SPEAKERS CONTENTS INSERTS
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57–230
2000
INTERNET GAMBLING PROHIBITION ACT OF 1997
HEARINGS
BEFORE THE
SUBCOMMITTEE ON CRIME
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
ON
H.R. 2380
FEBRUARY 4 AND JUNE 24, 1998
Serial No. 133
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Printed 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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LINDSEY O. GRAHAM, South Carolina
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
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STEVE 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
HEARING DATES
February 4, 1998
June 24, 1998
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TEXT OF BILL
H.R. 2380
OPENING STATEMENT
McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime
WITNESSES
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
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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
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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
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APPENDIX
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,
Washington, DC.
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 people—the Las Vegas strip, the Atlantic City Boardwalk, the brilliant lights and, of course, famous entertainers. The Internet, too, brings certain pictures to mind—instant 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
''CYBERGAMBLING'' HEARING
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 gambling—it 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:]
105TH CONGRESS
1ST SESSION
H.R. 2380
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
A BILL
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;
''(B) includes——
''(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.
''(b) EXCEPTIONS.—
''(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 implications—while 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 casino—they 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.
57230a.eps
57230b.eps
57230c.eps
57230d.eps
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.
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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 required—I think willingly required—to 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 minutes—5 or 6 minutes—if 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 Commerce—I guess I should show a little bias there to Florida—and 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 industry—the 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:]
| National Association of |
| Attorneys General, |
| Washington, DC, February 3, 1998. |
Hon. BILL MCCOLLUM, Chairman,
Subcommittee on Crime,
Committee on the Judiciary,
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House 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.
Sincerely,
| 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.
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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.
| Greenberg Traurig, |
| Attorneys at Law, |
| Washington, DC, February 25, 1998. |
Hon. BILL MCCOLLUM, Chairman,
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 202–331–3120.
Sincerely,
| Ronald L. Platt, |
| Senior Director of Government Affairs |
PREPARED STATEMENT OF ALAN SUTIN, ATTORNEY, GREENBERG TRAURIG, ATTORNEYS AT LAW
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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.
DISCUSSION
Introduction
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.
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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, 105–106 (3d Cir. 1996), the same analysis—whether the statutory prohibition is so generally worded as to sweep lawful conduct within its scope—should 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 action—a 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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| Cato Institute, |
| Washington, DC, February 2, 1998. |
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.
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
Sincerely,
| Peggy J. Ellis, Director of Government Affairs. |
| Cato Institute, |
| Washington, DC, February 2, 1998. |
Hon. BILL MCCOLLUM, Chairman,
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Subcommittee 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?
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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 Franklin—using his era's most advanced technology—printed 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.
Sincerely,
| 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
CATOCLIPS—Times Union (Albany, NY) (TMNN) STORY 7
Main
Internet gambling ban faces losing odds By TOM W. BELL
6624 Characters
01/06/98
(Copyright 1998)
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WASHINGTON—The 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 Internet—and even interstate communications—to interfere with matters better left to state and local authorities.
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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 revenues—more 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.
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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.
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PREPARED 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 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 have also been brought by the Attorney Generals of Missouri and Wisconsin—two 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 account—all 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 faulted—any 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 you—ITT, 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 mind—and I think this is a major concern—that 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.
Thank you.
[The prepared statement of Mr. Fahrenkopf follows:]
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PREPARED 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.
Mr. Donn?
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, partic