[House Report 107-339]
[From the U.S. Government Publishing Office]
107th Congress Rept. 107-339
HOUSE OF REPRESENTATIVES
1st Session Part 1
======================================================================
UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION ACT
_______
December 13, 2001.--Ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 556]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 556) to prevent the use of certain bank instruments
for unlawful Internet gambling, and for other purposes, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 5
Background and Need for Legislation.............................. 5
Hearings......................................................... 8
Committee Consideration.......................................... 8
Committee Votes.................................................. 8
Committee Oversight Findings..................................... 9
Performance Goals and Objectives................................. 9
New Budget Authority, Entitlement Authority, and Tax Expenditures 10
Committee Cost Estimate.......................................... 10
Congressional Budget Office Estimate............................. 10
Federal Mandates Statement....................................... 12
Advisory Committee Statement..................................... 12
Constitutional Authority Statement............................... 12
Applicability to Legislative Branch.............................. 12
Section-by-Section Analysis of the Legislation................... 13
Changes in Existing Law Made by the Bill, as Reported............ 14
Dissenting Views................................................. 16
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Unlawful Internet Gambling Funding
Prohibition Act''.
SEC. 2. FINDINGS.
The Congress finds as follows:
(1) Internet gambling is primarily funded through personal
use of bank instruments, including credit cards and wire
transfers.
(2) The National Gambling Impact Study Commission in 1999
recommended the passage of legislation to prohibit wire
transfers to Internet gambling sites or the banks which
represent them.
(3) Internet gambling is a major cause of debt collection
problems for insured depository institutions and the consumer
credit industry.
(4) Internet gambling conducted through offshore
jurisdictions has been identified by United States law
enforcement officials as a significant money laundering
vulnerability.
SEC. 3. PROHIBITION ON ACCEPTANCE OF ANY BANK INSTRUMENT FOR UNLAWFUL
INTERNET GAMBLING.
(a) In General.--No person engaged in the business of betting or
wagering may knowingly accept, in connection with the participation of
another person in unlawful Internet gambling--
(1) credit, or the proceeds of credit, extended to or on
behalf of such other person (including credit extended through
the use of a credit card);
(2) an electronic fund transfer or funds transmitted by or
through a money transmitting business, or the proceeds of an
electronic fund transfer or money transmitting service, from or
on behalf of the other person;
(3) any check, draft, or similar instrument which is drawn by
or on behalf of the other person and is drawn on or payable at
or through any financial institution; or
(4) the proceeds of any other form of financial transaction
as the Secretary may prescribe by regulation which involves a
financial institution as a payor or financial intermediary on
behalf of or for the benefit of the other person.
(b) Definitions.--For purposes of this Act, the following definitions
shall apply:
(1) Bets or wagers.--The term ``bets or wagers''--
(A) 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 greater value
than the amount staked or risked in the event of a
certain outcome;
(B) includes the purchase of a chance or opportunity
to win a lottery or other prize (which opportunity to
win is predominantly subject to chance);
(C) includes any scheme of a type described in
section 3702 of title 28, United States Code;
(D) includes any instructions or information
pertaining to the establishment or movement of funds in
an account by the bettor or customer with the business
of betting or wagering; and
(E) does not include--
(i) any activity governed by the securities
laws (as that term is defined in section
3(a)(47) of the Securities Exchange Act of
1934) for the purchase or sale of securities
(as that term is defined in section 3(a)(10) of
such Act);
(ii) any transaction conducted on or subject
to the rules of a registered entity or exempt
board of trade pursuant to the Commodity
Exchange Act;
(iii) any over-the-counter derivative
instrument;
(iv) any other transaction that is exempt
from State gaming or bucket shop laws under
section 12(e) of the Commodity Exchange Act or
section 28(a) of the Securities Exchange Act of
1934;
(v) any contract of indemnity or guarantee;
(vi) any contract for insurance;
(vii) any deposit or other transaction with a
depository institution (as defined in section
3(c) of the Federal Deposit Insurance Act);
(viii) any participation in a simulation
sports game or an educational game or contest
that--
(I) is not dependent solely on the
outcome of any single sporting event or
nonparticipant's singular individual
performance in any single sporting
event;
(II) has an outcome that reflects the
relative knowledge and skill of the
participants with such outcome
determined predominantly by accumulated
statistical results of sporting events;
and
(III) offers a prize or award to a
participant that is established in
advance of the game or contest and is
not determined by the number of
participants or the amount of any fees
paid by those participants; and
(ix) any transaction authorized under State
law with a business licensed or authorized by a
State.
(2) Business of betting or wagering.--The term ``business of
betting or wagering'' does not include, other than for purposes
of subsection (e), any creditor, credit card issuer, insured
depository institution, financial institution, operator of a
terminal at which an electronic fund transfer may be initiated,
money transmitting business, or international, national,
regional, or local network utilized to effect a credit
transaction, electronic fund transfer, stored value product
transaction, or money transmitting service, or any participant
in such network, or any interactive computer service or
telecommunications service.
(3) Internet.--The term ``Internet'' means the international
computer network of interoperable packet switched data
networks.
(4) Unlawful internet gambling.--The term ``unlawful Internet
gambling'' means to place, receive, or otherwise 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 in which the bet
or wager is initiated, received, or otherwise made.
(5) Other terms.--
(A) Credit; creditor; and credit card.--The terms
``credit'', ``creditor'', and ``credit card'' have the
meanings given such terms in section 103 of the Truth
in Lending Act.
(B) Electronic fund transfer.--The term ``electronic
fund transfer''--
(i) has the meaning given such term in
section 903 of the Electronic Fund Transfer
Act; and
(ii) includes any fund transfer covered by
Article 4A of the Uniform Commercial Code, as
in effect in any State.
(C) Financial institution.--The term ``financial
institution'' has the meaning given such term in
section 903 of the Electronic Fund Transfer Act.
(D) Money transmitting business and money
transmitting service.--The terms ``money transmitting
business'' and ``money transmitting service'' have the
meanings given such terms in section 5330(d) of title
31, United States Code.
(E) Secretary.--The term ``Secretary'' means the
Secretary of the Treasury.
(c) Civil Remedies.--
(1) Jurisdiction.--The district courts of the United States
shall have original and exclusive jurisdiction to prevent and
restrain violations of this section by issuing appropriate
orders in accordance with this section, regardless of whether a
prosecution has been initiated under this section.
(2) Proceedings.--
(A) Institution by federal government.--
(i) In general.--The United States, acting
through the Attorney General, may institute
proceedings under this subsection to prevent or
restrain a violation of this section.
(ii) Relief.--Upon application of the United
States under this subparagraph, the district
court may enter a preliminary injunction or an
injunction against any person to prevent or
restrain a violation of this section, in
accordance with Rule 65 of the Federal Rules of
Civil Procedure.
(B) Institution by state attorney general.--
(i) In general.--The attorney general of a
State (or other appropriate State official) in
which a violation of this section allegedly has
occurred or will occur may institute
proceedings under this subsection to prevent or
restrain the violation.
(ii) Relief.--Upon application of the
attorney general (or other appropriate State
official) of an affected State under this
subparagraph, the district court may enter a
preliminary injunction or an injunction against
any person to prevent or restrain a violation
of this section, in accordance with Rule 65 of
the Federal Rules of Civil Procedure.
(C) Indian lands.--
(i) In general.--Notwithstanding
subparagraphs (A) and (B), for a violation that
is alleged to have occurred, or may occur, on
Indian lands (as that term is defined in
section 4 of the Indian Gaming Regulatory
Act)--
(I) the United States shall have the
enforcement authority provided under
subparagraph (A); and
(II) the enforcement authorities
specified in an applicable Tribal-State
compact negotiated under section 11 of
the Indian Gaming Regulatory Act shall
be carried out in accordance with that
compact.
(ii) Rule of construction.--No provision of
this section shall be construed as altering,
superseding, or otherwise affecting the
application of the Indian Gaming Regulatory
Act.
(D) Banking regulators.--Before initiating any
proceeding under this paragraph with respect to a
violation or potential violation of subsection (e) by
an insured depository institution (as defined in
section 3 of the Federal Deposit Insurance Act), the
Attorney General of the United States or an attorney
general of a State (or other appropriate State
official) shall--
(i) notify the appropriate Federal banking
agency (as defined in such section) of such
violation or potential violation; and
(ii) allow such agency a reasonable time to
issue an order to such insured depository
institution under section 8(x) of the Federal
Deposit Insurance Act.
(3) Expedited proceedings.--In addition to any proceeding
under paragraph (2), a district court may, in exigent
circumstances, enter a temporary restraining order against a
person alleged to be in violation of this section upon
application of the United States under paragraph (2)(A), or the
attorney general (or other appropriate State official) of an
affected State under paragraph (2)(B), in accordance with Rule
65(b) of the Federal Rules of Civil Procedure.
(4) Limitation.--No provision of this section shall be
construed as authorizing an injunction against an interactive
computer service (as defined in section 230(f) of the
Communications Act of 1934) unless such interactive computer
service is acting in concert or participation with a person who
violates this section and such service receives actual notice
of the order.
(d) Criminal Penalty.--
(1) In general.--Whoever violates this section shall be fined
under title 18, United States Code, or imprisoned for not more
than 5 years, or both.
(2) Permanent injunction.--Upon conviction of a person under
this subsection, the court may enter a permanent injunction
enjoining such person from placing, receiving, or otherwise
making illegal bets or wagers or sending, receiving, or
inviting information assisting in the placing of bets or
wagers.
(e) Circumventions Prohibited.--Notwithstanding subsection (b)(2), a
creditor, credit card issuer, financial institution, operator of a
terminal at which an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or local
network utilized to effect a credit transaction, electronic fund
transfer, or money transmitting service, or any participant in such
network, or any interactive computer service or telecommunications
service, may be liable under this section if such creditor, issuer,
institution, operator, business, network, or participant has actual
knowledge and control of bets and wagers and--
(1) operates, manages, supervises, or directs an Internet
website at which unlawful bets or wagers may be placed,
received, or otherwise made or at which unlawful bets or wagers
are offered to be placed, received, or otherwise made; or
(2) owns or controls, or is owned or controlled by, any
person who operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may be
placed, received, or otherwise made or at which unlawful bets
or wagers are offered to be placed, received, or otherwise
made.
(f) Enforcement Actions.--Section 8 of the Federal Deposit Insurance
Act (12 U.S.C. 1818) is amended by adding at the end the following new
subsection:
``(x) Depository Institution Involvement in Internet Gambling.--If
any appropriate Federal banking agency determines that any insured
depository institution is engaged in any of the following activities,
the agency may issue an order to such institution prohibiting such
institution from continuing to engage in any of the following
activities:
``(1) Extending credit, or facilitating an extension of
credit, electronic fund transfer, or money transmitting service
with the actual knowledge that any person is violating section
3(a) of the Unlawful Internet Gambling Funding Prohibition Act
in connection with such extension of credit, electronic fund
transfer, or money transmitting service.
``(2) Paying, transferring, or collecting on any check,
draft, or other instrument drawn on any depository institution
with the actual knowledge that any person is violating section
3(a) of the Unlawful Internet Gambling Funding Prohibition Act
in connection with such check, draft, or other instrument.''.
SEC. 4. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.
(a) In General.--In deliberations between the United States
Government and any other country on money laundering, corruption, and
crime issues, the United States Government should--
(1) encourage cooperation by foreign governments and relevant
international fora in identifying whether Internet gambling
operations are being used for money laundering, corruption, or
other crimes;
(2) advance policies that promote the cooperation of foreign
governments, through information sharing or other measures, in
the enforcement of this Act; and
(3) encourage the Financial Action Task Force on Money
Laundering, in its annual report on money laundering
typologies, to study the extent to which Internet gambling
operations are being used for money laundering.
(b) Report Required.--The Secretary of the Treasury shall submit an
annual report to the Congress on the deliberations between the United
States and other countries on issues relating to Internet gambling.
Purpose and Summary
H.R. 556 prohibits the acceptance of any bank instrument
for unlawful Internet gambling. It defines certain terms for
purposes of the Act; establishes civil remedies, criminal
penalties, and regulatory enforcement authorities; encourages
cooperation by foreign governments in the enforcement of the
Act; and requires the Secretary of the Treasury to report
annually to Congress on deliberations between the United States
and other countries on issues relating to Internet gambling.
Its primary purpose is to give U.S. law enforcement a new, more
effective tool for combating offshore Internet gambling sites
that illegally extend their services to U.S. residents via the
Internet.
Background and Need for Legislation
The Committee has established a comprehensive hearing and
markup record on Internet gambling. In addition to the
extensive debate at the Committee's October 11, 2001 markup of
H.R. 3004, the Financial Anti-Terrorism Act of 2001, Internet
gambling was addressed at the Committee's October 3, 2001
hearing on terrorism and money laundering. At that hearing, the
FBI, the Criminal Division of the Department of Justice, and a
money laundering expert testified that Internet gambling serves
as a vehicle for money laundering and can be exploited by
terrorists for that purpose. The FBI also testified about
pending litigation linking organized crime to money laundering
and Internet gambling.
At two hearings held in July by the Subcommittee on
Oversight and Investigations and the Subcommittee on Financial
Institutions and Consumer Credit, witnesses discussed the legal
status of Internet gambling, the social and financial
challenges it poses, and legislative options for addressing
those challenges.
Many legal experts, including officials from the Department
of Justice, State attorneys general, and others involved in law
enforcement, hold the view that Internet gambling is generally
prohibited under various Federal statutes. Among them, the
Federal Wire Act (title18, United States Code, section 1084)
criminalizes the knowing use of a wire communication facility
by a gambling establishment for the transmission of bets or
wagers in interstate or foreign commerce.
Conventional forms of gambling activities, such as casino
wagering, State lotteries, slot machines, and horseracing,
legal in many jurisdictions, are regulated by the individual
States. However, these activities are subject to intense
scrutiny and a myriad of licensing and other operational
requirements. Virtually all States prohibit the operation of
gambling businesses not expressly permitted by their respective
constitutions or special legislation. Internet gambling fell
into the category of illegal gambling activity in all fifty
States until June of 2001 when the Nevada legislature
authorized the Nevada gaming commission to legalize on-line,
Internet gambling operations if and when such operations can be
conducted in compliance with Federal law.
Because Internet gambling is generally held to be illegal
under Federal and State law, most of the estimated 1,500
Internet gambling sites today operate from offshore locations
in the Caribbean and elsewhere. As such, they operate
effectively beyond the reach of U.S. regulators and law
enforcement, as well as the statutory anti-money laundering
regimes that apply to U.S.-based casinos. These ``virtual
casinos'' advertise the ease of opening betting accounts mainly
through the use of credit cards. Internet gambling sites are
not only vulnerable to criminal exploitation by money
launderers, they can also easily abuse a customer's credit card
information or manipulate the odds of a particular wager to the
casino's advantage.
At the Oversight Subcommittee's hearing on July 12, the
American Gaming Association--representing commercial casinos
and their suppliers in the United States--addressed some of the
practical problems associated with Internet gambling, including
the difficulty of subjecting Internet operations to the kinds
of regulation currently applied to U.S.-based casinos.
According to the AGA, its major concern is that offshore
Internet gambling sites ``frustrate important state policies,
including restrictions on the availability of gaming within
each state.'' The AGA went on to say: ``* * * unregulated
Internet gambling that exists today allows an unlicensed,
untaxed, unsupervised operator to engage in wagering that is
otherwise subject to stringent federal and state regulatory
controls. These controls are vital to preserving the honesty,
integrity and fairness that those in the gaming industry today
have worked so hard for so long to bring about.'' The AGA
further reported that it does not believe the technology for
exercising such controls with respect to Internet gambling is
yet available.
Testifying from a State perspective, the New Jersey
Director of Gaming Enforcement also noted that offshore
Internet gambling operations provide no tax revenue or jobs to
States, unlike State-regulated casinos.
In addition to the legal and economic challenges cited
above, problem gambling--including problem Internet gambling--
can lead to personal and family hardships, such as lost
savings, excessive debt, bankruptcy, foreclosed mortgages, and
divorce. In particular, Internet gambling is proving to be a
serious problem for many college students. Testimony from the
National Collegiate Athletic Association (NCAA) at the July
hearings underscored the vulnerability of young people to
losing large sums through Internet gambling. According to a
Nellie Mae survey cited by the NCAA, 78 percent of college
students have credit cards, nearly a third have four or more
credit cards, and one in ten will graduate with balances over
$7,000. One student reportedly lost $10,000 on Internet sports
gambling over a three-month period. And, in another case, a
student reportedly lost $5,000 on a single Internet wager on
the Super Bowl and was forced to drop out of school. The New
Jersey Director of Gaming Enforcement also testified that the
State of New Jersey has filed a suit against certain offshore
casinos found to be taking online bets from minors in that
State. Witnesses from the National Council on Problem Gambling
and the Compulsive Gambling Center testified about the problems
associated with compulsive or pathological gambling, and the
Christian Coalition, in a letter to a Member of the Committee,
echoed concerns about the impact of gambling on families and
society and, in particular, the impact of Internet gambling on
the poor, youth, and those who are already compulsive gamblers.
Because of the pervasive legal, economic, and social
challenges posed by the rapid growth of Internet gambling, the
National Gambling Impact Study Commission unanimously
recommended in its 1999 final report that the Federal
government prohibit, with no new exemptions, all Internet
gambling not already authorized by law. The Commission also
recommended that legislation be adopted to prohibit wire
transfers to Internet gambling sites or to the banks which
represent them, and called on the government to develop
enforcement strategies that include credit card providers and
money transfer agencies that facilitate Internet gambling.
H.R. 556, the Unlawful Internet Gambling Funding
Prohibition Act, builds on the recommendations of the National
Gambling Impact Study Commission by prohibiting gambling
businesses from accepting credit cards or other bank
instruments in connection with unlawful Internet gambling.
Because of the anticipated difficulty in enforcing this
prohibition offshore, the legislation also authorizes the
Attorney General (or appropriate State officials) to seek an
injunction against any person to prevent or restrain a
violation of this bill, including to prohibit banks and other
financial service providers from processing any credit card
transaction or other financial instrument with a specified
illegal Internet gambling site. The bill is similar to
provisions incorporated in the Committee-reported version of
H.R. 3004, the Financial Anti-Terrorism Act of 2001, as well as
to legislation adopted by the House Banking Committee in the
last Congress (H.R. 4419).
H.R. 556, as amended, is not intended to impose new burdens
on financial institutions to identify which offshore gambling
sites may be engaged in unlawful activities. Rather, the
legislation contemplates a mechanism whereby banks and other
financial service providers will be provided, pursuant to an
injunction, with the names of specific Internet gambling
operations to which payments are to be prohibited. The
obligation of financial institutions pursuant to such an
injunction would be similar, in effect, to their obligations
under certain other U.S. laws, such as those administered by
the Office of Foreign Assets Control (OFAC) barring financial
transactions with terrorists and drug kingpins.
Hearings
The Subcommittee on Oversight and Investigations held a
hearing on July 12, 2001 entitled, ``Financial Aspects of
Internet Gaming: Good Gamble or Bad Bet?'' Witnesses at the
hearing included Mr. John Peter Suarez, Director, Division of
Gaming Enforcement, New Jersey Department of Law and Public
Safety; Mr. Sebastian Sinclair, Vice President, Christiansen
Capital Advisors; Mr. Keith S. Whyte, Executive Director,
National Council on Problem Gambling; Dr. Valerie Lorenz,
Executive Director, Compulsive Gambling Center; Mr. Frank J.
Fahrenkopf, Jr., President and CEO, American Gaming
Association; Mr. Bill Saum, Director, Agent Gambling and
Amateurism Activities, National Collegiate Athletic
Association; Mr. Mark MacCarthy, Senior Vice President Public
Policy, Visa USA, Inc.; Ms. Sue Schneider, Chairman,
Interactive Gaming Council; Ms. Penelope W. Kyle, Executive
Director, Virginia Lottery, and President, National Association
of State and Provincial Lotteries; and Mr. Greg Avioli, Deputy
Commissioner, National Thoroughbred Racing Association.
The Subcommittee on Financial Institutions and Consumer
Credit held a hearing on July 24, 2001 on H.R. 556, the
Unlawful Internet Gambling Funding Prohibition Act and other
Internet gambling proposals. Witnesses at the hearing included
The Honorable James A. Leach (IA); The Honorable Bob Goodlatte
(VA); The Honorable Jon Kyl (AZ); Mr. Michael L. Farmer, Senior
Vice President, Wachovia Bank Card Services; Dr. Bob Frederick,
Chairman, National Collegiate Athletic Association Committee
(NCAA) on Sportsmanship and Ethical Conduct, NCAA, former
Director of Athletics, University of Kansas; Mr. Mark
VanNorman, Executive Director, National Indian Gaming
Association; Mr. Edwin J. McGuinn, CEO, E-Lottery; and Dr.
Timothy A. Kelly, former Executive Director, National Gambling
Impact Study Commission.
Committee Consideration
On October 31, 2001, the Committee met in open session and
ordered H.R. 556 reported to the House with a favorable
recommendation, with an amendment, by a record vote of 34 yeas
and 18 nays.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Oxley to order the bill reported to the House
with a favorable recommendation, with an amendment, was agreed
to by a record vote of 34 yeas and 18 nays (Record vote no.
10). The names of Members voting for and against follow:
YEAS NAYS
Mr. Oxley Mr. Baker
Mr. Leach Mr. Castle
Mrs. Roukema Mr. Ney
Mr. Bereuter Mr. Paul
Mr. Bachus Mr. LaTourette
Mr. Royce Mr. Ose
Mr. Lucas of Oklahoma Mr. Toomey
Mr. Gillmor Mr. Fossella
Mr. Ryun of Kansas Mr. Tiberi
Mr. Riley Mr. Frank
Mr. Manzullo Mr. Kanjorski
Mr. Green of Wisconsin Ms. Waters
Mr. Shays Mr. Watt of North Carolina
Mr. Gary G. Miller of Mr. Capuano
California Mr. Ford
Mr. Grucci Mr. Hinojosa
Ms. Hart Mr. Crowley
Mrs. Capito Mr. Clay
Mr. Ferguson
Mr. Rogers of Michigan
Mr. LaFalce
Mr. Sanders
Mrs. Maloney of New York
Mr. Bentsen
Mr. Maloney of Connecticut
Ms. Hooley of Oregon
Mr. Sherman
Mr. Sandlin
Mr. Meeks
Ms. Lee
Ms. Schakowsky
Mr. Moore
Mr. Gonzalez
Mr. Lucas of Kentucky
Mr. Israel
The Committee also considered the following amendments:
An amendment in the nature of a substitute by Mr.
Oxley, no. 1, substituting the Internet gambling
provisions of H.R. 3004, as reported, was agreed to by
a voice vote.
An amendment to the amendment in the nature of a
substitute by Mr. Ney, no. 1a, clarifying language
exempting lawful transactions with State authorized or
licensed entities and exempting Internet service
providers and telecommunications companies from the
bill's general coverage, was agreed to by a voice vote.
An amendment to the amendment in the nature of a
substitute by Mr. Watt, no. 1b, clarifying that
injunctive authority applies to illegal gambling, was
agreed to by a voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation: Using authority granted by this legislation, the
Attorney General will reduce the availability of offshore
Internet gambling in the United States.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that this
legislation would result in no new budget authority,
entitlement authority, or tax expenditures or revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 13, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 556, the Unlawful
Internet Gambling Funding Prohibition Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contract is Lanette J.
Walker.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 556--Unlawful Internet Gambling Funding Prohibition Act
Summary: H.R. 556 would prohibit gambling businesses from
accepting credit cards, checks or other bank instruments from
gamblers who illegally bet over the Internet. The bill also
would authorize the agencies that regulate insured depository
institutions to issue cease-and-desist orders against
institutions that knowingly facilitate Internet gambling. The
Office of the Comptroller of the Currency (OCC), the Board of
Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation (FDIC), the Office of Trift Supervision
(OTS), and the National Credit Union Administration (NUCA)
would enforce the provisions of H.R. 556 as they apply to
financial institutions.
CBO estimates that implementing this legislation would
result in no significant cost to the federal government.
Because enactment of H.R. 556 could affect direct spending and
receipts, pay-as-you-go procedures would apply to the bill.
However, CBO estimates that any impact on direct spending and
receipts would not be significant.
Although H.R. 556 would prohibit gambling businesses from
accepting credit card payments and other bank instruments from
gamblers who bet illegally over the Internet, the bill would
not create a new intergovernmental or private-sector mandate.
Under current federal and state law, gambling businesses are
generally prohibited from accepting bets or wagers over the
Internet. Thus, H.R. 556 does not contain a new mandate
relative to current law, and would impose no costs on state,
local, or tribal governments.
Estimated cost to the Federal Government: CBO estimates
that the government would incur no significant costs under H.R.
556. CBO estimates that implementing H.R. 556 would increase
administrative costs of the Department of Justice, but any such
costs would be negligible. The bill also would have a small
effect on the operating costs of the FDIC and the Federal
Reserve System. Finally, the bill would have a negligible
effect on the collection and spending of criminal penalties.
Basis of estimate: The bill would have only minor budgetary
effects, as described below.
Spending subject to appropriation
Because H.R. 556 would establish a new federal crime
relating to Internet gambling, the federal government would be
able to pursue cases that it otherwise would not be able to
prosecute. CBO expects, however, that most cases would be
pursued under existing state laws. Therefore, we estimate that
any increase in federal costs for law enforcement, court
proceedings, or prison operations would not be significant. Any
such additional costs would be subject to the availability of
appropriated funds.
H.R. 556 would require the Department of Justice to submit
an annual report on deliberations with other countries on
issues related to Internet gambling. CBO estimates that
preparing and completing the report would cost less than
$100,000 a year, subject to the availability of appropriated
funds.
Direct spending and revenues
The NCUA, the OTS, and the OCC charge fees to cover all
their administrative costs; therefore, any additional spending
by these agencies to implement the bill would have no net
budgetary effect. That is not the case with the FDIC, however,
which uses deposit insurance premiums paid by all banks to
cover the expenses it incurs to supervise state-chartered
banks.
The bill would cause a small increase in FDIC spending, but
would not affect its premium income. In total, CBO estimates
that H.R. 556 would increase direct spending and offsetting
receipts of the NCUA, OTS, OCC, and FCC by less than $500,000 a
year over the 2002-2006 period.
Budgetary effects on the Federal Reserve are recorded as
changes in revenues (governmental receipts). Based on
information from the Federal Reserve, CBO estimates that
enacting H.R. 556 would reduce such revenues by less than
$500,000 a year over the 2002-2006 period.
Because those prosecuted and convicted under the bill could
be subject to criminal fines, the federal government might
collect additional fines if the bill is enacted. Collections of
such fines are recorded in the budget as governmental receipts
(i.e., revenues), which are deposited in the Crime Victims Fund
and spent in subsequent years. Any additional collections are
likely to be negligible because of the small number of cases
involved. Because any increase in direct spending would equal
the amount of fines collected (with a lag of one year or more),
the additional direct spending also would be negligible.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. Enacting
H.R. 556 could affect both direct spending and receipts, but
CBO estimates that any such effects would be negligible.
Intergovernmental and private-sector impact: Although H.R.
556 would prohibit gambling businesses from accepting credit
card payments and other bank instruments from gamblers who bet
illegally over the Internet, the bill would not create a new
intergovernmental mandate. Under current federal and state law,
gambling businesses are generally prohibited from accepting
bets or wages over the Internet. Thus, H.R. 556 does not
contain a new mandate relative to current law.
Estimate prepared by: Federal Spending: Mark Hadley and
Lanette J. Walker. Federal Revenues: Carolyn Lynch. Impact on
State, Local, and Tribal Governments: Susan Sieg Tompkins.
Impact on the Private Sector: Jean Talarico.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section provides the short title of the bill, the
``Unlawful Internet Gambling Funding Prohibition Act.''
Section 2. Findings
This section provides findings which note that: (1)
Internet gambling is primarily funded through the personal use
of banking instruments and plays a large role in the creation
of ultimately uncollectible personal debt; and (2) Internet
gambling is susceptible to abuse by money launderers.
Section 3. Prohibition on acceptance of any bank instrument for
unlawful Internet gambling
Subsection (a) prohibits a gambling business from accepting
bank instruments in connection with unlawful Internet gambling.
Covered instruments include credit cards, electronic fund
transfers, and checks.
Subsection (b) defines the term ``bets or wagers'' as 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
predominantly subject to chance with the agreement that the
winner will receive something of greater value than the amount
staked or risked. Excluded from that definition is a bona fide
business transaction governed by the securities laws; a
transaction subject to the Commodity Exchange Act; an over-the-
counter derivative instrument; any other transaction exempt
from State gaming or bucket shop laws pursuant to the Commodity
Exchange Act or Securities Exchange Act; a contract of
indemnity or guarantee; a contract for insurance; a deposit
with a depository institution; certain participation in a
simulation sports game or education game; or a transaction
authorized under State law with a business licensed or
authorized by a State.
This subsection also defines the term ``business of betting
or wagering'' and excludes from that definition a credit card
issuer, an insured depository institution, various other
financial service providers, an interactive computer service
and a telecommunications service, except as provided by
subsection (e).
Another term defined in subsection (b) is ``unlawful
Internet gambling'' which means to place, receive, or otherwise
transmit a bet or wager by any means which involves the use of
the Internet where the bet or wager is illegal under Federal or
State law in the State where the bet or wager is initiated,
received, or otherwise made. This subsection does not seek to
redefine what is lawful or unlawful Internet gambling and is
not intended to supersede existing State or Federal law, or to
effect any change in current law related to tribal compacts
pursuant to the Indian Gaming Regulatory Act, in terms of its
definitions and coverage.
Subsection (c) authorizes civil remedies, including the
issuance of a preliminary injunction or injunction by a U.S.
District Court--at the request of the Attorney General or
certain State officials--against any person to prevent or
restrain a violation of this legislation. Injunctions issued in
connection with alleged violations of this bill on Indian lands
are to be enforced in accordance with the Indian Gaming
Regulatory Act and any applicable Tribal-State compact. The
subsection also requires the Attorney General or State official
to notify the appropriate Federal bank agency before seeking an
injunction against an insured depository institution in order
to allow the bank agency time to issue its own order under the
Federal Deposit Insurance Act. Subsection (c) also limits the
availability of the broad injunctive relief otherwise available
under this subsection with respect to interactive computer
services, as defined in section 230(f) of title 47.
Subsection (d) authorizes criminal penalties for a
violation of subsection 3(a), including fines under title 18 or
imprisonment for not more than five years or both. It also
authorizes the issuance of a permanent injunction against any
person convicted of a violation under subsection (a).
Subsection (e) provides that certain financial service
entities, interactive computer services, or telecommunications
services may--despite their general exclusion from the
definition of a business of betting or wagering--be liable for
a violation of subsection (a) if they have actual knowledge and
control of bets and wagers and they operate, own, or supervise
(or are operated, owned, or supervised by) an Internet site
engaged in illegal gambling. The purpose of this subsection,
when read in conjunction with the exception to the definition
of ``business of betting or wagering'' in subsection (b), is to
ensure that a financial intermediary, interactive computer
service or telecommunications service is not held liable for a
violation of this bill based solely on its unknowing and
unintentional involvement in an unlawful Internet gambling
transaction.
Subsection (f) provides that a Federal banking agency may
take appropriate enforcement action against any financial
institution that knowingly permits its payment or credit
facilities to be used in connection with Internet gambling
activity that violates this bill.
Section 4. Internet gambling in or through foreign jurisdictions
Section 4 provides that, in deliberations between the U.S.
Government and any other country on money laundering,
corruption, and crime issues, the U.S. Government should
encourage cooperation by foreign governments and international
fora in identifying whether Internet gambling operations are
being used for money laundering, corruption, or other crimes,
advance policies that promote cooperation by foreign
governments in enforcing this bill, and encourage the Financial
Action Task Force on Money Laundering (FATF) to study the
extent to which Internet gambling operations are being used for
money laundering. It also requires the Secretary of the
Treasury to submit an annual report to Congress on the
deliberations between the United States and other countries on
issues relating to Internet gambling.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT
Sec. 8. (a) * * *
* * * * * * *
(x) Depository Institution Involvement in Internet
Gambling.--If any appropriate Federal banking agency determines
that any insured depository institution is engaged in any of
the following activities, the agency may issue an order to such
institution prohibiting such institution from continuing to
engage in any of the following activities:
(1) Extending credit, or facilitating an extension of
credit, electronic fund transfer, or money transmitting
service with the actual knowledge that any person is
violating section 3(a) of the Unlawful Internet
Gambling Funding Prohibition Act in connection with
such extension of credit, electronic fund transfer, or
money transmitting service.
(2) Paying, transferring, or collecting on any check,
draft, or other instrument drawn on any depository
institution with the actual knowledge that any person
is violating section 3(a) of the Unlawful Internet
Gambling Funding Prohibition Act in connection with
such check, draft, or other instrument.
* * * * * * *
DISSENTING VIEWS
H.R. 556, which limits the ability of individual citizens
to use bank instruments, including credit cards or checks, to
finance Internet gambling should be rejected by Congress since
the Federal Government has no constitutional authority to ban
or even discourage any form of gambling.
In addition to being unconstitutional, H.R. 556 is likely
to prove ineffective at ending Internet gambling. Instead, this
bill will ensure that gambling is controlled by organized
crime. History, from the failed experiment of prohibition to
today's futile ``war on drugs,'' shows that the government
cannot eliminate demand for something like Internet gambling
simply by passing a law. Instead, H.R. 556 will force those who
wish to gamble over the Internet to patronize suppliers willing
to flaunt the ban. In many cases, providers of services banned
by the government will be members of criminal organizations.
Even if organized crime does not operate Internet gambling
enterprises their competitors are likely to be controlled by
organized crime. After all, since the owners and patrons of
Internet gambling cannot rely on the police and courts to
enforce contracts and resolve other disputes they will be
forced to rely on members of organized crime to perform those
functions. Thus, the profits of Internet gambling will flow
into organized crime.
Furthermore, outlawing an activity will raise the price
vendors are able to charge consumers, thus increasing the
profits flowing to organized crime from Internet gambling. It
is bitterly ironic that a bill masquerading as an attack on
crime will actually increase organized crime's ability to
control and profit from Internet gambling!
In conclusion, H.R. 556 violates the constitutional limits
on Federal power. Furthermore, laws such as H.R. 556 are
ineffective in eliminating the demand for vices such as
Internet gambling; instead, they ensure that these enterprises
will be controlled by organized crime. Therefore I urge my
colleagues to reject H.R. 556, the Internet Gambling
Prohibition Act.
Ron Paul.