Barr, Asa Hutchinson, Sheila Jackson Lee, and Bob Goodlatte [ex officio].
Staff Present: Paul J. McNulty, Chief Counsel; Nicole R. Nason, Counsel; Kara Norris, Staff Assistant; and David Yassky, Minority Counsel.
OPENING STATEMENT OF CHAIRMAN McCOLLUM
Mr. MCCOLLUM. The Subcommittee on Crime will come to order. This hearing of the Subcommittee on Crime is going to look into an issue that has been much in the forefront in the last few months as far as the public is concerned. It has to do with gambling on the Internet.
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The word ''gambling'' conjures up a lot of images for peoplethe Las Vegas strip, the Atlantic City Boardwalk, the brilliant lights and, of course, famous entertainers. The Internet, too, brings certain pictures to mindinstant news updates, children learning about far-way cultures, or friends communicating through e-mail. Yet, all of us know there is a darker side to both of these endeavors. Without certain precautions, at a minimum, both gambling and the Internet can result in great harm.
Today, we are here to discuss the newest cyber marriage, called gambling on the Internet. It is an issue that has generated tremendous media coverage in recent weeks and one which provokes a wide variety of opinions. Proposals to ban Internet gambling are complicated, in particular, by the reality that gambling in an array of forms is perfectly legal in much of the country.
According to a 1996 report, 46 States permit charitable bingo, 43 States allow pari-mutuel betting, and 13 allow riverboat and casino gambling. Moreover, more than two-thirds of all States and the District of Columbia have developed lotteries. Only Hawaii and Utah continue to prohibit all forms of gambling. Clearly, there is not consensus among the States about the most appropriate way to answer the gambling question.
There is no doubt, however, that gambling fills the coffers. At a 1995 Judiciary Committee hearing regarding legislation to establish the National Gambling Impact Study Commission, Members heard about the fast-growing increase in gambling revenues. Witnesses stated that legal gambling revenues amounted to approximately $3 billion annually in 1976. By 1994, legal gambling revenues amounted to $39.9 billion annually. That is a tremendous increase, from $3 billion to $39.9 billion.
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The Commission, now well into its work, was specifically directed by Congress to make ''an assessment of the interstate and international effects of gambling, including the use of interactive technologies and the Internet.'' Unfortunately, the Commission is not expected to complete its work until June 1999. Congress can't wait another 2 years before discussing this issue.
Online research analysts estimate that Internet gambling will reach $440 million by the end of 1998. The expectation among analysts is that, unchecked, gambling on the Internet will soon become a $10 billion industry. Most of these online casinos are operated from offshore locales, such as the Caribbean or Costa Rica, where operators believe they are free from any State or Federal law enforcement.
The practical difficulties associated with Internet gambling are obvious. These cyber casinos cannot check a person's identification to verify a participant's age. A teenager, perhaps attracted by the thrill of betting on a favorite sports team, can simply log on with a credit card and run up astronomical bills. Additionally, there is no way to ensure that the odds are fair and accurate. Even if a participant wins, what is the guarantee that the person will receive payment or credit? Newspapers are already reporting stories of Web operators who shut down their Web sites when too many bettors won. Later, they simply start anew with a different online casino.
Of course, there is a more basic and troubling issue raised by the prospect of widespread gambling. The gambling industry does not question the fact that some people become addicted to gambling. It can, and has, ruined lives. Anti-gambling activists fear that cyber gambling will result in a new generation of computer-savvy surfers who, operating from their computers at home or work, will bankrupt themselves and their families.
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My good friend from the Judiciary Committee, Mr. Goodlatte, who is sitting along to my right here today, together with Mr. LoBiondo, who represents Atlantic City, New Jersey, has introduced H.R. 2380, the ''Internet Gambling Prohibition Act,'' in the House. In the Senate, Senators Kyl, Bryan and others have been hard at work refining the Senate companion bill in an attempt to address the unique problems associated with Internet gambling. I commend all of them for tackling this problem.
There are numerous other problems with cyber gambling and we will hear about some of them today, but I also believe we must be cautious not to paint with too broad a brush. At this rate of progress, the information superhighway will shortly be the information supersonic highway, and we must not rush to prohibit and punish without carefully considering the consequences and the concerns that each party has. Each of our witnesses today offers a different perspective on Internet gambling and I look forward to hearing every one of them.
[The prepared statement of Mr. McCollum follows:]
PREPARED STATEMENT OF HON. BILL MCCOLLUM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA, AND CHAIRMAN, SUBCOMMITTEE ON CRIME
This hearing of the Subcommittee on Crime will come to order.
The word ''gambling'' conjures up certain images: the Las Vegas strip, the Atlantic City Boardwalk, the brilliant lights, and, of course, the famous entertainers. The Internet, too, brings certain pictures to mind: instant news updates, children learning about far-off cultures, or friends communicating through e-mail. Yet we all know there are darker sides to both of these endeavors. Without certain precautions, at a minimum, both gambling and the Internet can result in great harm.
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Today we are here to discuss the newest cyber-marriage: gambling on the Internet. It is an issue that has generated tremendous media coverage in recent weeks, and one which provokes a wide variety of opinions. Proposals to ban Internet gambling are complicated in particular by the reality that gambling in an array of forms is perfectly legal in much of America.
According to a 1996 report, forty-six states permit charitable bingo, forty-three allow pari-mutuel betting and thirteen allow riverboat or casino gambling. Moreover, more than two-thirds of all States and the District of Columbia have developed lotteries. Only Hawaii and Utah continue to prohibit all forms of gambling. Clearly, there is not a consensus among the several states about the most appropriate way to answer the gambling question.
There is no doubt, however, that gambling fills the coffers. At a 1995 Judiciary Committee hearing regarding legislation to establish the National Gambling Impact Study Commission, Members heard about the fast growth increase in gambling revenues. Witnesses stated that legal gambling revenues amounted to approximately $3 billion dollars annually in 1976. By 1994, legal gambling revenues amounted to $39.9 billion dollars annually. The Commission, now well into its work, was specifically directed by Congress to make ''an assessment of the interstate and international effects of gambling, including the use of interactive technologies and the Internet.'' Unfortunately, the Commission is not expected to complete its work until June of 1999.
Congress cannot wait another two years before discussing this issue. On-line research analysts estimate that Internet gambling will reach about $440 million dollars by the end of 1998. The expectations among analysts is that, unchecked, gambling on the Internet will soon become a $10 billion dollar a year industry. Most of these on-line casinos are operated from off-shore locales, such as the Caribbean or Costa Rica, where operators believe they are free from any State or federal law enforcement.
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The practical difficulties associated with Internet gambling are obvious. These cybercasinos cannot check a person's identification to verify a participant's age. A teen-ager, perhaps attracted by the thrill of betting on a favorite sports team, can simply log on with a credit card and run up astronomical bills. Additionally, there is no way to ensure that the odds are fair and accurate. Even if a participant wins, what is the guarantee that the person will receive payment or credit? Newspapers are already reporting stories of web operators who shut down their web sites when too many bettors won. Later, they simply start anew with a different on-line casino.
Of course, there is a more basic and troubling issue raised by the prospect of widespread gambling. The gambling industry does not question the fact that some people become addicted to gamblingit can, and has, ruined lives. Anti-gambling activists fear that cybergambling will result in a new generation of computer-savvy net surfers who, operating from their computers at home or work, will bankrupt themselves and their families.
My good friend on the Judiciary Committee, Mr. Goodlatte, along with Mr. LoBiondo who represents Atlantic City, New Jersey, have introduced H.R. 2380, the ''Internet Gambling Prohibition Act'' in the House. In the Senate, Senators Kyl and Bryan and others have been hard at work refining the Senate companion bill, in an attempt to address the unique problems associated with Internet gambling. I commend them all for tackling this complicated issue.
There are numerous other problems with cybergambling, and we will hear about them today. But I also believe we must be cautious not to paint with too broad a brush. At this rate of progress, the information superhighway will shortly be the information supersonic highway, and we must not rush to prohibit and punish without carefully studying each new concern. Each of our witnesses today offers a different perspective on Internet gambling, and I look forward to hearing from them all.
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[The bill, H.R. 2380, follows:]
To amend title 18 of the United States Code with respect to gambling on the Internet, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 3, 1997
Mr. GOODLATTE (for himself and Mr. LOBIONDO) introduced the following bill; which was referred to the Committee on the Judiciary
To amend title 18 of the United States Code with respect to gambling on the Internet, and for other purposes.
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Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Internet Gambling Prohibition Act of 1997''.
SEC. 2. DEFINITIONS.
Section 1081 of title 18, United States Code, is amended
(1) in the matter immediately following the colon, by designating the first 5 undesignated paragraphs as paragraphs (1) through (5), respectively, and moving the indentation of each paragraph 2 ems to the right;
(2) in paragraph (5), as so designated
(A) by striking ''wire communication'' and inserting ''communication'';
(B) by striking ''transmission of writings'' and inserting ''transmission or receipt of data, writings''; and
(C) by striking ''or other like'' and all that follows before the period and inserting ''radio, electromagnetic, photo-optical, photoelectric, or other similar facility''; and
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(3) by adding at the end the following:
''(6) BETS OR WAGERS.The term ''bets or wagers''
''(A) means the staking or risking by any person of something of value (other than in a de minimis amount, such as postage, filling out a form or survey, or visits to a place where no charge is made for such visits) upon the outcome of a contest of chance or a future contingent event which contest or event is predominantly subject to pure chance, upon an agreement or understanding that the person or another person will receive something of greater value than the amount staked or risked in the event of a certain outcome;
''(i) the purchase of a chance or opportunity to win a lottery or other prize if the opportunity to win is subject to pure chance and the purchase requires a consideration that is not in a de minimis amount as described in subparagraph (A) and
''(ii) information that is intended by the sender to be used by a person engaged in the business of betting or wagering to accept or place a bet or wager; and
''(C) does not include
''(i) a bona fide business transaction governed by the securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) for the purchase or sale at a future date of securities (as that term is defined in section 3(a)(10) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(10)));
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''(ii) a contract of indemnity or guarantee; or
''(iii) a contract for life, health, or accident insurance.
''(7) INFORMATION ASSISTING IN THE PLACING OF BETS OR WAGERS.The term 'information assisting in the placing of bets or wagers means information that is sent by a person engaged in the business of betting or wagering that is necessary in order for the recipient to place a bet or wager by means of a communication facility being used in interstate or foreign commerce.''.
SEC. 3. TRANSMISSION OF WAGERING INFORMATION; PENALTIES.
(a) IN GENERAL.Section 1084 of title 18, United States Code, is amended by striking subsections (a) through (c) and inserting the following:
''(a) IN GENERAL.
''(1) PERSONS ENGAGED IN THE BUSINESS OF BETTING OR WAGERING.Whoever, being engaged in the business of betting or wagering knowingly uses a communication facility for the transmission or receipt in interstate or foreign commerce of bets or wagers, information assisting in the placing of bets or wagers, or a communication that entitles the transmitter or receiver to the opportunity to receive money or credit as a result of bets or wagers made using a communication facility in interstate or foreign commerce, shall be fined under this title or imprisoned not more than 4 years, or both.
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''(2) OTHER PERSONS.Whoever (other than a person described in paragraph (1)) knowingly uses a communication facility for the transmission or receipt in interstate or foreign commerce of bets or wagers, information assisting in the placing of bets or wagers, or a communication that entitles the transmitter or receiver to the opportunity to receive money or credit as a result of bets or wagers, shall be fined under this title or imprisoned not more than 6 months, or both.
''(1) NEWS REPORTING; LEGAL BETS AND WAGERS.Nothing in this section shall be construed to prohibit the transmission or receipt in interstate or foreign commerce of any information
''(A) for use in the news reporting of any activity, event, or contest upon which bets or wagers are based;
''(B) assisting in the placing of bets or wagers, if betting or wagering on such activity, event, or contest
''(i) is not illegal in the State or foreign country in which the transmission originates; and
''(ii) is not illegal in each State and each foreign country in which the sender intends the transmission to be received for the purposes of betting or wagering; or
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''(C) advertising, promotion, or other communication by, or authorized by, anyone licensed to operate a gambling business in a State in which such business is lawful and in which the recipient of the information must be physically present at the licensed business establishment in order to place a bet or wager or engage in a contest which is conducted at such establishment.
''(2) STATE LAW.Nothing in this section shall be construed to preempt any State law.''.
(b) DUTIES OF COMMON CARRIERS AND INTERACTIVE COMPUTER SERVICE PROVIDERS.Subsection (d) of section 1084 of title 18, United States Code, is amended
(1) by striking ''(d) When'' and inserting the following:
''(c) DUTIES OF COMMON CARRIERS AND INTERACTIVE COMPUTER SERVICE PROVIDERS.
''(1) IN GENERAL.If'';
(2) by inserting ''or interactive computer service provider'' after ''common carrier'' each place that term appears;
(3) by striking ''Nothing'' and inserting the following:
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''(3) JUDICIAL ACTION.Nothing''; and
(4) by inserting after paragraph (1), as amended by subparagraph (1), the following:
''(2) INJUNCTIVE RELIEF.Any State or local law enforcement agency acting within its jurisdiction, may, following the issuance of a notice under paragraph (1), in a civil action, obtain an injunction or other appropriate relief preventing the use of such facility for the purpose of transmitting or receiving gambling information in interstate or foreign commerce in violation of State or local law.''.
(c) STYLISTIC AMENDMENT.Section 1084(e) of title 18, United States Code, is amended by inserting ''.Definition''.
SEC. 4. SENSE OF THE CONGRESS.
It is the sense of the Congress that the Federal Government should have extraterritorial jurisdiction over the transmission to or receipt from the United States of
(1) bets or wagers (as that term is defined in section 1081 of title 18, United States Code);
(2) information assisting in the placing of bets or wagers; and
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(3) any communication that entitles the transmitter or recipient to the opportunity to receive money or credit as a result of bets or wagers.
SEC. 5. REPORT.
Not later than one year after the date of enactment of this Act, the Attorney General shall submit a report to Congress that includes
(1) an analysis of the problems, if any, associated with enforcing section 1084 of title 18, United States Code, as amended by this Act; and
(2) recommendations for the best use of the resources of the Department of Justice to enforce that section.
Mr. MCCOLLUM. Now, Mr. Goodlatte, you are not a member of the subcommittee, but you are a member of the committee. If you would like to make an opening comment, I would certainly welcome it.
Mr. GOODLATTE. Mr. Chairman, I first want to thank you for holding these hearings on this important legislation and for allowing me to participate in your subcommittee. I do have a joint statement by myself and Congress Frank LoBiondo, which I won't read, but I would like to submit for the record.
Mr. MCCOLLUM. Without objection, it is so admitted.
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Mr. GOODLATTE. Thank you.
[The prepared statement of Mr. Goodlatte and Mr. LoBiondo follows:]
PREPARED STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA AND HON. FRANK A. LOBIONDO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY
Thank you, Mr. Chairman, for agreeing to hold this hearing. We very much appreciate your willingness to have this forum for a discussion and a dialogue on a topic that is of profound importance to the American people and to American ideals: the growing need for legislation to address the problem of illegal internet gambling.
The Internet is a revolutionary tool that dramatically affects the way we communicate, conduct business, and access information. As it knows no boundaries, the Internet is accessed by folks in rural and urban areas alike, in large countries as well as small. The Internet is currently expanding by leaps and bounds; however, it has not yet come close to reaching its true potential as a medium for commerce and communication.
One of the main reasons that the Internet has not reached this potential is that many folks view it as a wild technological frontier, with no safeguards to protect children and no legal infrastructure to prevent online criminal activity. The ability of the World Wide Web to penetrate every home and community across the globe has both positive and negative implicationswhile it can be an invaluable source of information and means of communication, it can also override community values and standards, subjecting them to whatever mores may or may not be found online. In short, the Internet is a challenge to the sovereignty of civilized communities, states, and nations to decide what is appropriate and decent behavior.
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Gambling is an excellent example of this situation. It is illegal unless regulated by the states. With the development of the Internet, however, prohibitions and regulations governing gambling have been turned on their head. No longer do people have to leave the comfort of their homes and make the affirmative decision to travel to a casinothey can access the casino from their living rooms.
The legislation that we have introduced will protect the right of citizens in each state to decide through their state legislatures if they want to allow gambling within their borders and not have that right taken away by off-shore, fly-by-night operators. The Internet Gambling Prohibition Act gives law enforcement the tools it needs to crack down on illegal Internet gamblers by accomplishing three main goals: (1) providing that anyone convicted of running an Internet gambling business is liable for a substantial fine and up to 4 years in prison; (2) subjecting those who place bets or wagers with virtual casinos to a fine and up to 6 months in prison; and (3) giving law enforcement the ability to request cessation of service to Web sites engaging in illegal gambling, with enforcement by court order if necessary. Additionally, the bill requires the Attorney General to submit a report to Congress on the effectiveness of its provisions.
This legislation is supported by organizations across the spectrum, from Ralph Reed to Ralph Nader, and from the National Coalition Against Legalized Gambling to the American Gaming Association. Additional supporters are the National Association of Attorneys General and the National Collegiate Athletic Association.
We also want to reaffirm our support for the provision of the House bill that would respect the right of a state to legalize internet transactions as it sees fit. H.R. 2380 does not preempt any state laws, and it does not apply to transactions that are legal in both the state in which they originate and the state in which they are received. The bill simply brings the current prohibition against interstate gambling up to speed with the development of new technology.
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Mr. Chairman, online gambling is currently a $200 million per year business, and could easily grow to a billion dollar business in the next few years. It is time to shine a bright light on Internet gambling in this country, and to put a stop to this situation before it gets any worse. The Internet Gambling Prohibition Act, which will keep children from borrowing the family credit card, logging on to the family computer, and losing thousands of dollars all before their parents get home from work, will do just that. We want to again congratulate you for holding this hearing this morning, and we thank you for allowing us to submit testimony to the Subcommittee.
Mr. GOODLATTE. I would like to comment on the diverse array of support for this legislation. Congressman LoBiondo is, as you noted, the Representative for Atlantic City, New Jersey, which has considerable interest in casino gambling operations. I represent a district in southwest Virginia, where we do not have any similar types of casino gambling operations. And, in fact, I am opposed to gambling in general, and casino gambling in particular.
Page 26 PREV PAGE TOP OF DOC We come together in support of this legislation because of the fact that we are very, very concerned about the nature of Internet gambling, and that is indicative of some of the other groups that have indicated support for this legislation as well. Consumer groups have indicated their support because of the concerns they have about consumers being ripped off by the scores of different Internet gambling operations that are available now. There is virtually no way of determining which ones are legitimate operations, which ones aren't, which ones are going to honor your bet when you win, which ones are going to send you your winnings, and so on.
We also have support from the Association of Attorneys General of the United States. The State attorneys general are concerned about the fact that current Federal law which prohibits interstate gambling has some difficulties in its application to Internet gambling, and so some of the efforts that they have undertaken to prosecute have met with some resistance. And as a result, they feel that this legislation is important to make it clear that Internet gambling is included under the current Federal bans on interstate gambling.
In addition, we have the support of a number of groups that are simply opposed to gambling altogether, and the support of casino operators who are concerned that they are treated unfairly in competition with Internet gambling when they are heavily regulated in New Jersey, in Nevada, and other States that allow casino gambling. They are forced to pay considerable taxes in those States and they are requiredI think willingly requiredto make sure that the reputation of the gambling in those States is clean and open and fair, and this is not the case with gambling on the Internet.
I think this legislation is enforceable. I think that casino gambling Internet operators will have the ability to differentiate when offering this service to those States that want to allow it and those States that do not because they require identification from individuals before they allow them to place a bet. They certainly require a payment of cash into an account before they allow them to gamble. So they can also require information about their identity and where they are attempting to do this from.
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So I think this is good legislation, and I certainly thank you again for holding the hearing and look forward to hearing the witnesses' testimony.
Mr. MCCOLLUM. Thank you for your statement and thank you for being here and offering this legislation.
Mr. Hutchinson, do you have any opening comments you wish to make?
Mr. HUTCHINSON. Mr. Chairman, I just want to thank you for conducting this hearing. This is another example of where the law must keep up with technology and be on the cutting edge, and so I am grateful for this and the witnesses who are here and look forward to their testimony.
Mr. MCCOLLUM. Thank you very much.
I am going to introduce our panel today and then we will ask you, in the order in which you are introduced, to give us your testimony. All of the testimony in writing will be submitted for the record. Because we have a large panel, I am going to request that the witnesses try to keep their summary testimony to a very few minutes5 or 6 minutesif they possibly can.
Our first panel consists of individuals who have special interest in the legality of gambling on the Internet. Our first witness is Mr. Frank Fahrenkopf, the President and CEO of the American Gaming Association. As head of the AGA, Mr. Fahrenkopf is the national advocate for the gaming entertainment industry. He previously served as Chairman of the Republican Party for 6 years, and his early legal career included 17 years of practice as a trial and gaming lawyer in Nevada. Mr. Fahrenkopf has also served as the first Chairman of the American Bar Association's Committee on Gaming Law and was the founder of the International Association of Gaming Attorneys.
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Our next witness is Mr. Douglas Donn. Mr. Donn is the President and CEO of Gulfstream, a world-class thoroughbred horse racing facility. He currently serves on the board of directors of both the National Thoroughbred Racing Association and the Florida Chamber of CommerceI guess I should show a little bias there to Floridaand he is a past president of the Florida Horse Council. He graduated from Florida State University with a degree in marketing and served a tour of duty in the Marine Corps prior to beginning his career at Gulfstream Park in 1969.
Also with us today is Mr. Bill Saum. Mr. Saum began his career at the National Collegiate Athletic Association in 1988 and was named the NCAA's Agent and Gambling Representative in September 1996. For the previous 8 years, he served as an enforcement representative investigating NCAA member institutions for rules violations. Prior to his arrival at the NCAA, Mr. Saum was an assistant football coach and assistant dean of students at Defiance College in Ohio.
Next, the subcommittee will hear testimony from Mr. Frank Miller, a former President of the North American Gaming Regulators Association. Mr. Miller has spent the last 13 years of his career in the gaming industrythe last 6 of which he served as Director of the Washington State Gambling Commission. The Commission is a law enforcement agency responsible for regulatory oversight and the enforcement of gambling statutes and codes in the State of Washington. Mr. Miller is also a former Vice President and Chairman of NAGRA's Indian Gaming Commission.
The subcommittee will hear, in addition, testimony today from Ms. Sue Schneider, the Chairperson of the Interactive Gaming Council. The IGC is a trade association composed of over 60 members functioning under the umbrella of the Interactive Services Association. She is also President and CEO of RGT OnLine, Inc. Her company publishes Rolling Good Times OnLine, an electronic consumer-based magazine which has been published on the Internet since September 1995.
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Finally, the subcommittee will hear testimony from Mr. Bernard Horn. Mr. Horn is the Political Director of the National Coalition Against Gambling Expansion and the Communications Director of the National Coalition Against Legalized Gambling. He is also an attorney and President of Strategic Campaign Initiatives, Incorporated, a political consulting firm. From 1988 to 1994, Mr. Horn served as a legislative director, lobbyist, and strategist for Handgun Control, Incorporated, in Washington, D.C.
Again, we welcome all of you today.
I want to note for the record that the subcommittee received a letter from the National Association of Attorneys General supporting the ''Internet Gambling Prohibition Act.'' Also, Congressman Gibbons, Alan Sutin, and David Matheson, the Chief Executive Officer of Gaming for the Coeur d'Alene Tribe, as well as the Cato Institute, submitted statements which we will enter into the record, without objection. Without objection, all of these statements will be made part of the record.
[The statements and letter referred to follow:]
Hon. BILL MCCOLLUM, Chairman,
|National Association of|
|Washington, DC, February 3, 1998.|
Subcommittee on Crime,
Committee on the Judiciary,
Page 30 PREV PAGE TOP OF DOCHouse of Representatives, Washington, DC.
DEAR CONGRESSMAN MCCOLLUM: I write to you because of your roll as Chair of the House Judiciary Committee's Crime Subcommittee, and as a fellow Floridian, to state my support for the Internet Gambling Prohibition Act. As introduced in the Senate by Senator Kyl in March, 1997, and in the House by Congressmen Goodlatte and LoBiondo in September, 1997, this legislation closely tracked suggestions framed in a resolution adopted by the National Association of Attorneys General (''NAAG'') in June, 1996. As you know, S. 474 underwent considerable substantive changes by the Senate Judiciary Committee last October. Since that time, NAAG's members have continued to work closely with Senator Kyl and his colleagues to suggest further modifications to the bill prior to its reaching the Senate floor. I believe at this time that S. 474 continues to be the most appropriate measure to address the growing problem of gambling via the Internet.
In Florida, we are already attempting to address the problem of offshore bookmakers who solicit bets on football games and other sporting events from Floridians. Through sports magazines and other media, offshore bookmakers are urging Floridians to place bets by telephone, mail and the Internet. This type of gambling is unlawful and it is extremely risky. There are numerous instances where bookmakers have never paid-off bettors and then went out of business.
Technology threatens to prevent the ability of the states to effectively control and regulate gambling. In fact, this technological threat may provide the only exception to the preeminent role of the states to regulate gambling and control gambling policy formulation. While gambling has traditionally been regulated on a state-by-state basis, the availability of gambling on the Internet will disrupt each state's careful balancing of its own public welfare and fiscal concerns by making gambling available across state and national boundaries with little or no regulatory control absent some federal oversight.
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The adoption of a resolution on this issue by NAAG represents overwhelming support from the states for a bill which, in essence, increases the federal presence in an area of primary state concern. However, it is clear that the federal government has an important role in this issue which crosses state as well as international boundaries.
I urge you to support the bill with due consideration to the changes that have been made in the Senate.
|Robert A. Butterworth, Attorney General of Florida|
|Member, NAAG Internet Working Group|
PREPARED STATEMENT OF HON. JAMES A. GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA
This is a very important issue for the people of Nevada, and I would like to begin by thanking Chairman McCollum for entertaining my written testimony. Passage of The Internet Gambling Prohibition Act of 1997 (HR 2380) is absolutely essential to protect American children as well as the integrity of the legalized gaming industry in Nevada.
The gaming industry in Nevada is a well established, highly regulated operation and its activities are tightly monitored. Because of this, Nevada's top industry has gained the respect of Wall Street, where many of the state's top companies are highly regarded on the stock exchange. We must steer clear from activities which would place these controls into jeopardy. Allowing gambling to be performed on the internet would open the floodgates for corruption, abuse, and fraud. Internet gaming is a virtual ''Pandora's Box'' that, if opened, will have an irreversible, adverse effect on millions of American people.
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This is also largely an issue of fairness. The gaming industry in Nevada incurs numerous taxes, fees and regulatory costs. By allowing internet gaming, we will create an unfair competitive advantage for those companies able to offer a similar product with none of the associated costs. From its inception, the gaming industry in Nevada has worked to improve the communities around the state that are home to its employees. They have funded many programs that not only contribute financially to improving the infrastructure of surrounding areas, but they educate the public to the risks involved in gaming. None of these benefits will be enjoyed as a result of internet gaming.
Banning gambling on the Internet is necessary to prevent widespread abuse from occurring. Unscrupulous operators could bilk millions of dollars out of unsuspecting customers, leaving the effected without recourse. No industry is as highly regulated as is the gaming industry in Nevada. The industry realized very early on that they must hold themselves to a very high standard, else lose the trust of the consumer. This standard is tightly enforced by a state agency and benefits all of those involved. This accountability and enforceability is nonexistent with internet gaming, and presents a major risk.
Another risk presented by internet gaming is that of use by minors. In gaming establishments across Nevada, security guards check identification of anyone appearing to be below the age of twenty-one. With internet gaming, minors, armed with nothing more than a credit card number, could easily access these sites and squander their family's hard earned dollars. Children can establish overseas betting accounts easier than they can sneak into a rated R movie.
Page 33 PREV PAGE TOP OF DOC Currently, wagering is prohibited on any sports team, college or professional, based in Nevada. Further, no wagering is taken on team sports event taking place in Nevada, regardless of the origin of the competing teams. This provision is essential in maintaining the integrity of sports wagering, and clearly is unenforceable when dealing with internet gaming.
There are 50 million households with computers and 25 million of these computers have access to the Internet. Experts are predicting an explosion in the growth of households with access to the Internet. By the turn of the century, most schools and libraries will be on-line. It is important to recognize that the computer industry is not the only one profiting off of the explosion in computer availability. Internet gaming operations are growing equally as fast.
A recent Sports Illustrated article estimates that in 1998, internet gaming sites will handle $600 million in wagers. Further, analysts have predicted a growth of ten times that figure by the year 2001. In this article, Bill Saum, the director of enforcement for the NCAA is quoted as saying, ''We're (the NCAA) concerned that athletes may be wagering over the internet and that internet wagering is about to explode on college campuses. What we would end up with is a significant number of closet gamblers, a number of whom would be athletes.'' The situation described by Mr. Saum is one I think that all participants in this debate would agree is deplorable. The strict regulations in place in Nevada effectively prevent this situation. Any situation jeopardizing this should be seen as a threat to the integrity to sports in this country as well as a direct threat to our nation's children.
Most would agree that the Internet is a great educational tool and an extremely valuable source for all sorts of information. This resource must be shielded from the dangers associated with its unrestricted use. We must not forget that there are millions of innocent users that could become serious victims if we are not careful in managing this incredible tool.
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Thank you again for allowing my statement to be entered into the record. Open debate on this important issue is essential in crafting legislation that will put a stop to internet gaming once and for all.
Hon. BILL MCCOLLUM, Chairman,
|Attorneys at Law,|
|Washington, DC, February 25, 1998.|
Subcommittee on Crime,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN MCCOLLUM: I would like to submit for the record the enclosed testimony on H.R. 2380, the ''Internet Gambling Prohibition Act of 1997'' prepared by Alan Sutin, an Internet attorney in our New York office.
If you have any questions, please feel free to contact me at 2023313120.
|Ronald L. Platt,|
|Senior Director of Government Affairs|
PREPARED STATEMENT OF ALAN SUTIN, ATTORNEY, GREENBERG TRAURIG, ATTORNEYS AT LAW
Page 35 PREV PAGE TOP OF DOC We have analyzed H.R. 2380, known as the ''Internet Gambling Prohibition Act of 1997,'' with particular emphasis on the effect of this proposed legislation on the continued global development of the Internet as a medium for communication and commerce. As set forth below, we conclude that the bill as currently drafted has the potential for seriously inhibiting the further growth and development of the Internet. Moreover, even if the bill does not violate the United States Constitution and fundamental tenets of international law (which we believe that it does), the international legal precedent that this legislation would set has the potential to adversely affect the leadership role that the United States has assumed in shaping the future of the Global Information Infrastructure.
SUMMARY OF CONCLUSIONS
1. As currently drafted, H.R. 2380 could make some U.S. computer network service providers liable for conduct that they cannot control. The bill would impose liability on ''interactive computer service providers''(see footnote 1) (''ISPs'') that fail to take measures to prevent the use of their facilities to transmit or receive gambling information under some circumstances. However, H.R. 2380 fails to adequately distinguish between ISPs that provide direct access to an individual and ISPs that facilitate the transmission of communications over the Internet by providing intermediary network services. As applied to ISPs providing intermediary network services (which include such major U.S. corporations as MCI, Sprint, AT&T and others), it is impossible, as a practical matter, to determine the content (and sometimes the actual source) of an individual message. By placing additional potential liabilities on ISPs, the proposed bill will undoubtedly serve as a deterrent to new companies entering the business. In addition, the costs of insuring against such liabilities will increase the cost of Internet services to consumers, thereby inhibiting further the development and growth of the Internet as a medium for communication and commerce.
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2. The proposed bill would make foreign multinational companies with assets in the United States subject to criminal and civil liability for conducting activity outside the boundaries of the United States that is lawful in the country where such conduct is conducted. Accordingly, the bill is unconstitutional and contradicts well-established principles of international law.
3. Even assuming, arguerdo, that the legislation was legally permissible, the legal precedent that this legislation would set is likely to viewed with hostility by important allies of the United States. Moreover, it will open the door for nations with differing views on privacy, human rights, cultural and religious issues to impose criminal and civil penalties on United States companies with assets in those nations if such United States companies offer content or services via the Internet which are regarded by those nations as illegal or immoral. The United States has assumed a leadership role in the development of legal regimes to manage the Global Information Infrastructure. That leadership role stands to be seriously diminished if the United States argues on the one hand that it can apply extraterritorial enforcement of its gambling laws against companies operating legal gambling operations abroad, while at the same time defending the rights of United States companies offering from the United States via the Internet goods and services that may run afoul of other nation's laws.
The Internet, a global computer network once used almost exclusively by scientists and academic institutions, has emerged as a powerful new medium for communication and business. In only a few short years, millions of ordinary citizens have gone ''on-line'' and created what is arguably the most important new communications tool since the printing press. The explosive growth of the Internet in the last few years also has raised the prospect of broad-based electronic commerce on a truly global scale.
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The Internet differs from all prior means of communication in one important respect. Cyberspace is borderless. Moreover, the reach of the Internet is truly global. Any World Wide Web site that can be accessed in the United States can just as easily be accessed in Buenos Aries, Kuala Lumpur or Addis Ababa. The worldwide interconnection of open networks known as the Internet offers the ability to access digital information anywhere in the world virtually instantaneously twenty-four hours a day, seven days a week. In addition, the Internet presents for the first time the opportunity to engage in electronic commercial transactions at the level of the consumer or small business. Although the promise of the Internet is undeniably great, there is a significant risk that legal obstacles may prohibit this new media from reaching its full potential as a catalyst for increased commerce and international trade.
The technological changes we now are witnessing are just the beginning. If the Internet were to be compared to a new product such as a car, the Internet in its current form is the rough equivalent of an early prototype. New technologies rapidly are being developed that will increase available bandwidth, provide new points of access to the global information infrastructure and make possible new forms of transactions that are not even contemplated today.
This technological change has come so rapidly that many of the governmental, business and financial leaders that must grapple with the new legal issues presented by the Internet are only just beginning to understand the technologies involved. The rapid rate at which technology is changing combined with the collective learning that is going on at all levels of government and business suggest that the short term approach to addressing legal problems should involve minimal involvement on the part of government. The United States, in its recent policy directives, has recognized the importance removing barriers to the development of the fledgling technologies of international electronic commerce.
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For the reasons set forth below, H.R. 2380 imposes just the type of barriers to the development of the fledgling Internet technologies that United States, as a matter of policy, is seeking to avoid. First, by failing to fully understand the technologies involved, H.R. 2380 imposes potential criminal and civil penalties on entities that provide certain types of network services. Second, because it imposes potential criminal and civil liability for activity occurring outside the borders of the United States that are legal in the countries where that activity is conducted, H.R. 2380 is likely to be found to be unconstitutional and in violation of well-established principles of international law. Finally, passing a bill that is both legally impermissible and contrary to the stated public policy of the United States to promote rather than obstruct the development of new information technologies, the United States risks losing its leadership position in the effort to develop workable legal regimes to manage the new issues raised by the phenomenal growth of the Internet.
H.R. 2380 would impose potential liability on ISPs for activities that they cannot control
H.R. 2380, as currently drafted and in conjunction with the existing codified version of 18 U.S.C. §1084, provides in new subsection (c) that an ISP ''shall discontinue or refuse, the leasing, furnishing, or maintaining of'' (emphasis added) its communications facilities once they are notified by Federal, State, or local law enforcement agency that any such facility furnished by it is being used or will be used for the purpose of transmitting or receiving gambling information in interstate or foreign commerce in violation of Federal, State or local law.
To comprehend the adverse effect of the new subsection (c) of H.R. 2380 on ISPs, it is important to understand how Internet access services are provided. Typically, an end-user (whether an individual or corporation) purchases internet access from a local or national ISP. In most instances, the ISP from which the end-user purchases services does not have direct access to the Internet backbone, but rather purchases such access from a larger ISP (which larger ISP may or may not also offer services directly to end-users). For example, a local ISP that manages dial-up services or leased lines to its servers and routers located in Washington, D.C., may then purchase Internet backbone connectivity and ''bandwidth'' from a larger ISP such as AT&T, Sprint, MCI, UUNET, or others. In some instances, a single local ISP may purchase bandwidth from multiple larger ISPs. These larger ISPs carry communications or messages originating or terminating with the local ISP. As data passes between two users connected to the Internet through local ISPs, it may pass across the networks of numerous ''intermediary'' ISPs. These intermediary ISPs have no direct contractual privity or technical link with the end users. They merely provide the ''pipes'' or conduit through which communications originating or terminating with the local ISPs pass.
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H.R. 2380, as currently drafted, fails to adequately distinguish between ISPs that provide direct access to an individual and ISPs that facilitate the transmission of communications over the Internet by providing intermediary network services. As applied to ISPs providing intermediary network services, it is impossible, as a practical matter, to determine the content (and sometimes the actual source) of an individual message. Indeed, an individual message generally is broken up into numerous individual ''packets'' which may travel along the Internet via different routes to the destination computer server where they are reassembled in the form of a complete message. Even as to the ISPs that provide direct local end-user access to the Internet, it is only possible to terminate specified accounts in their entirety. By placing additional potential civil and criminal penalties on ISPs, the proposed bill will undoubtedly serve as a deterrent to new companies entering the business. In addition, the additional costs of insuring against such liabilities will increase the cost of Internet services to consumers, thereby inhibiting further the development and growth of the Internet as a medium for communication and commerce.
H.R 2380 is unconstitutional because it bans protected speech
Extending the prohibitions of 18 U.S.C. §1084 to apply to the ''receipt'' of a gambling-related ''communication'' in a jurisdiction where the receipt of such communication is legal is likely to be found to be unconstitutional. As currently drafted, H.R. 2380 would revise 18 U.S.C. §1084 to make it a criminal offense, for example, if a British corporation engaged in a lawful gambling business in the United Kingdom, ''received'' via the Internet on its computer servers located in the United Kingdom, communications relating to bets or wagers accepted wagers that originated from a U.S. state in which gambling is illegal. This would be true even if the communications merely contain instructions relating bets or wagers that are placed in England from a bank or other account located in that country.
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Communications regarding gambling activities conducted in a jurisdiction where such activities are legal constitute protected speech. It is now well-established that there is no '' 'vice' exception to the protection afforded by the First Amendment. . .''. 44 Liquormart, Inc. v. Rhode Island, XX U.S. XX, 116 S.Ct. 1495, 1513, 134 L.Ed.2d 711 (1996). The Government has no business ''placing the 'vice' label on selected lawful activities'', and cannot do so under the First Amendment even by statute. Id. H.R. 2380 extends §1084 to apply, inter alia, to the receipt of the individual communications between duly licensed gaming establishments and their customers, a result that clearly is impermissible under 44 Liquormart. Under the First Amendment, ''the remedy to be applied [to speech deemed inappropriate by the Government] is more speech, not enforced silence. Only an emergency can justify repression.'' 44 Liquormart, id., quoting from Whitney v. California, 274 U.S. 357, 377, 47 S.Ct., 641, 649, 71 L.Ed. 1095 (1927).
The Supreme Court has now made clear that the analysis it set forth in 44 Liquormart is equally applicable to commercial speech with regard to legalized gambling. In Greater New Orleans Broadcasting Association v. U.S., XX U.S. XX, 117 S.Ct. 39, 136 L.Ed.2d 3 (1996), the Court, in reliance upon 44 Liquormart, vacated and remanded a Fifth Circuit opinion, 59 F.3d 1296 (5th Cir. 1995), which had held that the substantial governmental interest served by a federal statute prohibiting casino gambling radio and television advertisements was sufficient to override the First Amendment. Thus, 44 Liquormart is fully applicable to all 'vices', whether they be lotteries, casino gaming, or otherwise.
Page 41 PREV PAGE TOP OF DOC Because the Supreme Court has now clearly spoken that the Federal Government lacks any justifiable interest sufficient to overcome the First Amendment rights attached to lawful commercial speech relating to industries that were once considered ''vices,'' any attempt to broadly regulate such speech raises insurmountable concerns of vagueness and overbreadth. A law is ''overbroad'' when its language, given its normal meaning, is so sweeping that sanctions may be applied to conduct which the state is not permitted to regulate, and although the ultimate purpose of an enactment may be acceptable and even laudatory, it will not be saved from a finding of unconstitutionality if it is otherwise facially overbroad. While ''overbreadth'' is normally applied to constitutionally protected conduct, see Presbytery of New Jersey v. Whitman, 99 F.3d 101, 105106 (3d Cir. 1996), the same analysiswhether the statutory prohibition is so generally worded as to sweep lawful conduct within its scopeshould be applied where the conduct must be deemed ''lawful'' under principles of international law and comity.
D. H.R. 2380 violates norms of international law and comity.
To the extent that it applies to non-U.S. persons or entities, H.R. 2380, as currently drafted, violates principles of international law and comity. International law is, and must be, based upon the ''Golden Rule'', or certainly upon its converse: ''Do not do unto others what you would not have them do unto you.'' This principle of ''comity''(see footnote 2) is particularly imperative for the United States, because multinational corporations of all nations ''are caught in the clash of sovereignties'' when a nation other than the place of incorporation 'puts the squeeze' on a corporation based in another nation but supposedly within the reach of the foreign venue. See Grundman, ''The New Imperialism: The Extraterritorial Application of United States Law'', 14 INT'L LAWYER 257 (198O) (hereinafter Grundman).
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H.R. 2380 permits the imposition of civil and criminal penalties on foreign individuals and corporations lawfully conducting gaming activity in their home jurisdiction, even though political subdivisions of our own country and their citizens lawfully engage in behavior indistinguishable from that being criminalized under the statute. It is particularly abhorrent to the notion of comity to translate American rules, regulating competition in a non-forbidden industry within our borders, into criminalized behavior as against foreign companies acting lawfully in their own jurisdictions, merely because related communications received in that foreign jurisdictions via the Internet may have originated in the United States.
The Restatement (Third) of Foreign Relations (hereinafter the Restatement) also requires consultation, and if necessary, negotiation between the sovereigns before proceeding to legal actiona process lawlessly ignored here. See Restatement §403, Comment e. Even were this not so, and even if arguendo the behavior in question were objectionable and enjoinable (which it is not), criminalizing that conduct would be an excess under well-settled principles of international law. See Restatement §403, Comment f.
H.R. 2380 could unintentionally damage the leadership role of the United States in formulating international legal regimes to deal with new Internet issues.
Even assuming, arguendo, that the legislation was legally permissible, the legal precedent that this legislation would set is likely to viewed with hostility by important allies. Moreover, it will open the door for nations with differing views on privacy, human rights, cultural and religious issues to impose criminal and civil penalties on United States companies that offer content or services via the Internet which are regarded by those nations as illegal or immoral. The United States has assumed a leadership role in the development of legal regimes to manage the Global Information Infrastructure. That leadership role stands to be seriously diminished if the United States argues on the one hand that it can apply extraterritorial enforcement of its gambling laws against companies operating legal gambling operations abroad, while at the same time defending the rights of United States companies to conduct activity that may be deemed unlawful or undesirable by other nations.
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As stated in Section D. above, international law is, and must be, based upon comity, namely the converse ''Golden Rule'': ''Do not do unto others what you would not have them do unto you.'' It is the United States which, of all nations, should be most concerned about the risk of establishing 'rules of the game' that are intolerable for a multinational corporation (more particularly, establishing so many different rules from so many different countries that a multinational corporation's core business cannot be (a) fairly conducted or (b) globally marketed); ''since there are more [multinational corporations based in the United States than anywhere else], it is the United States-based multinationals that are especially caught in the middle.'' Grundman, Id.
Thus, going beyond principles of fairness or respect for other nations, their laws or their citizens, and even going beyond principles of international law in the abstract, it is in the United States' own self-interest to refrain from applying its laws to multinational corporations based in other countries, as the United States is sure to receive more distress than it 'dishes out'. Will the United States be willing to accept that it is appropriate for a fundamentalist Islamic nation to take action against a United States multinational corporation acting within its borders because that corporation offers for sale over the Internet sold short skirts or other items deemed to be offensive and immoral under the host country's national law?
Most Internet gambling concerns arise as a result of communications by United States residents to gambling operations operating in other countries. H.R. 2380 asserts the right to take actions against the United States assets or related entities of companies lawfully operating in such countries. In so doing, the United States is advocating a principle that it will never accept from other nations.
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NICOLE: Thank you requesting the attached letter from Tom Bell, Cato's director of telecommunications and technology studies, for the record in this Wednesday's hearing on Internet gambling. I have also attached an op-ed that Tom Bell wrote on the subject I thought you might find interesting and to also be included in the record.
|Washington, DC, February 2, 1998.|
As we discussed, we are happy to help you and the Chairman any way possible as he evaluates this issue: private meeting with the Chairman, a broader staff briefing for interested House staff, and, of course, as a witness in future hearings.
Tom is also completing a study on Internet gambling ad we will get a draft copy to you as soon as it is in shape to share.
Good luck on Wednesday. I'm sure it will be an interesting hearing
|Peggy J. Ellis, Director of Government Affairs.|
Hon. BILL MCCOLLUM, Chairman,
|Washington, DC, February 2, 1998.|
Page 45 PREV PAGE TOP OF DOCSubcommittee on Crime,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: Thank you for soliciting my thoughts on the proper federal policy toward Internet gaming. I here offer some comments and questions for the deliberations of you and your colleagues.
1) The Justice Department has stated that The Wire Act(see footnote 3) already covers Internet gaming, but that enforcing the law ''isn't one of our priorities.''(see footnote 4) Given that courts have hardly had a chance to apply existing laws to Internet gaming, should Congress rush to pass new and potentially unnecessary legislation?
2) The Wire Act applies only to parties ''engaged in the business of betting.''(see footnote 5) In contrast, H.R. 2380, The Internet Gambling Prohibition Act of 1996, would expand federal law to reach even individual amateur bettors. H.R. 2380 would thus for the first time make it a federal crime to telephone an old friend and casually bet a six-pack on the big game.
a) Given that the effects of Internet gaming remain highly speculative, how can Congress justify this vast expansion of criminal liability?
b) How can law enforcement officials apply H.R. 2380 without detailed, constant, and intrusive monitoring of citizens' Internet use?
Page 46 PREV PAGE TOP OF DOC 3) Rep. Bob Goodlatte has claimed that gaming laws ''have been turned on their head'' by the Internet because ''[n]o longer do people have to leave the comfort of their homes'' to access casinos.(see footnote 6) In fact, however, nine states already allow their citizens to access professional gaming services via telephone.(see footnote 7) Since many Americans already can use advanced telecommunications to gamble from home, does Congress have any factual basis for claiming that Internet gaming represents a wholly new and uniquely dangerous phenomenon?
4) In mid-1996, the National Association of Attorneys General urged the Justice Department to prosecute Internet gaming. ''The department does not agree that federal law should be amended so broadly as to cover the first-time bettor who loses $5,'' the Justice Department replied.(see footnote 8) How can Congress deny that the Justice Department has already made clear its disapproval of laws like H.R. 2380?
5) Outlawing Internet gaming services domestically will simply push business overseas. Federal law enforcement agents admit, however, that they cannot stop overseas gaming operations. ''International Internet gambling? We can't do anything about it,'' Department of Justice spokesman John Russell said. ''That's the bottom line.''(see footnote 9)
a) Does Congress propose to give extraterritorial effect to any ban on Internet gaming?
b) If so, how can federal authorities enforce such laws without violating the principles of international law that protect other countries' sovereignty?
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c) If not, how can any ban on Internet gaming work?
6) Section 3(b) of H.R. 2380 requires an interactive computer service provider, once given mere notice by law enforcement agents, to discontinue furnishing any facility that ''is being used or will be used for the purpose of transmitting or receiving gambling information'' in violation of law.
a) In contrast to telephone communications, which typically travel over circuit switched networks, Internet communications use packet switching. Each Internet message gets broken into discrete packets, which travel over various and unpredictable routes until received and reassembled at the message's destination. How can Internet service providers discriminate between illicit gaming information and all other Internet traffic?
b) Even if it is theoretically possible for Internet service providers to discriminate against gaming information, how will this intrusive new federal law affect the cost, efficiency, and security of Internet communications?
7) History demonstrates the Founders embraced and defended gaming as part of their inalienable right to ''the Pursuit of Happiness.'' The infamous Stamp Act, which triggered the shot at Concord ''heard round the world,'' taxed playing cards and dice.(see footnote 10) While drafting the Declaration of Independence, Thomas Jefferson relaxed by gambling on backgammon, cards, and bingo.(see footnote 11) Benjamin Franklinusing his era's most advanced technologyprinted a good portion of the colonies' playing cards.(see footnote 12) George Washington regularly bet on horses, gambled in card games, and bought lottery tickets.(see footnote 13) Washington managed public lotteries, as did Franklin and John Hancock.(see footnote 14) Lotteries even helped pay for the first home of the U.S. Congress,(see footnote 15) as well as for public buildings throughout the new U.S. capital.(see footnote 16) How could the current Congress justify stripping the American people of rights that the Founders fought for, won, and exercised?
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I thank you for soliciting my input and encourage you to share my comments and questions with your colleagues. I am currently working on a policy briefing on Internet gaming, and will plan to send you a draft in a few weeks. In the meantime, please feel free to contact me if I can be of further assistance in this matter.
|Tom W. Bell, Director,|
|Telecommunications and Technology Studies|
From: Dow Jones News/Retrieval
Source: Times Union (Albany, N.Y.), January 6, 1998
Copyright 1998 Dow Jones & Company, Inc. All Rights Reserved.
INTERNET GAMBLING BAN FACES LOSING ODDS BY TOM W. BELL
CATOCLIPSTimes Union (Albany, NY) (TMNN) STORY 7
Internet gambling ban faces losing odds By TOM W. BELL
Page 49 PREV PAGE TOP OF DOC WASHINGTONThe Communications Decency Act treated Internet users like second-class citizens.
Because the legislation criminalized online expressions that would have remained legal if in print, the Supreme Court ruled it unconstitutionally discriminated against Internet speech.
Now Congress has targeted Internet gambling for discriminatory treatment, apparently undaunted by the harsh lesson in lawmaking.
The Internet Gambling Prohibition Act, sponsored by Republican Sen. Jon Kyl of Arizona, would ban every sort of online commercial contest, everywhere in the United States, for everyone involved.
The Senate Judiciary Committee recently reported Kyl's bill to the full Senate for debate and a final vote.
It already has 11 cosponsors, while its companion bill in the House, introduced by Republican Reps. Bob Goodlatte of Virginia and Frank LoBiondo of New Jersey, has 43.
Kyl has defended the Internet Gambling Prohibition Act as merely an update of the Wire Act, the federal statute that already regulates wagering over the telephone wires.
''Our gambling laws must be consistently written, applied and enforced so that activity which is illegal in one forum is not allowed in another,'' Kyl's news release trumpets.
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Yet his act would repeat the errors of the Communications Decency Act by treating Internet users like second-class citizens. The Internet Gambling Prohibition Act would penalize online gambling more harshly than off-line gambling in several respects.
The act would, for the first time, subject amateur bettors to federal liability for gambling. The existing Wire Act, by contrast, applies only to people ''engaged in the business of betting or wagering.''
E-mail your picks to the office football pool, and under Kyl's bill you would face a $2,500 fine and six months in jail. Phone in your picks and you would remain free.
The act would also, for the first time, make interstate gambling illegal between states that have legalized the games in question.
The existing Wire Act, by contrast, exempts from prosecution ''transmissions'' that assist ''in the placing of bets'' between two states, or a state and a foreign country, so long as both jurisdictions permit such betting.
The Wire Act rightly keeps the federal government out of otherwise legal business, whereas Kyl's bill would create a whole new class of federal crimes.
The act reaches beyond the Internetand even interstate communicationsto interfere with matters better left to state and local authorities.
Page 51 PREV PAGE TOP OF DOC The act's coverage includes ''any information service'' that ''enables computer access by multiple users to a computer server.''
Even an office e-mail system could fall within that broad a definition. The Wire Act that Kyl claims to take as his model modestly, and properly, limits its scope to transmissions ''in interstate or foreign commerce.''
Could this blatant attempt to discriminate against Internet users actually become law?
At first glance, the political odds seem to favor it. After all, few left-wing activists will raise First Amendment objections on behalf of Internet gambling.
And conservatives, while nominally in favor of free markets, make notable exceptions for activities like gambling that smack too much of the pursuit of happiness.
Powerful lobbies favor a ban on Internet gambling. The established, off-line gambling industry has huge overhead costs and a corresponding fear of new competitors. It also brings very deep pockets to the debate.
In 1996 the (legal) gambling industry raked in over $500 billion in revenuesmore than the revenues of new and used car retailers or of food stores.
State and municipal authorities, having grown fond of nurturing and taxing local gambling, worry Internet gambling will put their cash cows out to pasture.
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Their lottery monopolies, which brought in $43 billion in 1996 (up 11 percent from 1995), give state and local authorities a direct stake in preventing citizens from shopping for better odds on the Internet.
Regardless of the political forces working in its favor, though, the Internet Gambling Prohibition Act would make for poor public policy.
We do not need a new law that specially targets Internet gambling because, as the Department of Justice has admitted, the Wire Act already applies.
The Justice Department has, moreover, confessed it cannot enforce a broader ban on Internet gambling. In mid-1996, the National Association of Attorneys General urged the Justice Department to interpret the Wire Act along the lines of Kyl's bill.
The Justice Department declined, explaining, ''The department does not agree that federal law should be amended so broadly as to cover the first-time bettor who loses $5.''
Despite the special interests pushing for its prohibition, most Americans would embrace Internet gambling.
At least 56 percent of Americans gambled in 1996, and legalized gambling represents the fastest-growing sector of the entertainment business.
Page 53 PREV PAGE TOP OF DOC Intemet gambling can help to satisfy the huge demand for new gambling services and provide competition to ensure that existing services treat consumers well.
Indeed, Americans already have shown they support the nascent Internet gambling industry. Analysts calculate that of the $1 billion wagered online in 1997, about $600 million will have come from the United States.
If not stymied by special-interest legislation, the Internet gambling industry by most accounts will grow into a $10 billion business by 2000.
In fact, because the Internet offers individual bettors instant access to overseas gambling sites and relative safety from prosecution, Internet gambling will grow regardless of what lawmakers and prudes want.
Whether you regard gambling as good clean fun, a social disease or the devil's handiwork, the Internet Gambling Prohibition Act faces losing odds in the long run.
Lawmakers lost an awful lot of political capital in the Internet community by supporting the Communications Decency Act.
That spectacular failure holds a lesson about laws like the Internet Gambling Prohibition Act: Given a chance to vote on an unenforceable law that discriminates against Internet users, lawmakers should walk away from the table. Tom W. Bell is director of telecommunications and technology studies at the Cato Institute in Washington.
Page 54 PREV PAGE TOP OF DOCPREPARED STATEMENT OF DAVID MATHESON, CEO OF GAMING, COEUR D'ALENE TRIBE
We welcome the opportunity today to address the facts regarding Indian Gaming and the use of the Internet. This topic deserves to be discussed free of the misinformation on the history and legal underpinning of Indian Gaming. Congress and this Committee are entitled to testimony that will illuminate these serious and important issues and aid in your thoughtful deliberation. We hope to provide that assistance today.
The facts as to the National Indian Lottery designed and operated by the Coeur d'Alene tribe with the help of our management contractor Unistar are as follows:
1. In the 1986 Cabazon case, the Supreme Court severely restricted the authority of States over Indian gaming activities on native lands within their borders. As a result of, and in reaction to Cabazon, Congress enacted the Indian Gaming Regulatory Act (IGRA) of 1988. The IGRA defined three classes of Indian gaming, established the jurisdictional and regulatory control for each class and created the National Indian Gaming Commission (NIGC) to enforce the provisions of IGRA.
2. Lotteries are defined as Class III gaming. Class III gaming is governed by the terms of the Tribe/State compact, the rules and regulations of the NIGC, and in our case, the Tribal Council.
3. In 1992, the Coeur d'Alene Tribe signed a Compact with the State of Idaho. compact specifically provides for the conduct of these National Indian Lottery games. Article 6.2.1 of the Compact authorizes the Tribe to conduct lotteries defined as ''state lotteries.'' ''State lottery'' is defined by Article 4.19 to include ''scratch off games,'' ''lotto'' and ''pull tab games.''
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4. The Compact was approved by the Secretary of the Interior on February 5, 1993 and notice thereof was published in the Federal Register.
5. The Tribe entered a management agreement for the conduct of the National Indian Lottery. The Chairman of the NIGC properly exercised his jurisdiction in approving the management contract and the amendments thereto.
6. By resolution, the Tribe has authorized the National Indian Lottery to be conducted under the management agreement.
7. The Chairman of the NIGC clearly acknowledged the lawfulness of the National Indian Lottery's when he stated in a letter to counsel for MCI dated September 21, 1995, that:
In the view of the NIGC, the tribe has complied with all the requirements of the IGRA and the regulations of the NIGC with respect to its lottery proposal. Because a lottery is a class III game, the Tribe entered into the required compact with the State of Idaho, and that compact was approved by the Secretary of the Interior. In addition, the Chairman of the NIGC approved the Tribe's gaming ordinance as required by the IGRA. Finally, the Chairman approved a management contract between the Tribe and Unistar Entertainment, Inc. to conduct the tribal lottery.
In the opinion of the NIGC, the Tribe's lottery activity, which involves customers purchasing lottery tickets with a credit card both in person and by telephone from locations both inside and outside the State of Idaho, is not prohibited by IGRA.
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The Coeur d'Alene Tribe has complied with IGRA and all other applicable rules, regulations and laws. We have now spent over 5 years satisfying these requirements and have spent $12 million in cash to build a state of the art computer System that permits the operation of our lottery in compliance with IGRA. Every step of the way we have faced roadblocks. Although federal law authorizes us, we have been subject to constant harassment by various states that object to our lottery. They have interfered with our ability to obtain from the long distance carriers 1800 service. In response to this groundless interference, we sought and obtained rulings from the Tribal Court and Tribal Appellate Court validating the legality of our lottery and our entitlement to 1800 service. Those decisions are now on appeal to the federal district court in Idaho. Actions have also been brought by the Attorney Generals of Missouri and Wisconsintwo states who offer lotteries and scratch off games to their own citizens, as do the other 34 states and District of Columbia where the Tribe's games are available. By choice, the Tribe has elected to offer its gaming only to those persons who live in a jurisdiction where lotteries are lawful. Officials in some of these states are opposing our lawful lottery not because they oppose lotteries in their states, but because they fear competition to lotteries in their states.
We have recently started a weekly lottery with customers being able to participate by using their telephones and using their own long distance carrier to reach the computers on the Indian reservation as well as using the Internet to access and participate in gaming on the Reservation.
Our opponents mischaracterize our lottery. We are not an offshore gambling company. We are a lottery run by a sovereign nation in accordance with our laws and the laws of the Federal Government and the State of Idaho. We are no different than any of the state lotteries.
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Our opponents claim we are not regulated. This is not true. We are regulated by the federal government through IGRA, the NIGC and the Department of Interior, by the State Government through our compact with the State of Idaho, and by the Tribal Government through the Coeur d'Alene Charitable Gaming Board. The employees of the lottery undergo extensive background checks including fingerprinting which is sent to the FBI. Our operation and financial information is audited and reviewed routinely and reports are submitted at least annually. Although it is not required, the Tribe has hired Arthur Andersen, one of the big six accounting firms, to conduct an annual audit of our financial results. We have also hired Arthur Andersen to be on site for each of our weekly drawings to ensure compliance with all of the procedures that have been put in place to establish a fair and honest lottery.
Our opponents offer the following baseless attacks to undermine this lawful and well-regulated gaming activity.
1. They claim that consumers don't know who is at the other end of the connection. This is not true. We openly publicize who we are, and where we are. Anyone can visit us on the Coeur d'Alene Reservation or call us. Our reports are on record with the NIGC and available to anyone who wishes them.
2. Our opponents claim the odds can easily be manipulated and there is no guarantee that fair payouts will occur. This is not true. Our Internet instant lotteries are established by standard statistical means, and our weekly telephone draw lottery is run under tight controls using standard pari-mutuel concepts. The methods by which we control our lotteries are the same methods used by the States. We invite any State to come visit our Reservation, review our procedures and advise us of any problems they observe with our games. Arthur Andersen audits the operation of the Tribe's games and the Tribe has hired independent testing organizations to run independent tests. We guarantee that any one who wins gets paid. We are here in the U.S. We are not running to a far off island to hide. We recognize that as the first Indian tribe to establish this operation, we are under the careful eye of the Federal Government. The FBI has visited us on a number of occasions during the time the lottery has been set up, and they have advised us of no problems. We have reviewed with computer experts from the FBI the various internal controls and the methodology used in the lottery and to the best of our knowledge they were satisfied that we have a fair and honest lottery.
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3. Our opponents claim that if a customer experiences problem in cyberspace, it will be hard to find us. Not true. We live and work on the Reservation and we have no intent nor can we move the Reservation.
4. Our opponents claim that the contract to purchase is not being made on the Reservation as required by IGRA. We disagree. It has long been held that when contracting takes place over telephone lines, the ''contract'' is made where the ''offeree (in this case the Coeur d'Alene Tribe) speaks the words of acceptance into the telephone transmitter.'' Whether by Internet or telephone the National Indian Lottery and its US Lottery are played on the Reservation. The offer is accepted on the Coeur d'Alene Reservation. The consideration is also paid on the Coeur d'Alene Reservation from the player's account previously established on the Coeur d'Alene Reservation. The gaming contract is thus made on the Coeur d'Alene reservations.
5. Our opponents claim that it is too easy for underage minors to play our lottery whether on the Internet or by telephone, We strongly disagree. Clearly, if someone wishes to violate the law and if a minor misrepresents his age and obtains access to a credit card and unlawfully uses it, then all of our controls and all laws can be initially violated. However, once verification of the account is sent to the lawful credit card holder, this unlawful access by the minor should end. This fact was recently demonstrated when the Attorney General of Missouri in an effort to undermine the Tribe's gaming, sat a 14-year old at a computer in Missouri, told him to use the credit card of another and call and give false information to the Reservation to set up an accountall in violation of the specific rules and regulations of the US Lottery and the laws of Missouri. All the precautions in the world cannot prevent such blatant fraud. Indeed, if the Attorney General gave a fake ID to a 20-year old, the vendor selling him beer could hardly be faultedany more than the vendor of catalog goods sold through the unlawful use by telephone of a stolen credit card. Nevertheless, our system does provide safeguards to prevent use by minors. Our system requires the user to have a credit card. We match the address provided on the application to the credit card before we allow access. We regularly run match tests between our database of social security numbers and other databases available to determine age ranges by generic number sequences. We require all subscribers to have a unique password. We mail all correspondence to the person and address listed on the credit card so if a minor were playing, the adult would still be the person receiving e-mail and normal mail. We do not credit the Visa account with any winnings. The only way to receive winnings is by a check we issue and mail again directly to the mailing address on the credit card. If the states were truly interested in protecting against minors purchasing lottery tickets, they could work with us to verify drivers license numbers as an additional check. Wouldn't we all have a better solution if the states would agree to work with us and place any additional safeguard into the system rather than trying to undermine and entrap a lawful activity.
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6. Our opponents claim that making the purchase of lottery tickets so easy and fast on the Internet or by telephone will increase problem gambling and lead to increased addiction. Again, we believe this is in error. First, we have voluntarily established that no one can lose more than $500 a month. Therefore, we have put a self-imposed credit limit on all of our subscribers. Secondly, unlike any other gambling activity, including all of the land based casinos, we maintain a record of how much someone has won or lost on the system. If the federal government wanted to pass a law that said under certain circumstances individuals should not be allowed to purchase lottery tickets we could specifically block those people from playing.
Mr. Chairman, a specifically stated goal of IGRA is ''to promote tribal economic development, tribal self-sufficiency, and strong tribal government.'' The Coeur d'Alenes take our responsibilities to our members seriously and have established the lottery to accomplish self-sufficiency just like the government of any state. Already, the lottery is bringing new jobs and better education to the Reservation. Our people are moving into a new era and for the first time with the aid of technology we are able to participate even though our Reservation is not located near any of the population centers of this country. For the first time we have an opportunity to use our creativity and commitment to work hard to help ourselves and build a future for our children. We have committed to provide economic help to non-gaming tribes. To the best of our knowledge and belief, we are the only gaming Tribe to voluntarily share its profits with non-gaming tribes. We do not seek relief from regulation. It is undisputed that the Coeur d'Alene Tribe's gaming is regulated fully. The legitimate fears and concerns raised by gaming that occurs beyond U.S. shores and outside the jurisdiction of the federal, state or local governments of this country simply have no application to the lawful and fully regulated gaming activities of our Tribe. We agree that disreputable, fraudulent and unregulated gambling cannot be tolerated and this body must take reasonable steps to protect the American public, but we urge you not to penalize those who abide by the federal law, are authorized to engage in gaming and who have done so responsibly and in compliance with all federal, state and local requirements.
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We are not part of the problem that the Goodlatte bill in its current form seeks to solve. The amendments to the wire act proposed in a companion bill in the Senate (S. 474) which specifically seems to single out our lottery will not solve the issues. We stand ready, willing and able to cooperate with you and any federal agency to work together to fashion a regulatory framework that satisfies the legitimate concerns presented by unregulated gaming.
Mr. Chairman, we have suffered long and hard on our Reservation. The Congress of the United States in passing IGRA has provided Indian Tribes the means and opportunity to pull themselves out of the cycle of poverty and despair. We want to be independent and productive. We want our children to be educated, healthy, and contributing members of our society. We are a proud people with a strong heritage. We ask that you do nothing that will deny us the rights and opportunities now provided by existing law. We ask once more that the U.S. Government honor its commitment to us as we have honored your laws by complying fully with all of its requirements. We come here as citizens of the United States and as citizens of Indian country. We are a law-abiding people and wish to be treated with the dignity and respect we deserve. We ask for your help today.
Thank you for the opportunity to present our position to you today.
Mr. MCCOLLUM. Mr. Fahrenkopf, we will begin with you. If you can give us a summary of your testimony, we would appreciate it.
STATEMENT OF FRANK FAHRENKOPF, JR., PRESIDENT AND CEO, AMERICAN GAMING ASSOCIATION
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Mr. FAHRENKOPF. Thank you, Mr. Chairman. I am Frank Fahrenkopf, the President and CEO of the American Gaming Association. The AGA represents the commercial hotel-casino entertainment industry in this country, which consists primarily of publicly-held companies listed on the New York, American and Nasdaq stock exchanges, and which are closely regulated not only by State and local governments, but by the Securities and Exchange Commission. Most of these companies' names are familiar to youITT, Hilton, MGM, Mirage, Harrah's, et cetera.
The AGA does not oppose H.R. 2380, the Internet Gambling Prohibition Act of 1997. Now, many may think it an anomaly that a national association that represents the casino gaming industry would take such a position. Some postulate, and some may today postulate on this panel, that the traditional gaming industry is somehow fearful of the competition from Internet gambling. Let us put that to rest immediately. For whatever business Internet gaming might garner, if the well-branded casino companies in this country entered that market, I don't think there is any question that they would quickly capture a dominant market share.
Our major concern with Internet gambling concerns the use of this new technology to avoid Federal and State regulatory controls, and frustrate State policies on the availability of gaming within their jurisdictions. Since the formation of the Union, individual States have, pursuant to the Tenth Amendment to the Constitution, retained the power to decide gaming policies within their own borders.
Now, many critics of this bill argue that history has shown that prohibition does not work. Well, the fallacy in that argument is that the option today is not between gambling and no gambling; it is between unregulated and regulation gambling. Legal, regulated gambling, as you pointed out, Mr. Chairman, is available in some form in 48 of the 50 States. Only the States of Hawaii and Utah are excepted.
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In every instance, State government has the opportunity, and indeed the obligation to ensure the honesty, integrity, and fairness of the gaming industry within its borders, and to set fundamental gaming policy. I want to make one thing extremely clear with regard to our testimony, that it is tough State regulatory and law enforcement controls that provide integrity to today's gaming industry in this country, regardless of what form of legal gaming we are talking about.
The Internet, however, presents technology that brings gambling opportunities directly into a person's home without regard to regulations and policies otherwise applicable to gaming. The Internet operator may be doing business in another State or another country. Almost without exception, they are outside the jurisdiction of the State government to regulate or police. The situation robs the various States of the opportunity to decide gambling policy within their own borders. Moreover, this does not only impact those States that prohibit gambling, but it also impacts the majority of States that today regulate it.
Between States with legal gambling opportunities, there exist many differences in gaming policies. Some may restrict gambling to certain areas, as New Jersey does. Others may place bet or loss limits, and still others permit some, but not all types of games. I can represent without a doubt to this panel, that casino gaming today in this country is the most highly regulated industry in America. Perhaps the Atomic Energy Commission might disagree with that, but I don't see any other industry that compares with the regulation that we are under.
Gaming regulators for the government effectively control all aspects of casino operations to assure compliance with all State and local laws and policies. For example, stringent licensing procedures assure that only suitable persons obtain licenses to operate the casinos. Strict enforcement assures that the games are fair and honest and that only responsible adults are allowed to participate. Detailed accounting procedures assure that all monies are accounted for and proper taxes paid.
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With regard, unfortunately, to Internet gaming technology today, in our view, mandatory licensing, enforcement and auditing are impossible. Internet gambling could result in an acceptable situation where patrons are cheated by unlicensed and unsuitable operators. Moreover, these defrauded individuals would not have any means of legal redress. State governments would be equally frustrated in enforcing policies that, among other things, as I have earlier said, may limit the amount of wagers, impose loss limits, or prohibit gambling by minors. Tax revenues that go to support important State programs would go uncollected.
Furthermore, there is no doubt in my mindand I think this is a major concernthat unregulated Internet gambling could circumvent various Federal anti-money laundering requirements. We work closely day in and day out with the Internal Revenue Service and the Treasury Department in compliance with money laundering requirements.
In sum, Internet gambling, in our view, should not be sanctioned until demonstrable methods are shown that allow States to retain their right to set policy and enforce State law for gaming activities by persons within their boundaries. It is important to emphasize that as Congress drafts legislation in this area, it not make illegal what is now and should remain legal in terms of the use of the Internet and other online technologies by gaming companies.
For example, hotels and businesses generally, including casino hotels, have World Wide Web sites to advertise their properties and accept online room reservations, et cetera. Federal legislation to prohibit actual interactive gambling should not prohibit Internet marketing by casino hotels or interfere with legal activities, like the legal sports-book wagering in Nevada and off-track betting in a number of States around the country. A Federal prohibition aimed at actual gambling transactions on the Internet need not prohibit or interfere with the use of new technologies for the data transmission associated with such legal wagering.
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But, Mr. Chairman, with all this being said, laws to prohibit Internet gambling must come with a commitment of time, expertise, and funding to enforce them. An undesirable scenario would occur if Federal laws were passed, but go unenforced. This would allow the offshore industry to exist, grow, and probably prosper without proper oversight. We state this being fully cognizant of the challenge of enforcement, and I hope you are going to hear more about that today.
Enforcement is the real challenge that faces this legislation. Without effective enforcement, States will suffer the entire burden of the Internet gaming industry. States will find it impossible to protect their interests. When the individuals or companies that operate the Internet site are operating offshore, the State, of course, has no law enforcement authority. Total reliance, therefore, would have to be placed on the Federal Government to use diplomatic powers and its treaty powers for enforcement efforts. This will require the Federal Government to make a sincere commitment to opening diplomatic channels to assure international cooperation in the enforcement of the law. It will also require the Federal Government decide the time, personnel, and expense to see this policy through to fruition.
We at the AGA would welcome the opportunity, Mr. Chairman, to continue to discuss this and other details with this committee as this legislation moves forward.
[The prepared statement of Mr. Fahrenkopf follows:]
Page 65 PREV PAGE TOP OF DOCPREPARED STATEMENT OF FRANK FAHRENKOPF, JR., PRESIDENT AND CEO, AMERICAN GAMING ASSOCIATION
Good morning. I am Frank Fahrenkopf, president and CEO of the American Gaming Association. The AGA represents the commercial hotel-casino entertainment industry, which consists primarily of publicly held companies listed on the New York, American and NASDAQ Stock Exchanges and which are closely regulated, not only by state and local governments, but by the Securities and Exchange Commission.
The AGA does not oppose H.R. 2380, the ''Internet Gambling Prohibition Act of 1997.'' Many may think it an anomaly that a national association that represents the casino gaming industry would take such a position. Some postulate that the traditional gaming industry is fearful of the competition from Internet gambling. This is, of course, ridiculous. For whatever business that Internet gambling may garner, if the well-branded casino companies entered that market, they would quickly capture dominant market share.
Our major concern with Internet gambling concerns the use of this new technology to avoid federal and state regulatory controls and frustrate state policies on the availability of gaming within their jurisdictions. Since the formation of the Union, individual states have, pursuant to the dictates of the 10th Amendment, retained the power to decide gambling policies within their own borders.
Many critics of this bill argue that history has shown that prohibition does not work. The fallacy in that argument is that the option is not between gambling and no gambling, it is between unregulated and regulated gambling. Legal, regulated gaming is available in some form in 48 of the 50 states. In every instance, state government has the opportunity and, indeed, the obligation to assure the honesty, integrity and fairness of its gaming industry and to set fundamental gaming policies. It is tough state regulatory and law enforcement controls that provide integrity to today's gaming industry.
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The Internet presents technology that brings gambling opportunities directly into a person's home without regard to regulations and policies otherwise applicable to gaming. The Internet operator may be doing business in another state or another country. Almost without exception, they are outside the jurisdiction of the state government to regulate or police. This situation robs the various states of the opportunity to decide gambling policy within their own borders. Moreover, this does not impact only those states that prohibit gambling, but also those majority of states that regulate it. Between states with legal gambling opportunities, there exist many differences in gaming policies. Some may restrict gambling to certain areas; others may place bet or loss limits, and still others permit some, but not all, types of games.
One can safely represent that casino gaming is among, if not the most highly regulated industry in America. Government regulators effectively control all aspects of casino operations to assure compliance with all state and local laws and policies. Stringent licensing procedures assure that only suitable persons obtain licenses to operate the casino. Strict enforcement assures that the games are fair and honest and that only responsible adults are allowed to participate. Detailed accounting procedures assure that all moneys are accounted for and proper taxes paid.
With regard to Internet gambling technology today, mandatory licensing, enforcement and auditing are impossible. Internet gambling could result in an unacceptable situation where patrons are cheated by unlicensed and unsuitable operators. Moreover, these defrauded individuals would not have any means of legal redress. State governments would be equally frustrated in enforcing policies that, among other things, may limit the amount of wagers, impose loss limits, or prohibit gambling by minors. Moreover, tax revenues that go to support important state programs would go uncollected. Furthermore, unregulated Internet gambling could circumvent various federal anti-money laundering requirements with which AGA members now comply.
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In sum, Internet gambling should not be sanctioned until demonstrable methods are shown that allow states to retain their right to set policy and enforce state law for gaming activities by persons within their boundaries.
It is important to emphasize that as Congress drafts legislation in this area, it not make illegal what is now and should remain legal in terms of the use of the Internet and other on-line technologies by gaming companies. For example, hotels and businesses generally, including casino-hotels, have World Wide Web sites to advertise their properties and accept on-line reservations. Federal legislation to prohibit actual interactive gambling should not prohibit Internet marketing by casino-hotels or interfere with legal sports-book wagering in Nevada and off-track-betting in a number of states. A federal prohibition aimed at actual gambling transactions on the Internet need not prohibit or interfere with the use of new technologies for the data transmission associated with such wagering.
We, at the AGA, would welcome the opportunity to continue to discuss these and other details as the legislative process moves forward.
With all this being said, laws to prohibit Internet gambling must come with a commitment of time, expertise and funding to enforce them. An undesirable scenario would occur if federal laws were passed, but not enforced. This would allow the offshore industry to exist, grow and probably prosper without proper oversight. We state this, being fully cognizant of the challenge of enforcement.
Without effective enforcement, states will suffer the entire burden of the Internet gaming industry. Its citizens that gamble online will have insufficient protection from unscrupulous operators or legal recourse if they are defrauded. State governments will be unable to control underage gambling or to limit gambling to suitable locations.
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These same states will find it difficult to protect their interests. When the person that operates the Internet site is operating offshore, the state has no law enforcement authority. Total reliance must be placed on the federal government to use diplomatic powers and its treaty powers for enforcement efforts.
This will require the federal government to make a sincere commitment to opening diplomatic channels to assure international cooperation in the enforcement of the law. It will also require that the federal government dedicate the time, personnel and expense to see this policy through to fruition.
Mr. MCCOLLUM. Thank you very much for that comprehensive overview of the issue, which is very broad indeed.
STATEMENT OF DOUGLAS DONN, MEMBER, BOARD OF DIRECTORS, NATIONAL THOROUGHBRED RACING ASSOCIATION
Mr. DONN. Good morning, Mr. Chairman and committee members. On behalf of the horse industry, I appreciate this opportunity to testify in front of you.
I am Doug Donn, President and CEO of Gulfstream Park, in Hallandale, Florida. I appreciate the opportunity to present the views of the horse industry on this important issue. I am testifying today on behalf of the American Horse Council and the National Thoroughbred Racing Association, which collectively represent almost every organization in the racing industry.
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Our industry is opposed to any unauthorized or unregulated gambling, particularly on horse racing. The regulation of gambling is essential to protect State policies and revenues, the racing industry's ability to control its own product, and the integrity of racing. At the same time, this legislation involves very complicated legal and technical issues, and we are concerned that changes to the Federal wire statute, Section 1084 of the Federal Criminal Code, as proposed by the legislation, might adversely impact what racing is doing now under State regulation and what it hopes to do in the future.
We are particularly concerned about its effect on our ability to disseminate information about racing, to merge betting pools across State and international boundaries, which we do now, and to continue to offer account wagering in States where it is legal, which is also being done now, or in States that might want to legalize it in the future.
Pari-mutuel horse racing is legal in 43 States. There are over 175 racetracks in the U.S. Racing is a diverse industry that involves sport, recreation, entertainment, and wagering, and is built upon an agricultural base. It is very unique. Racing and race horse breeding have a total economic impact in the United States of $34 billion, and generate 472,000 total full-time equivalent jobs. There are 941,000 people and 725,000 horses involved in the racing industry. Racing is an activity that attracts many fans who appreciate it and follow it as a sport, and enjoy the excitement of the race and the athletic ability of the horses.
Throughout American history, the prohibition or legalization and regulation of gambling has primarily been a function of the States. Racing has been conducted in the U.S. under State authority and regulation for over 75 years. While horse racing is a sport upon which you can wager, it is different from any other forms of gambling. Horse racing uses the pari-mutuel system in which bettors wager against one another instead of against the house. The odds are set by the bettors themselves. Horse racing is a game of skill.
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In addition to the Federal wire statute which regulates interstate betting, horse racing must comply with another Federal statute specifically enacted to give racing a framework to expand across State lines. In 1978, Congress enacted the Interstate Horseracing Act. In that Act, Congress suggested that with respect to the limited area of interstate off-track wagering on horse racing, there is a need for Federal action to ensure that States will continue to cooperate with one another in the acceptance of legal interstate wagers. Congress also stated that the purpose of the IHA was to regulate interstate commerce with respect to wagering on horse racing in order to further the horse racing and legal off-track betting industries in the United States.
Over the last 25 years, many States and the Federal Government, under the Interstate Horseracing Act, have authorized racetracks to transmit signals of their races into other States and jurisdictions under applicable law. And, of course, this is all being done today. Today, over two-thirds of money wagered on racing is bet at facilities or locations other than where the race itself is run. In other words, most of the money will be wagered very soon in jurisdictions other than the State in which the race is actually being run. This is happening now, again all with the approval and regulation of the States involved.
Another form of pari-mutuel wagering on racing that has expanded over the two last decades is account wagering, primarily telephone wagering. It is presently legal and operating to varying degrees in 8 States. For example, telephone betting has been offered in New York for over 15 years. All of this has been approved and regulated by the State authorities involved. At least 6 other States are presently considering this form of wagering on racing.
Page 71 PREV PAGE TOP OF DOC This legislation is critical to the racing industry because it involves very complicated legal and technical issues. We are concerned that any changes to Section 1084 might adversely impact what racing is already doing under State regulation and what it hopes to do in the future, also under State regulation. It is critical to the future of the racing industry that all distribution mechanisms of racing information and its products be available so long as they continue to meet the regulatory criteria established by State governments. It is also critical that the racing industry have the opportunity to take advantage of all technological advancements in the future distribution of its information and products in order to successfully compete.
We believe that the purposes of this legislation and the particular needs of racing can both be accommodated without infringing on Federal or State public policies. We look forward to working with the chairman of the subcommittee, the sponsors of the bill, the members of the committee and the staff to accomplish this, as we have with Senator Kyl in the Senate.
We appreciate the opportunity to present these comments on this important legislation and would be happy to respond to any questions.
[The prepared statement of Mr. Donn follows:]
PREPARED STATEMENT OF DOUGLAS DONN, MEMBER, BOARD OF DIRECTORS, NATIONAL THOROUGHBRED RACING ASSOCIATION
I appreciate this opportunity to present the views of the horse industry on H.R. 2380, the ''Internet Gambling Prohibition Act of 1997.''
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I am testifying today on behalf of the American Horse Council, which includes 185 equine organizations representing several hundred thousand individual horse owners and breeders, involved with all breeds of horses and all activities, and the National Thoroughbred Racing Association, which was recently organized by the Thoroughbred racing family to increase Thoroughbred racing's public awareness, fan base, total handle and purses.
Included among the associations represented by both organizations are the major associations of race tracks, breeders groups and horsemen's organizations which collectively comprise the pari-mutuel horse racing and breeding industry. The individual members include owners, breeders, jockeys, drivers, trainers, veterinarians, farriers and other professionals whose livelihood depends on racing and the horse.
It is on behalf of this pari-mutuel sport and business, a major segment of the American horse community, that we present our views on the issues surrounding this bill.
THE PARI-MUTUEL RACING AND BREEDING INDUSTRY
Pari-mutuel horse racing, including off-track and inter-track wagering is legal in 43 states and involves the racing of Thoroughbreds, Standardbreds, Quarter Horses, Arabians, Appaloosas and Paints. There are over 175 racetracks in the U.S. Racing and race horse breeding is a widespread and diverse industry that includes gambling, sport, recreation and entertainment and is built upon an agricultural base that involves the breeding and training of horses.
Page 73 PREV PAGE TOP OF DOCEconomic Impact
According to the study of the Economic Impact of the Horse Industry in the United States done by Barents Group, LLC, the economic and fiscal consulting unit of KPMG Peat Marwick LLP, for the American Horse Council Foundation, racing and race horse breeding have a total economic impact in the U.S. of $34 billion and generate 472,800 total Full-Time-Equivalent jobs. There are 941,000 people and 725,000 horses involved in the racing industry.
Wagering on horse racing is permitted in 43 states and there is an active horse breeding and training business in all 50 states. In many, the economic contribution of the racing and breeding industry to state and local economies is substantial and the industry ranks among the state's most significant economic entities. For example, in Florida, it involves 37,000 horses, has a $2.1 billion economic impact and generates 27,300 full-time equivalent jobs; in California, it involves 69,000 horses, has a $4.1. billion impact and generates 52,000 FTE jobs; in Illinois, it involves 52,000 horses, has a $2 billion economic impact and generates 30,700 FTE jobs; in Ohio, it involves 40,000 horses, has a $1.3 billion economic impact and generates 17,000 FTE jobs; and in Texas, it involves 74,000 horses, has a $1.8 billion economic impact and generates 27,900 jobs.
In 1996, pari-mutuel racing generated over $500 million in direct state and local revenue from pari-mutuel taxes, track licenses, occupational licenses, admission taxes and miscellaneous fees.
Racing as a Sport
Page 74 PREV PAGE TOP OF DOC Racing is an activity that attracts many fans who appreciate it and follow it as a sport and who enjoy the excitement of the race and the athletic ability of the horses. The Triple Crown races in the spring of each year are shown on national television and widely-reported in the sports media. Individual stakes races are broadcast during the year and the Breeders Cup, Breeders' Crown and Racing Challenge are covered by television and the media as the championships of Thoroughbred, Standardbred and Quarter Horse racing, respectively. In addition, most major U.S. newspapers cover racing and print the results of the races at their local tracks, much like they print the box scores of other sports.
As other sports and entertainment have expanded in the U.S., racing has been affected. Attendance is no longer expanding, as it once was, although last spring's exciting pursuit of the Triple Crown by Silver Charm certainly piqued the interest of a broader base of fans and shows there is a continuing interest in racing in America. Racing is working hard to attract back the fans lost and make new fans.
The Pari-Mutuel System
While horse racing is a sport on which one can gamble, it would be erroneous to assume that pari-mutuel wagering is the same as other forms of gambling. Unlike most other forms of gambling, horse racing uses the pari-mutuel system in which bettors wager against one another instead of against the ''house.'' Of the total amount wagered on a particular race, approximately 80% is returned to winning bettors. The other 20%, called the ''takeout,'' is shared between the state government, the race track and the horsemen who race at the track. Takeout rates, which vary from state to state, are published in track programs, which are available at race tracks and simulcast wagering sites away from the track, so that fans know the rates and how they might affect their wagering.
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Wagering computations are accomplished by a totalisator machine, a computer, which adds bets over and over again during the course of betting. Every 30 to 60 seconds the ''tote'' flashes new betting totals and odds for each horse. The machines contain a number of features designed to minimize the potential for pari-mutuel fraud or machine malfunction. These features include coded ticket paper and duplication of all critical functions by two computers working independently of one another.
We point this out because the pari-mutuel system and the published information available ensures that the public has easy access to data regarding their true chances of winning. There is little chance of manipulating the odds and therefore the payouts. The use of the tote machine allows bettors to determine their chances of winning every 30 to 60 seconds. In addition, the race upon which the wager is made, and paid, is a public event, watched by the fans at the track or off-track facility, often viewed by others on television or cable, and always overseen by the stewards at the track itself and the state racing commission to ensure the integrity of the race.
In 1996, tens of millions of people attended the races and wagered over $14.7 billion, 80% of which was returned to the winning players.
FEDERAL AND STATE POLICIES ON GAMBLING
Gambling, including that conducted on horse racing, has always been of concern to the federal and state governments. Throughout American history, the prohibition or legalization and regulation of gambling has primarily been a function of the states. The only time that the federal government has become involved has been when a state could not solve a problem by itself. But even in these instances, for the reasons discussed above and others, pari-mutuel racing has often been treated either differently or specifically considered under federal gambling laws. (See, for example, 18 U.S.C. Section 1953(b), the companion legislation to the Wire Act.)
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The racing industry has developed to its current status under a regulatory framework of state law and regulation, the Federal Wire Statute, Section 1084 of Title 18 of the U.S. Code and the Interstate Horse Racing Act of 1978. If racing and breeding hopes to expand and develop a broader base, it must be able to do so under these same statutes.
State RegulationA Long History
Pari-mutuel racing has been conducted in the United States under state authority and regulation for over 75 years. In every state that has allowed legalized wagering on horse racing, strict state oversight and regulation has accompanied its introduction and growth. In each state the pari-mutuel industry is regulated by an agency most commonly known as the state racing commission. Among commission prerogatives are the licensing of track and horse owners, trainers, jockeys, drivers and all others involved in the pari-mutuel sport, and the promulgation and enforcement of the specific regulations under which the industry must operate. All matters pertaining to the operation of pari-mutuel racing are regulated by these agencies on behalf of the governor and state legislatures.
Over the years the states have consistently acted on the perceived need to closely regulate legal wagering and protect the public's interest in pari-mutuel sports. Th actions of state legislatures and the racing commissions which carry out their policies have been predicated on the desire to: (1) maintain the integrity of the events on which the public is allowed to wager; (2) oversee the state's tax-related and economic interest in that wagering; (3) ensure that licensees meet specific standards of qualification; and (4) control any unsavory elements which may attempt to associate with the wagering aspects of the sport.
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The Federal Wire Statute
The industry has had to comply with the Federal Wire Statute, which was adopted in 1961 to regulate interstate betting. 18 U.S.C. Section 1084(a) provides federal criminal penalties on anyone ''engaged in the business of betting or wagering'' who knowingly uses a ''wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.''
Section 1084(b) includes exceptions for wagering activities ''from a state or foreign country where betting on that sporting event or contest is legal into a state or foreign country in which such betting is legal.''
H.R. 2380 would amend the Wire Statute.
The Interstate Horseracing Act of 1978
In 1978, Congress enacted a federal statute that specifically deals with interstate gambling on horse racing. The Interstate Horseracing Act of 1978 (IHA) made clear that a race track controlled wagering on its races in interstate and international commerce and provided for industry and regulatory approvals before betting was permitted between jurisdictions where the wagering was legal.
In the findings to the IHA, Congress said that states have the primary responsibility for determining what forms of gambling may take place within their borders, but that the Federal government should prevent interference by one state with the gambling policies of another. This is one of the expressed purposes of H.R. 2380.
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In the IHA, Congress suggested that with respect to the limited area of interstate off-track wagering on horse racing:
There is a need for Federal action to ensure that States will continue to cooperate with one another in the acceptance of legal interstate wagers.
Congress also stated that the purpose of the IHA was:
To regulate interstate commerce with respect to wagering on horse racing in order to further the horse racing and legal off-track betting industries in the United States.
The IHA has provided the racing industry with interstate control over its product and allowed the industry to develop its current activities within clear parameters and guidelines.
CURRENT ACTIVITIES OF RACING
The dissemination of information about racing, simulcasting, off-track and intertrack wagering, common pool wagering and account wagering have been initiated, operated and expanded under these statutes and state approval, licensing and regulation.
Communication today is very complicated in the highly-complex and ever-changing technological world. In this environment new industries have sprung up whole-cloth forcing existing industries to adapt and change practices in order to compete for the public's support. This is particularly true in the areas of wagering and entertainment.
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Like others, the horse racing industry has had to adapt and change dramatically in the face of exploding competition and new technology. An example of that is that many race tracks, horse associations and private businesses are advertising and offering information on the sport through various media, both traditional and more technological state-of-the-art, including the Internet.
The process of betting on horse racing and selecting the winner is called ''handicapping.'' It is a cerebral process for serious bettors who spend a great deal of time at the track, and elsewhere, pouring over information that will help them select the winners of races. This is not a random selection for students of the sport. The ''handicapping'' information used in this process has been available in written forms since racing began and is similar to the statistical information available for other sports.
The racing industry is presently offering a great deal of this type of ''handicapping'' information in publications, on-the-wire, over 800 and 900 numbers and over the Internet in the way of advertisements for state-licensed and regulated race tracks, information and ''how-to'' sites, ''tout'' sheets, past performance information, betting lines and similar information, that will market the racing product to new fans and allows existing patrons to participate more successfully.
This information cannot be considered a bet or wager, is not necessary to place a bet or wager and is not prohibited by the present statute and we believe should not be affected by any changes to current law.
Page 80 PREV PAGE TOP OF DOCSimulcasting and Common Pool Wagering
Prior to 1970, legal pari-mutuel wagering on racing was limited to those at the track where the race was run. In 1970, the New York legislature approved off-track wagering. As an aside, at that time the computerized system operated by New York OTB (Off-Track-Betting) was one of the first real-time, on-line computer systems in the U.S. Since then, many states, and the federal government under the Interstate Horseracing Act, have authorized race tracks to simulcast or transmit signals of their races off-track into other states and jurisdictions under applicable law.
With the continued development of technology, by the early 1980s racing was able to make its product better for its patrons again. Additional technological changes allowed the linking of pari-mutuel wagering pools among tracks in separate jurisdictions, called ''commingled pools,'' so that payouts could better reflect the size and wagering behavior of the entire betting public.
The racing industry's continuing utilization of state-of-the-art technology has resulted in the ability of the industry to survive and offer its patrons a better product. In fact, today over two-thirds of money wagered on racing is bet at facilities or locations other than where the race itself is run. Again, all with the approval and regulation of the states involved.
Another form of pari-mutuel wagering on racing that has expanded over the last two decades is account wagering, primarily telephone betting. It is presently legal, and operating to varying degrees, in eight states, including Connecticut, Kentucky, Maryland (authorized but not implemented), Nevada, Ohio, Oregon, Pennsylvania and New York without problems. For example, telephone betting has been offered in New York for over 25 years by New York City Off Track Betting and upstate New York Off Track Betting entities, all state agencies. All of this has been approved and regulated by the state authorities involved.
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Other states are presently considering this form of wagering on racing. They include California, Illinois, New Hampshire, Washington, Maryland and New Jersey. In fact, in the latter two, recently-concluded studies of the racing industry specifically recommended that racing be allowed to expand into account wagering. This is the natural result of a state's exercising its traditional authority in the area of wagering.
The industry wants to be able to continue these activities and expand them, provided that a state specifically approves such activity, licenses it and regulates it.
The Interstate Horseracing Act, the Federal Wire Statute, individual state statutes and regulations, state racing commissions and the race tracks themselves all combine to form a very capable regulatory system for pari-mutuel racing.
THE INTERNET GAMBLING PROHIBITION ACT OF 1997 - H.R. 2380
The Internet Gambling Prohibition Act of 1997, H.R. 2380, is a natural response to the current changes in technology. The regulated and licensed pari-mutuel horse racing industry agrees with the intent of this legislation, as characterized by Congressman Bob Goodlatte when he introduced the bill:
. . . this legislation does not preempt any state laws, does not cover online news reporting about gambling, and does not apply to transactions that are legal in both the State in which they originate and the State in which they are received.
Page 82 PREV PAGE TOP OF DOC The regulation of gambling is essential to protect state policies and revenues, the racing industry's ability to control its own product and the integrity of racing. Our industry is opposed to any unregulated or unauthorized gambling, particularly on racing.
Nonetheless, this legislation involves very complicated legal and technical issues and we are concerned that any changes to Section 1084 might adversely impact what racing is doing now under state regulation and what it hopes to do in the future with respect to the dissemination of information, common pooling and account wagering.
We are also concerned that this legislation will be difficult to enforce. If the only entities that obey it are the legitimate, state-licensed pari-mutuel operators, which they will, while others outside the jurisdictions of the federal and state authorities do not, then you have the worst of both worlds. Those who wish to wager will be forced to deal with the unlicenced and unregulated vendors. This could lead to more consumer fraud and not produce any revenues for the federal government, state governments or the racing industry itself.
It is critical to the future of the racing industry, the agri-business it supports, the state revenue and employment it generates, the sporting and the entertainment benefits it provides to countless fans, that all distribution mechanisms of racing information and its product be available, so long as they continue to meet regulatory criteria established by state governments. It is also critical that the racing industry have the opportunity to take advantage of any and all technological advancements in the future distribution of its information and products in order to successfully compete against other forms of gambling, sport and entertainment.
Page 83 PREV PAGE TOP OF DOC Because of the unique status of pari-mutuel racing and the present regulatory structure applicable to it, we believe that the purposes of this legislation and the particular needs of racing can both be accommodated without infringing on federal or state public policies, abrogating strict regulation or lessening the current protections of the public. We look forward to working with the Chairman on the Subcommittee, the sponsors of the bill, the members of the committee and the staff to accomplish this.
We appreciate the opportunity to present these comments on this important legislation and would be happy to respond to any questions.
Mr. MCCOLLUM. Thank you very much, Mr. Donn.
STATEMENT OF WILLIAM S. SAUM, GAMBLING AND AGENT REPRESENTATIVE, NATIONAL COLLEGIATE ATHLETIC ASSOCIATION
Mr. SAUM. Mr. Chairman and members of the subcommittee, I am pleased to appear before you today to express the National Collegiate Athletic Association's support for H.R. 2380, the Internet Gambling Prohibition Act of 1997.
My name is Bill Saum and I am the NCAA's Gambling and Agent Representative. I am the primary staff member responsible for coordinating a comprehensive program to address gambling issues. This program includes developing educational components, conducting investigations involving sports wagering violations, and fostering relationships with various organizations, including local, State and Federal Governments.
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The NCAA has a clear, direct policy regarding sports wagering. The NCAA opposes all forms of legal and illegal sports wagering due to its potential to both undermine the integrity of sporting contests and jeopardizing the welfare of the entire college athletic community.
Wagering on college sports is inconsistent with the basic concept of amateurism and is contrary to the basic purposes of athletic competition. The NCAA membership has adopted specific rules prohibiting athletic department staff members and student athletes from legal or illegal sports wagering. These same rules apply to those of us at the NCAA national office.
Despite Federal and State laws that prohibit wagering on sporting events in every State except Nevada, sports wagering remains a growing problem on our college campuses. I have seen firsthand the negative impact of sports wagering on the lives of our college student athletes. Recent sports wagering and point-shaving scandals that have occurred at Boston College and Arizona State University include student athletes who have been suspended from their teams, those who have lost athletic scholarships, and two student athletes who have been indicted and now face Federal prison terms.
The preliminary evidence regarding sports wagering on college campuses reveal an alarming trend. A recent NCAA-sponsored study indicates that 25 percent of the student athletes have wagered on college athletics. Four percent have wagered on the game in which they participated in, and three athletes who responded to the survey indicated that they changed the outcome of the game they had participated in. In another study conducted by several university researchers, the data revealed that 6 to 8 percent of college students are possible pathological gamblers.
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The growth of Internet gambling is cause for significant concern on our college campuses. Internet gambling provides college students with virtual anonymity, with the opportunity to place wagers on sporting events from the privacy of their campus residence. Accessibility to the Internet is perhaps the greatest concern. Most college students have unlimited use of the Internet and most college residence halls are presently wired for Internet access. In fact, there may be no population group in this country with more access to computers than our college students.
The rapid growth of Internet gambling was outlined in a recent Sports Illustrated cover story. The story reports explosive growth in the Internet gambling industry from $60 million in business in 1996 to $600 million in business in 1998. Furthermore, the number of online sites that handle sports bets has increased from 2 in 1996 to between 60 and 70 in 1998.
H.R. 2380 is a vital piece of legislation. Congress has long recognized that sports wagering has no place in professional or amateur athletics. It is a Federal crime under Section 1084 of Title 18 to use wire communication facilities for purposes of sports wagering. Furthermore, by enacting the 1992 Professional and Amateur Protections Act, Congress took the important step of prohibiting any further legalization of sports wagering by States or other government entities.
Although Internet sports wagering is clearly prohibited under Title 18, H.R. 2380 would strengthen the tools available to enforce the prohibition. H.R. 2380 would provide civil remedies that allow law enforcement officials to require Internet service providers to block access or discontinue service to gambling sites.
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There are many positive uses of the Internet. However, Internet gambling is not one of them. Congress has ensured through legislation that with only a few exceptions, it is illegal to wager on sporting events in this country. Surely, Congress did not intend to make exceptions for those trying to skirt existing Federal and State laws through the use of a new communications medium.
The NCAA has also supported Senate bill 474 which prohibits Internet gambling. The NCAA has worked closely with Senator Kyl and his staff on making refinements to his original bill and would be pleased to work with this House committee in a similar capacity. We strongly endorse H.R. 2380 and urge members of this subcommittee to move quickly in passing this important legislation.
[The prepared statement of Mr. Saum follows:]
PREPARED STATEMENT OF WILLIAM S. SAUM, GAMBLING AND AGENT REPRESENTATIVE, NATIONAL COLLEGIATE ATHLETIC ASSOCIATION
Mr. Chairman and members of the Subcommittee, I am pleased to appear before you today to express the National Collegiate Athletic Association's (NCAA) support for H.R. 2380, The Internet Gambling Prohibition Act of 1997.
My name is Bill Saum and I am the NCAA's Gambling and Agent Representative. The NCAA is a tax-exempt, unincorporated association of approximately 1,150 colleges, universities, conferences and related organizations devoted to the regulation and promotion of intercollegiate athletics for male and female student-athletes. I am the primary staff member responsible for coordinating a comprehensive program addressing gambling issues. My duties in this area include: developing educational materials and programs for NCAA member institutions and student-athletes on issues associated with sports wagering; conducting investigations related to violations of NCAA rules in this area; and fostering relationships with representatives of athletics governing bodies, professional sports leagues, local, state and federal governments, and gaming regulatory bodies in an effort to develop working partnerships on issues related to sports wagering.
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Like many other sports organizations, the NCAA has a clear, direct policy regarding sports wagering. The NCAA opposes all forms of legal and illegal collegiate sports wagering because of its potential to undermine the integrity of sports contests while jeopardizing the welfare of the student-athlete and the intercollegiate athletics community. Wagering on intercollegiate athletics contests is inconsistent with the fundamental concept of amateurism and is contrary to the basic purposes and goals of sports competition, including: rounding out the collegiate academic experience; building integrity and discipline; and enhancing personal welfare and fitness. For its part, the NCAA membership has adopted specific legislation prohibiting athletics department staff members and student-athletes from engaging in sports wagering activities as they relate to intercollegiate or professional sporting events. These same rules apply to the NCAA national office staff.
Despite federal and state laws that prohibit wagering on professional and college sporting events in every state except Nevada, sports wagering remains a growing problem on college campuses and continues to impact intercollegiate sports programs. I have seen firsthand, the negative impact that sports wagering can have on the lives of college student-athletes. I have seen students, their families and institutions publicly humiliated. Students have been expelled from college; they have lost athletic scholarships worth thousands of dollars; and have jeopardized any hope of a professional athletics career. They incur indebtedness beyond their means to repay and are threatened with personal injury or in some cases have been injured in retaliation for lack of payment of a debt. Further, it is reasonable to believe that all book making activities, including campus student book operations can be traced back to organized crime. According to law enforcement officials, organized crime book operations fund other illegal activities such as loan sharking, prostitution, and narcotics trafficking. Although the student may not be aware of this connection, it is many times only one or two people removed from the campus operation.
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You may be aware of the sports wagering and point-shaving scandals that occurred at Boston College and Arizona State University. These cases involved student-athletes: some of whom were subsequently suspended from their teams; others lost their athletic scholarships and two former student-athletes were even indicted and now face federal prison terms.
While there are no comprehensive studies available that analyze the prevalence of sports wagering on college campuses, the preliminary evidence reveals an alarming trend. A recent University of Cincinnati/NCAA-sponsored study randomly surveyed 2000 male student-athletes in Division I basketball and football programs to assess the extent of NCAA rules violations. The survey disclosed that over 25 percent of the athletes reported gambling on college sporting events other than their own while in college. Four percent of the athletes admitted to wagering on games in which they had played. Three of the athletes admitted to changing the outcome of the game in which they played. In another study conducted by several university researchers, the data revealed that six to eight percent of college studentsa higher percentage than any other age groupare probable pathological gamblers.
The media is beginning to recognize the magnitude of this problem. A December 10, 1997 episode of CBS Public Eye highlighted the widespread problem of sports wagering on college campuses. The segment aired footage from a college tavern on game dayjust a few blocks from the University of Nebraska football stadium. A hidden camera revealed several student bookies utilizing celluar phones to accept bets on college games. According to a former bookie who appeared on the show, illegal sports wagering exists on nearly every college campus. This fact has been confirmed by numerous federal and state law enforcement officials and by independent information obtained by the NCAA.
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With this disturbing evidence as a warning sign, the growth of Internet gambling is cause for significant concern among the nearly 1,000 NCAA colleges and universities across the United States. One danger of Internet gambling is that it provides college students with the opportunity to place wagers on professional and college sporting events from the privacy of his or her campus residence. Internet gambling offers the student virtual anonymity, all he or she needs is a credit card or a simple wire transfer from a bank checking or savings account to place a sports wager over the Internet. Accessibility to the Internet is perhaps the greatest reason for concern. Many college students have unlimited use of the Internet and most residence halls are already wired for Internet access. In fact, there may be no group in this country who has more readily available access to computers and the Internet than college students. For the NCAA, the potential exists for a student-athlete to place a wager via the Internet and then attempt to influence the outcome of the contest while participating on the court or playing field.
Although Internet gambling is a relatively new phenomenon, every indication is that is reaching a large market. The rapid growth of Internet gambling was outlined in a recent Sports Illustrated cover story entitled ''Cyber Gambling: Should it be stopped? Can it be stopped?'' The story reports that analysts predict ''explosive growth'' in the Internet gambling industry. According to Sports Illustrated, ''What was a $60 million business in 1996 will handle $600 million in bets in 1998, with another tenfold increase likely by 2001.'' Furthermore, the number of on-line sites that handle sports bets has grown from two in 1996 to at least 6070 today.
H.R. 2380 is a vital piece of legislation. Congress has long recognized that gambling has no place in professional and amateur sports. It is a federal crime, under Section 1084 of Title 18, to use wire communication facilities in interstate or foreign commerce for purposes of sports gambling (except where such gambling is legal at both the transmitting and receiving ends). Furthermore, by enacting the 1992 Professional and Amateur Sports Protection Act, Congress took the important step of prohibiting any further legalization of sports betting by states or other governmental entities.
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Although Internet sports gambling is clearly prohibited under Title 18, H.R. 2380 would strengthen the tools available to enforce the prohibition. This legislation would make it more difficult for Internet gambling operations, as well as the individuals who gamble on them, to evade enforcement. Perhaps more importantly, it would provide civil remedies that allow law enforcement officials to require Internet service providers to block access or discontinue service to gambling sites. Without this mechanism, law enforcement is left only with the difficult task of seeking criminal prosecution against gambling site operators, most of whom are located outside the United States.
No one would deny that there are an unlimited number of positive uses of the Internet. However, Internet gambling is not one of them. Congress has ensured through legislation that, with only a few exceptions, it is illegal to wager on sporting events in this country. Surely, Congress did not intend to make exceptions for those trying to skirt existing federal and state laws through the use of a new communications medium.
The NCAA has also strongly supported S. 474, a similar bill prohibiting Internet gambling introduced last year in the Senate by Senator Jon Kyl. We have worked closely with Senator Kyl and his staff on making refinements to his original bill and would be pleased to work with the House committee in a similar capacity. We strongly endorse H.R. 2380 and urge members of this Subcommittee to move quickly in passing this important legislation.
Mr. MCCOLLUM. Thank you.
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STATEMENT OF FRANK MILLER, PAST PRESIDENT, NORTH AMERICAN GAMING REGULATORS ASSOCIATION
Mr. MILLER. Thank you, Mr. Chairman, members of the committee. I am pleased to be here before you today. I come to you not representing any particular group. I am a former regulator, having spent the last 13 years of my career regulating all forms of gaming. I was the past Director of the Washington Gambling Commission. It is a law enforcement agency; it is the third largest in the country, behind New Jersey and Nevada. My comments today are going to be focused on really prohibition versus regulation.
Gambling is here, Internet gambling is here. It is growing. During my last year as director, I used to comment to members of my staff when the issue of Internet gaming would come up, the simplest way to regulate it is simply put an ad in the paper and say ''play at your own risk.'' The bottom line is, though, it is growing considerably.
Last week, I returned from Australia, working with some clients down in that country, and I met with regulators in Australia who are currently today looking at finishing a model for the regulation of Internet gaming. New South Wales is very close to putting in an Internet program, regulated, that allows for sports wagering and thoroughbred horse wagering. They also have a national model and a debate currently in place on the issue of all Internet gaming regulation.
Page 92 PREV PAGE TOP OF DOC The problem we faceand I appreciate the chairman's opening remarkson this issue is we have to be cautious. Prohibition, as currently talked about by the bills before Congress, will do nothing more than push this activity offshore. It will create a black market. I really believe that the bills in question create an activity that cannot be enforced.
How are we going to enforce individuals participating in gaming activities in their dens and in their homes? It puts a tremendous burden on the U.S. Government, on the U.S. attorney's office. How are we going to enforce this law against companies that are licensed by small maybe Caribbean islands offshore who are making more tax revenues than they have ever made in the past? It is very, very difficult. My fear is that we are looking at a law that can simply not be enforced.
Alternatively, I would encourage you to look at regulation. With regulation, we gain some control. With regulation, we can ensure that the companies that offer these activities are located in the United States. We can ensure that we have jurisdiction over these activities and the companies. We can ensure licensing takes place. We can work with the problem gambling element by limitation. We can also have this entire program funded by not one taxpayer dollar, but by profits. The ideal framework would be a partnership between the States and the Federal Government. There is no activity really in this country that dealsor is as unique as Internet gaming. We need something special.
One of my biggest concerns as a former regulator, having dealt with many areas, including illegal activity, is the issue of underage gaming. It is a critical issue. Prohibition does not stop underage gaming. Prohibition allows it to continue. Underage gaming through regulation can be minimized. Waiting periods can be created. Validation systems can be put in place. The companies thatif they were to allow it and regulate it, those companies could put standards in. The regulators could put standards in that would ensure that children do not participate. That is critical if we are going to make this work.
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And, finally, I would like to comment on whether this is expansion or not, if the issue of regulation does, in fact, take place. I don't believe this is expansion. It is here, it is growing. It is going to continue to grow just by the numbers we have heard today. So, really, it is not an issue of expansion. It is an issue of control and regulation. The alternative is prohibition, black market, no jurisdiction, it continues to grow, children participate, or regulation, licensing, taxation, minimized children impact, look at problem gambling issues.
I would encourage you to be cautious. I would encourage you to open up the debate. I would encourage you to look at all aspects of this issue, including the strategic regulation and control of Internet gaming.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Miller follows:]
PREPARED STATEMENT OF FRANK MILLER, PAST PRESIDENT, NORTH AMERICAN GAMING REGULATORS ASSOCIATION
Good morning. Chairman McCollum, members of the Subcommittee, my name is Frank Miller. Thank you for this opportunity to testify on the issue of Internet gambling.
This morning, I would like to address the specific question of how to regulate Internet gambling. I believe I am particularly well-suited to speak to this issue given my previous professional experience. Prior to my joining the private sector in 1997, I was the director of the Washington State Gambling Commission, a position I held for six years. As you may know, Washington State has one of the largest gambling enforcement commissions in the country, trailing only Nevada's and New Jersey's in size. In my capacity as the chief gambling regulator for the state, I was responsible for overseeing charitable, commercial, and Class III tribal gaming operations. I was also past president and board member of the North American Gaming Regulators Association (NAGRA) in 1994 and 1995.
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Although I presently consult with governments and the private sector within the gaming industry, I do not represent any entities that currently provide so-called interactive or Internet gaming services.
Mr. Chairman, I have monitored the progress of Senator Kyl's legislation in the Senate and Congressman LoBiondo's bill in the House. I am very concerned that critical legislative decisions are being made based on inaccurate or incomplete information. I believe sound policy can only be developed by having all of the facts presented to decision-makers in a fair and unbiased wayregardless of whether one is in favor of or opposed to the application of 21st century technology to an activity such as gaming.
One of the fundamental claims made by the proponents of the Kyl and LoBiondo bills is that gaming on the Internet is impossible to regulateand in the absence of regulation, it should be prohibited. With all due candor, this approach simply won't work. While interactive wagering presents some unique regulatory challenges, these obstacles are by no means insurmountable. In fact, I just returned last week from Australia where I met with gaming regulators who are very close to finalizing a regulatory program for Internet wagering in the area of sports betting and horse racing. Australian officials have also initiated a national debate and have developed a model for comprehensive regulation of all virtual gaming. The model allows for strict regulation, ultimate consumer protection, and sets forth alternatives for taxation by individual Australian states. Although the model has not been formally adopted, it is important to note the proactive approach by the Australian government to address this issue.
I believe even stronger measures could be taken in the United States in order to screen out compulsive gamblers and minors from the system, guarantee the collection of taxes from bettors and operators, and ensure that games offered are well-regulated and fair.
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If, instead, a prohibition is enacted, it will only drive the industry off-shore, where enforcement of age-restrictions and other regulations are far less likely to be in place, and virtually impossible for the U.S. authorities to enforce (especially when sovereign governments have already set their own gaming standards). As such, passage of the LoBiondo bill may have the unintended effect of actually increasing the exposure of children and compulsive gamblers to on-line wagering, while creating a black market that benefits off-shore companies at the expense of the domestic industry and the U.S. economy.
Ideally, a regulatory framework in the United States would be a partnership between the states and the federal government, and paid for with industry profits. Regulation would include strict licensing requirements, permanent U.S. siting requirements to ensure a jurisdictional nexus and U.S. control, appropriate state and federal limitations, and complete accountability through advanced auditing technology. Consumer protection would be achieved and taxes would be collected. To address minor access, the gaming operator could be required to strictly control participation through a comprehensive verification system that includes a mandatory waiting period to establish the bettor's identity. Such a regulatory regime would be funded entirely by the operators and would not cost taxpayers a dime.
Technology currently exists to extensively and thoroughly audit on-line casino style games. Auditors would be able to make unannounced ''inspections'' of virtual games electronically, without the casino ever knowing. From a regulator's perspective, such spot checks are invaluable in the fight against corruption. As one Australian regulator told me last week, ''Virtual gaming will be easier to regulate than the gaming which exists today.'' I could not agree more.
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Given the reach of the Internet, and its international character, I believe a comprehensive regulatory program is a necessity. The passage of the LoBiondo bill to prohibit Internet gaming in the U.S. outright, will only serve to create a domestic black market for ita market that may be beyond the reach of American legislators and regulators, but not the vulnerable public. U.S. attorneys would be forced to seek otherwise confidential information from Internet service providers to prosecute individuals who play from their homes. The State Department would be required to negotiate prohibition agreements with foreign governments to stop the importation of Internet gaming services into this country. And despite such efforts, it will be nearly impossible to prevent anyone from placing a bet on-line. If the Kyl and LoBiondo bills are adopted, the end result will be difficult, if not impossible, to enforce.
I used to believe that the only method of consumer protection in the context of Internet gaming was caveat emptor''play at your own risk.'' I never thought there would be a significant market worth regulating. After concluding my recent trip oversees, I can emphatically state that the Internet gaming industry is not only viable, but burgeoning on a global basis. As such, it needs to be strategically regulated in a thoughtful manner.
Mr. Chairman, that is the extent of my prepared remarks. I would be happy to answer any questions you or members of the Subcommittee may have.
Mr. MCCOLLUM. Thank you, Mr. Miller.
Page 97 PREV PAGE TOP OF DOCSTATEMENT OF SUE SCHNEIDER, CHAIRPERSON, INTERACTIVE GAMING COUNCIL, AND MANAGING EDITOR AND CHIEF EXECUTIVE OFFICER, ROLLING GOOD TIMES ONLINE
Ms. SCHNEIDER. Mr. Chairman, members of the subcommittee, thank you for allowing me to testify today. My name is Sue Schneider. Since 1995, I have functioned as editor of a consumer-oriented gambling publication on the Internet and we got involved with attempting to pull together a group of people that are in the industry because we were looking at it from a consumer protection standpoint. People are out there, they are playing these games. What can we do to raise that level so that people are protected? So the Interactive Gaming Council was formed. I serve as Chair of that. It does include 60 members from around the globe, including primarily a lot of operators, suppliers, and support services that are licensed and regulated in sovereign jurisdictions around the world.
I guess to a certain extent I would pose a similar question to what Mr. Miller just did. What is the best public policy in this regard? And I think if you are talking about consumer protection, the idea of a regulatory scheme that can be out there is probably our best bet at this point in the viewpoint of people that are in the industry, as well as consumers that are out there.
You are not just talking about offshore operators. You are talking about the TAB, which is the sports betting from New South Wales, or from New Zealand. You are talking about a state-sanctioned lottery in Liechtenstein. You are talking about a number of entities and, quite frankly, the movement toward those state-sanctioned and government-sanctioned operations are growing globally. So you are not just talking about folks that you think are just setting up, you know, operations offshore to escape jurisdiction here. That is just really not necessarily the case.
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You know, the issue about whether or not prohibitions workI would have to agree that to a certain extent, you know, hopefully we have learned something from the prohibitions that happened earlier in the century and trying to take a look at, if you have those two choices, which really do you choose that is going to give you the most stringent consumer protection.
I can tell you without a doubt that many of the operators that are in some of the jurisdictions that are offshore in Caribbean island nations and Central American countries and other countries are American entrepreneurs. They would just as soon be operating here and could meet the stringent standards that could be developed on a State-by-State basis. So I think it is important to take a look at that. You have got a new medium that really takes, you know, a new look. It is borderless, it expands across jurisdictions, and trying to come up with a good balance between what is traditionally regulated on the State level, the gambling product, and the Internet, which really defies regulation but deals with telecommunication Federal and international laws, takes a real special look.
We are not actually advocating regulation of the Internet. Quite frankly, I don't think that that can be done. But if you look at the gambling product, you have to separate those two items out. If you look at the gambling product, it can and should be regulated. You are not going to get any argument from people that are involved with this organization on that.
You know, again, you have a variety of countries around the world. There are a number of European countries, like Germany, Finland and Sweden, that are now getting into it. Australia and New Zealand are taking the lead not only in developing those products, but in coming up with a regulatory framework that again allows the states to be able to license and regulate, but to come up with some reciprocity both in terms of licensing, recognition of licensing, as well as sharing of taxes. They have figured out how to do that so that everybody benefits in that regard.
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Canada may be considering again legislation that was introduced for the first time last year that would permit the provinces to license and regulate Internet casinos. Nevada has a law that was passed this summer that allows for in-State, closed-loop type of Internet gaming for a State-licensed sports book. New York considered last year Internet gaming legislation, particularly as it relates to the horse racing industry, and they are looking for some opportunities there. So it is something that you really need to take a very, very close look at as a number of governments try to take a look at how to take advantage of this from a regulatory and a taxing standpoint.
The main concerns that we hear from consumers look at the integrity of the games, access by minors, compulsive gambling, and things like prize payment; you know, how do you get paid and are the games fair. And, again, I think what is important to note is that technology is increasing quickly on these matters to allow you something that in many cases is more trackable than you can find in the land-based traditional casino industry at this point. I think it is very, very important.
It is not going to override fraud that is out there. If someone comes in and gives a 14-year-old all the information they need to go through a series of controls, you really can't do much about that if they have all the credit card information, that sort of thing. And I guess I have a concern, you know, with all due respect to the continuing scenario about the young person who gambles away the mortgage. There are controls that are in place out there.
There is the ability to dispute if you have a minor charge for your credit card. There are other controls that come into play. And so, you know, I guess to a certain extent I would like to kind of put that particular one to rest because it really is not realistic. There are credit limits. There are a variety of controls in place that really negate that particular scenario.
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There are other issues that you can look at as it relates to compulsive gambling. There are operators out there today that can track. If someone is playing what they think is too much, they will get with those people. There are personal loss limits that can be imposed so that you can say I don't want to play over $200 a day or $200 a week, or whatever the number is, and you can't change that personal loss limit for a 24-hour period so you get caught up in the heat of it. So, again, you have to look at the software and the technology that is being developed that is out there today and will be developed, I think, pretty rapidly to begin to address those kind of issues.
I want to talk a little bit about the specific issue of underage gambling. You know, there are proper screening procedures that are out there. They have worked for the pari-mutuel industry for 20 years with their telephone wagering. It is really no different than the kind of thing that they have had to deal with, and there are mechanisms in place and banking laws that help to try to minimize that.
The Gaming Council is working on various consumer protection issues, and because of the rapid growth of the industry, it has been a challenge, I will tell you, because you are talking about beginningwe have adopted a code of conduct which is attached there to begin to look at what are the base standards that, you know, you want companies that are involved with this business to respond to. And so we have got a number of things looking at consumer privacy and data protection, truth in advertising, methods for dispute resolution, audit trails; you know, what kind of things can happen there.
And it may go further toward some sort of an international creditation or certification body that is going to develop more stringent standards because it is a sticky issue when you are dealing with this from an international basis. You are talking about a number of sovereign nations out there that are approaching this differently, so you have to figure out how to handle that.
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One personal concern that I have from looking at this from a consumer protection standpoint is this particular bill creates a new class of criminal, and that is the casual bettor. If you decide you want to place a $20 bet on the Super Bowl, you are now liable for a $2,500 fine or 6 months in jail, or both, and that is something that goes way beyond what the Wire Act. And I think it is indicative of that issue of where is the bet being placed and where do you have any jurisdiction.
If you have an offshore operator in another country and you can't really necessarily go after them, you are reliant on dealing with the consumer on this end here. You know, you really need to think about whether or not you want to do that because that is something that I think from a consumer standpoint within the U.S. is not going to be seen that well.
We did address the National Gambling Impact Study. Although they have gotten off to a late start, they are beginning to catch up on the issue of Internet gaming. They have scheduled hearings for late May in Chicago, beginning to try to address that issue and grapple with it, and look at, you know, are there other mechanisms that are out there from a regulatory standpoint. Can we look at the securities industry? Can we look at some other industries to figure out how to deal with this new medium that has come up and these new products that are within that medium?
I think it is a real challenge. I hope that you don't act too quickly and that you don't do things that are going to throw sand in the gears of frictionless commerce on the Internet, which is something that really needs to be maintained and grow. I do also ask that you take a look at how your colleagues around the world in other countries are handling this because I think you will find some very innovative ways of beginning to explore how to come up and grapple with the issues that are arising here.
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But there are frameworks that are out there that are being proposed that I think, quite frankly, will work. I think they will work for the government, I think they will work for the entrepreneurs that are out there, and they certainly will work for the consumers. As you know, we have got a new world that has got many, many homes equipped with computers and it is something that we are going to have to grapple with.
You can't really get into, quite frankly, limiting the content, per se, that is in there. You know, I think we have learned that with some recent Supreme Court decisions. I think looking for some solution other than prohibition and looking to develop some sort of a State-Federal regulatory framework is really the best issue. You are really trying to take a law that was a 20th century law grappling with a certain thing, with the bookmakers 40, 50 years ago, and extend that into a 21st century medium and a 21st century entertainment opportunity and they don't necessarily apply.
So, again, I would like to thank you for your time and we will be happy to answer any questions when this is over.
[The prepared statement of Ms. Schneider follows:]
PREPARED STATEMENT OF SUE SCHNEIDER, CHAIRPERSON, INTERACTIVE GAMING COUNCIL, AND MANAGING EDITOR AND CHIEF EXECUTIVE OFFICER, ROLLING GOOD TIMES ONLINE
Mr. Chairman, members of the Subcommittee, my name is Sue Schneider. Thank you for the invitation to testify today.
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I come before you wearing two hats. First and foremost, I am here as a representative of the interactive gaming industry. Specifically, I am Chairwoman of the Interactive Gaming Council. Formed in 1996 under the auspices of the Interactive Services Association, the IGC has more than 60 members from around the globe.
In addition to my duties as chair of the IGC, I am also the CEO of RGT OnLine Inc., a St. Louis-based company that publishes Rolling Good Times OnLine. RGT OnLine has been reporting on the interactive gaming industry since 1995.
As you embark on the fact finding process, I urge you not to get embroiled in the broader debate about the propriety of legalized gambling in general. Forty-eight states already allow some form of wageringmuch of it, state sponsored. If someone wants to bet, he or she ca already do that in 96% of the country. So I would direct you to look at more substantive issues than the broad claim that gambling is a vice, and therefore any attempt to expand consumer choices is bad policy.
The fundamental question should be: What is the best public policy for consumer protectionprohibition or regulation?
If regulation is rejected in favor of prohibition, one of two things will happen: either scrupulous operators will be forced to move to jurisdictions that are willing to tax and regulate this activity, or they will be forced out of business, leaving unscrupulous or unregulated operators in their place. Under either scenario, the opportunity for state and federal authorities to enact stringent consumer protection measures will be lost.
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Let me make it clear that legitimate operators would welcome U.S. regulation and expect taxation. Historically, gaming has been strictly controlled and regulated, primarily at the state level. However, the Internet is a global medium of communication that spans borders and jurisdictions. And that suggests a federalor even globalapproach.
Internet technology has made the world far more of a global village than ever before. Fortunately or unfortunately, prohibiting specific types of content on the web is nearly impossible, short of an international treaty.
However, various governments around the world are regulating or preparing to regulate online gaming services. This list includes Australia, New Zealand, a number of nations in Central America and the Caribbean such as Costa Rica, and European countries such as Germany, Finland, and Sweden.
Other governments are waiting in the wings. Canada may again consider legislation that would permit provinces to license and regulate Internet casinos. Nevada has enacted legislation that makes Internet gaming a crime, unless the wager is placed with a state-licensed sports book or casino. New York considered Internet gaming legislation in 1997, in an effort to shore up a declining horse racing industry. More will soon follow as governments that recognize the potential of Internet gaming race to regulate and tax it.
Let me turn to some of the substantive issues raised by Senator Kyl and others.
Page 105 PREV PAGE TOP OF DOC Regardless of whether we are talking about virtual or traditional casinos, there are three questions that must be answered: (1) integrity of the games; (2) access by minors; and (3) compulsive gambling.
When witnesses come before you and extol the dangers of Internet gaming, they fail to recognize that the same technology which makes Net gambling feasible, also allows for more precise auditing and control. Technology can also provide powerful tools to screen out minors and compulsive gamblers. Let me give you an example.
I have three river boat casinos within a mile of my office. I can do a lot of damage to my bank account there and virtually no one will know. Moreover, many traditional casinos try to create an environment that fosters risk-taking. Few have windows or clocks. Some provide free drinks and other amenities to their patrons. These same casinos try to keep minors out, but some invariably slip through the system.
Contrast this with a virtual casino.
When one plays electronically, each bet is closely monitored. With today's financial reporting, it is possible to verify a bettor's age, identity, and spending history almost instantaneously. Software now exists which allows people to lock themselves out or set loss limits. Many sites have their own limits as well. For example, one site has set a $200 per week credit limit for all of its customers. Many do not accept credit of any kind.
As to integrity, technology now exists that allows regulators to randomly audit web sites to ensure the fairness of the games. This technology is similar to that currently used to evaluate slot machines, video poker, and other games offered by brick-and-mortar casinos.
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I would like to take on one serious inaccuracy that frequently appears in the rhetoric of anti-gambling advocates. They often portray a scenario in which a child borrows the family credit card to access a gaming site, and gambles away the mortgage money. That would be truly appalling if it were accurate. However, such a scenario is just not possible.
In circumstances where charges are unauthorized or made by minors, debts are written off by the credit card companies or charged back to the operators. It is no different than if someone were to steal a credit card to buy thousands of dollars worth of electronic equipment. In fact, most states provide further protection by specifically making gambling debts uncollectible.
You should know that the IGC is working to address other legitimate issues on our own as we seek a comprehensive regulatory framework. We are finalizing responsible gaming guidelines for our members that deal with underage and compulsive gambling. We have also developed a Code of Conduct that functions as a process for dispute resolution. Although the Code is not yet final, we intend it to function in much the same manner as the Better Business Bureau. I have included copies of the Code of Conduct and the responsible gaming guidelines as part of my written testimony.
We are also working as an industry to ensure that winnings are paid out fully and promptly. One option may be to require all IGC members to put up security in the form of a bond. Another may be to establish a joint fund to pay those who have failed to receive their winnings. Regardless of which approach IGC takes, guaranteeing pay out is the easiest problem for the industry to address.
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Let's also talk briefly about the legislation sponsored by New Jersey Representative Frank LoBiondo that is before you today. Based on S. 474 in the Senate, H.R. 2380 is an attempt to apply a 19th century solution to a 21st century question. In so doing, the LoBiondo bill would create a new class of criminalthe casual bettor. Not even the Wire Act criminalized the act of placing a bet. But more importantly, it would create a law that even the Justice Department has said is unenforceable. Surely there are better ways of addressing valid concerns about Internet wageringwithout trivializing law enforcement or undermining states' rights.
Last year, Congress created the National Gambling Impact Study Commission to explore, among other issues, Internet gambling. That Commission will hold a hearing in May to look at this complex question and is expected to issue a report next year. I urge you to wait for the facts before making a policy decision that impacts businesses, states, individual consumers, and the Internet.
In closing, I hope you question those who claim that Internet gaming cannot be regulated. As your colleagues around the globe can attest, regulation of this activity is already taking place. Look at how other jurisdictions are grappling with these new challenges before you make your decision.
Mr. Chairman, the Net has brought a whole new world into every home equipped with a computer. With it comes a challenge that must be addressed by national and international policy makers: How do we allow the Internet to provide opportunities for people of all ages without limiting content to that which is appropriate only for the youngest or least sophisticated?
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The ''lowest common denominator'' approach was rejected by the Supreme Court when it struck down parts of the Communications Decency Act. I hope that you and your colleagues will look at this issue objectively to see that solutions other than prohibition provide for greater consumer protection in the global marketplace.
Mr. Chairman, Internet gaming juxtaposes 20th century issues against 21st century technology. Please do not apply a 19th century solution that neither protects the consumer nor ends the activity.
Again, thank you for your time. I would be pleased to answer any questions you may have.
Mr. MCCOLLUM. Thank you, Ms. Schneider.
STATEMENT OF BERNARD P. HORN, DIRECTOR OF POLITICAL AFFAIRS, NATIONAL COALITION AGAINST GAMBLING EXPANSION
Mr. HORN. Thank you, Mr. Chairman. I am Bernie Horn, the Director of Political Affairs for the National Coalition Against Gambling Expansion. We are a grass-roots group of citizens and organizations. Like the sponsors of this legislation, we are Democrats and Republicans, liberals and conservatives from all over the country. We are not an organization of moralists. We are not trying to close down Las Vegas or Atlantic City. Rather, we oppose the expansion of gambling because we believe it is a bad public policy. We believe the costs of gambling expansion exceed the benefits by far.
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On behalf of our coalition, I urge you to support the Internet Gambling Prohibition Act, as well as increased enforcement of existing law against wire gambling, because the Internet multiplies the societal cost of gambling while virtually eliminating any benefits. I would like to talk about some of those costs.
First is increased gambling addiction. Mental health authorities testify that the prevalence of gambling addiction is linked to the accessibility and acceptability of gambling in society. Like alcoholism, only a small percentage of Americans are susceptible to this disorder, but as more people try gambling in its various forms, more of those prone to the illness are exposed.
Internet gambling will multiply gambling addiction exponentially. Dr. Howard Shaffer, Director of the Harvard Medical School Division on Addictions, has compared Internet gambling to the hypodermic needle. He said, ''When we have technological advances, when we have new ways of administering drugs, we typically have some epidemic that follows. After the hypodermic needle was invented, we had an epidemic of heroin use.'' And he goes on to say, ''So with new technological advances, with Internet gambling, with telephone and television interactive gambling, we are likely to see many more pathological consequences to gambling.''
That same Dr. Howard Shaffer recently released a study which found that 2.2 million adults in America are pathological gamblers. An additional 2.2 million adolescents are pathological gamblers, and an additional 10 million adults and adolescents are problem gamblers in America. So we have a huge problem already, about 15 million gambling addicts, and Internet gambling would increase that problem exponentially.
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Another problem is the social costs of underage gambling. Because of the anonymity of the Internet, there is no practical way to stop underage gambling. We will likely witness more and more kids borrowing or swiping credit cards from their parents or others to gamble online, and that is something this Congress should attempt to stop.
An additional cost is bankruptcy. A number of studies have shown that 20 percent or more of compulsive gamblers eventually file for bankruptcy. In fact, a 1997 study found, quote, ''gambling may be the single fastest growing driver of bankruptcy.'' So online gambling will worsen our already awful bankruptcy rate in America.
Another cost is crime. Online gambling poses novel problems in crime. There is just no way to tell if virtual dice or virtual roulette wheels are being controlled in a random fashionthat is, fairlyor whether they respond to a sequence that is pre-designed to cheat the customer. There is just no way to tell. More ominous is the fact that Internet gambling will provide a perfect front for organized crime. We are never going to know for certain who owns an Internet gambling site that is based in another country. But we do know that the mob always seeks involvement in gambling enterprises.
In most cases, gambling provides certain benefits, such as jobs. But money spent on gambling does not float out of the air. It is money that would otherwise have been spent on other products or services, usually money that would have been spent in restaurants, theaters, or retail stores. A riverboat casino, for example, diverts revenues from local businesses, and those businesses are therefore forced to lay off workers.
Page 111 PREV PAGE TOP OF DOC Like conventional gambling establishments, Internet gambling will cannibalize existing businesses. Yet, in the case of conventional gambling, the casino or racetrack or lottery hires employees which tends to offset some off the jobs that are lost elsewhere. This is not the case with Internet gambling which has the potential to take huge sums out of the entertainment and retail economy all over the Nation without creating any replacement jobs. Internet gambling will be a black hole for the American economy, with revenues streaming out.
Now, there has been some talk about the enforcement of existing Federal law. This proposed statute would make it much easier for both Federal and State law enforcement authorities to stop Internet gambling, but gambling on the Internet is currently illegal. It is a violation of both Federal law and State law. Unfortunately, the U.S. Department of Justice is not enforcing the law.
Companies blatantly offer and even advertise Internet gambling, and I have provided for you in the last two pages of my testimony a couple of ads that you can take a look at. These are published in a magazine called Casino Player. This month's issue has about a dozen ads for Internet or telephone gambling sites. These are just bookies; they are no different from the bookies that law enforcement routinely arrests.
However, in this case it would require Federal law enforcement to really get the job done and they are not doing it, and the question is why. A Justice Department spokesman has said, quote, ''If the casinos are outside the United States, there is not a thing we can do about it, except prevail upon the host government, and it is not that vexing a problem.'' That same spokesman said just as recently as January 31st of this year in the New York Times, quote, ''We have no jurisdiction. The offense has not taken place on U.S. soil,'' unquote.
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This is simply inaccurate as a matter of fact and law. Our coalition believes that the Justice Department could stop the bulk of Internet gambling aimed at Americans today by sponsoring sting operations and highly-publicized prosecutions. We hope that this Act will prod the Justice Department to act, but we also think that this subcommittee should consider using its powers of oversight to inquire into the reasons behind the Department's inaction.
Congress must act because States are not able to make their own decisions on gambling while gambling is accessible over the Internet. In the last year, some 20 States have made various decisions about allowing or prohibiting gambling of various forms. State legislatures have voted down casino gambling in many cases, but those votes become meaningless if the citizens of those same States can just get on the Internet and do the activities that the State legislature was attempting to prohibit.
The long-held position of the Federal Government in gambling has been to allow States to permit gambling if they want it, but to protect the policies of States that don't want gambling. And the only way to pursue that policy, the only way to allow States to make the decision for their own citizens, is to enact this legislation and we ask you to do so.
[The prepared statement of Mr. Horn follows:]
PREPARED STATEMENT OF BERNARD P. HORN, DIRECTOR OF POLITICAL AFFAIRS, NATIONAL COALITION AGAINST GAMBLING EXPANSION
Chairman McCollum and distinguished Members of the Subcommittee:
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I am Bernard Horn, Director of Political Affairs of the National Coalition Against Gambling Expansion (NCAGE), a grassroots coalition of citizens and groups. Just like the sponsors of this legislation, we are Republicans and Democrats, conservatives and liberals, from every area of the United States.
NCAGE is not an organization of moralists. We are not trying to stop Americans from gambling. We do not seek to close down Las Vegas or Atlantic City. Rather, we oppose the expansion of legalized gambling because the costs of gambling far exceed the benefits.
On behalf of our coalition, I urge you to support the Internet Gambling Prohibition Act as well as increased enforcement of existing law because the Internet multiplies the societal costs of gambling while virtually eliminating its benefits.
Increased social costs of gambling addiction
Mental health authorities testify that the prevalence of gambling addiction is closely linked to the accessibility and acceptability of gambling in society. Like alcoholism, only a small percentage of Americans are susceptible to this disorder. But as more people try gambling in its various forms, more of those prone to the illness are exposed.
We have seen this demonstrated again and againthe more legalized gambling a state makes available, the more pathological behavior is triggered. For example, in Iowa, the introduction of riverboats more than tripled the problem, causing the percentage of residents who were lifetime pathological or problem gamblers to rise from 1.7% in 1989 to 5.4% in 1995. And in Minnesota, as sixteen Indian casinos opened across the state, the number of Gamblers Anonymous groups shot up from one to forty-nine.
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Internet gambling will multiply addiction exponentially. As Dr. Howard J. Shaffer, Director of the Harvard Medical School Division on Addiction Studies, explained:
''When we have technological advances, when we have new ways of administering drugs, we typically have some epidemic that follows. After the hypodermic needle was invented, we had an epidemic of heroin use. It was the hypodermic needle and the ability to smoke cocaine that created an epidemic of cocaine use when, in fact, cocaine and heroin had been used for many, many years before those epidemics in a much safer way. . . . So with new technological advances, with Internet gambling, with telephone and television interactive gambling, we're likely to see many more pathological consequences to gambling.'' Lecture in Orlando, Florida, October 27, 1995
The Internet not only makes highly addictive forms of gambling easily accessible to everyone, it magnifies the potential destructiveness of the addiction. Because of the privacy of an individual and his/her computer terminal, addicts can destroy themselves without anyone ever having the chance to stop them.
Increased social costs of underage gambling
Internet gambling will also worsen the already serious problem of underage gambling and teenage addiction. Researchers have called gambling the fastest growing teenage addiction, with the rate of pathological gambling among high school and college-aged youth more than twice that of adults. Because of the anonymity of the Internet, there is no practical way to stop underage gambling. We will likely witness more and more kids borrowing/swiping credit cards from parents/others to gamble on-line.
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Increased social costs of bankruptcy
It should be no surprise that gambling addicts go bankrupt. A number of studies have shown that 20 percent or more of compulsive gamblers eventually file for bankruptcy. In fact, ''Gambling may be the single fastest-growing driver of bankruptcy,'' according to a 1997 study by SMR Research Corporation. This report also found that the number of bankruptcies increases with proximity to a casino. In areas near casinos, ''[g]ambling-related bankruptcies account for a good 10 to 20 percent of the filings.'' On-line wagering will worsen our already-awful bankruptcy problem.
Increased social costs of crime
Wherever gambling goes, crime and corruption followthat is the history of gambling in America. The link between gambling establishments and large increases in crime has been exposed by numerous studies. Contemporary crooks target casinos and other gambling establishments because, as Willie Sutton would say, ''that's where the money is.''
On-line gambling poses novel problems in crime. For example, the Internet creates huge opportunities for cheating, especially by virtual casinos. There's just no way to tell if virtual dice, roulette or cards are rolled, spun or dealt randomly (that is, fairly) or whether they're responding to a sequence pre-planned to cheat customers. More ominous is the fact that Internet gambling will provide a perfect front for organized crime. We're never going to know for certain who owns an Internet gambling site based in another country, but we do know that the mob always seeks involvement in gambling enterprises.
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By exacerbating the problem of pathological gambling, Internet wagering will also spark an increase in financial crimes, such as embezzlement, check kiting, credit card fraud, loan fraud, insurance fraud, and tax evasion. Up to 90 percent of pathological gamblers commit crimes to pay off their wagering debts. Indeed, pathological gamblers are responsible for an estimated $1.3 billion worth of insurance-related fraud per year.
Elimination of any economic benefits
Money spent on gambling does not float out of the air, it is money that would otherwise have been spent on other products or services, usually money that would have been spent at restaurants, theaters and retail stores. A riverboat casino, for example, diverts revenues from local businesses, and those businesses are forced to lay off workers. Like conventional gambling establishments, Internet gambling will cannibalize existing businesses.
Yet in the case of a conventional gambling establishment, the casino/racetrack/lottery hires employees, which tends to offset the jobs lost elsewhere. This is not the case with Internet gambling, which has the potential to take huge sums out of the entertainment/retail economy all over the nation without creating any replacement jobs. Internet gambling will be a black hole for the American economy.
Lack of enforcement of current federal law
The Internet Gambling Prohibition Act will make it much easier for both federal and state law enforcement authorities to stop Internet gambling. But gambling on the Internet is already a violation of 18 U.S.C. §1084, see Op. FL Att'y Gen. 9570 (October 18, 1995).
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Unfortunately, the U.S. Justice Department is not enforcing the law. Companies blatantly offer and even advertise Internet gambling. (See attached magazine advertisements).
Over the past few years, Justice Department spokesman John Russell has given a number of excuses for the Department's inaction, including: ''If the casinos are outside the United States, there's not a thing we can do about it except prevail upon the host government. . . . [And] it's not that vexing a problem.'' As recently as January 31, 1998, Mr. Russell was quoted in the New York Times asserting that: ''We have no jurisdiction. The offense has not been made on U.S. soil.'' That is simply inaccurate as a matter of law and fact. Our coalition believes that the Justice Department could stop the bulk of Internet gambling aimed at Americans today by sponsoring a few ''sting'' operations and following up with highly-publicized prosecutions.
One benefit of the Internet Gambling Prohibition Act is that it will prod the Justice Department into action. NCAGE recommends that this Subcommittee also consider using its powers of oversight to inquire into the reasons behind the Department's inaction.
Why the Congress must act
Many states and jurisdictions have turned down casinos or other types of gambling because they want to avoid the social costs of gambling. For example, in 1996, voters in Arkansas, Colorado, Nebraska, North Dakota, Ohio and Washington State overwhelmingly defeated referenda which would have expanded gambling. In 1997, state legislation to expand gambling was defeated in Alabama, Colorado, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New York and West Virginia.
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The long-held position of the federal government has been to allow states to permit gambling if they want it, but to protect the policies of states that don't want gambling. Thus, for example, federal law allows lottery ads to be broadcast in states where lottery is legal but not in states where it is illegal (18 U.S.C. §1304, 1307). Obviously, the Internet crosses all state boundaries. Allowing gambling on the Internet will take away the power of state legislatures, tribal governments and voters to decide for themselves whether they want gambling in their jurisdictions. The only way to preserve the federal policy of keeping gambling a local decision is for Congress to make it clear that gambling on the Internet is illegal and give law enforcement authorities the tools they need to enforce the law.
Enact H.R. 2380
On behalf of the National Coalition Against Gambling Expansion and its thousands of supporters, I ask you to enact the Internet Gambling Prohibition Act, a common-sense measure designed to facilitate the enforcement of a long-standing federal policy. Mr. Chairman, thank you.
BERNARD P. HORN is the Political Director of the National Coalition Against Gambling Expansion (NCAGE), Communications Director of the National Coalition Against Legalized Gambling (NCALG), and Executive Director of NOcasiNO/Maryland. He is also an attorney and President of Strategic Campaign Initiatives, Inc., a political consulting firm that has worked for dozens of candidates and causes. From 1988 to 1994, Bernard served as a legislative director, lobbyist and strategist for Handgun Control, Inc. in Washington, D.C. He is a graduate of the Johns Hopkins University and the Georgetown University Law Center.
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No federal grant, contract or subcontract has been received by Bernard Horn, NCAGE, NCALG or NOcasiNO.
QUESTIONS & ANSWERS ON INTERNET GAMBLING AND H.R. 2380/S. 474, THE INTERNET GAMBLING PROHIBITION ACT
Who supports H.R. 2380/S. 474?
H.R. 2380/S. 474 has been endorsed by the National Coalition Against Gambling Expansion, the National Association of Attorneys General, the National Football League, the National Collegiate Athletic Association and FBI Director Louis Freeh.
What would H.R. 2380/S. 474 do?
H.R. 2380/S. 474 would (1) make it clear that all types of interstate on-line gambling are illegal (clearing up ambiguities in existing law); (2) extend federal law to cover those who bet with a bookie or casino (but not bets between friends); (3) strengthen the ability of law enforcement agencies to cut off an on-line casino's phone service through the phone company and/or Internet service provider; and (4) encourage the Justice Department to enforce the laws against on-line gambling by requiring a report from the Attorney General within one year of enactment.
What existing laws cover Internet gambling?
Page 120 PREV PAGE TOP OF DOC Title 18, Section 1084 of the United States Code provides that ''Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers . . . shall be fined not more than $10,000 or imprisoned not more than two years, or both.''
It is clear that Internet gambling already violates federal law. See, e.g., Op. FL Att'y Gen. 9570 (October 18, 1995). However, Section 1084 only covers those individuals, either bettors or receivers of bets, who are ''in the business'' of gambling. Further, the law contains language which makes some argue (we believe erroneously) that it applies to sports betting only, that is, to Internet bookies but not Internet casinos.
Internet gambling also violates state law in most (if not all) jurisdictions in the United States. While some actions can be, and are being, taken against on-line gambling by state law enforcement authorities, this problem would be best addressed by federal agencies.
Is gambling on the Internet protected as ''free speech'' under the First Amendment of the Constitution?
In a long line of cases, dating back to 1878, the U.S. Supreme Court has consistently ruled that gambling is not protected by the First Amendment. The Supreme Court most recently rejected a First Amendment claim for gambling in U.S. v. Edge Broadcasting Co., 113 S.Ct. 2696 (1993), holding that ''gamblingimplicates no constitutionally protected right; rather, it falls into a category of 'vice' activity that could be, and frequently has been, banned altogether.''
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Is gambling on the Internet legal when the site of the virtual casino or bookie is located in a country, state, or tribal reservation where gambling is legal?
It is clearly wrong to assert that gambling over the phone lines is legal if the casino or bookie is located in a place where Internet gambling is legal. Such an assertion is based on the fiction that the gambling actually ''occurs'' at the casino site and not at the other end of the phone line where the bettor is located. (See e.g., letter from the President of Sports International Ltd., an Internet bookie, reprinted in Gambling On The Internet, report of the National Association of Attorneys General, June 11, 1996.) In fact, federal courts have flatly rejected such arguments, pointing out that federal law bans the interstate or foreign transmission of wagers regardless of the location of the parties, and that Congress has the constitutional power to do so. See Martin v. U.S., 389 F.2d 895 (1968).
Are laws against Internet gambling enforceable?
If an Internet casino or bookie is located outside the United States, federal authorities will have difficulty arresting the perpetrators. Nevertheless, law enforcement agencies can obtain indictments and arrest warrants against Internet gamblers which brand them as fugitives from justice and restrict their travel. Even without H.R. 2380/S. 474, we believe the Justice Department could stop the bulk of Internet gambling by sponsoring a few ''sting'' operations and following up with highly-publicized prosecutions.
After H.R. 2380/S. 474 is enacted, law enforcement authorities would also be able to direct phone companies and Internet service providers to ''pull the plug'' on Internet gambling sites as well as obtain court injunctions to close down such sites.
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How common is Internet gambling today?
In the past year, there has been a sharp rise in the number of gambling sites on the World Wide Web, from about a dozen at the beginning of 1997 to more than 60 today.
Internet gambling sites enjoyed net revenues of about $17 million in 1996 (according to a research analyst for Christiansen/Cummings Associates, Inc., published in International Gaming and Wagering Business magazine, June 1997). This represents a tiny fraction of the $44 billion in profits which legal gambling establishments earned in the U.S. last year.
If unchecked, however, some analysts project that within the next decade Internet gambling could generate as much as $10 billion in profits each year.
What is limiting the growth of Internet gambling?
Besides its illegality, on-line gambling currently suffers from three problems that hinder its popularity.
First, like much of the graphic material on the World Wide Web, virtual casinos operate slowly and are thus pretty boring places right now. This problem will be fixed over time, however, as wire connections, hardware and software all get faster.
Second, many people feel uncomfortable sending their credit card information across the Web. Some on-line casinos/bookies invite players to set up accounts in foreign banks to facilitate gambling, but this solution is awkward and not very popular. This problem may soon disappear. Other methods to send money over the Internet (e.g. ''cybercash'') are being developed and tested, and are likely to become popular for on-line gambling within a short time.
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Third and perhaps most important, users don't have any reason to trust Internet gambling sites (after all, they're already breaking the law by their existence). There is simply no way for a bettor to know if he/she is being cheated by a ''virtual'' roulette wheel or blackjack dealer. The gambling site's software can just as easily cheat as play fair. And even if the bettor ''wins,'' there is no guarantee that he/she will ever collect (see e.g., Wagering on the Web a Risky Business, MSNBC, July 23, 1997, telling the story of a winning bettor who couldn't get his cyberbookie to pay him). This problem can only be solved if well-respected companies own or operate gambling sites.
What are some of the most talked-about Internet gambling sites?
The Coeur d'Alene tribe in Idaho has a Web site offering the ''U.S. Lottery.'' A similar effort to open a nationwide lottery using an 800 number and operators was killed last year when several state Attorneys General objected. Attorney General Jay Nixon of Missouri filed suit against the tribe's Internet operation and that case is pending.
Minnesota's Attorney General Hubert (Skip) Humphrey filed suit for fraud against Granite Gate Resorts, Inc., a Las Vegas-based company, after it advertised that it would offer Internet gambling from a site in Belize. In December 1996, a judge ruled that the state could prohibit Internet gambling.
Maryland's Attorney General Joe Curran ordered RealTIME Prizes Network, a Maryland-based Internet gambling company, to close. The company agreed in February 1997 to comply with Curran's order.
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Missouri's Attorney General Jay Nixon obtained an injunction and $66,000 in penalties against Interactive Gaming & Communications Co. (IGC), the Pennsylvania-based parent company of Sports International (an Internet bookmaking site) and Global Casino (an on-line casino), both based in Grenada. On June 26, 1997 a grand jury in Missouri also indicted IGC and its president, Michael Simone.
The tiny country of Liechtenstein started selling lottery tickets over the Internet in 1995. In early 1997, the International Red Cross planned to become a sponsor of the Liechtenstein lottery in exchange for 25 percent of the wagers, but the Red Cross later canceled the plan, responding to international pressure.
A few Internet gambling companies are publicly traded, including IGC, United Casino (operating a virtual casino based on Cook Island), Playstar Corp. (a Delaware-registered company operating from Toronto which plans to open a Caribbean-based virtual casino), and VentureTech Inc. (a Reston, Virginia company developing a gambling site).
What is wrong with gambling on the Internet?
Generally, the social and economic costs of gambling far outweigh the economic benefits. Internet gambling will bring even higher costs and fewer benefits than casinos, racetracks, or other gambling establishments. Those costs include addiction, bankruptcy and crime. (See testimony of Bernard P. Horn, February 4, 1998.)
Why should the federal government (instead of states) act against Internet gambling?
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Many states and local jurisdictions have turned down casinos or other types of gambling because they want to avoid addiction, bankruptcy and crime. For example, in 1996, voters in Arkansas, Colorado, Nebraska, North Dakota, Ohio and Washington State overwhelmingly defeated referenda which would have expanded gambling. In 1997, state legislation to expand gambling was defeated in Alabama, Colorado, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New York and West Virginia.
The long-held position of the federal government has been to allow states to permit gambling if they want it, but to protect the policies of states that don't want gambling. Thus, for example, federal law allows lottery ads to be broadcast in states where lottery is legal but not in states where it is illegal (18 U.S.C. §1304, 1307). Obviously, the Internet crosses all state boundaries. Allowing gambling on the Internet will take away the power of state legislatures, tribal governments and voters to decide for themselves whether they want gambling in their jurisdictions. The only way to preserve the federal policy of keeping gambling a local decision is for Congress to make it clear that gambling on the Internet is illegal and give law enforcement authorities the tools they need to enforce the law.
Why do we need to act now to stop Internet gambling?
If we want the Internet to grow and prosper, individuals have to feel that it is an appropriate location for legitimate business. The Internet is a new place, but it must not be a lawless place. On-line gambling gives a black eye to business on the Internet. Still, Internet gambling is in its infancy; there are only a few gambling sites. It is practical, today, to identify and stop these gambling businesses. If we let them go another year or two, Internet law enforcement will become much more difficult or impossible.
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Mr. MCCOLLUM. Thank you, Mr. Horn.
I am going to recognize myself for 5 minutes of questioning of the panel under the 5-minute rule. Then the other members of the subcommittee who are here will follow. We probably will come back to a second round of questioning because of the limited number of Members here to ask the questions. We want to explore this thoroughly.
Mr. Horn, if indeed the current law is effective in the sense of being a prohibition on the activities that you have cited and that we are hearing testimony on today, why do we need H.R. 2380?
Mr. HORN. There are some ambiguities in the law. The law very clearly makes it illegal to gamble on sports betting online, but it could be argued that virtual dice or virtual card games online are not covered by that law. They are covered by State laws, but attorneys general who have attempted enforcement have found that difficult. Make no mistake. Attorneys general have been enforcing the law. They have proven that the laws against Internet gambling are enforceable.
Mr. MCCOLLUM. I have noticed that there is one provision in here of particular interest to State and local law enforcement, and that would be allowing them to obtain civil injunctive relief to prevent the use of communications facilities for interstate commerce.
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Mr. Donn, if the legislation that we might work with were to be directed at further restraining and interpreting interstate and foreign commercenot intrastate, would your objections and concerns pretty much go away?
Mr. DONN. Well, we are concerned that the bill goes further than that and it would restrict us possibly from doing what we are currently doing. For instance, today at Gulfstream Park, patrons there will be wagering on races in New York, in Maryland, in California, through interstate wagering and by commingling those pools, and we are concerned that this bill might prohibit what we currently are doing.
Secondly, we are concerned that we would be prohibited in the future of doing the telephone wagering that is now currently available, or possibly using the Internet to disseminate information.
Mr. MCCOLLUM. Do you use telephone wagering across State lines right now?
Mr. DONN. Well, not exactly. That is a question that is a gray area. We don't in Florida because telephone wagering is not permitted at the current time, but people, for instance, in New York today will pick their phone up and will wager on Gulfstream through New York and that money, then, is transferred, commingled, to Gulfstream. So, in a way, it is, and that is legal, that is permitted. We are concerned that that would not be permitted if this bill were to pass in its current form.
Page 128 PREV PAGE TOP OF DOC Mr. MCCOLLUM. We certainly would have to look at what existing law is and interpretations of it in anything we do.
Mr. Fahrenkopf, you heard Mr. Miller and Ms. Schneider to some degree say that regulation is the answer and not prohibition or more restriction. Why not regulation?
Mr. FAHRENKOPF. Well, I don't necessarily disagree with their conclusion. I think that if a State like Nevada or New Jersey or Mississippi or Missouri, one of the States that have very tough regulatory controls and law enforcement involvement, could come up with such a regulatory scheme where law enforcement would be involved to not only handle the licensing, to see that people who are proper to be involved in the industry pass muster, make sure they have the business and financial acumen to be able to run the business, to have law enforcement there to make sure that the player is getting a fair shakeall of that, if it were possible, would probably be the answer because then I think the marketplace would take over.
As I said in my remarks, if one of the major companies, whether it was Hilton or ITT or Mirage, Harrah's, known companies in this country, were to have a licensed product, I think people who wanted to gamble on the Internet would, of course, do that with that corporation that is, you know, controlled by one of the States of the United States rather than going offshore.
Mr. MCCOLLUM. Yes, but you still would have offshore opportunities. You couldn't regulate that.
Mr. FAHRENKOPF. Well, you couldn't, but that is what I mean. I think the marketplace would take care of that, Congressman. If you happened to be someone who wanted to place a wager on the Internet and you have a choice of doing it with someone who is regulated by the State of New Jersey or someone in Antigua or Belize where there is no regulation, I think the marketplace would go forward with New Jersey. But the problem is I don't think the scheme exists; I don't think the mechanism is there today to provide such a regulatory scheme.
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I am aware, as Mr. Miller indicated, of the work that is being done in Australia. There is work being done in Canada. There is work being done by the government of New Zealand to try to come up with that regulatory scheme, but at the present time I don't see it as being there. I have talked to regulators in Nevada and New Jersey, who are probably the toughest regulators in the country. They are not working on anything at this time and I don't think they foresee in the immediate future any way to come up with a regulatory scheme that would work.
Mr. MCCOLLUM. So, barring that, you would favor this bill?
Mr. FAHRENKOPF. That is correct.
Mr. MCCOLLUM. Let me ask you, Mr. Miller, and perhaps Ms. Schneider, too, if we are worried about the ability of the law to be practically enforced, whether it is the current law or some version of H.R. 2380, wouldn't that be resolved, in part, if we put a provision into place that involved the asset forfeiture of all the winnings or the proceeds of any interstate or foreign commerce gambling? In that case the government could simply come in through mechanisms that already exist to find out who won what in every gambling case over the Internet? When the proceeds come in for payment, you would just lose it all. That would discourage any of that type of gambling, wouldn't it?
Mr. MILLER. I don't think it would. It would certainly maybe stymie somewhat those who might be fearful, but the bottom line is we have forfeiture statutes on the books now. We probably did more bookmaking operations in Washington State than most States in the country the several years. We had one unit that did nothing but bookmaking, illegal undercover investigations. We have strong forfeiture and seizure laws. It is still very prevalent.
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The difficulty and the practicality that I was speaking to was how do you enforce this law against individuals playing a game in their home? I mean, are we going to go into AOL and seize their lists? I mean, at what point does privacy truly evaporate here?
Mr. MCCOLLUM. We do it already with child stalking and some child pornography now on the Internet. We have a lot of undercover operations in the States. We have had testimony in here before this committee with regard to that. Those are very active prosecutions and a very active use of people in local police forces going into the Internet, which isto a certain extentan invasion of ''privacy.''
Mr. MILLER. And I think we can, in the area of child gaming or those types of activities, have stricter control than we do now, I think just by a waiting period, by making these companies that are licensed in this country verify who was playing. You could actually have a send-in period, if you wanted, or a form that you must fill out to even participate.
The bottom line and where I am coming from is if we are going to regulate it, make these companies be located here, not offshore, make them be subject to State and Federal jurisdiction, put strict regulations and controls. That is the only way to have consumer protection.
Mr. MCCOLLUM. In that case, maybe you would say the forfeiture laws ought to exist for offshore rather than domestic gambling.
Page 131 PREV PAGE TOP OF DOC Mr. MILLER. I would encourage a blanket prohibition of offshore if we are going to regulate this.
Mr. MCCOLLUM. Yes, but practically speaking, how are we going to prohibit anybody from doing anything aside from making it illegal?
Mr. MILLER. But the key, Mr. Chairman, is if it is offshore and you are competing against a licensed, once again, entity in this country, people will choose to go to the licensed entity.
Mr. MCCOLLUM. Ms. Jackson Lee, you are recognized for 5 minutes.
Ms. JACKSON LEE. Thank you very much, Mr. Chairman, and I want to thank you for this very crucial and important oversight hearing. I guess the most politic thing for me to do in a hearing, even though legislation has been proposed, is to politely say that I remain open-minded and certainly want to hear and discern the facts, both pros and cons.
Let me also indicate to the panelists that I appreciate your presentations, and sorry for my delay. I was on the floor on another matter and was not able to get here earlier. But I have a great deal of interest in this area and will not be politic and say that not only do I have a great interest, but I frankly don't have a great deal of sympathy for Internet gambling.
I recognize that there is a great deal of money to be made; $60 million was made in 1996. We expect $600 million to be made in 1998, and in the next decade we may see some $10 billion in profits. But, frankly, I don't like it, and I think it is a question of responsibility with respect to making choices in this country. The present system undermines State laws against gambling and, frankly, it provides extremely insufficient consumer protection.
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And so I am going to raise several points that I would like to make, Mr. Chairman. I'd ask that a statement that I have be put in the record.
Mr. MCCOLLUM. Without objection, so ordered.
[The prepared statement of Ms. Jackson Lee follows:]
PREPARED STATEMENT OF HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. Chairman, I want to thank you for bringing us together this morning to discuss and explore the emerging issue of gambling on the Internet. Gambling on the Internet has become an extremely lucrative businessone in which even conservative analysts predict explosive growth. In 1996, Internet gambling was a $60 million business, but it is estimated that the still-fledgling industry will handle as much as $600 million in bets in 1998. If left unregulated, some analysts predict that within the next decade Internet gambling could generate as much as $10 billion in profits each year. In 1996, only two on-line sites handled sports bets; today there are at least 50 such sites.
Internet gambling raises a number of very important concerns. Principal among these are the fact that Internet gambling:
1) undermines state laws against gambling; and
Page 133 PREV PAGE TOP OF DOC2) provides insufficient consumer protection.
The most serious of my concerns surrounds the use of the Internetand the new technology that it representsto avoid federal and state regulatory controls and frustrate state policies on the availability of gaming within their jurisdictions. Gambling has been, and remains, regulated on a state-by-state basis. Regardless of the decision that a given state has made concerning gambling within its borders, one factor has remained constantthat pursuant to the dictates of the 10th Amendment, each state is free to determine what forms of gambling, if any, are most appropriate for its citizenry.
Internet gambling directly undermines the power of state legislatures and voters to decide gambling policy within their own communities. Internet technology brings gambling into an individual's home without respect for the regulations and policies otherwise applicable to gaming in that state. Almost without exception, Internet gambling is outside the jurisdiction of the state government to either regulate or police. For this reason, the states have turned to the federal government and have appealed for intervention.
The inability of the Internet gambling industry to provide sufficient consumer protections is a secondvery realconcern that must be addressed when discussing the growth and future of this business. At present, Internet gambling sites are poorly regulated and, thus, subject to fraud. And while I am sure that the majority of on-line gambling site operators are legitimate businessmen, there is nothing to protect the consumer from those who see this business as an opportunity to prey upon an easy target.
The vulnerability of the Internet gambling consumer to fraud is most evident in on-line casinos where the outcome of bets is determined entirely by the operation of software that is under the complete control of the site operator. This necessarily creates huge opportunities for cheating on the part of the site operator and tremendous vulnerability on the part of the consumer.
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Additionally, there is no means by which to ensure that virtual casino winners will ever collect their winnings. Once again, the consumer is vulnerable to the dishonest site operator. There is nothing to prevent the operator from simply closing their site and beginning anew if the ''house'' loses and is required to make a sizeable payment to a consumer.
Finally, the concern has been raiseda concern that I do not believe can be readily dismissedthat Internet gambling will create a new wave of gambling addicts as individuals are able to gamble in the comfort of their own homes. To begin with, the Internet makes gambling more accessible then ever before and, thus, more dangerous to those already suffering from a gambling compulsion. Even more disturbing to me, however, is the very real possibility that Internet gambling will lead to a dramatic rise in the number of persons addicted to gambling. It is not difficult to imagine the individual who would never consider setting foot in a casino or a racetrack, never pick up the phone to call a bookie, being lured by the seduction of gambling in the privacy of their own homes. There is also the very real danger that Internet gambling will aggravate the already serious problem of underage gambling forunlike traditional casinosInternet operators have no ability to verify a participant's age or identification. The Internet makes gambling more anonymous, and, thus, easier for underage gamblers access.
I am a strong and often very vocal advocate for the positive role and unlimited uses that the Internet can, and will, have in our society. It is an informational tool of unlimited power. As the sponsor of H.Res. 38, a resolution recognizing the outstanding achievements of NetDay, a private-public partnership providing elementary and secondary schools with the infrastructure needed to connect those schools to the Internet, I believe that the Internet is an outstanding educational resource.
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I do not believe, however, that gambling is one of the positive uses of the Internet. It is critical that Congress step into the regulatory vacuum that now exists with respect to gambling on the Internet. I look forward to hearing from the distinguished witnesses who have joined us today. I know that you are divided on the best way to answer the concerns 1 have just detailed and I look forward to discussing with you the various options available to Congress.
Ms. JACKSON LEE. But I will make some points and then have a question.
It seems to me that what we have now is a totally broken system. I had my staff turn on to the Internet yesterday. Within 2 minutes, they had hit 40 gambling sites. This obviously voids any sense of strictures or regulations or guidelines. It interferes, as I said earlier, with any State causes or dictates of regulating their own gambling within their own State.
It particularly, as I see it, interferes and does not provide any protection for the consumer. We realize that many of the discussions that have been had in our State legislatures on gambling that has occurredStates and cities have run for the finish line to find and use gambling and lotteries as the panacea for education. I would probably be able to document in many instances that the monies have not been there, and the monies that have been there have been utilized for other reasons.
But, in particular, we found, in addition to not having consumer protection, that gambling can certainly bring about addiction, that it does have its problems along those lines. And many people say that we are not our brother's keeper. I beg to differ. When it intrudes on the quality of life and the lifestyles of our families across this country, that becomes a national concern.
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What happens when the consumer strikes gold? What are the provisions that will allow that consumer to recover or to claim the funds that they have won? How do they collect their winnings? What is the protection for them to collect their winnings? And who is to protect or to keep children off the Internet and keep them from gambling as well? So there are many, many concerns that I frankly think we need to look at.
In this legislationI am still reviewing itthere are misdemeanor penalties. There is a total bar. I would simply say now that I withhold judgment and would like to reasonably assess what other opportunities there are to provide Federal regulation and whether that matches with my extreme concerns.
My position now is to abhor Internet gambling because I think that it does not produce anything constructive other than profits. And certainly in this capitalist society, I have probably given a lot of people in the audience a quick heart attack, but I do think that the governmentin this instance, the Federal Governmenthas a higher moral ground.
I am not opposed to the gambling industry. There is horse racing, there is dog racing, there is offshore gambling. There is a great deal of entertainment in gambling. There is choice by adults to gamble, but when you have this question of the immediacy of the Internet in each private homeand someone said something about the privacy of one's home. Well, let me tell you folks about the privacy of one's home. There are a lot of things that go on in the privacy of one's home and I will be the first tell you let it go on.
But I think we have a higher plain and a higher level to stand on when that activity in one's home can destroy families, can destroy communities, can ruin the lives of young children who happen to come upon the Internet as an educational tool and wind up in the midst of gambling and other activities that we would not support.
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So I simply say that it is simply timeMr. Chairman, if you would indulge me, I do have one question, and I appreciate the opportunity to ask it and then for it to be answered. I am not clear on those who oppose the Internet gambling, whether or not they see in thatwhether they come forward and supported this particular legislation, but whether or not they want to have Federal involvement or bar it totally. And if Mr. Fahrenkopf or Mr. Donn would be kind enough to answer that question.
Mr. Chairman, I thank you very much for your indulgence.
Mr. MCCOLLUM. You are welcome.
Mr. FAHRENKOPF. Thank you, Congresswoman. I am the first to say that shutters go up my spine whenever I talk about Federal regulation of anything, with my conservative background. But I think that it is clear that if States' rights are going to be respected and defended in the area of gaming, I see no way, absent some Federal involvement in enforcing regulation or in enforcing enforcement of statutes that would control Internet gaming without the Federal Government being involved.
It is a very hard thing for me to say because I am a States'-righter, but I think this is one instance where I see no alternative, absent the time when the technology is there where a State could, in fact, put in place the strong regulatory controls that are necessary.
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Mr. MCCOLLUM. Does anyone else wish to comment on that? Mr. Donn?
Mr. DONN. Yes, I would. The horse racing industry's position is that this bill might prohibit what it already does, which is interstate wagering. We do that today. In addition, our position is that if a Statefor instance, the State of Florida and the State of Illinois, for example, both were to say that interstate horse racing between States is permitted and you can use a telephone and you can use the Internet, that ought to be permitted if those States make those determinations.
And we have shown through history that States have very tough regulatory rules and regulations that we operate under, extremely tough. And our position is that that ought to be permitted. That ought not be prohibited by a broad brush of trying to ban gambling on the Internet. We really don't consider ourselves as gambling on the Internet. We are just trying to conduct a business in interstate wagering like we currently do and use the newest technologies to do it.
Mr. MCCOLLUM. Mr. Miller, do you want to respond?
Mr. MILLER. Just briefly, Mr. Chairman. I concur with Mr. Fahrenkopf. It would have to be a partnership, clearly, and I also support strong States' rights. It would have to be a partnership with the Federal Government and individual States choosing to regulate this activity.
Page 139 PREV PAGE TOP OF DOC Mr. MCCOLLUM. Mr. Buyer, you are recognized for 5 minutes.
Mr. BUYER. A question, Mr. Fahrenkopf, on the major casino houses. Do any of them at this point in time have developed Web sites to have Internet gambling?
Mr. FAHRENKOPF. Absolutely not. The Web sites that they have, Congressman, are to advertise, you know, coming to their casino, their hotel. What you have to understand is if you are a licensed casino in this country, before you can go into another State or go into another jurisdictionfor example, let us use Australia. Mr. Miller just returned from Australia.
There are a number of American companies that are involved in casino gaming in Australia. Before they could do business in Australia, law enforcement and regulatory officials from the States where they are licensed here in the United StatesNew Jersey and Nevadahad to go to Australia, confer with governmental and regulatory authorities down there, and be convinced that the regulatory scheme was as tight.
Mr. BUYER. You are getting way beyond what I am asking.
Mr. FAHRENKOPF. But that is the reason that they couldn't. They can't go into Internet gaming, if they wanted to now, without surrendering their present licenses.
Mr. BUYER. All right. I am trying to envision a scenario whereby you would. Let us say that we say no to the offshore; okay, we are going to say no to offshore. And we have the Indian reservations now doing the Internet gambling and being regulated. I am trying to envision when would the gaming houses jump in, under what scenario, when it becomes lucrative?
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Mr. FAHRENKOPF. No, just being lucrative wouldn't do it, Congressman. When the regulatory authorities in Nevada and New Jerseylet us just say we have one of the major companies that is only doing business in those two States or Mississippi. When the regulatory authorities in Nevada, New Jersey and Mississippi told one of the companies ''we have investigated this, we give you permission to get involved in this because we are convinced that regulatory and law enforcement involvement is there to protect the consumer, to protect the State governments''only then, only then.
So what you do is you forfeit your license to do business in Nevada, New Jersey and Mississippi if you get involved in an activity without the regulatory authorities in those States okaying it. So until such time as there was some conviction by regulatory authorities in those States that the system that was being put in place to regulate Internet gaming met the requirements of those States, you will not see one of the major companies being involved in Internet gaming.
Mr. BUYER. Would it be permissible in Nevada, as an example, if one of the casino houses wanted to havewithin intrastate commerce of their particular State, to have Internet gambling within the State of Nevada.
Mr. FAHRENKOPF. It would depend upon the law of that particular State and the law of Nevada.
Mr. BUYER. So if Nevada wanted to permit that and say you could, that is the scenario? I am trying to envision scenarios.
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Mr. FAHRENKOPF. Intrastate, you are talking about?
Mr. BUYER. Intrastate.
Mr. FAHRENKOPF. I think any State can provide laws that would restrict the activity, the gaming activity to their own residents within their own State. It is when you start going out of the State where you get into difficulties.
Mr. BUYER. Well, thinking out loud, sir, I am trying to envision in my mind if we have got one gentleman that says, well, let us regulate, let us not do a complete prohibitionand we have got such a mish-mash out there in our society, saying, well, we are going to let States' rights do this. It is really confusing when you pull out a map of the United States and figure out what State is doing what, when, and where, and then include all the Indian reservations.
Mr. FAHRENKOPF. That is right.
Mr. BUYER. There is a lot of gaming going on in our country, and that is why Congress moved to study this issue and to see what impact it is having on our society.
Mr. FAHRENKOPF. To add to it, Congressman, if you have seen this morning's Wall Street Journal, on the first page of the second section there is a big article on the Coeur D'Alene Indian Tribe in Idaho that has indicated that they are going online with gambling operations because they are, quote, ''a sovereign nation'' and they have the right to do it. So you are correct. There is an awful lot out there and a lot of mish-mash, to use your terminology.
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Mr. BUYER. So the gentleman with the NCAAyou recited your recent study about the 6 to 8 percent of college students who are probable pathologic gamblers. Is that about correct?
Mr. SAUM. Yes, that is correct.
Mr. BUYER. Before I ask you a question, in society as a whole, what is the percentage of pathologic gamblers?
Mr. FAHRENKOPF. As Mr. Horn indicated, a study has just been completed by the Harvard Medical School, School of Addiction, and indicates that 1.29 percent of the adult population are what we call pathological gamblers. They have shown some clinical signs of not being able to control their activity.
Mr. BUYER. So the interest of Congress to take great scrutiny on the level and impact of the Internet upon our students, when it is six times the amount of normal in society, is worthy of our scope and review?
Mr. FAHRENKOPF. But you must keep in mindand I am sure the NCAA will tell you that 99 percent of that gaming by college students or those below age is illegal gambling today already. They are betting among themselves on sports activities. They are not talking about going in the casinos and betting or going to the track and betting. It is illegal activity that they are already involved in.
Page 143 PREV PAGE TOP OF DOC Mr. BUYER. Thank you, Mr. Chairman.
Mr. MCCOLLUM. Thank you.
Mr. Gekas, you are recognized for 5 minutes.
Mr. GEKAS. Yes, I thank the Chair. When I think of pari-mutuel betting, I think of our voting board down in the House chamber, and I tell you that we are pathological gamblers, too, in casting our votes over the years.
Mr. Donn, I think your testimony more closely reflects the interest that Pennsylvania has in this entire set of circumstances about which testimony has been offered today. And in reviewing your testimony and listening to you, I don't hear a ringing endorsement of the current legislation that we are considering. It seems to me that you are saying things that would lead us to be ready to receive from you recommendations for amendments or different kinds of language or phraseology to bolster the intent of this bill. Am I correct in that?
Mr. DONN. That is correct. We believe that this bill goes further than I think the committee may intend and would inhibit us from doing things that we currently do.
Mr. GEKAS. Yes, let me ask about that. In simulcasting, do you use the Internet?
Mr. DONN. Well, we use the Internet for information dissemination. Most tracks now have Web sites that are heavily used by players all over the country. For instance, in Pennsylvania, they will be looking us up in Florida, our Web site, and they will be wagering on us in Pennsylvania today.
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Mr. GEKAS. So that the Internet and simulcasting are inseparable, is that correct?
Mr. DONN. Well, right now it is used strictly as an information vehicle.
Mr. GEKAS. I understand.
Mr. DONN. Right, very important.
Mr. GEKAS. But it is being used?
Mr. DONN. Yes.
Mr. GEKAS. Does this legislation, in your mind, prohibit that?
Mr. DONN. Yes, it might. I mean, I can't give you an unequivocal answer, but we are concerned that it might.
Mr. GEKAS. All right, so do you have any recommendations as to how we can be sure that we grandfather into the system what you already experience in pari-mutuel-Internet marriage?
Mr. DONN. I don't have that language here, but the American Horse Council would be happy to provide language that would do that.
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Mr. GEKAS. Number two, in the account system that you haveis that what it is called, account
Mr. DONN. Account wagering.
Mr. GEKAS. Pardon me?
Mr. DONN. Account wagering.
Mr. GEKAS. Account wagering. Is the Internet used in that?
Mr. DONN. Not to my knowledge at the present time, no.
Mr. GEKAS. So this bill would not affect that one way or another.
Mr. DONN. But we would hope to be able to use the Internet as a new vehicle, a new technological vehicle in the future if the States would permit. You know, this area has really been addressed already in that the Interstate Horseracing Act was passed. They recognized that racing needed to have cooperation among States and that the Federal Government needed to step in and to help organize this.
Mr. GEKAS. So you believe that the current bill, the one that we are addressing here, is not fully responsive to the worry that you have in that arena, is that correct?
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Mr. DONN. We are concerned that it could prohibit account wagering, yes.
Mr. GEKAS. And what about off-track betting? Is the Internet used now in the facilitation of that?
Mr. DONN. Only in the dissemination, to my knowledge, of information with the various Web sites and different services that are now available to players. And, of course, off-track betting is generally now conducted through commingled pools, which we also are fearful could be prohibited by this bill. That is when a person bets in one State on a race in another and the pools are commingled amongst players from all over the country.
Mr. GEKAS. So that this legislation in its current status constitutes a veiled threat, perhaps, to that system, is that correct?
Mr. DONN. Yes, sir; yes, sir. We are concerned that it could prohibit that.
Mr. GEKAS. Mr. Horn has provided us with copies of ads. The one that has ''Sports Market'' which talks about ''horse racing full track odds up to certain limits''does this ad constitute a threat to your enterprises?
Mr. DONN. I am sorry. Is that directed to me?
Page 147 PREV PAGE TOP OF DOC Mr. GEKAS. Does this constitute a threat to the legal enterprises in which you are involved, the ad that calls for ''horse racing full track odds up to certain limits,'' ''call this number,'' et cetera?
Mr. DONN. Yes. If it is an offshore number or an unregulated, unlicensed authority, yes, that is already a threat. It is happening today. We are competitively being damaged by much of what is happening today.
Mr. GEKAS. Now, I am asking you, does this bill aid or help in any way in alleviating this problem that you have with this ad and this type of gambling?
Mr. DONN. Well, it could help, but if it goes to the point of prohibiting us from doing what we are doing now with State-authorized events, then it would end up hurting us. So, yes, if it eliminated competition, certainly it would help. [Laughter.]
Mr. GEKAS. Well, I might not be interested in that.
Mr. DONN. Right, but what concerns us is that we are different. We are legal, we are authorized, we are regulated, and we are already conducting the business and we want to be able to continue to do that and to use the new technological means to do it. And the very issue of this bill really is at the heart of that ad, I think, rather than us.
Mr. MCCOLLUM. Thank you, Mr. Gekas. If you have more
Page 148 PREV PAGE TOP OF DOC Mr. GEKAS. No. I am ruminating. I thank the Chair. I have no further questions.
Mr. MCCOLLUM. Mr. Chabot, you are recognized for 5 minutes.
Mr. CHABOT. I thank the chairman. If you look at the pattern of legalized gambling in the country, whether you started out in Las Vegas, in Atlantic City, and then bingo at Indian reservations and, you know, all the rest, the lotteries and riverboat casinos, I mean the one thingpeople used to have to, I guess, physically go somewhere to do these things. Now it is a lot easier to gamble than it used to be and now you can actually, with the Internet, gamble in your own home. I guess, Mr. Horn, if you could address your concerns to the ease that people have now, or will have if this expands even further than it is, what are your concerns about that, and particularly as it relates to folks who may be predisposed to have an addiction to gambling?
Mr. HORN. The problem is that gambling addiction is linked to the accessibility of gambling. It is a mental disorder that is in some ways like alcoholism; that is, there is only a small percentage of the population who are susceptible to gambling addiction, but as more people try it and participate, more people become gambling addicts. So if you make it universally accessible, you multiply the number of gambling addicts exponentially, and especially adolescent gambling addicts because you will never know whether they are of age or not.
Mr. CHABOT. Do you have any particular anecdotes or horror stories that you could refer to that perhaps might give some specific examples of people that have been affected by this?
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Mr. HORN. I had lunch a few weeks ago with Ed Looney, who runs the New Jersey Council on Compulsive Gambling, and he was telling about a gambling addict who became addicted to Internet gambling. He had run up tens of thousands of dollars in debt and basically ruined himself. When someone becomes a pathological gambler they use up all their money, they borrow from friends, and then they start to steal. And that was the course of this gambler.
Because the Internet is a relatively new medium and it takes a few years for people to become addicted, there aren't nearly as many Internet gamblers as there are gamblers addicted to other forms. But it is coming and there are many experts in the field of gambling addiction who would testify to that.
Mr. CHABOT. Thank you. Also, if any of the witnesses could address what evidence there is at this time to any connection with organized crime relative to Internet gambling, are there indications that it exist now? Is it on the horizon, concerns relative to organized crime in Internet gambling?
Mr. MILLER. Just briefly, my concern has to go once again to the regulation. Without regulation of gaming, you will find unscrupulous elements profiting from it. It is that simple. It doesn't mean everybody is going to be connected, but without regulation, it just breeds crime and that is the whole point and the thrust of my argument.
Mr. FAHRENKOPF. The only evidence that I am aware ofand, again, it is anecdotal because it was in a newspaper article. There was a story that some representatives of the Russian mafia had set up an operation offshoreI don't remember whether it was Antigua or Belizewithin the past 6 or 8 months and they had taken bets and when people who had won went down to try to collect their money, they found the place boarded up and they were gone. That is the only thing that I have seen, but again that is anecdotal. It is out of a newspaper article, Congressman.
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Mr. SAUM. Through our involvement and our research with sports wagering and attacking that problem on the illegal side, we have found through our relationship with law enforcement and specific cases that we have processed that sports betting is a foundation and is a fundraiser for organized crime. And it is reasonable to believe that that would occur offshore, and we are concerned about the lack of regulation on that side. And, finally, in regards to our issue, obviously it is very narrow, but it is illegal in the United States to place sports wagers anywhere except in the State of Nevada.
Mr. MILLER. One further comment just to give you a little bit of additional information without being specific, I can at least tell you companies that we removed from Washington State, and actually removed from this country, for hidden ownership in those types of issues are now operating offshore casinos in the Caribbean. They left the U.S. and that is where they set up their business, and they tried to come into the State of Washington and purchase a manufacturing plant of gambling equipment. So it is haven for those that wish to avoid regulation.
Mr. CHABOT. I thank the witnesses and thank the chairman for holding this important hearing.
Mr. MCCOLLUM. Yes, thank you, Mr. Chabot.
Mr. Goodlatte, you are recognized for 5 minutes.
Mr. GOODLATTE. Thank you, Mr. Chairman. I would like to use my time to clear up some of the confusion regarding what the intent of the legislation is, particularly with regard to what Mr. Donn has raised.
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This legislation is not about prohibition versus regulation. This legislation allows regulation, and I think that is important. This legislation was also introduced in the Senate by Senator Kyl, and over there it was amended to prohibit all Internet gambling. And I think that has some problems and I prefer this States' rights approach that we are taking here, and I know Mr. Fahrenkopf and others do as well. I want to make absolutely sure that we do that.
Mr. Donn, we do not intend to prohibit your racing facility in Florida from entering into agreements with other States whereby you can provide gambling services over the telephone, if you do that now, or in this case over the Internet, so long as that other State wants to enter into that agreement and permit that gambling to take place in their State. And we have language in the bill under the exceptions clause that covers both the area of news reporting and reporting of legal bets and wagers, where the gambling is not taking place, but you are transmitting information, which is something else you refer to.
And we have a section that deals with assisting in the placing of bets or wagers if betting or wagering on such activity is not illegal in the State or foreign country in which the transmission originates, which in your case would be Florida, and is not illegal in each State and each foreign country in which the sender intends the transmission to be received.
Now, when you put something on the Internet, people are actually coming to your computer, and therefore they can come to it from anywhere in the world unless one of the online service providers, like America Online or CompuServe, actually blocks receiving information from your site. That is an enforcement capability when you are talking about offshore entities that are not complying with our laws in any way, shape or form.
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But in each of the States that it is receivedfor example, let us take Illinois, which may have an agreement with you, and Virginia, which may not. If Virginia wants to prohibit it, when you get a transmission from somebody identifying themselves as being from Virginiaand, certainly, you are going to require that information because you are going to require them to put cash up before they are allowed to put up a wager. You are also going to get information about where they are originating. You would simply refuse to take the bet from Virginia and accept the bet from Illinois.
Now, if you have problems with particular nuances of this language, or even have more substantive changes, we certainly would welcome working with you to make sure that you are absolutely satisfied that that is the intent. I am personally opposed to gambling, but Mr. LoBiondo, the coauthor of this legislation, obviously is not, representing Atlantic City. So our intent here is to address the problem of allowing the States to have the right to prohibit the gambling they wish to prohibit in their States and to regulate those types of gambling that they do not.
For example, Illinois may well allow its citizens to participate in an arrangement with your track in Florida, but they might require it to be done under certain circumstances and they would part of their agreement with you and a part of any legislation that they passed in that State authorizing that. This is not in any way intended to interfere with that and I just want to make that clear to everyone.
I do think there are some regulatory problems, particularly when you get outside of the country and problems are more difficult. Mr. Miller and Ms. Schneider, you may want to address this point, but what happens when Australia sets up a regulatory scheme and the United States or a State within the United States sets up a conflicting regulatory scheme?
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The Internet goes everywhere and reaches everybody, so I think you have to, in my opinion, reserve the right of an individual State to bar that activity in the State. And in Australia or Canada or wherever they want to do this, those countries should recognize the right of that State to do that. If they do not, then we do have a criminal law problem, and when somebody who is engaged in that activity or in a foreign country or in another State is either extradited or travels outside of that location, they can be prosecuted, just like they can under our drug laws and our child pornography laws, and so on.
It is difficult to reach people who commit all manner of different types of crimes. I don't think we should exclude illegal gambling from that purview when a particular State wants to make that activity illegal.
Mr. MILLER. And I don't necessarily disagree with you on that, Representative. I think the issue is if we proactively attack this, which I think you are trying to do, and put in a partnership regulatory program, then foreign governments would have to be register as well unless it was prohibited. They would have to be registered in this country as well, and licensed in this country as well. And if they don't play by the rules, at that point in time they would lose their right to send their signal. Then it becomes a marketing issue. Then you know who you are dealing with, again, and that is probably the only way, at least in my view, to eventually get control and to develop the ultimate consumer protection that is needed on this issue.
Ms. SCHNEIDER. If I could just respond for a minute, I think you bring up a good point. On an international basis, if you do have the provision in there about if it is legal in that particular State or country, I think you have the language in there. If someone is licensed and regulated in another country, I am presuming that, you know, they are allowed into the U.S. in terms of being able to access the U.S. market. That is something we would probably want to talk with you more to clarify.
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The other issue is just within the U.S. Then you get into issue, is it an opt-in or opt-out? Is there a presumption that it is legal unless a State legislature particularly prohibits it, or is it the other way around that you presume that it is illegal unless a State legislature allows it?
Mr. GOODLATTE. My bill makes it clear that it is the latter. If a State does not permit that form of gambling, then it is not allowed in that State unless the State changes its mind, changes its laws, and that is the sovereign right of that State.
Mr. Chairman, if I might have an additional minute?
Mr. MCCOLLUM. Sure.
Mr. GOODLATTE. I would just like to make a few other points. First of all, I am a strong advocate of the growth and use of the Internet. And, Ms. Schneider, you mentioned that point, but I think the Internet is hurt, not helped, in its growth and expansion by having illegal, unregulated Internet gambling. I think there are a lot of parents who aren't going to let their children go online if they don't know that they are going to have access to this type of thing. Schools are reluctant to allow unfettered use of the Internet for the same reason. Colleges and universities obviously have a serious problem, as Mr. Saum has pointed out, and so that concerns me.
Gambling in the home that Mr. Horn pointed out, which is the essence of Internet gambling, concerns me as well. But I think that is the right of each State to make the determination whether or not they are going to allow that, and that is the intent of this legislation.
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Mr. Chairman, thank you very much.
Mr. MCCOLLUM. Thank you, as well.
I am going to yield a couple of minutes to myself to ask a couple more questions. Then, we will see if we will have a second round if others have an interest. We are not going to go very far with votes coming up, so I will be brief.
Ms. Schneider, in your testimony, you said that you believe that it is possible ''to verify a bettor's age, identity, and spending history almost instantaneously.'' Can you explain further why you believe that that is possible? What kinds of software programs might be available to do that?
Ms. SCHNEIDER. Well, there are a variety of controls and sequence of controls that I think the operators that are out there are dealing with. They can do cross-checks with Social Security databases, for example, if it is a U.S. player, to verify age. They can get faxed to them driver's license, birth certificates, credit card, a variety of pieces of information. And, quite frankly, from a business standpoint it is to their advantage to do that so they don't get caught later, find out that, you know, the 16-year-old did it and then they charge back that to the credit card because the parents dispute it.
But there are those controls in place and they are going to get more sophisticated as you go down the line. You are going to get into things like biometric encryption, digital certificates, a variety of those kind of technologies that are going to be coming along. Now, they are not there yet, but they are getting close.
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Mr. MCCOLLUM. Do you think that would take care of the problem if somebody's credit card or identification is stolen?
Ms. SCHNEIDER. Well, to a certain extent. Again, you are not going to get around the fraud, just like you are not going to get around it if you, you know, have a problem at the restaurant when you give your credit card number there. But, you know, in terms of the mass experiences with it, there are procedures that can be implemented now that are coming along in terms of the some of the technology.
Mr. MCCOLLUM. Similarly, Mr. Miller, you indicated something about a waiting period which you thought could be developed to guarantee that minors wouldn't have access. How would you envision that working?
Mr. MILLER. Actually, I have just been reflecting on this because this is such an important issue to me personally, is underage gaming. A waiting period really puts the burden, and the regulation puts the burden on those entities licensed here to verify who their players are. And that could be anything from an application form. That could be place of employment. That could be whatever is necessary to verify that these individuals are, in fact, not children. The penalties would be stringent for violation, by regulation, and I think the period of time would put the burden on the company to actually go out and verify who their players are.
Mr. MCCOLLUM. Do you think that should be done at the State level or the Federal level?
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Mr. MILLER. I think it should be mandated through a Federal program. Once again, I think it needs to be mandated to ensure overall that children are kept off this medium.
Mr. MCCOLLUM. Mr. Saum, you indicated to Mr. Buyer and in your testimony that 6 to 8 percent of college students are probably pathological gamblers. Is that likely to increase if we don't do something to restrict Internet gambling?
Mr. SAUM. Well, we are concerned that it will increase. The very individuals who are our athletes are at-risk people with characteristics that put them at risk, individuals that have large egos, individuals that believe they can control the outcome of any event, whether it is athletic or the particular hobby that they are in or their life, very confident individuals, people that believe that nothing bad ever happens to them. Those people are at risk. Those are good-quality characteristics, but if they move to the negative side, they can put you at risk.
What we have come to call thiswe are concerned about closet gamblers.
Mr. MCCOLLUM. Right.
Mr. SAUM. And that is our concern with our college students.
And there is one other quick point. For all of us that attended college, we remember those binge behaviors, whether it is related to alcohol, drugs, or now gambling. And that binge behavior exists during the college years. When we leave college, for many of us that also leaves at that time. So we are very concerned that that number could rise.
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Mr. MCCOLLUM. One last point. Mr. Goodlatte raised the possibility that we could find a way to force the online service access providers to perhaps not even carry interstate or intra-country gambling. Mr. Horn or Mr. Fahrenkopf, in particular, have you looked into that possibility? Is that something that you think is feasible? Mr. Horn, have you looked into that?
Mr. HORN. We believe it is feasible. The objection of Internet service providers is that they don't want to have to seek out the Internet addresses themselves that would be cut off. But if a law enforcement agency were to inform them which Internet addresses to cut off, that would work. We believe that would be an enforcement mechanism.
Mr. MCCOLLUM. Mr. Fahrenkopf, have you looked into that?
Mr. FAHRENKOPF. I haven't. I am still struggling with E-mail, Mr. Chairman.
Mr. MCCOLLUM. That is fair enough.
In the limited time left, Ms. Jackson Lee, do you have another question you wish to ask?
Ms. JACKSON LEE. I do. Thank you very much. I wanted to focus on points dealing with children and collection of winnings. In particular, Mr. Goodlatte, let me say that I probably fall somewhere between your opinionas I said, I have not made a conclusive decision on this legislation, but I am inclined to support it.
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I would ask the chairman, Mr. McCollum, I have a great interest in having some language in the legislation specifically dealing with children. To my reading of it, it does not have that and I would like to engage the prime subcommittee, Mr. Goodlatte and others, in that and would like to take the lead on that kind of language and see what might be feasible.
Mr. MCCOLLUM. Well, should we go to a markup on this, I am certain you will have your input into it.
Ms. JACKSON LEE. All right, and I look forward to doing that beforehand, but I know that I will work with the author of the bill on that.
Ms. Schneider, in particular, how do you foresee protecting the user of the Internet with respect to the collection of winnings? And, secondarily, how would you protect children in the atmosphere of today?
And, Mr. Saum, I noticed that you had language in your statement that said that this present posture has a great impact on intercollegiate sports programs and I would just like to hear from you on that.
Ms. SCHNEIDER. Let me talk first about the prize payment. That is an issue. I think ultimately it goes back to the licensing jurisdiction where these places are licensed and whatever sovereign country they are licensed and regulated by and what their requirements are. And, quite frankly, you know, even though people talk about some of the island nations, there are some that are more aggressive, like Antigua, that are really attempting to raise the bar on how this is handled.
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They do turn down people because of background checks. They are implementing and beginning to look at implementing random process testing to make sure the games are fair, to be able to do that online. So I think that is to their benefit and they need to be recognized for trying to do that.
There are, I think, a variety of issues when it comes to making sure that you are getting your winnings back. But, ultimately, it really does get back to the licensing jurisdiction. I know, for example, the draft legislation that made it partially through some of the New York Assembly last yearthey wanted to do two things when it came to offshore operators. They wanted to require that they register as doing business within the State of New York, and that bill did pass through the senate before they shut down.
The second companion bill that did not make it before they adjourned was to require prize payment bonding, and that is certainly an option that an individual State could do to make sure that there is adequate, you know, prize payment bonding on the books to be able to cover it from a consumer protection standpoint. So some of the States that are looking more closely at how to handle this on a State regulatory basis are beginning to grapple with some of those things.
Ms. JACKSON LEE. And the children?
Ms. SCHNEIDER. The children's issue isagain, I think we talked about that a little bit in terms of making sure that there are a whole layer of controls that come into play, anything from doing phone checks to checking databases; again, Social Security; possibly a waiting period, like Mr. Miller was talking about. And, again, coming down the road are some other kind of technologies to really be able to identify specifically who is playing on that other end.
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Ms. JACKSON LEE. Mr. Saum, just the impact, how devastating, how far-reaching this would be on intercollegiate sports?
Mr. SAUM. Well, it would be devastating. It goes against every basic principle of athletics, professional and amateurism. It ruins the whole aspect of going to the contest to watch the spontaneous action and reaction instead of worrying about the number of points scored. It also puts at risk our athletes who may become overindulged and then risk the outcome of the contest or maybe change the outcome of the contest. And we are concerned about those kind of relationships.
And, finally, not in an attempt to oversimplify this, but again there are several times Congress has over the years reassured the United States that Nevada is the only place in the United States of America to place wagers on athletic contests, and the Internet is not one of them.
Mr. MCCOLLUM. I want to thank all of the witnesses today for their participation. Unfortunately, we are going to have to go vote. So this is a good time to break, I think, the entire hearing. This is a complex issue and this is not the last time the subcommittee will deal with it. Your input has been very valuable. Thank you again.
This hearing is adjourned.
[Whereupon, at 11:23 a.m., the subcommittee was adjourned.]
Page 162 PREV PAGE TOP OF DOCINTERNET GAMBLING PROHIBITION ACT OF 1997
WEDNESDAY, JUNE 24, 1998
House of Representatives,
Subcommittee on Crime,
Committee on the Judiciary,
The subcommittee met, pursuant to call, at 2 p.m., in Room 2237, Rayburn House Office Building, Hon. Bill McCollum [chairman of the subcommittee] presiding.
Present: Representatives Bill McCollum, Stephen E. Buyer, Steve Chabot, Bob Barr and Asa Hutchinson.
Also Present: Representative Bob Goodlatte.
Staff Present: Paul McNulty, Chief Counsel; Nicole Nason, Counsel; Scott Flood, Investigator; and David Yassky, Minority Counsel.
Mr. MCCOLLUM. The subcommittee hearing will come to order.
At our first subcommittee hearing on Internet gambling on February 4 of this year, I expressed my grave concern that Internet gambling could lead to a new generation of computer-savvy net surfers who would be able to bankrupt themselves and their families in the comfort of their homes or offices. That concern has not abated.
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A popular advertisement asks, ''where do you want to go today?'' Well, parents don't want their children to travel to the virtual Caribbean casino when they are supposed to be researching a school report.
Today's hearing is the result of new information and issues that have developed since the last meeting on this issue. Of particular importance is the fact that the Justice Department indicted 14 people on March 5 and then an additional seven more 3 weeks later for conspiracy to transmit bets and wagers via the Internet. This brings up a critical point for the subcommittee's consideration which is: Does the Department of Justice believe this legislation is necessary to prosecute Internet gambling?
One of the primary reasons for today's hearing is to hear from the Justice officials regarding the Department's position on the specifics of the legislation. In the view of Federal prosecutors, are some but perhaps not all of the provisions necessary? What changes, if any, can the Department suggest? Will the government be able to enforce the proposed offenses, particularly in relation to foreign-based operations and offenders?
Additionally, this subcommittee needs to know what resources the Department of Justice will have available for enforcement of these provisions.
Other issues have cropped up which will necessitate a further vetting by the subcommittee. For example, should fantasy sports leagues be included within the definition of gambling? When we envision gambling, most of us would agree that a fantasy sports league is not what we had in mind. The word ''gambling'' conjures up images of Las Vegas and the Atlantic City boardwalk, yet there may be aspects of fantasy sports leagues which some believe merit a closer look concerning operations, participant cost and prizes awarded.
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We also need to consider the subject of Indian gaming. Indian tribes argue that, as sovereign nations, they should not be included within the purview of this legislation. Moreover, Congress has already addressed the question of Indian gaming with the passage of the 1988 Indian Gaming Regulatory Act, which established the National Indian Gaming Commission as an independent agency within the Department of Interior.
Indian tribes argue that it is the Commission alone which governs and regulates Indian gaming, and thus it should be charged with preventing Internet gambling conducted by or on Indian land. Yet if such an exception is made, how can we hope to effectively restrict Internet gambling outside of Indian land?
A final, critical issue for the committee to consider is concern about Internet service provider responsibility. I believe that one way parents can have peace of mind is if the service providers take responsibility for blocking access to any gambling web sites. If service providers can prevent their subscribers from gaining access to foreign Internet casino sites, we could all achieve real success.
I have many questions regarding service providers' ability to simply cut off a person who wants to gamble on-line, and I look forward to having those questions answered today. All of our witnesses today have important information to impart to the subcommittee regarding the issues, and I appreciate their being here for this second discussion.
Mr. Goodlatte is a dedicated member of the Judiciary Committee, and I know that he feels very strongly about this legislation, and I also want him to know that I appreciate his patience as the subcommittee moves the process along.
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Are there any other members who wish to make opening comments?
If not, I will introduce our first panel.
Our first witness in the whole panel today is Mr. Kevin DiGregory. Mr. DiGregory is the Deputy Assistant Attorney General in the Criminal Division of the U.S. Department of Justice. He has spent his entire legal career as a trial prosecutor, beginning in 1979 in the District Attorney's Office in his native Pittsburgh, Pennsylvania. Just prior to coming to the Justice Department he served as Janet Reno's Chief Assistant for Major Crimes in Miami, Florida.
Mr. DiGregory's current responsibilities include serving as the Department representative on the Executive Working Group for Federal, State and Local Prosecutors. He also supervises two of the Criminal Division's litigating sections, the Computer Crime and Intellectual Property Section and the Child Exploitation and Obscenity Section.
We appreciate your being here today. Your entire statement will be admitted in the record, without objection.
Hearing none, it is so ordered; and you may proceed to summarize in any way you wish your testimony. Thank you.
STATEMENT OF KEVIN DIGREGORY, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
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Mr. DIGREGORY. Good afternoon, Mr. Chairman and members of the subcommittee. Thank you very much for providing me with the opportunity to discuss with you the important and complex issues relating to gambling on the Internet.
The Nation's policy with regard to Internet gambling must carefully balance important competing interests, and it is essential for all interested parties to recognize that any effort to craft legislation focusing on the use of the Internet, whether for gambling or for other purposes, implicates a variety of complicated legal doctrines, including issues related to free speech, federalism, sovereignty, international law and comity and domestic and international commerce and trade.
In recent years, a great deal of attention has been devoted to studying and discussing the societal problems generally associated with casino gambling, such as addiction, diminished job performance, crime, money laundering, decreased investment, participation by minors and a regressive effect on those with lowers incomes. However, very little is yet known about how the availability of gambling over the Internet will effect society. In fact, in 1996 you assigned the National Gambling Impact Study precisely that task, to assess the impact of gambling and, specifically, electronic gambling on individuals, families, businesses, social institutions and the economy.
Accordingly, the Department of Justice generally believes that there is considerable value in waiting until the Commission has concluded its study of the scope and effect of the Internet gambling before passing new legislation which would change the way that Internet gambling is regulated or prohibited.
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As members of this subcommittee undoubtedly know, various States have drawn quite different conclusions about the positive and negative consequences associated with gambling. In fact, 48 of 50 States have legalized some form of gambling. Many of these States allow only lotteries and/or casino or bingo games for charitable purposes. However, an increasing number of them have legalized commercial gambling. Accordingly, it appears that at least some State legislation regarding gambling is not designed to prohibit or to limit gambling activity on moral grounds but rather to create and ensure the viability of a source of State revenue.
In any event, any effort to create an entirely new Federal regime regarding electronic gambling will inevitably shift responsibility and control over gambling-related issues away from States and to the Federal Government. The Department continues to believe, however, that in the absence of fraud or organized crime involvement, primary regulatory enforcement responsibilities for gambling laws should remain with the States.
That being said, 18 United States Code, 1084, the Wire Communications Act, currently prohibits someone in the business of betting and wagering from using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers on any sporting event or contest. This law was originally enacted to assist States and territories to enforce their laws and to suppress organized criminal involvement with gambling.
To the extent Internet casinos are likely to be located abroad and beyond the easy reach of State authorities, the States are likely to seek Federal assistance more frequently when those foreign casinos offer gaming to local citizens in violation of local law. Assisting States through the enforcement of the Wire Communications Act, therefore, is fully consistent with the Department's law enforcement priorities.
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To be perfectly clear, however, the Department believes that many forms of Internet gambling can be effectively prosecuted under existing State and Federal law. Because most methods of connecting to the Internet involve currently the use of wire communication facilities as defined in Section 1084, anyone in the business of betting or wagering who transmits or receives bets and wagers on sporting events via the Internet is acting in violation of the Wire Communications Act. In appropriate cases, the Department has brought and will bring prosecutions under this statute.
The Chairman has already mentioned that, recently, complaints were filed in the Southern District of New York; and already three of those individuals charged in those complaints have pled guilty to violating Section 1084.
The Department also recognizes that the advent of Internet gambling may have diminished the effectiveness of the Wire Communications Act, in part because that statute may relate only to sports betting and not to the type of real-time, interactive gambling that the Internet now makes possible for the first time. Therefore, we generally support the idea of amending the Federal gambling statutes by clarifying that the Wire Communications Act applies to interactive casino betting and that the Act covers all Internet use, even if the Internet transmissions use modern technology such as satellite communications that may not currently be included in the traditional definition of wire communications.
If any legislation specifically pertaining to the transmission of information over the Internet is to be considered at this time, we believe that such legislation should share three very important characteristics:
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First, such legislation should treat physical world activity and cyberactivity in the same way. If activity that is prohibited in the physical world is not prohibited on the Internet, the Internet will become a safe haven for that criminal activity.
On the other hand, it would be very difficult to explain why conduct previously deemed acceptable in the physical world should suddenly become criminal when committed in cyberspace. Therefore, we strongly recommend that the legislative treatment of Internet gambling be consistent with the treatment of gambling via other wire and wireless methods of communication. Any distinctions between Internet transmissions and other methods of communication which are created are likely to be artificial and unworkable.
My next point is that any legislation should strive to be technology neutral. Legislation that is tied to a particular technology may quickly become obsolete and require further amendment. As a result, we believe it prudent to identify first the conduct that we are trying to prohibit and then prohibit that conduct in technology neutral terms.
Third, it is critical that the law recognize that the Internet is different from prior modes of communication in that it is a multifaceted communications medium that allows for both point-to-point transmission between two parties, like the telephone, as well as the widespread dissemination of information to a vast audience, like a newspaper.
Because of the unique nature of Internet transmissions, any prohibitions specifically geared to Internet communications must be carefully drafted in ways that accomplish the legislation's objectives without stifling the growth of the Internet or chilling its use as a medium of communication and commerce.
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For example, under the existing version of 18 United States Code, 1084, the Wire Communications Act, it is illegal for someone in the business of betting or wagering to transmit information in interstate or foreign commerce that assists in the placing of bets or wagers unless the transaction is legal in jurisdictions at both ends of the transmission. Applied literally to the postings on the worldwide web, this provision could be construed to criminalize the dissemination of information relating to lawful gambling at land-based casinos.
Finally, I would like to comment on two aspects of existing legislative proposals regarding Internet gambling that the Department opposes. First, and most significantly, the Department strongly opposes any legislation that would seek to make the activities of mere bettors, that is those not in the business of betting or wagering, a violation of Federal law.
Second, the Department believes that efforts to make enforcement of an anti-Internet gambling statute an international law enforcement priority are misguided.
Let me discuss those issues in more detail. Since 1961, the Wire Communications Act has targeted only individuals in the business of betting or wagering in order to cover professional lay-off bettors, but not mere bettors. During hearings on the 1961 bill, then Attorney General Robert F. Kennedy acknowledged that the Department had no intent to prosecute individual bettors because it would be an almost impossible task for the Federal Government to accomplish. The same is certainly true today.
Criminal penalties against individual bettors have traditionally been left to the States to implement and enforce. Nothing about gambling on the Internet suggests that criminalizing the activities of mere bettors should become a Federal law enforcement priority. Extending Federal jurisdiction to cover mere bettors is both unnecessary and unwise. It is unnecessary because a State may always choose to criminalize and then prosecute bettors located in its jurisdiction. It is unwise because Federal resources should be spent targeting large gambling operations and any organized criminal involvement or fraud connected with such activities and other more serious offenses.
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Because enforcement against mere bettors is not likely to be a priority, we believe it is not advisable to have such legislation on the books. This is especially true where any failure to apply the criminal statute against common social wagering activities such as an office NCAA basketball pool conducted via e-mail or a wager of local products between Members of Congress or mayors or governors who represent States or cities that have World-Series-bound teams would raise questions of inconsistent enforcement.
With regard to the international aspects of the legislation, the United States needs to be very sensitive to issues of international law and comity in the Internet context. Because other countries, such as Australia, have declared their intention to permit Internet gambling operations to accept bets and wagers via the Internet, it would be difficult to enforce Internet gambling prohibitions against operations located outside the United States.
More specifically, a foreign national who is licensed to operate an Internet-based casino in his country will not be violating his country's law if he solicits or accepts bets from the United States and from United States citizens. If we demand that foreign countries investigate on our behalf non-fraudulent gambling related conduct that is legal in their countries, we must be prepared to receive and act upon foreign requests for assistance when the conduct a foreign country complains of is legal or even constitutionally protected in the United States.
For example, if we ask a foreign country to investigate gambling that is legal in the foreign state, that foreign state may ask us to investigate constitutionally protected speech transmitted on the Internet from the United States that arguably violates that country's hate speech laws.
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I want to conclude my remarks by commending this committee's efforts to investigate the need for statutory reform to take into account the effect of new technology on existing laws, and I appreciate the opportunity to present the Department's views on this issue. I would be pleased to try to answer any questions you might have.
Mr. MCCOLLUM. Thank you, Mr. DiGregory.
[The prepared statement of Mr. DiGregory follows:]
PREPARED STATEMENT OF KEVIN DIGREGORY, DEPUTY ASSISTANT ATTORNEY GENERAL,
CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Thank you, Mr. Chairman and Members of the Subcommittee, for providing me this opportunity to discuss with you the important and complex issues relating to gambling on the Internet. The Nation's policy with regard to Internet gambling must carefully balance important competing interests, and it is essential for all interested parties to recognize that any effort to craft legislation focusing on the use of the Internet, whether for gambling, or other purposes, implicates a variety of complicated legal doctrines, including issues related to free speech, federalism, sovereignty, international law and comity and domestic and international commerce and trade.
In recent years, a great deal of attention has been devoted to studying and discussing the societal problems generally associated with casino gambling, such as addiction, diminished job performance, crime, money laundering, decreased investment, participation by minors, and a regressive effect on those with lower incomes. However, very little is yet known about how the availability of gambling over the Internet will affect society. In fact, in 1996, you assigned the National Gambling Impact Study Commission precisely that taskto assess the impact of gambling, and specifically electronic gambling, on individuals, families, businesses, social institutions and the economy. Accordingly, the Department of Justice generally believes that there is considerable value in waiting until the National Gambling Impact Study Commission has concluded its study of the scope and effect of Internet gambling before passing new legislation that would change the way in which Internet gambling is regulated or prohibited.
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Furthermore, as the Members of this Subcommittee undoubtedly know, various states have drawn quite different conclusions about the positive and negative consequences associated with gambling. In fact, forty-eight of the fifty states have legalized some form of gambling in their state. Although many of these states allow only state lotteries, and/or casino or bingo games for charitable purposes, an increasing number of states have legalized commercial casino gambling. Accordingly, it appears that at least some state legislation regarding gambling is not designed to prohibit or limit gambling activity on moral grounds, but rather, to create and ensure the viability of a source of state revenue. In any event, any effort to create an entirely new federal regime regarding electronic gambling will inevitably shift responsibility and control over gambling-related issues away from state and to the federal government. The Department continues to believe, however, that in the absence of fraud or organized crime involvement, primary regulatory enforcement responsibility for gambling laws should remain with the states.
That being said, 18 U.S.C. 1084the Wire Communications Actcurrently prohibits someone in the business of betting and wagering from using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers on any sporting event or contest. This law was originally enacted to assist the states and territories in enforcing their laws and to suppress organized crime involvement with gambling. To the extent that Internet casinos are likely to be located abroad and beyond the easy reach of state authorities, the states are likely to seek federal assistance more frequently when foreign casinos offer gaming to local citizens in violation of local law. Assisting states through enforcement of the Wire Communications Act, therefore, is fully consistent with the Department's law enforcement priorities.
Page 174 PREV PAGE TOP OF DOC To be perfectly clear, however, the Department believes that many forms of Internet gambling can be effectively prosecuted under existing state and federal law. Because most methods of connecting to the Internet involve the use of ''wire communication facilities'' as defined in the Section 1084, anyone in the business of betting or wagering who transmits or receives bets and wagers on sporting events via the Internet is acting in violation of the Wire Communications Act. In appropriate cases, the Department will bring prosecutions under this statute. The recent complaints filed in the Southern District of New York illustrate this point. In those cases, the United States Attorney's Office filed criminal complaints against twenty-one individuals who owned and managed nine overseas sports betting establishments that accepted bets and wagers from United States citizens over the telephone and via the Internet. All of the complaints charged violations of Section 1084, the Wire Communications Act. Already, three of the individuals charged in those complaints have pled guilty to violating section 1084.
However, the Department also recognizes that the advent of Internet gambling may have diminished the overall effectiveness of the Wire Communications Act, in part, because that statute may relate only to sports betting and not to the type of real-time interactive gambling (e.g., poker) that the Internet now makes possible for the first time. Therefore, the Department generally supports the idea of amending the federal gambling statutes by clarifying that the Wire Communications Act applies to interactive casino betting and that the Act covers all Internet use, even if the Internet transmissions use modern technologysuch as satellite communicationsthat may not be included in the traditional definition of ''wire communications.''
If any legislation specifically pertaining to the transmission of information over the Internet is to be considered at this time, we believe that such legislation should share three important characteristics. First, such legislation should treat physical world activity and cyberactivity in the same way. If activity is prohibited in the physical world but not on the Internet, the Internet will become a safe haven for that criminal activity. On the other hand, it is hard to explain why conduct previously deemed acceptable in the physical world should suddenly become criminal when committed in cyberspace. Therefore, we strongly recommend that the legislative treatment of Internet gambling be consistent with the treatment of gambling via other wire and wireless methods of communication.
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Any effort to distinguish Internet transmission from other methods of communication is likely to create artificial and unworkable distinctions. For example, with the expected growth of digital Internet telephonythe use of the Internet or other packet-switched networks for pure voice communicationsany effort to distinguish wagers placed via voice communications from wagers placed via electronic communications will lead to substantial confusion.
This leads to my next point, which is that any legislation should strive to be technology neutral. Legislation that is tied to a particular technology may quickly become obsolete and require further amendment. As a result, we believe it prudent to identify the conduct we are trying to prohibit, and then prohibit that conduct in technology-neutral terms.
Third, it is critical that the law recognize that the Internet is different from prior modes of communication in that it is a multi-faceted communications medium that allows for both point-to-point transmission between two parties, like the telephone, as well as the widespread dissemination of information to a vast audience, like a newspaper. Because of the unique nature of Internet transmissions, any prohibitions specifically geared to Internet communications must be carefully drafted in ways that accomplish the legislation's objective without stifling the growth of the Internet or chilling its use as a medium of communication and commerce.
For example, under the existing version of 18 U.S.C. §1084, it is illegal for someone in the business of betting or wagering to transmit information in interstate or foreign commerce that assists in the placing of bets or wagers, unless the transaction is legal in jurisdictions at both ends of the transmission. Applied literally to the postings on the World Wide Web, this provision could be construed to criminalize the dissemination of information relating to lawful gambling at land-based casinos.
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Finally, I would like to comment on two aspects of existing legislative proposals regarding Internet gambling that the Department opposes. First, and most significantly, the Department strongly opposes any legislation that would seek to make the activities of mere bettorsthose not in the business of betting or wageringa violation of federal law. Second, the Department believes that efforts to make enforcement of an anti-Internet gambling statute an international law enforcement priority are misguided.
Let me discuss these issues in more detail. Since 1961, the Wire Communications Act has targeted only individuals in the ''business of betting or wagering'' in order to cover professional lay-off bettors, but not mere bettors. During hearings on the 1961 bill, then-Attorney General Robert F. Kennedy acknowledged that the Department had no intent to prosecute individual bettors, because it would be an almost impossible task for the federal government to accomplish. The same is certainly true today. Criminal penalties against individual bettors have traditionally been left to the states to implement and enforce. Nothing about gambling on the Internet suggests that criminalizing the activities of mere bettors should become a federal law enforcement priority. Extending federal jurisdiction to cover mere bettors is both unnecessary and unwise. It is unnecessary because a state may always choose to criminalize, and then prosecute, bettors located in its jurisdiction. It is unwise because federal resources should be spent targeting large gambling operationsand any organized crime involvement or fraud connected with such activitiesand other more serious offenses.
Because enforcement against mere bettors is not likely to be a priority, we believe it is inadvisable to have such legislation on the books. This is especially true where any failure to apply the criminal statute against common social wagering activitiessuch as an office NCAA basketball pool conducted via e-mail, or a wager of local products between Members of Congress who represent districts that have Superbowl or World Series-bound teamswould raise questions of inconsistent enforcement.
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With regard to the international aspects of the legislation, the United States needs to be very sensitive to issues of international law and comity in the Internet context. Because other countries, such as Australia, have declared their intention to permit Internet gambling operations to accept bets and wagers via the Internet, it will be difficult to enforce Internet gambling prohibitions against operations located outside the United States. More specifically, a foreign national who is operating a licensed Internet-based casino in his country will not be violating his country's laws if he solicits or accepts bets from United States citizens. If we demand that foreign countries investigate, on our behalf, non-fraudulent gambling-related conduct that is legal in their countries, we must be prepared to receive and act upon foreign requests for assistance when the conduct a foreign country complains of is legal, or even constitutionally protected, in the United States.
For example, if we ask a foreign country to investigate gambling that is legal in the foreign state, that state may ask us to investigate constitutionally protected speech transmitted on the Internet from the United States that arguably violates that country's hate speech laws. Considering all of the challenges facing law enforcement in the information age, we believe current efforts should focus on conduct which either is, or should be, universally prohibited, rather than conduct which many states in this country, and many foreign countries, deem permissible.
I want to conclude my remarks by commending this Committee's efforts to investigate the need for statutory reform to take into account the effect of new technology on existing laws and I appreciate the opportunity to present the Department's views on this issue. I would now be pleased to answer any questions you may have.
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Mr. MCCOLLUM. We do have some questions, and I will recognize myself for 5 minutes.
Would the Department of Justice be satisfied it had all of the tools necessary if we were to expand the definition of a wire communication under chapter 50 of title 18 for the purposes of casino gambling? Would that be all of the changes that would be necessary? Is that what your testimony, in essence, is saying?
Mr. DIGREGORY. I think we would like it to be assured that 1084 or some iteration of 1084 applies to all forms of communication and not just wire communication and that 1084 or some iteration of 1084 could be made applicable to all forms of gambling and not just sports betting as it, arguably, only applies to now.
Mr. MCCOLLUM. I understand where you are going with it, and I can understand why you would want that change and probably could support that change, but the question is, would that alone be all we need to do as Congress to give the Justice Department the tools in this age of Internet gambling to address the problem as adequately as needs to be addressed?
Mr. DIGREGORY. If the amendments are appropriate ones, I think that is pretty much true, Mr. Chairman. Because, as I noted in my testimony, there are other statutes that the Federal Government can apply to gambling businesses, whether they are gambling businesses which operate via the Internet or gambling businesses which operate as many gambling businesses do now.
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One of those statutes is 18 United States Code, 1955, which prohibits the operation of a gambling business and defines that business a little differently than is defined in both the Senate bill and the House bill currently pending.
Mr. MCCOLLUM. Let me tell you what bothers me, and you have alluded to it, and you have made the statement that I gather says that you don't think that we can do anything about it. But most of the gambling I am concerned about is offshore, coming from Australia and the Caribbean. Internet service providers say we can't do anything about it or shouldn't be required to. You said that you do not think that we should do anything about it, at least in giving you laws, because, if we did, there would be problems internationally.
Consequently, the net result, if we don't do anything, seems to be that, regardless of what we give you in the way of new tools with regard to the wire communication definition, we are still going to have a problem with the States not being able to effectively control gambling in their States any longer. It just won't happen because you are going to have all of the stuff coming in offshore, and it doesn't matter what happens in the United States. How do you respond to that?
Mr. DIGREGORY. First of all, I would respond by saying if you look at 1084, 1084 currently prohibits persons in the business of wagering or betting using wire communication facilities for the transmission in interstate commerce of bets or wagers.
If I can clarify what I said earlier, although it would be difficult to pursue foreign gambling operations, foreign sites, and although it would be difficult to obtain jurisdiction over the operators of those sites, current Federal law still makes the transmission of that information into a State where betting is illegal, at least through a wire communication facility, against Federal law and would enable us to attempt to pursue those individuals.
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If you look at what occurred in the Southern District of New York, those United States citizens were operating casinos offshore in places like Antigua and Curacao, if my memory serves me correctly. We were able to obtain jurisdiction over those United States citizens.
I am saying that these cases can be pursued, but you have to understand the difficulties that we have in pursuing them where, first of all, the casinos are licensed in the foreign jurisdictions and, secondly, the operators of those casinos are citizens of that foreign jurisdiction.
Mr. MCCOLLUM. And all of the citizens in this case you just described were United States people?
Mr. DIGREGORY. That is correct.
Mr. MCCOLLUM. And, consequently, you don't think that you have jurisdiction to prosecute?
Mr. DIGREGORY. I am not saying that we don't have jurisdiction. I am saying it would be difficult if they were committing criminal activity offshore to extradite them, especially when the activity for which we seek to extradite them is not activity which their country deems to be illegal.
Mr. MCCOLLUM. But you could indict them?
Page 181 PREV PAGE TOP OF DOC Mr. DIGREGORY. Yes.
Mr. MCCOLLUM. Let me ask one other question. One of the suggestions that we got in this issue was, working through the technology issues which I am sure that we will have plenty of time to discuss with ISPs, that we restrict in some way the access to the Internet by the offshore gamblers. In other words, require the ISPs to block it in some manner or means. And I realize that begs the question of how and what. Do you have any thoughts about criminalizing the law with respect to ISPs that permit access when we say that they shouldn't allow foreign gambling to come into their sites or otherwise?
Mr. DIGREGORY. If I may, I don't think that this would be much of an issue at all, if any issue at all, if any efforts to prohibit Internet gambling were targeting only those persons who were engaged in the business of gambling. So that if a Department of Justice prosecutor or assistant United States attorney couldn't prove that the ISP was engaged in the business of gambling, there wouldn't be a prosecutable case.
Mr. MCCOLLUM. What if we drafted a law that said that it is a crime for an ISP to permit illegal gambling and defined it in a way that they would clearly understand what it was? Let's assume that we were able to do that. Do you have a problem with that? Then you would be prosecuting the access, the allowance, the permission to do it and permitting it over the Internet.
Mr. DIGREGORY. I don't mean to beg off, but it is difficult to respond without seeing some language regarding what permit means. And so I willI guess I do mean to beg off, Mr. Chairman.
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Mr. MCCOLLUM. Fair enough.
Mr. Buyer, you are recognized.
Mr. BUYER. I think I am rather confused at the moment. I was rather set back that it would be the Department of Justice's position for us toI don't want to recharacterize what you saidbut sort of accept this because we have to be sensitive to each nation's sovereignty.
I am taken aback by that because I don't think Joel Klein would accept that as a position. He comes over here and provides testimony to us all the time about his review with the Antitrust Department and how they work on the merger mania and the globalization of trade, and he has to work through the monopoly tendencies of private barriers and government barriers. And as the world is evolving, when word goes out through preliminary discussions at the World Trade Organization or with EG4 of the European Union working with us on some of these, we try to work through these, in his words, positive comity, to work those out between nations.
I guess I heard what you are saying, but I was rather stunned by that. I want you to go beyond that superficial statement and take it to the next step, and the next step is Congress is struggling with this question and what we are askingand I don't want to lay all of the administrative and executive position on your shoulders here, but we don't know where leadership is coming from the executive branch on this issue to engage other nations.
When we have problems in trade, we engage other nations and we work through those in the areas of enforcement. So let me kick it back to you and please take this to the next level with regard to leadership, please.
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Mr. DIGREGORY. In the first instance, Mr. Buyer, I don't know that I would characterize what I said, although we must respect the sovereignty of other nations, as a statement borne out of a grave concern for that sovereignty but more borne out of a recognition of reality, at least in terms of our ability to extradite persons back from other countries who are operating gambling sites offshore. And at least in terms of our ability to get countries who legalized gambling to recognize our extradition requests, as I said, when the conduct that we have prohibited is legal in their country.
And you make a good point about getting together with other nations to try to solve this problem, and I believe that that is something we can, should, and will do with respect to other nations who want to license Internet gambling operations.
Mr. BUYER. Is any of that on the table right now?
Mr. DIGREGORY. I can't get into terribly much detail, but it is on the table at least at my level. Maybe that is not a high enough level at this point, but it is on the table at my level.
Mr. BUYER. Let me ask the question, because I don't know the answer to this. Who should lead this as a focal point? Should it come out of the Federal Trade Commission or the President himself? Who should
Mr. DIGREGORY. I guess I don't know right now who it is who should lead this effort, but I think, in the first instance, it should be very carefully looked at and commented upon by those of us in the Criminal Division who have been dealing with this issue and those in the Criminal Division of the U.S. Department of Justice who work primarily in international affairs.
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Mr. BUYER. The other question, when you say the treatment of the physical work and the Internet cyberspace world should be the same, so right now we pretty much leave this up to the States to control some of this. Would the Federal Government be sending a message out to the States that they also should be treating the cyberworld and the casinos the same? So New Jersey with Atlantic City, don't protect just your gaming interests but you should open it up to the cyberworld, too, and you treat all gaming interests the same? Is that the message that you are sending out?
Mr. DIGREGORY. That would be up to the citizens of New Jersey and Nevada, but they would have to be careful not to be engaged in gambling businesses in other jurisdictions.
Mr. BUYER. But the message you are sending to us, the Federal Government, is treat all gambling as gambling, don't pick and choose?
Mr. DIGREGORY. The message is especially with respect to end bettors. Where we have chosen in the physical world to allow States to control whether or not they will punish the person who places the bet, we should continue to allow that to occur with respect to the cyberworld.
Mr. BUYER. Thank you.
Mr. MCCOLLUM. We have to leave in 2 to 3 minutes, but would you like to begin your questioning, Mr. Barr?
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Mr. BARR. I can give it a shot.
I am somewhat disturbed also by what seemed to be inconsistencies in the testimony just presented and current Federal policy, and I think I am also getting at some of the stuff that my colleague from Indiana expressed some concerns about.
You say, ''First, and most significantly,'' reading from page 6, ''the Department strongly opposes any legislation that would seek to make the activities of mere bettors, those not in the business of betting or wagering, a violation of Federal law,'' and then you talk about what Robert Kennedy, his position was. I don't know what that has to do with what we ought to be doing today. That was quite some time ago.
My concern isand also when we get into the issue of the Department now thinks that we ought to enforce only those laws that are illegal and represent conduct that is criminalized in other countries, we don't do that for drugs. We don't do that for certain types of fraud. We don't do that for certain types of bribery or money laundering. As my colleague from Indiana mentioned, we don't take that sort of policy in antitrust.
Historically, it seems to me that it has been the Department of Justice's policy that we enforce those laws that we believe are appropriate for our citizens. We don't say because some other country hasn't criminalized that we are not going to seek to enforce those laws. To me, this represents a fairly significant change in the Department's policy that I find somewhat disturbing as well as what seems to me to be a change in the Department policy that you have enunciated today with regard to seeking only to criminalize behavior when it involves more than one person or involves the scale of something. You say we shouldn't go after mere bettors, and the reasoning that you give would apply to drug cases, it would apply to child pornography cases and probably many, many others.
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Does this represent a fundamental shift in Department policy that we are not going to enforce drug laws if they involve simple possession or child pornography laws if they involve goods received from some foreign country? Does it mean that we are not going to move forward with regard to trying to strengthen money laundering laws or bribery or fraud laws as well? Are you enunciating a major shift in the Department's policy?
Mr. DIGREGORY. No, not at all, Mr. Barr. I think all I am trying to do is point out that there needs to be a recognition that it would be difficult to get countries who allow gambling to send their citizens back to the United States to stand trial on a gambling charge, even operating a gambling business when, A, the gambling business that they are operating is legal in their country; and, B, 48 of our 50 States in one form or another authorize some kind of gambling.
Mr. BARR. It may be difficult, but that in the past has never been enunciated policy of the government that we should not have those laws on the books. Sometimes we may elect not to enforce them in a certain instance, but that is not a reason not to seek to enact laws that we think benefit our citizens.
Mr. MCCOLLUM. If we don't recess now, we are going to miss this vote. I am going to recess the subcommittee. I am going to ask Mr. DiGregory if he can stay and let us vote. We will be back immediately when we are done with this vote or the one that immediately follows.
The subcommittee is in recess.
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Mr. MCCOLLUM. The Subcommittee on Crime will come to order.
Prior to the recess, we were in the middle of Mr. Barr's time. I couldn't tell how much time you had left. I don't know if you want to refresh Mr. DiGregory's position.
Mr. BARR. I will just say it just seems to me that either you are enunciating a new policy for the Department or you are indicating that, with regard to this category of criminally and potentially criminal behavior, the Department is going to treat this different than many of these other areas, whether it is money laundering or antitrust or bribery or certain drug offenses, with regard to your international objection, or drugs or child pornography, with regard to your objection that there should not be a statutory penalty on simple possession.
It seems to me that there is nothing wrong with passing a statute that criminalizes simple possession if we believe that possession of it is improper or the conduct of a particular act is something that we as a society do not condone and then leave it up to the discretion of the prosecutors. We are frequently faced with that. This is not something that is unique to Internet gambling, nor has it been a prohibition or a reason to not move forward with passing a law criminalizing certain behavior simply because the States may have the primary responsibility.
Here again it seems as long as there is a proper Federal nexus that there is nothing wrong with passing one of these laws and, in the great majority of cases, the split of authority between the Feds going after a certain behavior or leaving it up to the States balances itself out.
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I don't quite understand the hesitancy of the Department to move into this area, and I don't quite understand the objections.
Mr. DIGREGORY. I don't mean to suggest, Mr. Barr, that laws should not be enacted to prohibit or regulate Internet gaming activities. If you look at Section 1084 right now, if gambling is unlawful in a State in which a bet is received or transmitted and the person involved in the transmission is in the gambling business and even if it is over the Internet and if a wire communication is used, we have and will continue to prosecute those persons.
And in response to Chairman McCollum's question, I stated that amendments which would make 1084 applicable to other thanensure that it would be applicable to other than sports betting and to make 1084 applicable to other than wire communications, we would welcome that.
And the other conduct of which you spoke earlier before the recess is at least conduct which is prohibited in all 50 States, unlikely gambling that is permitted. And, rest assured, we will continue to vigorously pursue drug dealers and child pornographers and more, and we will pursue those people who operate gambling sites, Internet gambling sites offshore. The Southern District of New York case has been mentioned.
So it is not an announcement of policy, only recognition of the difficulties that we will face in attempting to exercise jurisdiction over foreign citizens who operate gambling businesses which are licensed, not simply not prohibited but licensed in their countries.
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Mr. BARR. I appreciate your saying that, and I hope that we see that reflected in other areas. Because we are trying to move into looking at some changes to both internationalboth laws regarding international money laundering as well as regulations that reach a certain subpoena power in this country with regard to foreign banks, and I would hate to set a precedent or have the Department in testimony set a precedent that we are not serious about that or we would not be serious about enacting those laws simply because there may not be reciprocal laws in another country.
Mr. DIGREGORY. I did not mean to suggest that.
Mr. BARR. Thank you.
Mr. MCCOLLUM. Mr. Hutchinson, you are recognized for 5 minutes.
Mr. HUTCHINSON. Thank you, Mr. Chairman.
I hail from the State of Arkansas, and gambling per se is illegal in our State, and it has been quite a controversy. We have two locations where we have para-mutual betting authorized on site, and so I want to figure out how all of this affects my State.
One concern is, obviously, that the locations where para-mutual betting is lawful can utilize technology to conduct a business and compete with other places, but the other aspect is that everybody in their home that has access to the Internet can engage in gambling that would otherwise be unlawful in Arkansas. And, in addition, you have the second impact of competing with a lawful business in Arkansas. Am I analyzing that correctly?
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Mr. DIGREGORY. If the gambling is illegal in Arkansas forif it is illegal for someone to place a bet in Arkansas, if they are sitting at their home computer and trying to place a bet, then Arkansas has the capacity to enforce, I would assume, against that kind of gambling. And if the gambling business is being operated illegally without reference tois currently being operated illegally in Arkansas and there is some interstate nexus to that gambling, both, I would assume Arkansas law prohibits the business as well, and the Federal Government would be able to enforce.
Mr. HUTCHINSON. So, right now, if it is a State enforcement problem, the fact that there is gambling on the Internet in our State, then you are saying why duplicate that problem by making a Federal law that is probably very difficult to enforce, at least in regards to individual bettors?
Mr. DIGREGORY. What we are saying is different States have made different choices with regard to whether or not they should punish end bettors or individual bettors; and, traditionally, the Federal Government has not been involved in enforcing against the end bettor, only against the gambling business. And that tradition is rooted in laws passed by this Congress, I believe most of in the early sixties, that directed the Federal Government to pursue these kinds of businesses.
Mr. HUTCHINSON. Correct. But your suggestion is simply leave it to the States? If they want to get into regulating, that is fine?
Mr. DIGREGORY. With respect to end bettors, that is correct.
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Mr. HUTCHINSON. The suggestion of this legislation, I believe, is to take a look at the Internet providers, the on-line service providers and not the bettors themselves. You have a problem with that?
Mr. DIGREGORY. We do have a problem with the end bettors.
Mr. HUTCHINSON. We are talking about the service providers. If you had legislation that made it a crime for the on-line service provider to provide access to gambling sites on the Internet, guess you could say that it is aimed at the bettor, but you are not trying to criminalize the bettors' conductdo you see the distinction?
Mr. DIGREGORY. Are you talking about something like Mr. McCollum talked about earlier? About possibly a bill that would limit the ability or try to limit the ability of on-line service providers or Internet service providers?
Mr. HUTCHINSON. Correct.
Mr. DIGREGORY. That kind of legislation would certainly be something that we would look at. And, as I said to Chairman McCollum, I would be interested in exactly what ''permits'' means, if you are going to criminalize conduct of an Internet service provider for permitting such activity to occur.
Mr. HUTCHINSON. It would be preferable to do that at the Federal level rather than the State level just because of the complexities of 50 different States. And how you would handle it?
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Mr. DIGREGORY. It would depend on a particular piece of legislation, and I would love to have an opportunity to look at it.
Mr. HUTCHINSON. Mr. Chairman, I yield back the balance of my time.
Mr. MCCOLLUM. Mr. Buyer, did you have another question?
Mr. BUYER. You brought up the Indian Gaming Regulatory Act in your testimony, and I am trying to figure out in the legislation if there was an exemption for Indian gaming and we do that pursuant to this Indian Gaming Regulatory Act, would that permit other Indian tribes to go on-line with interactive casino games such as Poker and Blackjack?
Mr. DIGREGORY. Currently, if a tribe engages in what is called a Class IIIplays Class III games, has a compact with a State government to play a Class III gamemost are slot machines, rouletteif the tribe has a compact to engage in those games and agreement with the State government to engage in those games, that agreement is based in part on whether or not the State permits those forms of games. Otherwise, the tribe under the Indian Gaming Regulatory Actthose games must be played on Indian lands.
Mr. BUYER. Let me be specific. Does the Department of Justice have a position on whether Indian gaming, casino style or otherwise, should be excluded from the legislation?
Page 193 PREV PAGE TOP OF DOC Mr. DIGREGORY. Excluded in what way? Exempted from the legislation?
Mr. BUYER. Yes.
Mr. DIGREGORY. It should not be.
Mr. BUYER. Should not be?
Mr. DIGREGORY. No.
Mr. BUYER. Are Indian tribes correct when they argue that the National Indian Gaming Commission has exclusive regulatory authority over Indian gaming?
Mr. DIGREGORY. To the extent that tribes want to offer games to citizens of various States where such gaming doesn't take place solely on Indian landsand that language ''solely on Indian lands'' is from the Indian Gaming Regulatory Actand is not authorized under State law, there is no compelling reason to exempt Indian tribes from other applicable provisions of any legislation that you pass.
Mr. BUYER. Thank you, Mr. Chairman.
Mr. MCCOLLUM. Before you leave, you alluded to organized crime in your testimony but without much amplification. Is there any evidence you have that organized crime is involved in Internet gambling to date?
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Mr. DIGREGORY. I am hesitating because I don't recall that we have engaged in any lengthy discussion over any substantial incursion of organized crime into Internet gaming. It is an area of gaming about which we are concerned that organized crime may attempt to infiltrate, most certainly.
Mr. MCCOLLUM. One other thing. Under the bill that we have in front of us right now, attorneys general of the States would be able to get injunctive relief against service providers who allow subscribers to gain access to gambling on Internet web sites. Does the Department support that proposal to give the State attorneys generals that authority to get injunctive relief?
Mr. DIGREGORY. I don't know that we have taken a position one way or the other with respect to whether or not the attorneys general should have such authority. I think a position which we have staked out expresses concern about the extent of that authority and the nature of that authority.
Mr. MCCOLLUM. Last, is on-line gambling protected speech? Do you know? Do you have an opinion?
Mr. DIGREGORY. If the on-line gambling isunder current Federal law, if the gambling activity is illegal in the State in which the gambling is offered or the business is conducted, then, no, it is not protected speech.
Mr. MCCOLLUM. Thank you very, very much for being with us today. I appreciate your patience for waiting through the voting period.
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Mr. DIGREGORY. I appreciate your patience with me. It is always a pleasure to be here.
Mr. MCCOLLUM. We have a second panel which consists of witnesses who have a unique perspective of gambling on the Internet.
First, we have David Jemmett. He is the President of WinStar GoodNet, an Internet provider to ISPs and businesses nationwide. From 1988 to 1994, Mr. Jemmett worked for AT&T as Manager of Software Design and Development for Business Communications Services. Currently, he is one of 40 members of the Internet Engineering Task Group, which is responsible for establishing the operation and architectural standards that govern the Internet's growth.
I also note the presence of Mr. Ron Plesser, Counsel for the Commercial Internet Exchange Association. Mr. Jemmett is also testifying on behalf of that association, and Mr. Plesser is present only to assist with questions from members.
Mr. PLESSER. That is correct.
Mr. MCCOLLUM. We will also receive testimony from Marianne McGettigan on behalf of the Major League Baseball Players Association. Ms. McGettigan is a lawyer with the law firm of Verrill & Dana. From 1989 to 1992, she was the Special Assistant to President Bush for Policy Development and previously worked as counsel for Senators Warren Rudman and Slade Gorton.
Page 196 PREV PAGE TOP OF DOC And, finally, we will hear from David Matheson, who is the Chief Executive Officer of Gaming of the Couer d'Alene Tribe Enterprises, a position he has held since September, 1993. During the Bush administration, Mr. Matheson served as Deputy Commissioner for the Bureau of Indian Affairs within the Department of Interior. He also directed the Interior's Office of Construction Management and served as a Special Assistant to the Secretary of Interior for Policy Management and Budget. And from 1982 to 1985, Mr. Matheson served as Chairman of the Tribe on the Couer d'Alene Indian Reservation, which is also his birthplace.
So we welcome all of you here today. All of your testimony in recorded and published form will be admitted into the record, without objection; and I hear none and so it is so ordered.
Mr. MCCOLLUM. Mr. Jemmett, we will recognize you to summarize your testimony. Welcome.
STATEMENT OF DAVID JEMMETT, PRESIDENT, WINSTAR GOODNET, COMMERCIAL INTERNET EXCHANGE ASSOCIATION
Mr. JEMMETT. Thank you, Mr. Chairman and members of the subcommittee.
My name is David Jemmett. I am pleased to appear before you today to testify on behalf of the Commercial Internet Exchange, the Arizona Internet Access Association, the Association of On-line Professionals and the Internet Service Providers Consortium. Also appearing with me today is Ron Plesser of Piper & Marbury, who is counsel for the Commercial Internet Exchange.
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I am the President of WinStar GoodNet, a subsidiary of WinStar Communications. WinStar GoodNet is a rapidly growing Tier I Internet backbone provider based in Phoenix, Arizona. In light of the recent consolidations in the industry, it has been ranked as the sixth largest Internet backbone in the country. WinStar GoodNet also provides dial-up Internet access to over 13,000 subscribers in Arizona.
The organizations I am representing today want to make it clear to the subcommittee in the strongest terms that we do not like or support illegal Internet gambling or, for that matter, any other illegal activity on the Internet. Nor do we oppose the idea of restricting or outlawing illegal Internet gambling. We are even willing to take reasonable steps to help law enforcement and government agencies address illegal activity over the Internet in the same manner as set forth in the Internet Copyright Compromise which passed the Senate last month.
However, we do have specific concerns about the proposed legislation which I would like to bring to the subcommittee's attention.
Our industry is generally unable to prevent transmission of illegal material. We are, thus, concerned about provisions in the bill which potentially exposes Internet service providers and phone companies to criminal liability or broad injunctions.
Many people assume that Internet service providers, or ISPs, act as a bridge that can simply be raised to prevent certain traffic from reaching end users. This is not the case. The Internet is fluid. While a site may be at one address 1 day, it can be easily transferred to another address the next. Simply put, sites, gambling or otherwise, move and they can move quickly, often within 24 hours.
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Internet service providers cannot block sites effectively. As soon as the blocked site moves to another Internet address, the block is worthless, and legitimate sites may be put in jeopardy. Efforts to keep blocks updated would require hundreds of thousands of employee hours to track down the new location of the targeted site.
As proposed, injunctions requiring blocking obligations on ISPs would impose enormous, uncompensated costs on ISPs and their customers. This would be a devastating blow to ISPs and on the electronic commerce in general.
For example, while national backbone providers could block connections to certain sites, this would require 100 percent participation all the time to be at all successful. If one provider forgets to set the block or if the site switches to a different Internet address, the block fails. Moreover, such large-scale blocking obligations would drive up the cost of Internet access and impose obligations that would drive smaller providers out of business. And, remember, blocking efforts are only effective if the address of the targeted site remains the same, which is unlikely.
Overbroad injunctions will create a significant risk of large-scale disruptions of lawful Internet traffic and will interfere with electronic commerce. For example, an injunction requiring national providers to shut down a block of Internet addresses could have the effect of shutting down the entire business of a small ISP.
Also, the more blocks an ISP must put in place, the slower the Internet access. Every time an Internet user requests access to a site, the network cross-checks that site request with the blocked site list. As you can imagine, it would not take very long before the blocked site list gets quite large. Soon, valuable time will be lost on each site selection to process the cross-check without any assurance that the blocking effort will even be effective.
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Finally, we are concerned with the impact of open-ended injunctive relief language in the bill. We believe such language would invite enormous litigation against ISPs and phone companies to define the sorts of orders that are appropriate.
In conclusion, Mr. Chairman and members of the subcommittee, the Internet community is willing to play a constructive role in helping law enforcement and government agencies to address illegal gambling activity. As I have touched on in my prepared testimony, many ISPs already work with law enforcement and government agencies to prevent criminal activity over the Internet and to educate them about preventing future crime on the Internet. In addition, we regularly terminate customers we learn are engaged in illegal activity.
We look forward to continuing this positive relationship with law enforcement and government agencies and to help them better understand the complexities of the Internet. However, it is virtually impossible for our industry to stop illegal Internet gambling traffic. Consequently, it is very important to us that legislation not place extreme burdens on us or authorize injunctions that require us to do the improbable. As a compromise to the language of the bill, we would accept the injunctions compromise set forth in the Internet Copyright Compromise passed by the Senate last month.
Mr. Chairman, we support your goals and appreciate the complex and difficult task that your subcommittee has undertaken. The Internet industry would like to work with you and Mr. Goodlatte on this important legislation, but we urge you to tailor the legislation. We ask that you take account of the extraordinary obstacles and burdens that we would face in any legislation that requires us to block content that does not originate on our networks.
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Thank you for this opportunity to testify.
Mr. MCCOLLUM. Thank you.
[The prepared statement of Mr. Jemmett follows:]
PREPARED STATEMENT OF DAVID JEMMETT, PRESIDENT, WINSTAR GOODNET, COMMERCIAL INTERNET EXCHANGE ASSOCIATION
I am the President of WinStar GoodNet, an Internet backbone provider and dial-up Internet service provider (ISP). I am testifying today on H.R. 2380 on behalf of four Internet trade associations. I want to make absolutely clear that our industry does not like or support illegal Internet gambling, or for that matter any other illegal activity. Nor do we oppose the idea of restricting or outlawing illegal Internet gambling. We are even willing to take reasonable steps to help law enforcement address illegal activity over the Internet in the same manner as set forth in S.2037, the Senate copyright bill.
However, our industry is concerned that Internet gambling legislation may expose ISPs and telephone companies to criminal liability or broad injunctions to prevent transmission of illegal material because we generally are unable to prevent such transmissions. In addition, we are concerned that proposed legislation will impose major costs on ISPs due to the extreme technical difficulties and expense required in identifying and intercepting illegal transmissions. Furthermore, injunctions and criminal enforcement of the proposed legislation could create a significant risk of large-scale disruptions of lawful traffic over the Internet. Finally open-ended injunction language could produce a litigation nightmare for our industry as courts and litigants struggle to define the types of injunctions that are appropriate and how they are to be implemented.
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However, because it is so difficult, if not impossible, for our industry to stop illegal Internet gambling traffic, it is very important to us that legislation not place extreme burdens on us or authorize injunctions that require us to do the improbable. As a compromise to the language of H.R. 2380 and S. 474, we would accept the injunctions compromise set forth in Section 202(i) of the S. 2037.
Mr. Chairman and members of the Subcommittee, my name is David G. Jemmett, and I am pleased to appear before you today to testify on behalf of the Commercial Internet Exchange (CIX), the Arizona Internet Access Association (AIAA), the Association of Online Professionals (AOP) and the Internet Service Providers' Consortium (ISP/C) on H.R. 2380, the ''Internet Gambling Prohibition Act.''
I am President of WinStar GoodNet, a subsidiary of WinStar Communications, Inc. WinStar Communications is a national local communications company providing its customers with broadband local communications services. It presently provides competitive local exchange carrier (CLEC) services in 24 markets across the United States. WinStar GoodNet is a rapidly growing Tier I Internet backbone providerthe part of the network that carries the heaviest trafficbased in Phoenix, Arizona. It was recently ranked by Data Exchange Magazine as the ninth largest Internet backbone in the country. WinStar GoodNet also provides dial-up Internet access to 13,881 subscribers in Phoenix.
As noted above, I am testifying on behalf of CIX, AIAA, AOP, and ISP/C. CIX is the oldest trade association of Internet service providers (ISPs) and industry stakeholders, and was organized to facilitate the profitability and utility of the Internet. CIX is a non-profit trade association and its membership consists of over 150 ISPs and industry members. AIAA is comprised of approximately 27 Internet service providers based in the state of Arizona. AOP is an international trade organization that represents organizations and individuals engaged in Internet access and services. Its more than 500 members include leading companies in support of electronic communication, online communities and Electronic Commerce. Finally, founded in 1996, the Internet Service Providers' Consortium (ISP/C) is an international, grassroots ISP trade association. Comprised primarily of small to mid-size ISPs and associated companies, the ISP/C has over 210 members in 42 states and 10 countries.
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Before I begin my testimony today, I want to make absolutely clear that our industry does not like or support illegal Internet gambling, or for that matter any other illegal activity. Nor do we oppose the idea of restricting or outlawing illegal Internet gambling. We are even willing to take reasonable steps to help law enforcement address illegal activity over the Internet in the same manner as set forth in the ''Internet Copyright Infringement Liability Clarification Act of 1998'' which passed the Senate last month (the ''Internet Copyright Compromise '').
However, our industry is concerned that Internet gambling legislation may expose ISPs and telephone companies to criminal liability or broad injunctions to prevent transmission of illegal material because we generally are unable to prevent such transmissions. In addition, we are concerned that proposed legislation will impose major costs on ISPs and telephone companies due to the extreme technical difficulties and enormous expense required in identifying and intercepting illegal transmissions. Furthermore, injunctions and criminal enforcement of the proposed legislation could create a significant risk of large-scale disruptions of lawful traffic over the Internet, thereby interfering with Electronic Commerce. Finally open-ended injunction language could produce a litigation nightmare for our industry as courts and litigants struggle to define the types of injunctions that are appropriate and how they are to be implemented. I understand that the Justice Department, which has great expertise in computer crime issues, has agreed with many of the concerns addressed in my testimony today.
There are over 4,800 ISPs in the United States according to Board Watch magazine, a leading trade magazine for our industry. In addition, there are over 32 national backbone providers, like WinStar GoodNet. The backbone is the point at where traffic from Internet access providers merges and travels onto a high-speed central network. These national providers help interconnect the rapidly growing Internet network.
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The overwhelming majority of ISPs, however, are small business people operating in a very low-margin business. ISPs typically are highly automated with thin staffing; staffs are kept as small as possible in order to keep financial losses from getting out of control. While some companies are expanding Internet services at 10 percent a month, many smaller ISPs are struggling to keep up with customer demand and to maintain the financial investment needed to keep equipment costs and expenses in line with the business.
In addition, the highly competitive dial-up ISP market has experienced an intense downward pressure on pricing so that most ISPs now provide service at a flat rate price of $19.95 a month. This pricing reduction has placed additional financial burdens on smaller ISPs that are unable to increase pricing to cover costs without losing customers.
An excellent description of the dynamic nature of the Internet was set forth in Digital Tornado: The Internet and Telecommunications Policy, Working Paper No. 29 of the Office of Plans and Policy, Federal Communications Commission (Werbach, 1997):
The Internet is a fluid, complex entity. It was designed to route around obstacles, such as failures at central points of the network, and it may respond in unexpected ways to pressures placed on it. It has developed largely without any central plan, especially in the past several years as the U.S. government has reduced its management role. It overcomes any boundaries that can be drawn, whether rooted in size, geography, or law. Because the Internet represents an ever-growing interconnected network, no one entity can control or speak for the entire system. The technology of the Internet allows new types of services to be layered on top of existing protocols, often without the involvement or even the knowledge of network providers that transmit those services. Numerous users can share physical facilities, and the mix of traffic through any point changes constantly through the actions of a distributed network of thousands of routers. (p.ii).
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The bottom line is that most ISP networks are not the same. They do not have the same architecture, and they do not work the same way. It is not uncommon to have 10 different ISPs run their businesses 10 different ways. There are no common methods because there are many ways to deploy a national network as well as a local access point. These differences often bear on ''the industry's'' ability to take technical measures to prevent illegal material from traversing networks.
Internet service providers are communications companies; we derive no profits from gambling activity. In fact: (1) only a minuscule percentage of traffic over ISPs' systems has anything to do with gambling; (2) ISPs derive no premium from that traffic; (3) like a telephone company, ISPs are overwhelmingly unaware of the nature or content of the traffic; and (4) efforts to identify that particular type of traffic are virtually impossible.
The Internet in fact closely resembles the postal service, except that instead of one company providing the service, 4800 different ISPs deliver the ''mail.'' People can use the mail service to carry out crimes, but it is virtually impossible for the U.S. Postal Service to monitor the mail in an effort to stop illegal activity. Indeed, the constitutionality of such an effort is questionable.
Similar limitations apply to the provision of Internet service. Monitoring traffic becomes even more difficult in the Internet world where there are 4,800 different service providers transmitting traffic that originates on other networks.
The ISP Industry Does Not Oppose Reasonable Approaches to Outlawing Illegal Internet Gambling.
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As discussed above, the ISP industry not only opposes the use of its networks for illegal activity, but is willing to take reasonable steps to help law enforcement address illegal activity on the Internet. For example, WinStar GoodNet has helped Attorneys General track down drug carriers in Arizona who have had e-mail conversations about drug drops and/or meetings. Other Arizona ISPs have been involved with the investigation of illegal immigration and pornographic activities over the Internet.
It should be noted, though, that since ISPs are generally unaware of the underlying content of the transmission, they typically are unaware of such illegal activities until after notification by law enforcement authorities. Our primary job is to carry traffic, not monitor it, just as a telephone company does not monitor calls made over its network for criminal activity. Of course, once the appropriate subpoenas are issued, we are very willing to assist law enforcement in their investigations. However, any requirement to monitor our network for illegal activity, if possible, would be extremely expensive and ultimately cripple our business offering. Moreover, such a monitoring effort would no doubt put us at risk with regard to the privacy rights of our customers and other users of the Internet.
I want to re-emphasize, though, that we do not support or condone illegal Internet gambling. Our concerns regarding anti-gambling legislation instead go only to:
Exposing ISPs and phone companies to criminal liability or broad injunctions to prevent transmissions of illegal material because we are generally unable to do so.
Imposing the major costs and burdens of monitoring and blocking on ISPs and phone companies who are focused at this time on satisfying the rapidly growing demand of the American public for Internet services. The majority of ISPs simply cannot afford to bear such costs when they are focused on the building out of infrastructure.
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Injunctions that create a significant risk of large-scale disruptions of lawful traffic that could interfere with Electronic Commerce. For example, an injunction requiring a small ISP to shut down access to a particular site could have the unintended effect of taking down an entire server which could mean their whole business.
Open-ended injunctive relief language that invites enormous litigation against ISPs and phone companies to define the sorts of orders that are appropriate.
Our concerns are heightened because highly onerous legislation could easily serve as a model for regulation which could significantly hinder the growth of Electronic Commerce.
As a reasonable alternative, we suggest the adoption of the approach outlined in Section 202(i) of the Internet Copyright Compromise, which passed the Senate 99-0 last month. I understand that Chairman Coble intends to incorporate these provisions in the copyright bill when it comes to a vote later this summer in the House.
ISPS ARE UNABLE TO PREVENT ILLEGAL INTERNET GAMBLING
Internet Service Providers are unable to prevent illegal gambling material from traveling through their networks. Consequently, I urge the subcommittee not to subject ISPs to criminal liability or injunctions under which they must guarantee successful blocking.
Many people assume that ISPs act as a bridge which can simply be raised to prevent certain traffic from reaching end users. This unfortunately is not the case. The Internet is fluid. While a site may be at one address one day, it can be at another address the next. Simply put, sites, gambling or otherwise, move. And they can move quicklyoften within hours.
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Another analogy of the ISP service is a street in Washington, D.C. While WinStar GoodNet may control Constitution Avenue, hundreds of other Internet service providers control the other streets of Washington, D.C. The information bursts of the Internet are like the cars on the streets. Internet communications typically travel through multiple providers networks before reaching their destinations. Parts of the same message often travel different routes to their destination, in the same manner as a car leaving Capitol Hill can get to Dupont Circle though hundreds of different routes. Monitoring the content of these messages is technically infeasible because messages cannot be ''observed'' in route; they are in digital form, and are often encrypted and compressed. Moreover, Federal privacy law usually prohibits ISPs examining the content of communications.
Internet service providers cannot block sites effectively even though filters placed on the computers of end users can be somewhat effective. If an ISP receives a court order specifying a list of sites to be blocked, it can attempt to block access to these sites. However, as soon as the targeted site moves to another IP (Internet Protocol) address, as it inevitably will do, the block is worthless. Sites can change addresses within hours. Efforts to keep the blocks updated would require hundreds of thousands of employee hours, while employees attempt, with dubious likelihood of timely success, to track down the new location of the targeted site.
A good example of the difficulty of ISPs regulating the Internet is presented by the junk e-mail or ''spamming'' problem. Our industry has engaged in a costly, largely unsuccessful battle to keep junk e-mail off of our systems. We regularly turn off the addresses of junk e-mailers. Yet, and as most Internet users will attest, every time they turn on their computer, junk e-mail has gotten past the block. Despite our industry's best efforts to curtail this activity, rogue spammers continue to abuse the system by fully leveraging the flexibility of the Internet to bypass blocks and filters.
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I emphasize to the subcommittee that our industry's efforts to control users' access to illegal sites will be significantly more difficult than blocking junk e-mail. While e-mail typically does travel through a common point in an ISPs' network, other traffic does not. So while ISPs have some ability to pin-point e-mail traffic over their network, their ability to monitor or prevent Internet ''surfing'' by their users is severely limited.
Our industry believes that it is fundamentally unfair to expose parties to criminal liability and possible contempt sanctions if they are unsuccessful in trying to prevent someone else from committing a crime. Stopping illegal traffic is an impossible task over the Internet. In the same manner that the U.S. Postal Service is not subject to criminal liability if it delivers an illegal package or letter, the ISP industry should not be penalized for carrying the illegal Internet gambling traffic of others.
THE COSTS OF BLOCKING
Unless defined along the lines of the Internet Copyright Compromise, injunctions imposing blocking obligations on ISPs would have the added impact of imposing enormous, uncompensated costs on ISPs and their customers. This would be a devastating blow to smaller ISPs and on Electronic Commerce generally.
For example, while national backbone providers could block connections to certain sites, this would require 100 percent participation all the time to be at all successful. If one provider forgets to set the block, or if the site switches to a different Internet address, the block fails. The burdens associated with such undertakings are staggering. Such large-scale blocking obligations would drive up the cost of Internet access and impose obligations that would drive smaller providers out of business. ISPs would be forced to hire personnel just to block site access on a full-time basis. The public would ultimately suffer as these costs are passed on. And remember, blocking efforts are only good if the address of the targeted site remains the same.
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Remember as well that Internet providers do not profit from gambling activity. Legislation that obligates them to try to block illegal gambling traffic in effect enlists them to play a law enforcement role. However, H.R. 2380 and S. 474 are highly unusual in forcing blameless Internet providers and common carriers to bear all of the costs of trying to block illegal gambling traffic.
In our view, these obligations are very much like obligations to assist with wiretaps for which compensation is required under law. As noted above, blocking by Internet access providers would in many cases require wholesale configuration of networks. In the telephony world, such reconfigurations are compensated by CALEA. There is no similar compensation for ISPs in these bills creating a significant unfunded mandate.
THE EFFECT ON ELECTRONIC COMMERCE
Blocking orders would disrupt large amounts of lawful traffic, slow the operation of networks significantly, and interfere with Electronic Commerce. Why does this occur? The more blocks an ISP must put in place, the greater the delay in accessing the site. Every time an Internet user requests access to any site, the network will cross-check that site selection with the blocked site list. As you can imagine, it would not take very long before the blocked site list gets quite large. Soon valuable seconds will be spent on each site selection to process the cross-check without any assurance that the blocking effort would be effective.
Arguably, a bigger technical concern relating to extensive blocking is the ability of the existing equipment to handle it. It is well documented that Internet use has exceeded everyone's expectations. Consequently, the equipment that is used today to carry Internet traffic is already placed under a great strain due to these high traffic volumes. Many manufacturers simply were not ready for the level of traffic that is presently carried over the Internet and Internet platforms often do not have the ability to handle this much congestion. Putting more strain on the existing network by mandating extensive blocking only increases the chances for network failures. The corresponding adverse impact on Electronic Commerce in the event of such a failure is self-evident.
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In addition, broad court injunctions could even disrupt traffic from a foreign country that allows illegal content. If the address of an illegal site is similarly configured to that of a legitimate business, there is a chance that the legitimate business web site will be blocked as well. In other words, the efforts of ISPs to block one site may result in the unintended blocking of lawful sites used for Electronic Commerce.
In particular, I urge the subcommittee to consider the precedent that blocking obligations would set internationally. For example, foreign countries may well respond by requiring ISPs doing business in their countries to block U.S. content that they disagree with on religious or political grounds.
COSTLY AND UNNECESSARY LITIGATION
As I have explained, the problem of blocking gambling sites is extremely complicated. Adopting a bill that provides for open-ended injunctions against ISPs or common carriers to prevent use of their facilities by third parties for illegal communications would trigger costly and unnecessary litigation, much of it against small businesses. As the Justice Department noted in its letter regarding S. 474, such language ''is likely to promote a spate of litigation over what solutions are feasible.'' For this reason as well, if it adopts federal Internet gambling legislation that provides for injunctions against ISPs and common carriers, Congress has an obligation to specify and narrow the range of injunctions that its legislation authorizes.
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The Internet community is willing to play a constructive role in helping law enforcement to address illegal gambling activity. As I have touched on already, many ISPs already work with law enforcement to prevent criminal activity over the Internet and to educate them about preventing future crime on the Internet. In addition, we regularly terminate customers we learn are engaged in illegal activity. We look forward to continuing this positive relationship with the law enforcement community and to helping it better understand the complexity of the Internet.
As a compromise to the language of H.R. 2380 and S. 474, we would accept the injunctions compromise set forth in Section 202(i) of the Senate copyright bill; the relevant portion of the bill is attached to my testimony. This would subject ISPs to injunctions, for example, to:
remove illegal material posted by others to our networksin effect removing all illegal gambling material from systems based in the United States;
terminate the accounts of any customer engaged in illegal gambling activity, and
take ''reasonable steps'' specified in the court order to block access to specific, identified foreign gambling sites.
However, because it is so difficult, if not impossible, for our industry to stop illegal Internet gambling traffic, it is very important to us that legislation not place extreme burdens on us or authorize injunctions that require us to do the improbable.
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On June 22, 1998, the Supreme Court let stand a ruling that Internet service providers may not be held liable for defamatory material posted on their systems. The Court left intact a federal appeals court ruling which determined that 47 U.S.C. §230 gives online firms immunity from liability for information that originates with third parties. I urge the subcommittee to adopt a similar approach for criminal liability under any federal Internet gambling legislation. Do not penalize the party carrying the transmission, penalize the party that creates the illegal content.
Mr. Chairman, we support your goals and appreciate the complex and difficult task that your subcommittee has undertaken. The Internet industry would like to work with you and Mr. Goodlatte on this important legislation, but we urge you to tailor the legislation to take account of the extraordinary obstacles and burdens that we would face in any legislation that requires us to block content that does not originate on our networks. Thank you for this opportunity to testify.
EXCERPT FROM S. 2037
''(i) INJUNCTIONS.The following rules shall apply in the case of any application for an injunction under section 502 against a service provider that is not subject to monetary remedies by operation of this section.
''(1) SCOPE OF RELIEF.
''(A) With respect to conduct other than that which qualifies for the limitation on remedies as set forth in subsection (a), the court may only grant injunctive relief with respect to a service provider in one or more of the following forms
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''(i) an order restraining it from providing access to infringing material or activity residing at a particular online site on the provider's system or network;
''(ii) an order restraining it from providing access to an identified subscriber of the service provider's system or network who is engaging in infringing activity by terminating the specified accounts of such subscriber; or
''(iii) such other injunctive remedies as the court may consider necessary to prevent or restrain infringement of specified copyrighted material at a particular online location: Provided, That such remedies are the least burdensome to the service provider that are comparably effective for that purpose.
''(B) If the service provider qualifies for the limitation on remedies described in subsection (a), the court may only grant injunctive relief in one or both of the following forms
''(i) an order restraining it from providing access to an identified subscriber of the service provider's system or network who is using the provider's service to engage in infringing activity by terminating the specified accounts of such subscriber; or
''(ii) an order restraining it from providing access, by taking specified reasonable steps to block access, to a specific, identified, foreign online location.
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''(2) CONSIDERATIONS.The court, in considering the relevant criteria for injunctive relief under applicable law, shall consider
''(A) whether such an injunction, either alone or in combination with other such injunctions issued against the same service provider under this subsection, would significantly burden either the provider or the operation of the provider's system or network;
''(B) the magnitude of the harm likely to be suffered by the copyright owner in the digital network environment if steps are not taken to prevent or restrain the infringement;
''(C) whether implementation of such an injunction would be technically feasible and effective, and would not interfere with access to noninfringing material at other online locations; and
''(D) whether other less burdensome and comparably effective means of preventing or restraining access to the infringing material are available.
''(3) NOTICE AND EX PARTE ORDERS.Injunctive relief under this subsection shall not be available without notice to the service provider and an opportunity for such provider to appear, except for orders ensuring the preservation of evidence or other orders having no material adverse effect on the operation of the service provider's communications network.
Mr. MCCOLLUM. Ms. McGettigan.
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STATEMENT OF MARIANNE MCGETTIGAN, COUNSEL, MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION
Ms. MCGETTIGAN. Thank you, Mr. Chairman and members of the subcommittee.
I represent the Major League Baseball Players Association. We have two interests in fantasy or rotisserie baseball. First, we license, right now, six providers; and we have about 12 other providers in negotiations with us; but this is merely a modest amount of the total licensing money we gather each year.
More importantly, however, fantasy baseball players represent our most avid fans. The Major League Baseball Players Association wants to go on record as being strongly opposed to gambling on sporting events, but we do not believe that fantasy sports leagues constitutes gambling. Like managing a Major League baseball or football team, these contests, although subject to some aspects of chance, are predominantly determined by skill.
Let me explain briefly how fantasy baseball works. I have come to find out that many people are not really familiar with how it works.
The teams in fantasy baseball do not really exist in the real world. Before the start of the real baseball season, 10 to 12 people known as managers are each given a budget of fictitious dollars with which they buy or draft players from one of the Major Leagues or both Major Leagues to make up an imaginary team that they think will do the best job statistically over the course of the season. Generally, each player can be drafted only by one team; and the budget keeps everyone from picking what they would consider an all-star or dream time. Typically, a manager will pick 14 players for their hitting ability, sometimes they are required to make those acquisitions by position, someone from first base, second base and so on, and usually nine players for their pitching ability.
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During the course of the season, the statistics are tracked, and managers are allowed to make trades or acquire free agents. Those are players not previously assigned to any team, and the winner is the manager whose team does the best job statistically in categories which were chosen before the contest began.
The case of hitters, those are home runs, runs batted in, stolen bases and batting averages. For pitchers, those would be wins, saves, earned run average and the like.
For instance, on my team I might have two hitters from the Orioles, one from Cleveland, one from Seattle and one from Montreal. Thus, in a game between Baltimore and Cleveland, I have no interest in which team wins. I just hope that my two hitters on the Orioles and my hitter on the Indians have a good night.
When first confronted with this legislation, those with Association asked ourselves, what exactly is Congress trying to get at in banning gambling on the Internet? The two principal and legitimate concerns that we saw were, one, that you want to protect people who cannot or will not protect themselves from risking too much money and to protect the integrity of the end game or contest itself.
As you can tell by the brief outline I gave about what is involved in fantasy baseball, no person's financial well-being is threatened by fantasy sports leagues, nor is the integrity of any sporting event or any individual performance. Thus, such leagues offer no principles of public policy that are at the heart of the Government's concern or need to regulate gambling.
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H.R. 2380 is certainly more narrowly tailored to address the problem of Internet gambling and prevent the Internet from becoming a safe haven by which to avoid State laws on gambling. On the other hand, S. 474, which I am sure the committee is aware of, would preempt all State gambling laws when the Internet is involved, both in the form of the Worldwide Web and even in the form of private electronic e-mail.
To give you an example, if I was proceeding under the House bill, I could be sitting at my home and want to communicate fantasy league information to someone in another State; and under section 1084, if it was legal in the State in which I reside and legal in the State in which I was going to contact my friend, I could, under the House bill, do that both by telephone, fax or e-mail.
Under the Senate bill, if I did it by telephone or fax, I would be offending no Federal or State law, but I would be offending Federal law if I did it by e-mail, and that makes no sense to make that distinction.
Both bills define bets or wagers using Section 1081 so that it sweeps across all current law where those terms are used; and, in both cases, it is broad, creating unnecessary uncertainty. Although it is certainly less of a problem in the House bill, there still would be litigation as to how much exactly was involved and whether a contest was more balanced on the side of skill or chance.
On the Senate side, however, there are no exceptions for activities that might otherwise be legal, and the language used is much more narrow. For instance, to give the subcommittee a sense of the magnitude of the change that was made in S. 474 at markup, because it started out looking a lot like the House bill but was changed in markup, I need only offer an example of a contest offered over the Internet that I am sure is of interest to the Chairman.
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Each year NASA runs a nationwide contest over the Internet among school-aged children. The children develop and send to NASA proposals for experiments in space and spacecraft design, which experiments and designs, to use the language of the rules, become the property of NASA. That is, they are something of value. They are provided, and in return for that, trips to NASA facilities and scholarships to space camps are awarded to the winners and several runners up.
There is little doubt in our minds that this contest would be prohibited under the language of the substitute bill for S. 474 but not necessarily under the House bill. Surely Congress does not intend to prohibit this type of contest, as well as others such as ThinkQuest, in which the contestants submit a proposal for an educational web page and give, by virtue of the entry, an irrevocable license for the sponsor to use that entry until the year 2008 and to sublicense it as well.
Finally, it is our view that the Internet should neither be a safe haven for activity that would be illegal if undertaken through traditional means of commerce nor should the use of the Internet alone make illegal activity that would be legal if undertaken through more traditional means of commerce.
On behalf of the Major League Baseball Players Association, I thank the committee for the opportunity to present our views and will be happy to answer any questions.
[The prepared statement of Ms. McGettigan follows:]
Page 219 PREV PAGE TOP OF DOCPREPARED STATEMENT OF MARIANNE MCGETTIGAN, COUNSEL, MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION
Mr. Chairman, members of the Subcommittee, my name is Marianne McGettigan. I represent the Major League Baseball Players Association (MLBPA). I am appearing to today to address the affect of legislation to prohibit Internet gambling on what is commonly referred to as fantasy or rotisserie sports leagues.
The MLBPA certainly understands the concerns of Congress with respect to the growth of gambling on the Internet, as well as the frustration of the state attorneys general in enforcing state law when the Internet is involved. But in attempting to address that concern, we believe both H.R. 2380 and to a greater extent S. 474, as reported by the Senate Judiciary Committee, are overly broad and inadvertently criminalize conduct that should not be, including fantasy sports leagues, and, in the case of S. 474, even some laudable educational contests found on the Internet.
The Association has two interests in fantasy or rotisserie baseball. First, we currently license six providers and have an approximately 6 additional contracts in negotiation. Although these licensing revenues are appreciated, they are a modest aspect of our licensing program and are not our principal concern with this legislation. Second, and our primary concern, is that fantasy baseball players represent our most avid fans. Playing in a fantasy league takes a considerable investment, not in money, but in time and interest. Fantasy players put themselves in the shoes of management and monitor the activities of the leagues on a daily basis, not only watching box scores to track the statistics of the players on their personalized team, but tracking injuries and movement of players to the minors leagues, among other aspects of the game. We encourage their devotion to the game and would hate to see that interest threatened, particularly when we see no countervailing public purpose to be served.
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On the broader issue of the use of the Internet, we do not believe this will be the last time the interests of major league baseball players and their intellectual property rights will be implicated by efforts to regulate activity on the Internet. This dynamic and emerging technology will continue to present challenges to Congress as it increases in usage and uses. Thus, the Association hopes that the Subcommittee will further examine the issues of asserting jurisdiction over this new technology and its constituent parts to ensure that, in the future, similar troubling issues are handled consistently and no more broadly than necessary.
FANTASY SPORTS LEAGUES
As we understand it, both H.R. 2380 and S. 474 are attempts to solve a problem raised by the states attorneys general, namely that certain gambling activity that would be illegal under state law, or under federal law by virtue of 18 USC 1084, is finding a safe haven on the Internet. We have no opposition to that goal. The Major League Baseball Players Association does not condone gambling. Sports gambling is a threat to the very sport that employs our members. But neither do we consider fantasy baseball gambling.
As currently drafted, H.R. 2380, although perhaps not intended to, would either make participation in sports fantasy leagues on the World Wide Web by commercial entities illegal under federal law or at least have a great chilling effect on them.
We start from the premise that Congress should identify the public policy it is seeking to serve in enacting this legislation. Is this an attempt to solve the problem of the difficulty states have in asserting jurisdiction over gambling affecting its citizens, or is it an attempt to put in place a new substantive federal law? The answer to that question determines in large measure how the legislation is crafted. Although it appears that both the House and Senate bills started out as attempts to address the jurisdictional issue, the Senate bill has been transformed into a new substantive federal law that preempts all state law to the contrary.
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It is not enough simply to say gambling is bad therefore we will ban it on the Internet. Obviously, many states disagree with that blanket statement either by permitting some forms of commercial gambling, sponsoring gambling themselves in order to raise revenue, or simply not considering some activities to be gambling at all. Therefore, if this legislation is intended as anything more than a jurisdictional aid to states to enforce their own laws the question must be asked, ''what ills is the Congress trying to address by this legislation?''
In our view, the Government has two principal and legitimate concerns that would justify the prohibition of certain gaming activities on the Internet. The first is the need to protect those who cannot, or will not, protect themselves from risking more than money, or other valuables than they have and to protect society from the unlawful activity that may result from a person doing so. The second is to protect the integrity of the game or contest itself.(see footnote 17)
But if these concerns are reviewed in the context of fantasy or rotisserie sports leagues, I believe the Subcommittee will agree with the Players Association that fantasy or rotisserie sports leagues are not within the scope of activity that ought to concern the government. I assume, for the purposes of this discussion, that the members of the Subcommittee are familiar with the way in which these leagues work. As to the first justification for prohibition, leagues are characterized either by a fixed amount anted into a pot, if undertaken privately, or an up-front fixed fee, if undertaken commercially. The participant may then be required over the course of the season to pay nominal transaction fees depending on the amount of activity he or she undertakes in the management of the team. There is no opportunity, as in casino gambling, for anyone to ''lose the farm.'' Indeed, I suspect that the total sum involved over the course of any contest is less than that which the State of Maine hopes I wager on scratch and Megabucks tickets over the same period of time (and probably do).
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Moreover, because ''teams'' are individually designed by the contestants, no single sporting contest or single athlete's performance over a season will affect the outcome of the contest. The integrity of the game, be it baseball, football, or golf, is never at issue. If the Boston Red Sox play the New York Yankees, as a fantasy baseball player I would be indifferent to the result of the game, for I may have one member of my team on the Red Sox and two on the Yankees. It is the cumulative individual performances of the athletes I have chosen for my team that matters for the purposes of the contest. Therefore what public policy is promoted by banning or regulating these games?
Fortunately, the House bill attempts to address the issue of prosecution of gambling on the Internet through the narrower approach of jurisdiction by using existing section 1084 of title 18 of the United States Code. Currently, section 1084 governs betting and wagering through wire transmissions, but apparently is not broad enough to encompass transmissions over the Internet. But because section 1084 applies only to persons ''engaged in the business of betting and wagering'', requires that transmissions take place in interstate commerce, and does not prohibit transmissions from one state to another where the activity is legal in both states, it addresses some of our concerns.
Additionally, with the inclusion of the words ''of chance'' following ''contest'' and the notion that the outcome is subject predominately to ''pure chance'', the Association believes there is a good, although not ironclad, argument that a court would not find fantasy sports leagues prohibited under the House Bill. (Although subject to some chance, the outcome of a fantasy sports league depends predominately on skill, just as managing a major league team, although subject to some chance, is predominately a matter of skill.) Obviously, however, that is not a subject on which we think litigation should be necessary nor would it be a good use of law enforcement resources. Of more concern is that, in the absence of a clarification, there is likely to be a chilling affect on legitimate entertainment options for the consumer. We therefore urge the Subcommittee to provide more guidance to the courts on issues such as fantasy sports leagues that do not implicate any public policy issues.
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Of greater concern to us, however, is S. 474. That bill which originally looked much like H.R. 2380 was changed dramatically in mark-up by the Senate Judiciary Committee. As reported to the full Senate, we believe S. 474 would not only make all commercial sports fantasy leagues on the Internet illegal, make private e-mail regarding otherwise legal private fantasy sports leagues illegal, but would also threaten many other laudable activities on the Internet such as educational contests which might, for example, require entry fees and award scholarships based on intellect or ingenuity.
S. 474 would preempt all state gambling laws when the Internet is involved, both in the form of the World Wide Web (www) and in the form of electronic mail (e-mail). And. unlike the comparable prohibition on wire communications, contained in 18 USC 1084, the bill makes no exception for activities that might otherwise be legal at the state level. S. 474 sweeps so broadly in its prohibitions that it touches not only on activity that is permitted in many states, but also on activity that ought to be encouraged, namely educational contests.
As introduced, S. 474 also referred to ''contests of chance'' and utilized section 1084 to ease the jurisdictional problems of the states. But, in the substitute amendment sent to the floor, the words ''of chance'' have been deleted following the word ''contest'', implying that contests of skill will also be prohibited by this legislation and a new section 1085, dealing exclusively with the Internet, was established having none of the safeguards of section 1084, or indeed of H.R. 2380.
Not only would fantasy sports leagues be prohibited by this new language, many laudable contests could be as well. To give the Subcommittee a sense of the magnitude of this change, I need only offer the example of a contest offered over the Internet that I am sure is of interest to the Chairman. Each year NASA runs a nationwide contest over the Internet among school-aged children. The children develop and send to NASA proposals for experiments in space and spacecraft design, which experiments and designs, to use the language of the rules, ''become the property of NASA/NST/SSIP. '' That is, ''something of value'' is provided and prizes, including trips to NASA facilities and scholarships to space camp are awarded to the winners and several runners up. There is little doubt that this contest would be prohibited under the language of the substitute bill for S. 474 as it was sent to the Senate. Surely, Congress does not intend to prohibit this contest as well as others, such as ThinkQuest(see footnote 18), which recently was presented a national Internet award in education by Vice President Gore.
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The bills under consideration have proven to be moving targets of a sort. And many of those who supported Senate bill at the hearing held on it, have not had the opportunity to comment on the very different approach of the substitute amendment. There has been an effort among the attorneys general to address our concerns and to work with Senator Kyl in that regard, which we appreciate. But, nonetheless, both bills create an issue of new substantive law by defining, for the first time, the term ''bets or wagers'' in 18 USC 1081, rather than by letting it be determined by state or other federal law.(see footnote 19) The MLBPA hopes that the Subcommittee will find a way to address the prosecutorial concerns of the state attorneys general without creating new federal substantive law prohibiting activities that violate no underlying public policy.
FAIR TREATMENT OF THE INTERNET AND WITHIN THE INTERNET
Certainly, the Internet poses new challenges for law enforcement and will continue to test the balance of power in the area of interstate commerce and extraterritorially. The World Wide Web (www) aspect of the Internet provides the greatest challenge for both government and producers alike because, unlike all previous forms of commerce, the producer has no control over the geographical destination of its product. In effect, the destination of a web site (whether advertising or the product itself) has now become the choice of the consumer whereas, in the past, where the product was advertized or offered was solely the choice of the producer. This not only creates problems for the producer of the web cite in being subjected to a myriad of laws, not necessarily by choice, but also challenges the conceptual underpinnings long relied on by states in exercising long-arm jurisdiction over defendants. For that reason, the issue of the treatment of web cites for gambling or fraud, and indeed with respect to many other laws, may well require a creative new approach by Congress. Perhaps it is this new and peculiar characteristic of the Internet that led the full Judiciary Committee recently to order to be reported the H.R. 1054, the ''Internet Tax Freedom Act'', providing a moratorium on the imposition of new taxes on the provision or use of Internet services. Unfortunately, taxation and gambling are not the only areas in which this problem will arise.
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But in determining how to approach the challenges presented by the Internet the Players Association urges the Subcommittee to distinguish between two aspects of the Internet, the World Wide Web and e-mail, particularly non-commercial e-mail. These functions of the Internet implicate different concerns and may suggest different approaches. We believe that H.R. 2380 inherently recognizes that distinction, but S.474, as reported, does not.
For instance, under S. 474, if I am sitting at home and wish to engage in private wagering which is legal in my state and also in the state of the person I wish to contact, knowing the terms of these bills as I do, I have a odd choice to makeif I use the telephone or fax to make the transmission, I have broken no state or federal law (see 18 USC 1084), but if I e-mail the recipient the same information, although I have broken no state law, I will have violated federal law under the terms of S.474 (see new section 18 USC 1085). As a matter of public policy, this result makes no sense. And, in part because it makes no sense, I suspect the distinction will be unknown by the average law-abiding citizen. H.R. 2380 does not suffer from that problem.
The Major League Baseball Players Association is strongly opposed to gambling on sporting events, but it does not believe fantasy sports leagues constitute gambling. Like managing a major league baseball or football team, these contests, although subject to some aspects of chance, are predominately determined by skill. Such leagues offend no principles of public policy that are at the heart of the government's concern about, or need to regulate, gambling. No person's financial well-being is threatened by such leagues, nor is the integrity of any sporting event or individual athlete's performance. And, certainly, private conversations about fantasy baseball which would be legal under 18 USC 1084 if conducted over the telephone or by fax should not become a federal crime simply by virtue of the use of e-mail.
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Finally, it is unlikely that this will be the last time the Subcommittee must consider issues concerning the Internet, or indeed in which the interests of the Major League Baseball Players Association or its members will be implicated by regulation of the Internet. Therefore, the Association urges the Subcommittee to review this issue in the context of the larger question of how the jurisdictional problems of the enforcement of state laws in any number of areas, precipitated by the very nature of the Internet, will be allocated between the federal government and the states in the future. The Internet should neither be a safe haven for activity that would be illegal if undertaken through traditional means of commerce, nor should the use of the Internet alone make illegal activity that would be legal if undertaken through a more traditional means of commerce.
On behalf of the Major League Baseball Players Association, I thank the Chairman and members of the Subcommittee for this opportunity to testify.
1. The MLBPA has two interests in fantasy or rotisserie baseball; we license six providers, but more importantly, fantasy baseball players represent our most avid fans.
2. The MLBPA is strongly opposed to gambling on sporting events, but it does not believe fantasy sports leagues constitute gambling. Like managing a major league baseball or football team, these contests, although subject to some aspects of chance, are predominately determined by skill.
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3. What ills is the Congress trying to address by this legislation? The two principal and legitimate concerns that would justify the prohibition of certain gaming activities on the Internet are the need to protect persons who cannot, or will not, protect themselves from risking too much money and to protect the integrity of the game or contest itself.
4. No person's financial well-being is threatened by fantasy sports leagues, nor is the integrity of any sporting event or individual athlete's performance. Thus, such leagues offend no principles of public policy that are at the heart of the government's concern about, or need to regulate, gambling.
5. H.R. 2380 is more narrowly tailored to address the problem of the Internet becoming a safe haven by which to avoid state laws on gambling. S. 474, as reported, however, would preempt all state gambling laws when the Internet is involved, both in the form of the World Wide Web (www) and even in the form of private electronic mail (e-mail). Unlike H.R. 2380, however, S. 474 makes no exception for activities that might otherwise be legal at the state level.
6. Both bills define ''bets or wagers'' in 18 USC 1081 in an overly broad manner creating unnecessary uncertainty, while S. 474 goes further and appears to preempt all state laws and prohibit some activities that Congress may prefer to encourage, as in the case of educational contests.
7. The Internet should neither be a safe haven for activity that would be illegal if undertaken through traditional means of commerce, nor should the use of the Internet alone make illegal activity that would be legal if undertaken through a more traditional means of commerce.
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Mr. MCCOLLUM. Mr. Matheson, you are recognized.
STATEMENT OF DAVID MATHESON, CEO, GAMING, COUER D'ALENE TRIBE
Mr. MATHESON. Thank you, Mr. Chairman, for having me here today. I appreciate it. I have submitted some written testimony, and I would briefly like to summarize, if I may.
My name is David Matheson, Chief Executive Officer of Gaming for the Couer d'Alene Tribe. We have 1,370 members of our tribe, and we are located in rural northwest Idaho. We have been the first tribe to develop and operate a national lottery utilizing the telephone and the Internet. We are proud and pleased with the results that gaming has brought to our tribe and our people in terms of jobs, a limited version of economic prosperity, and some hope in the future for our children and young people.
On half of our tribe and all of Indian country, I urge that H.R. 2380 be amended to exempt Indian gaming activities conducted under the Indian Gaming Regulatory Act of 1988 called IGRA. IGRA is the exclusive law that governs Indian gaming in this country. Under that statute and that statute alone, all Indian gaming activities are authorized, approved and regulated.
But I must point out and stress that IGRA did not give the right to conduct gaming to tribes in this Nation. The Supreme Court under the Cabazon decision ruled that tribes already have the right to conduct gaming exempted from State law entirely. The Indian Gaming Regulatory Act only was passed after that to bring States into the fold with respect to State rights and to limit what tribes could do under its own sovereign authority with respect to gambling.
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Via the specific terms and express legislative history, IGRA exempts Indian gaming authorized under the act from the Federal anti-gambling statutes that are otherwise applicable to non-Indian gaming. For example, IGRA provides that authorized Indian gaming activities are not subject to the Federal anti-lottery statutes and the Wire Act, 18 U.S.C., 1084.
In seeking to apply an amended version of the Wire Act to Indian gaming, H.R. 2380 conflicts with IGRA. Also, IGRA authorizes use of technological aids such as the telephone and the Internet.
A decade ago, as a matter of practicality and necessity, Congress provided the tribes could use modern telecommunications technology in order to offer gaming to those off the reservation so long as the gaming itself occurs on Indian land. Thus, in seeking to prohibit the use of technological aids such as the telephone and the Internet, H.R. 2380 conflicts with IGRA. These conflicts with existing law will inevitably result in uncertainty and protracted litigation. This can be avoided by exempting from H.R. 2380 Indian gaming activities conducted in accordance with IGRA.
It is important to emphasize that such an exemption does not express or imply congressional approval or endorsement of any specific Indian gaming activity. For example, the Couer d'Alene lottery is currently a party in three Federal lawsuits in which the central legal question is whether our use of the telephone and the Internet satisfies IGRA's requirement that Indian activities be conducted on Indian land. At the end of the day, the Federal courts will decide whether our gaming activity is conducted in accordance with and is, therefore, legal under IGRA.
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Mr. Chairman, exempting Indian gaming activities conducted in accordance with IGRA from the provisions of H.R. 2380 accomplishes two worthy purposes. It avoids conflicts with IGRA and allows the Federal courts to determine whether the tribe's gaming activities is legal under that law.
I want to point out that variations of this bill in the Senate side exempt different forms of gaming pursuant to this exact same type of proposed legislation, and that is State lotteries, para-mutual wagering, dog racing, off-track betting facilities that utilize a simulcast signal. We only want Indian gaming to be treated equally and fairly under the law, just like any other gaming in this country. We don't understand why Indian gaming is somehow not viewed in the same context of State gaming or any other State-regulated gaming.
If the noble purposes of society are furthered by the State by the gaming that they do and the noble purposes of society are furthered and achieved through tribal gaming, we only want our gaming to be treated exactly the same. Our lottery we believe is good. We believe it is legal. It is regulated. It is authorized under IGRA. It has gone a long ways toward restoring hope and opportunity for our people.
Without gaming, we were left to poverty and despair, to choose unemployment. With gaming, we are freed to really, for the first time, pursue a share and a piece of the American dream in this country, and that is all we want, Mr. Chairman and committee members.
I stand ready to answer any questions that the committee may have.
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Mr. MCCOLLUM. Thank you, Mr. Matheson.
[The prepared statement of Mr. Matheson follows:]
PREPARED STATEMENT OF DAVID MATHESON, CEO, GAMING, COEUR D'ALENE TRIBE
Mr. Chairman, I am submitting this written testimony on behalf of the Coeur d'Alene Tribe and the National Indian Lottery and US Lottery.
My testimony will demonstrate that the Coeur d'Alene Lottery should not be prohibited under the Goodlatte Bill or its Senate counterpart, the Kyl Bill, because, 1) Our Lottery is authorized and approved under existing federal law (the Indian Gaming Regulatory Act of 1998); 2) Our Lottery is fully regulated by appropriate federal, state and tribal authorities; 3) Our Lottery will share its profits with all non-gaming Indian tribes throughout the U.S. (Our commitment to do so was the first, and to our knowledge, still the only such commitment by any gaming tribe); and 4) Our Lottery has made and will continue to make every reasonable effort to limit access to authorized players.
We recognize and share the concern of Congress and the American people about gambling offered to citizens of the U.S. by individuals and entities that are outside the U.S. and therefore not subject to the laws, regulation or jurisdiction of this country. But the Goodlatte Bill and its Senate counterpart reach well beyond that legitimate point of concern. Indeed, as drafted this bill will be in direct conflict with existing federal law. Law that was thoughtfully considered and specifically intended to permit the lawful gaming in which our tribe is now engaged.
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In 1987, the U.S. Supreme Court held in California v. Cabazon & Morongo Band of Mission Indians, that states are not authorized to regulate Indian gaming on Indian lands. States vehemently opposed this position and sought help from Congress. In response and after lengthy consideration and debate, Congress in 1988 enacted the Indian Gaming Regulatory Act (IGRA). One of the express purposes of IGRA is to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency and strong tribal governments. In furtherance of that policy, IGRA established a detailed, comprehensive and exclusive statutory framework for the regulation and operation of Indian conducted gaming. Focusing on Class III gaming, which includes lotteries, Congress sought to balance competing state and tribal interests by requiring a tribal-state compact - a requirement urged by the states. Thus, Class III gaming on tribal lands without a compact is illegal.
The Coeur d'Alene Tribe obtained such a compact with its home state of Idaho in 1992. We are operating within its terms today. Similarly, the other requirements imposed by IGRA on Class III gaming have been satisfied by the Tribe well before it began offering its National Indian Lottery and US Lottery. By its specific terms and express legislative history IGRA exempted Indian gaming authorized under the Act from the federal anti-lottery statutes, the racketeering statute, 18 U.S.C. §1084 that this House bill seeks to amend, and other federal statutes otherwise applicable to non-Indian gaming and lotteries. Moreover, as an exclusive legislative scheme, IGRA preempts state laws, making them totally inapplicable to Indian gaming. Such have been the rulings to date by federal trial and appellate courts directly addressing the issue. IGRA also authorizes the use of technologic aids, of which the telephone and Internet are two examples, to allow Indian gaming to be offered to those off the reservation so long as the gaming occurs on Indian land.
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The lotteries offered by the Coeur d'Alene Tribe meet all of the tribal, state and federal requirements yet we remain unable to pursue our rights due to efforts by states who compete for lottery purchases. These efforts include lawsuits and strong lobbying efforts in support of legislation, such as this bill, that would go beyond its intended and appropriate purpose to reach into an area, Indian gaming, that already is exclusively and fully regulated by an existing federal statuteIGRA.
Importantly, the entity designated by Congress to have regulatory authority over Indian gamingthe National Indian Gaming Commission (NIGC)acknowledged in a letter from the Chairman of the NIGC to legal counsel for MCI dated September 2, 1995, that:
In the view of NIGC, the tribe has complied with all the requirements of the IGRA and the regulations of the NIGC with respect to its lottery proposal. Because a lottery is a Class III game, the Tribe entered into the required compact with the State of Idaho, and that compact was approved by the Secretary of the Interior. In addition, the Chairman of the NIGC approved the Tribe's gaming ordinance as required by the IGRA. Finally, the Chairman approved a management contract between the Tribe and Unistar Entertainment, Inc. to conduct the tribal lottery.
In the opinion of the NIGC, the Tribe's lottery activity, which involves customers purchasing lottery tickets with a credit card both in person and by telephone from locations both inside and outside the State of Idaho, is not prohibited by IGRA.
The Coeur d'Alene Tribe has complied with IGRA and all other applicable rules, regulations and laws. We have now spent over 5 years satisfying these requirements and have spent $12 million in cash to build a state of the art computer system that permits the operation of our lottery in compliance with IGRA. Every step of the way we have faced roadblocks. Although we are authorized by federal law, we have been subject to constant harassment by various states who object to our lottery. They have interfered with our ability to obtain from the long distance carriers 1-800 service. In response to this groundless interference, we sought and obtained rulings from the Tribal Court and Tribal Appellate Court validating the legality of our lottery and our entitlement to 1-800 service. Those decisions are now on appeal to the federal district court in Idaho. Actions also have been brought by the Attorneys General of Missouri and Wisconsin - two states that offer lotteries and scratch off games to their own citizens, as do the other 31 states and District of Columbia where the Tribe's games are available. By choice, the Tribe has elected to offer its gaming only to those persons who live in a jurisdiction where lotteries are lawful. These states are opposing our lawful gaming not because they oppose gambling in their states, but because they fear competition to their individual lotteries in their states. We have recently started a weekly lottery with customers being able to participate by using their telephones and dialing using their own long distance carrier to reach the computers on the Indian reservation as well as using the Internet to access and participate in gaming on the reservation.
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Misinformation about our lottery is widespread. Here is the truth. We are a lottery run by a sovereign nation in accordance with our laws and the laws of the federal government and the State of Idaho. We are no different than any of the state lotteries.
Our opponents claim we are not regulated. This is not true. We are regulated by the federal government through IGRA, the NIGC and the Department of Interior; by the state government through our compact with the State of Idaho, and by the Tribal Government through the Coeur d'Alene Charitable Gaming Board. The employees of the lottery undergo extensive background checks, including fingerprinting which is sent to the FBI. Our operation and financial information are audited and reviewed routinely and reports are submitted at least annually. Although it is not required, the Tribe has hired Arthur Anderson, one of the big six accounting firms, to conduct an annual audit of our financial results. We have also hired Arthur Anderson to be on site for each of our weekly drawings to ensure compliance with all of the procedures that have been put in place to establish a fair and honest lottery.
Mr. Chairman, a specifically stated goal of IGRA is ''to promote tribal economic development, tribal self-sufficiency, and strong tribal government.'' The Tribe takes its responsibilities to its members seriously and has established the lottery to accomplish self-sufficiency just like the government of any state. Already, the lottery is bringing new jobs and better education to the reservation. Our people are moving into a new era and for the first time with the aid of technology we are able to participate even though our reservation is not located near any of the population centers of this country. For the first time we have an opportunity to use our creativity and commitment to work hard to help ourselves and build a future for our children. We have committed to provide economic help to non-gaming tribes. We do not seek relief from regulation. It is undisputed that the Coeur d'Alene Tribe's gaming is regulated fully. The legitimate fears and concerns raised by gaming that occurs beyond U.S. shores and outside the jurisdiction of the federal, state or local governments of this country simply have no application to the lawful and fully regulated gaming activities of our Tribe. We agree that disreputable, fraudulent and unregulated gambling cannot be tolerated and this body must take reasonable steps to protect the American public, but we urge you not to penalize those who by federal law are authorized to engage in gaming and who have done so responsibly and in compliance with all federal, state and local requirements. The bill now exempts horse racing, dog racing, off-track betting facilities and state lotteries. The prohibitions and penalties prescribed by this bill may not even be enforceable against the off shore and foreign operations that are the purported targets of the bill. As we see it, the only gaming activities that this bill will reach are those offered by Native Americans acting in conformance with federal, state and tribal law. Such a request cannot be defended.
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The Goodlatte Bill in its current form goes well beyond the off-shore and unregulated gambling problem it seeks to address. This is equally true of the Kyl Bill now before the Senate. Indeed, these bills if passed would create an irreconcilable conflict with existing federal law that would then result in protracted and expensive litigation. This cannot be the intent of the sponsors of this bill who genuinely want to address the legitimate concerns about off-shore and unregulated gambling. We stand ready, willing and able to cooperate with you and any federal or state agency to work together to fashion a regulatory framework that satisfies the legitimate concerns presented by unregulated gaming, while preserving the rights of Indian Tribes under IGRA.
Mr. Chairman, we have suffered long and hard on our reservation. The Congress of the United States in passing IGRA has provided Indian Tribes the means and opportunity to pull themselves out of the cycle of poverty and despair. We want to be independent and productive. We want our children to be educated, healthy, and contributing members of our society. We are a proud people with a strong heritage. We ask that you do nothing that will deny us the rights and opportunities now provided by existing law. We ask once more that the U.S. Government honor its commitment to us as we have honored your laws by complying fully with all its requirements. We come here as citizens of the United States and as citizens of Indian country. We are a law abiding people and wish to be treated with the dignity and respect we deserve. We ask your help today. We encourage the adoption by this Committee of an amendment identical to that offered on the Senate side by Senator Craig that simply recognizes an existing and controlling federal statute (IGRA) and excepts gaming activities within the purview of IGRA from the operation of the Goodlatte Bill.
Page 236 PREV PAGE TOP OF DOC Thank you for the opportunity to present our position to you.
Mr. MCCOLLUM. And then I will recognize myself for 5 minutes.
Mr. Jemmett, I want to ask you some questions on the possibilities or probabilities or problems of blocking sites on the Internet. How fast, in your estimation, can a web operator change from say www.casino.com to www.vegas.com? What does it take to do that?
Mr. JEMMETT. Within 24 hours you can make that change. On a technical level, there are two parts to your question. One is the actual physical named address and the other being the numbered address. If I refer to your home as your house, I could say Mr. Chairman's house, and basically everyone would recognize where that is if they knew where you lived. If I specifically said you lived at 111 East Westchester, that would be your physical address.
There are two ways to separate the naming or identity of those sites, one being a physical number, one being a name on top of that number that recognizes it. Literally, you can change both within 24 hours and have that up and running somewhere else.
Mr. MCCOLLUM. And nobody clears those things? In other words, you just do it yourself? An individual who wants to go up on the web is not charged a fee, does not go through an Internet service provider and ask permission? You just do it?
Mr. JEMMETT. That is correct. It is electronically governed by the Internet, which is set aside by the government.
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Mr. MCCOLLUM. Let me ask, if someone was creative in the world of software, could they not develop a software program that would automatically block certain given content based on word combinations which included, for example, offshore sites or addresses and gambling and some combination of words? Couldn't that be developed to do that without having somebody to police every time somebody calls up and gets an injunction? Some combination of it comes up, bam, it blocks it.
Mr. JEMMETT. That has been tried already, Mr. Chairman. ''NetNanny'' or ''WebSurfer'' are software today that try to protect individuals or youth from going to pornography sites, and they cover only about 85 percent of these sites. They have made a business of creating that software which all of the ISPs and NSPs are more than welcome to. If the customer requests, we give them or supply them that software. But, literally, it does not block all of those sites, and those sites are rapidly changing as well. The word combinations can be changed. With technology it is always evolving, and so it is always changing.
Mr. MCCOLLUM. If we wanted to get at 85 percent, we probably could get it and without as much expense be able to update it, the industry or the Congress, if we wanted to appropriate money to do that?
Mr. JEMMETT. The provider who provides that software gets compensated for researching those sites. They make a profit on the software they sell, and we provide the software to our customers.
Because of the growth of the industry, we are more focused with keeping up with and satisfying our customer base as well as our growing industry versus going out and researching and putting enough time and effort into that.
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Mr. MCCOLLUM. I understand that. But somebody could do it. It is not a question of whether you do it. I am asking hypothetically, and we are asking both ends. That involves the question if it is possible to create software which gives parents or an individual the power to block a gambling site, couldn't you do that, too?
Mr. JEMMETT. The end user is the one who has the choice. We are only the facilitator in that choice.
Mr. MCCOLLUM. But the software could be developed where you, not the end user, could block all sites up to the point of whatever maximum coverage you could get out of that software. You said it is porous. Potentially. 85 percent or more could be blocked at any given time. That could be done. That is what I am asking.
Mr. JEMMETT. I have not seen it done today, and I don't see it being done in the future.
Mr. MCCOLLUM. The capability or willingness?
Mr. JEMMETT. Capability. Technically.
Mr. MCCOLLUM. Mr. Plesser, do you agree with that?
Mr. PLESSER. I would like him to respond to the technical questions, and I will respond to the legal issues. I think it would slow the system way down if the server had to do a content search of everything going through it.
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Mr. MCCOLLUM. It would slow it down from a technical standpoint if software did that search for you?
Mr. JEMMETT. It is a cross-reference. Basically, it is like having to go from here to Virginia, let's say Centreville. You try to take the roads to get there, it would mean literally posting a sign on each road corner where to go left and right and that would slow you down rather than jumping on 66 and going straight there. So the software slows down the actual capability of the equipment.
Mr. MCCOLLUM. And you want to make a legal comment, Mr. Plesser?
Mr. PLESSER. Yes. If we are talking about the web sites and the open communications, then the law permits the ISP to look at the traffic. But a lot of the communication between a gambling site, after the initial contact, may be through e-mail; and e-mail is protected by the Electronic Communications Privacy Act from public service providers like David from kind of snooping into the content. That is a decision Congress made for public providers in 1986. So there would be a legal restriction to do the kind of software you suggested for e-mail communications, not for the web site traffic but for the e-mail communications. And since that is part of this, I just wanted to make sure that got on the record.
Mr. MCCOLLUM. I appreciate that. We are, obviously, searching for ways to block offshore because we can't prosecute easily the offshore gambling, and it is nullifying State law. So it is a very frustrating thing for Congress to try to deal with.
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Mr. JEMMETT. Just an analogy, we are like the Post Office. We don't typically go through people's packages and we don't look at where they go. We just make the deliveries. And that is usually a joint effort between postal services in each State and each city. Typically, the ISPs and NSPs are postal services not really caring what information or packages go through there because it is the end person who creates or sends that package with information.
Mr. MCCOLLUM. I hear what you are saying.
Mr. PLESSER. To emphasize, these issues face the ISP community in almost every area, in copyright, in child pornography. This is not unique to gambling. The copyright proposal that Congressman Goodlatte has worked so hard on is an approach we could live with. It does make us subject to injunctions but is carefully narrowed and it responds to the interests.
So I don't want our position to be interpreted that we are opposing this at all. We simply think that we would like to participate with a narrowed approach. We think Congressman Goodlatte has worked hard on that, and we would like this subcommittee to take a look at that as an alternative.
Mr. MCCOLLUM. Thank you, Mr. Plesser.
Mr. Barr, you are recognized.
Page 241 PREV PAGE TOP OF DOC Mr. BARR. Thank you, Mr. Chairman.
Mr. Jemmett, would it be your position that if you had knowledge of illegal activity taking place over the Internet or if any ISP did, that you wouldn't have any problem with having the burden of stopping it?
Mr. JEMMETT. That is correct. Anything on our service. Being the President of the Arizona Access Internet Association, we have worked closely with Grant Woods, as well as someone whom you might recognize, Gale Thackery. Basically, anytime that illegal activity is fostered in one of our service providers, we take action to correct that.
Mr. BARR. Thank you.
Mr. Matheson, you don't favor legalization of mind-altering drugs, do you?
Mr. MATHESON. No, I don't.
Mr. BARR. Even if the proceeds were used for noble purposes?
Mr. MATHESON. Absolutely not.
Mr. BARR. So it isn't the noble purposes for which the activity generates money that makes that a good thing to do? Earlier you were talking about noble purposes, and I am not quite sure what noble purpose. I don't think that gambling is a noble purpose. Is it the gambling proceeds are used by some States to supplement State budgets? Is that the noble purpose? Maybe you can explain that.
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Mr. MATHESON. Yes. The State lotteries would claim that their purposes are noble. They build schools and libraries, buy books and computers for schoolchildren. The proceeds from other kinds of gaming would claim the same thingjobs would come, the economic benefits. These are all noble purposes.
What I am saying is that Indian gaming should be in that same category. We never understand why it is singled out for attack or criticism when it is only achieving the same noble purposes that State regulatory response to gaming is pursuing.
Mr. BARR. We in Georgia sort of look at it the other way. We are saying, why should those on Indian reservations or Indian tribes have special authority to conduct gambling when the citizens of our State generally don't? One could look at it both ways. Would it be fair to say, though, that basically the reason that we are here today is because gambling generates a lot of money?
Mr. MATHESON. I would say that I am here today and tribal interests are here today because gambling creates the first economic opportunity that our people have seen in over a century of dealing in this country. I think that tribal government gambling is not privatized gaming. It is just like what the State or the Federal Government did to fund the Revolution back in 1776.
If society determines that the purposes are worthy and the pluses outweigh the minuses, and it seems like governments have always made the decision to go ahead and do it to fulfill a greater society need, and I think that is what tribes are doing.
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Mr. BARR. It is not really an answerable question, and I think it is a slippery slope, and it is a small step from saying that gambling should be allowed because we use the money for a noble purpose to saying, well, whatever other activity, you are saying that the activity that generates the money should be looked at neutrally and should be allowed as long as it generates money that can be used for a legitimate purpose, and some folks that favor legalization of mind-altering drugs make the same argument.
And I think it is difficult to say with a straight face that gambling is okay because we use the money for a good purpose, but illegal drug activity is not, even though some people say we use it for a good purpose. I think it is a rather slippery slope and can get us in trouble.
Mr. MATHESON. The fact is, government today says gambling is not illegal. If they said that it were illegal across the board, the tribes could say, fine and dandy, it is illegal for everybody, and we have to come under the law with everybody else.
But when they say some gambling is okay, but then the criticism or the attack comes and the mind-altering drug analogies only comes to tribal gaming, we have to ask why.
Mr. BARR. And I would be there with you asking those same questions. We have to be consistent.
But say you take a State, the State of Ajax, and the citizens have voted overwhelmingly that they don't want gambling. A tribe establishes through the Bureau of Indian Affairs that they have a certain claim to lands there and they seek tothey apply for a gambling license. I would presume you would think that would be inappropriate because we are applying the same standard throughout the entire State and one group should not be allowed to conduct activities when another isn't.
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Mr. MATHESON. The Indian Gambling Regulatory Act provides that a tribe can only conduct the kind of gaming allowed in that State pursuant to an agreement or a compact you enter with that State. So that tribe that you are referring to in the State of Ajax would not be able to do any gaming that the State didn't either operate or authorize or regulate.
Mr. BARR. Would that hold for a Class II license as well?
Mr. MATHESON. Yes. A tribe can do a Class II license in a State that has Class II games.
Mr. BARR. Just to sort of put thisand I, frankly, never even heard of fantasy baseball or whatever, Ms. McGettigan. What is the magnitude of money that we are talking about here, both in terms of what somebody pays to log on to one of these teams, they give a credit card number, and how much money is at stake?
Also, why is this so important to major league baseball? Aren't they concerned to getting people out to that wholesome all-American sport and getting them out to the ballpark? What is so all-fired important about fantasy baseball on the Internet?
Ms. MCGETTIGAN. The amounts are relatively modest. As I said before, this is not the case in which someone is going to lose the farm.
There are two costs that are involved. One is simply getting onto the site. It costs you $4.95 a month to have access to a certain site, and they run a fantasy game. The fantasy game may be free, but you have that $4.95 a month to get onto the site to do it.
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Alternatively, there are sites that are free to get on, but if you want to play the fantasy game, they can be from $19.95 to $89.95, but it lasts the entire season. There may be nominal fees associated with making a trade, $2 or something like that, but you are talking a very small amount.
And as I said in my testimony, you are talking about someone spending less money over the baseball season than the State of Maine hopes or expects that I will pay over the same period of time buying scratch tickets and Megabucks tickets.
The reason that it is important to the Players Association is because, frankly, these are our most avid fans. These people watch the box scores every day. They are interested in how the players are doing. They are more likely to
Mr. BARR. Would they lose interest and not follow those games if they didn't have fantasy baseball to play?
Ms. MCGETTIGAN. They would probably still go to the games.
There are two analogies. One is the difference between following the stock market if you don't own stock or if you do. I follow it much more closely now that I have my retirement plans and certain mutual funds that I watch and individual stocks. I watch those much more closely than I would if I did not own any stocks.
Mr. BARR. Does the Major League Baseball Players Association have any financial interest in any of this?
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Ms. MCGETTIGAN. We do license fantasy sites and we get a small amount.
Mr. BARR. The bottom line is that this generates money?
Ms. MCGETTIGAN. That is not our concern. If we got no money
Mr. BARR. You would be happy if it was completely free?
Ms. MCGETTIGAN. We think it is valuable.
I would ask the question the other way: What is the harm that Congress is trying to protect people from or correct in regulating this? It doesn't effect any contest. You are not going to have eight men out. No one is going to throw a game. No individual athlete is going to change their swing or whiff at a ball that they could have hit out of the park because of a fantasy baseball league. Nor is anybody going to lose the farm any more than they do by buying lottery tickets or going to the movies every Saturday.
So I don't see any social harm that needs to be corrected under this, and so I would question what the basis for governmental action would be in the first place.
Mr. BARR. Thank you.
Page 247 PREV PAGE TOP OF DOC Mr. MCCOLLUM. Mr. Buyer, you are recognized.
Mr. BUYER. I want to share with Mr. Barr, I know what fantasy baseball is, because for the last 25 years I have been a Cubs fan.
Ms. MCGETTIGAN. I have been a Red Sox fan.
Mr. BUYER. Let me ask Mr. Matheson. You currently operate an Internet lottery site?
Mr. MATHESON. Yes.
Mr. BUYER. How many people play in a given month?
Mr. MATHESON. I believe it is around 2,000.
Mr. BUYER. Around 2,000. What type of jackpot and prizes do you offer and what are the winnings percentages?
Mr. MATHESON. We have one that works identical to most State lotteries. Of a universe of 49 numbers, you pick 6; and if you pick the 6 that are drawn, you can win a million dollar jackpot. It is identical pretty much to every State lottery in the country. And we have some instant-type games that work like scratch-off games identical to State lottery scratch-off games, but you can open the ticket with your mouse and click on it, rather than have a physical ticket in front of you and scratch it off with a coin.
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Mr. BUYER. You have an Internet site and in your Stateobviously, you can do anything you want on a reservation. But when you get off the reservationif I were anywhere else within the State, can I access that and be okay in your State?
Mr. MATHESON. The governor and attorney general concur that we are operating under the terms of our compact.
Mr. BUYER. And what about in California?
Mr. MATHESON. It is our position that the gaming and transaction occur entirely on our reservation. Therefore, really instead of using the paved highway to come to our facility and site, we are using the technological highway to get to our facility site.
Mr. BUYER. So you think it is permissible for me to sit in Indiana and play your Internet site?
Mr. MATHESON. If Indiana has a lottery. We only offer the lottery in States that have a lottery. So it is only a game that they already permit, perhaps, in Indiana. I am not sure.
Mr. BUYER. So if I expand it, then you think that it was permissible to have a national lottery run off an Internet site to those contiguous States that permit lotteries?
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Mr. MATHESON. Yes, that is our position.
Mr. BUYER. What does Justice think about that? Have they talked to you about that?
Mr. MATHESON. They have talked to us about it. They are concerned about it. They do not know how to resolve it.
The entire issue is, where does the gaming occur? Does it occur on native land that we maintain or does it occur off the reservation, like some States are questioning. We are in Federal court in Idaho with the AT&T and 19 State attorneys general, and that entire issue is being debated.
Mr. BUYER. Were you in the room when I asked the gentleman from the Department of Justice about whether we should have a bill to amend an exemption?
Mr. MATHESON. I was.
Mr. BUYER. Do you agree with his answer?
Mr. MATHESON. Absolutely not. I believe that IGRA is the governing law and doctrine regulating and authorizing gaming for Indian tribes in this country. This bill in its current form conflicts severely with IGRA. We believe in using technological aid according to IGRA. IGRA specifically exempts us from the wire acts and other anti-lottery statutes. Therefore, we think it would be a mistake not to exempt tribes from this bill.
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Mr. BUYER. I do not mean to play the what-ifs. But if we did an exemption to you? Would we be creating the possibility that Indian gaming would then have a monopoly position on this question?
Mr. MATHESON. Well, I mentioned in my opening remarks that the variation of this bill in the Senate, introduced and sponsored by Senator Kyle, provides exemptions already for State lotteries, for horse racing, including off-track belting.
Mr. BUYER. I am only going to Internet gambling here.
Mr. MATHESON. This is for Internet gambling. This bill I am referring to is this identical bill but with the Senate version in some variation. It already provides for those exemptions.
I guess what troubles us is why is the opportunity being expanded for State lotteries and para-mutual wagering and horse racing andas the DOJ testified here earlier, but you cannot really do anything because, with the off-shore gambling, the only one affected and restricted and left hanging is tribal gambling.
Mr. BUYER. Congress, in addition to the Internet 10 years ago, they passed this legislation which you are asking that we follow, right?
Mr. MATHESON. Right.
Page 251 PREV PAGE TOP OF DOC Mr. BUYER. That is why we are struggling with this. We do not know whether we ought to give you the exemption and give it to someone who really has not evenyou know, Congress never touched this question.
Mr. MATHESON. We understand that. And I would go so far as to say, number one, we would rather be open no matter what. But, secondly, if the laws were that nobody could do anything on the Internet and if that were the public policy and the law of the land, I think we would feel satisfied that we just have to do what everybody else has to do. But where there are exemptionswhere other forms of gaming, including State gambling and para-mutual wagering, then we do not understand why we are singled out.
Mr. MCCOLLUM. I want to follow up with Ms. McGettigan. There was a question about fantasy sports. Do all fantasy sports involve some level of skill?
Ms. MCGETTIGAN. The ones I am familiar with, yes.
Mr. MCCOLLUM. And what type of prizes are offered to players who win?
Ms. MCGETTIGAN. It differs depending on the sites. Sometimes they are very modest, like a T-shirt or a cap. Sometimes it is a trip to a spring training camp with airfare, which would be in the $3,000 range. And I do know of one site where the big prize at the end, with thousands of entrants, is $50,000.
Mr. MCCOLLUM. If the fantasy sports sites were allowed to only give de minimus prizes, how would that impact you?
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Ms. MCGETTIGAN. Well, my question would be, what is the public purpose in limiting the prize?
Mr. MCCOLLUM. Well, the reason for limiting the prizes is the concept. And we do not know this, but, just theoretically, at some point there is gambling and at some point there is not. Gambling does not involve a skill, so that works in favor of saying fantasy sports are not gambling. But gambling does involve doing something motivated to gain a lot of money, whether it is the lottery, like Mr. Matheson is talking about, or casino gambling or whatever.
Just engaging in fantasy sports, my kids do that with little games they plug into the video machines without any betting or gambling and no prizes.
So the question is partially our struggling with what is the definition of ''gambling.''
Ms. MCGETTIGAN. Well, I struggle with that question as well. If students participate in a contest on the Internet where they put in a lot of time and effort to design an Internet web site or to design something for NASA where you put tadpoles up in space and see if they become frogs and there is a very good prize at the end of it, is that gambling? Is the fact that a prize is offered turn it into gambling?
Mr. MCCOLLUM. That is a good question, and I think that some people suggested it does, and that is why I asked. You obviously do not think that it does.
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Ms. MCGETTIGAN. I do not think that it does.
Mr. MCCOLLUM. That is fair enough.
Mr. Goodlatte is not a member of the subcommittee, but he is a member of the full committee. And we have got to run off to a vote, but if you have some questions you want to ask, we certainly will indulge you.
Mr. GOODLATTE. Mr. Chairman, no, I do not have any questions.
In fact, the questions you just asked Ms. McGettigan were the ones that I had in mind to ask, about where we could draw the line with regard to lotteries and fantasy sports. Because I do think we want to make it clear that we are not trying to go after something that involves a good deal of skill and is such an enjoyable thing to some of the folks.
I am sorry I did not get to more of the hearing. I do appreciate you holding this hearing. It helps to resolve a number of issues and a lot of loose ends, and we want to wrap those up. Thank you.
Mr. MCCOLLUM. If there is not a question from you, one thing for Mr. Matheson. What if the Commission, that is the Indian Gaming Commission, decided that Internet gambling by Indian tribes should be completely prohibited? What would be the reaction to that?
Page 254 PREV PAGE TOP OF DOC Mr. MATHESON. If it were illegal, clearly illegal, we would obviously discontinue it.
Mr. MCCOLLUM. Fair enough.
Mr. Barr, do you have any follow-up? Because we are going to run off to vote.
Mr. BARR. No. I appreciate the witnesses being here. It is very interesting. I appreciate the Chairman holding the hearing, and I want to thank the witnesses as well.
Mr. MCCOLLUM. I, too, want to thank all of you. We know how difficult a struggle it is for you in your own respective areas. You must imagine how complex it is as a social and political problem for us, because it does create issues that we have never had to deal with before. Thank you very much.
This hearing is adjourned.
[Whereupon, at 4:25 p.m., the subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
Page 255 PREV PAGE TOP OF DOCWRITTEN STATEMENT OF THEODORE MILLER
I, THEODORE MILLER, submit this statement to the Crime Sub-Committee of the House Judiciary Committee in connection with its consideration of a bill on internet gambling (H.R. 2380). I submit this statement for the Sub-Committee's consideration. In addition, I want the Sub-Committee to know that I am available to testify in person at any time before this Sub-Committee and/or before any other sub-committee or committee considering such a bill.
I reside at:
201 Park Drive
Glenolden, PA 19036
I am represented by Attorney Mark E. Cedrone, whose business address is as follows:
CARROLL & CEDRONE
Suite 940 Public Ledger Building
150 South Independence Mall West
Philadelphia, PA 19106
In making this statement, you should know that I have recently learned that I am a seriously addicted pathological gambler. Because of a recent crisis that related to my gambling addiction and the ease to feed that addiction presented by internet betting, I have begun a course of treatment for my addiction.
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I am presently twenty-three (23) years of age. From when I was a young teenager, I was interested in sports betting. At one time, I satisfied this interest by seeking out illegal sports book-makers and betting with them. However, early in 1997, I found a much easier way to satisfy my appetite to participate in sports betting. That easier way was interned gambling.
I consider myself somewhat computer literate and very familiar with accessing the internet and I have ''surfed the web'' on many occasions. As a result of my familiarization with the interned, I learned that there are several different entities/companies that provide sports betting services via the interned. I ultimately became involved with a company called the ''World Sports Exchange''.
In or about June, 1997, I opened an account with the World Sports Exchange, which operates out of Antigua. I did this by sending $300 through Western Union to the World Sports Exchange which operates out of Antigua. It was necessary to send this money to the World Sports Exchange because you can only bet if you have funds on account with the World Sports Exchange. You can bet up to whatever amount is currently in your account. If you lose a bet, the money is then subtracted from your account. If you win a bet, the money is then added to your account. If you have a positive balance in your account, you can have some or all of the money returned to you.
When I first started betting with the World Sports Exchange, my bets were made in what I would call reasonable and affordable amounts. As you can see from the attached account summary(see footnote 20), my initial bets were in the $150-$200 range. This level of betting, however, quickly increased. Over an approximate one year period, my betting pattern changed from making one or two bets per night in the $100$200 range to betting every possible game for thousands of dollars.
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I am not blaming the World Sports Exchange my increased betting activity. I now know that this kind of increased betting behavior is a manifestation of being a pathological gambler.
The World Sports Exchange does, however, factor into this in that due to the ease of access to a betting forum, I was able to very easily satisfy my heightened desire to engage in sports betting. In addition, since I like to consider myself a law-abiding citizen, any impediment to betting perceived by me due to the unlawful nature of betting was no longer operative. I had the mentality, ''if it is on the Web, it must be legal''. As a consequence of the easy access and perceived legality of betting and my pathological gambling disorder, my betting habits quickly became out of control.
As a result of my personal lack of control which was fueled by the easy access and perceived legality of interned betting, I ended up engaging in criminal activity, lost my job, and lost in excess of $300,000 to the World Sports Exchange. In fact I may go to jail.
As stated above, I am not blaming the World Sports Exchange for my problems. It would be both irresponsible and unmanly for me to do so. What I want the Committee to know, however, is that because of the easy access to betting provided by internet gambling, anyone with a pathological gambling disorder can easily get themselves into trouble. Maybe an analogy would be appropriate. If someone who is predisposed to becoming addicted to alcohol could simply sign on to a computer that had a spigot attached to it and have alcohol delivered through telephone wires into their home, they would be much more likely to have problems than if that individual had to leave his home to go out to purchase alcohol and/or another substance. This analogy may seem a bit corny, but I believe it clearly demonstrates the evils of interned gambling and the easy access to betting it provides.
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In many respects, my life is in turmoil in part because I was so easily able to make bets through the interned.
I hope this information is helpful to the Sub-Committee. As I have stated above, I am more than willing to testify and/or answer any questions which any member of the Sub-Committee or, for that matter, the House Judiciary Committee may have.
|MARK E. CEDRONE|
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(Footnote 1 return)
The term ''interactive computer service providers'' is not defined in the bill, but it is assumed for purposes of this analysis that the term is intended to refer to what are commonly known as Internet Service Providers (entities that provide primarily communications connections to the Internet) and Online Service Providers (entities that provide communications services to the Internet but also provide specific content). For purposes of this memorandum, the term ''ISP'' will be used at times to refer collectively to Internet Service Providers and Online Service Providers.
(Footnote 2 return)
''Comity'' is a mandatory principle of law (see Mannington Mills Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir. 1979); see also Restatement (Third) of Foreign Relations (1987) (hereinafter the Restatement), which has been repeatedly enforced and cited by our nation's Courts with favor.
(Footnote 3 return)
18 U.S.C.A. §1084 (1997).
(Footnote 4 return)
John Russell, Justice Department spokesman, quoted in Mark Camps, Web Sports Gambling a Sure Bet, for Now, San Francisco Chronicle, May 29, 1997, at B3.
(Footnote 5 return)
18 U.S.C.A. §1084 (a) (1997).
(Footnote 6 return)
143 Congressional Record E1633 (Sept. 3, 1997) (statement of Rep. Goodlatte upon introduction of Internet Gambling Prohibition Act of 1997).
(Footnote 7 return)
Sebastian Sinclair, Casino Gambling and the Internet 8, 21 n. 3 (Christiansen/Cummings Associates, Inc., 1998).
(Footnote 8 return)
John C. Keeney, Justice Department Criminal Division, quoted in James Sterngold, A One-Armed Bandit Makes a House Calls; Virtual Casino Is Coming, but Regulation Is Still a Big Question, New York Times, Oct. 27, 1996, at D1.
(Footnote 9 return)
Steven Crist, All Bets are Off, Sports Illustrated, Jan. 26,1998, at 85.
(Footnote 10 return)
Stephen Longstreet, Win or Lose: A Social History of Gambling in America 31 (Indianapolis, Ind.: The Bobbs-Merrill Co., Inc. 1977).
(Footnote 11 return)
Id. at 37.
(Footnote 12 return)
William N. Thompson, Legalized Gambling: A Reference Handbook 64 (Santa Barbara, Cal.: ABCCLIO, Inc., 1994).
(Footnote 13 return)
Longstreet, Win or Lose, at p. 31.
(Footnote 14 return)
John Samuel Ezell, Fortune's Merry Wheel: The Lottery in America 272 (Cambridge, Mass.: Harvard University Press, 1960), p. 272.
(Footnote 15 return)
Id. at 108.
(Footnote 16 return)
Id. at 102.
(Footnote 17 return)
A third principal is also implicatedto ensure the honestly of the gambling game or contest itselfbut that is not unique to gambling. It is shared by all consumer transactions on the Internet and is another debate entirely.
(Footnote 18 return)
In this contest, students design educational web pages and, upon entry into the contest give ThinkQuest an irrevocable license to use, or sublicense the web page, until December 31, 2008.
(Footnote 19 return)
By changing the definition in section 1081, the bill may also inadvertently affect state laws with respect to wire communications governed by section 1084.
(Footnote 20 return)
I have attached a copy of the betting transactions in which I engaged since I opened my account with the World Sports Exchange.