House Financial Services Committee Approves Internet Gambling Bill

March 15, 2006. The House Financial Services Committee amended and approved, by voice votes, HR 4411, the "Unlawful Internet Gambling Enforcement Act of 2006".

Rep. Jim Leach (R-IA) offered an amendment in the nature of a substitute [25 pages in PDF]. It was approved by a voice vote. The bill, as amended, was then approved by voice vote, without further amendment.

HR 4411 is targeted at the financial transactions that fund what already constitutes unlawful internet gambling. It provides that no one engaged in the "business of betting or wagering" may knowingly accept certain financial transactions, including checks, electronic fund transfers, and credit card debt, in connection with "unlawful Internet gambling". The bill then requires the Department of the Treasury (DOT) and the Federal Reserve Board (FRB) to write regulations that require each "designated payment system" to identify and block these restricted transactions through the establishment of policies and procedures. The bill requires each "financial transaction provider" to comply with these DOT/FRB regulations. The bill contains numerous exemptions and limitations.

Summary of Bill. The bill, as amended, does not criminalize any gambling activities. However, there is a separate bill that would amend the criminal code, HR 4777, the "Internet Gambling Prohibition Act". It falls within the jurisdiction of the House Judiciary Committee.

HR 4411 recites in its findings that "Internet gambling is primarily funded through personal use of payment system instruments, credit cards, and wire transfers." It adds that "New mechanisms for enforcing gambling laws on the Internet are necessary because traditional law enforcement mechanisms are often inadequate for enforcing gambling prohibitions or regulations on the Internet, especially where such gambling crosses State or national borders."

The statutory prohibition in the bill is as follows:

The bill then goes on to require the DOT and FRB to write regulations "requiring each designated payment system, and all participants therein, to identify and block or otherwise prevent or prohibit restricted transactions through the establishment of policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of restricted transactions".

It provides that this may be accomplished this by the "establishment of policies and procedures" that either "(A) allow the payment system and any person involved in the payment system to identify restricted transactions by means of codes in authorization messages or by other means; and (B) block restricted transactions identified as a result of the policies and procedures developed pursuant to subparagraph (A)", or "prevent or prohibit the acceptance of the products or services of the payment system in connection with a restricted transaction".

The bill also requires the DOT and FRB to "consider exempting certain restricted transactions or designated payment systems from any requirement imposed under such regulations, if the Secretary and the Board jointly find that it is not reasonably practical to identify and block, or otherwise prevent or prohibit the acceptance of, such  transactions."

The bill defines "bet or wager" as "means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome". The bill provides that "bet or wager" includes lotteries, but excludes regulated securities and commodities, and certain other commercial or financial instruments and activities.

The term "bet or wager" also excludes "any participation in a fantasy or simulation sports game, an educational game, or a contest," as defined by the bill.

The bill provides that the term "business of betting or wagering" does not include "the activities of a financial transaction provider, or any interactive computer service or telecommunications service."

The bill provides that the term "unlawful Internet gambling" means "to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made." However, it does not include intrastate gambling, gambling authorized by any state if it is "reasonably designed to block access to minors and persons located out of such State", or gambling that does not violate the Interstate Horseracing Act or the Indian Gaming Regulatory Act". Nor does the term "unlawful Internet gambling" include gambling on certain Indian lands.

The bill provides a limitation on liability for blocking financial transactions. It provides that "A person that identifies and blocks a transaction, prevents or prohibits the acceptance of its products or services in connection with a transaction, or otherwise refuses to honor a transaction ... shall not be liable to any party for such action" if either the transaction is restricted, the blocker reasonably believed it to be restricted, or the blocker relied on the policies and procedures of the payment system of which it is a member.

Rep. Barney FrankDebate and Discussion. Rep. Barney Frank (D-MA), the ranking Democrat on the HFSC, spoke in opposition to the bill. He said that "adults are entitled to do with their own money" whatever they want, so long as it does not harm others. He added that "the fact that people bet more than they should" is not cause for Congressional legislation. He pointed out that some people eat more than they should too.

Rep. Frank invoked the moral philosophy of John Stuart Mill (see, On Liberty and Other Essays [Amazon]), and the principle of freedom of the internet.

He also lamented, when no one else spoke against the bill, "Where is Ron Paul when I need him."

Rep. Leach stated at the mark up that similar bills in the past have been held up in ways that do not reflect well on the Congress.

Rep. Leach spoke with reporters after the hearing. He offered this explanation of why the Congress may now enact internet gambling legislation. He said that "There are two broad changes. One is that the growth in internet gambling has produced more and more instances that have been reported to Congress of tragic abuses that have occurred with the individual family."

"Secondly," said Rep. Leach, "Congress is in certain disrepute. This is part and parcel of what I consider to be a necessary to clean up the Congress."

TLJ spoke with Rep. Bob Goodlatte (R-VA), the sponsor HR 4777, on March 15. He said that for five years internet gambling legislation was blocked as a result of misrepresentations by Jack Abramoff. He added that now that this has been disclosed, he is hopeful that the Congress will enact legislation.

On January 3, 2006, Abramoff pled guilty in U.S. District Court (DC) to a three count information charging him with conspiracy (in violation of 18 U.S.C. § 371), aiding and abetting honest services mail fraud (18 U.S.C. §§ 1341 and 1346), and tax evasion (26 U.S.C. § 7201). See, DOJ release and plea agreement [29 pages in PDF]. This case is U.S. v. Jack Abramoff, U.S. District Court for the District of Columbia, Judge Ellen Huvelle presiding.

The plea agreement states that Abramoff was a lobbyist who "solicited and obtained business with groups and companies throughout the United States, including Native American tribal governments operating, and interested in operating, gambling casinos." It continues that "Abramoff was hired by at least four Native American tribes with gaming operations to provide professional services and develop programs to limit market competition or to assist in opening casinos."

The plea agreement also addresses Abramoff's efforts to stop internet gambling legislation in the 106th Congress. It states that "beginning at least in 1999 through January 2001, Abramoff and others sought Staffer A's agreement to perform a series of official acts, including assisting in stopping legislation regarding internet gambling and opposing postal rate increases. With the intent to influence those official acts, Abramoff provided things of value including, but not limited to, from June 2000 through February 2001, ten equal monthly payments totaling $50,000 through a non-profit entity to the wife of Staffer A. The total amount paid to the wife of Staffer A was obtained from clients that would and did benefit from Staffer A's official actions regarding the legislation on internet gambling or opposing postal rate increases."

Rep. Goodlatte said that "Nearly 60 percent of the members of the House voting voted for this once before, when it was brought up on suspension. It didn't get the two thirds, but we had nearly sixty percent."

This is a reference to the House vote on July 17, 2000, on HR 3125 (106th Congress), titled the "Internet Gambling Prohibition Act". It was considered under a suspension rule, which meant that it required a 2/3 majority to pass. It failed by a vote of 245 to 159. See, TLJ story titled "House Rejects Internet Gambling Prohibition Act", July 18, 2000, and TLJ story titled "Analysis of House Vote on HR 3125", July 23, 2000.

Rep. Goodlatte concluded, "Add to that all of the misinformation. I mean, a number of people who were quite frankly misinformed by Mr. Abramoff have come to us and said we want to be on this bill." HR 4777 currently has 130 cosponsors.

Rep. Goodlatte said that the HJC will hold a hearing on internet gambling before markup. However, he did not know when either might take place.