II 110th CONGRESS 2d Session S. 3616 IN THE SENATE OF THE UNITED STATES September 26 (legislative day, September 17), 2008 Mr. Menendez introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend title 31, United States Code, to provide for the licensing of Internet skill game facilities, and for other purposes.
1.
Short title
This Act may be cited as the Internet Skill Game Licensing and Control Act of 2008.
2.
Federal licensing requirement for Internet gambling operations
(a)
In general
Chapter 53 of title 31, United States Code, is amended by adding at the end the following: V
Regulation of Internet skill game facilities
5381.
Definitions
In this subchapter: (1)
Bet or wager
The term bet or wager has the meaning given the term in section 5362. (2)
Indian lands and indian tribe
The terms Indian lands and Indian tribe have the meaning given such terms in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2703). (3)
Internet
The term Internet has the meaning given the term in section 5362. (4)
Internet skill game
The term Internet skill game means an Internet-based game that uses simulated cards, dice, or tiles in which success is predominantly determined by the skill of the players, including poker, bridge, and mahjong. (5)
Internet skill game facility
The term Internet skill game facility means an Internet site through which a permitted bet or wager is placed, accepted, or otherwise made, whether transmitted by telephone, Internet, or other electronic communication. (6)
Licensee
The term licensee means a person that operates an Internet skill game facility under a license issued by the Secretary under this subchapter. (7)
Non-house-banked game
The term non-house-banked game means a game— (A)that— (i)consists of players playing against each other and not against the operator of the game; and (ii)provides for payouts, if any, that are drawn from the players’ pool and not from the operator of the game; and (B)may be operated by an Internet skill game facility in which the operator retains a percentage of the players’ pool or receives a fixed fee as compensation. (8)
Operates an Internet skill game facility
The term operates an Internet skill game facility means directs, manages, supervises, or controls an Internet skill game facility. (9)
Permitted bet or wager
The term permitted bet or wager means a bet or wager made with respect to the outcome of an Internet skill game that is a non-house-banked game. (10)
Secretary
The term Secretary means the Secretary of the Treasury. (11)
State
The term State means any State of the United States, the District of Columbia, or any commonwealth, territory, or other possession of the United States.
5382.
Establishment and administration of licensing program
(a)
License required
Beginning 6 months after the issuance of the first license under this subchapter, it shall be unlawful for a person to operate an Internet skill game facility in interstate or foreign commerce without a license issued to such person by the Secretary under this subchapter. (b)
Applications for license
(1)
Application
A person seeking a license to operate an Internet skill game facility in interstate or foreign commerce shall submit to the Secretary an application therefore in such form and in such manner as the Secretary considers appropriate. (2)
Elements
Each application submitted under paragraph (1) shall include such information as the Secretary considers appropriate, including the following: (A)Complete financial information about the applicant. (B)Documentation showing the corporate structure of the applicant and all related businesses and affiliates. (C)The names of all persons directly or indirectly interested in the business of the applicant and the nature of such interest. (D)A certification by the applicant, agreeing to be subject to United States jurisdiction and all applicable United States laws relating to Internet skill games or gambling activities. (3)
Waiver of privilege
Any applicant may claim any privilege afforded by the Constitution of the United States in refusing to answer questions by the Secretary. A claim of privilege with respect to any testimony or evidence pertaining to an application may constitute sufficient grounds for denial of a license under this subchapter. (c)
Review of applicants and licensees
(1)
In general
The Secretary may not issue a license to an applicant under this subchapter unless the Secretary has determined, after evaluating the factors described in paragraph (2), that the applicant is qualified for such license. (2)
Factors
The factors to be evaluated by the Secretary under paragraph (1) shall include the following: (A)The honesty and integrity of the applicant. (B)The business probity and relevant experience of the applicant. (C)The financial condition of the applicant. (D)Whether the applicant has adequate financial capabilities from suitable sources. (E)The applicant's record of compliance with laws and requirements related to Internet skill gaming in foreign jurisdictions. (3)
Background checks
In evaluating an applicant under paragraph (1), the Secretary shall— (A)if the applicant is an individual, carry out a background check to determine if the individual has a criminal record; and (B)if the applicant is a corporation, partnership, or other business entity, carry out a background check to determine if the president or other chief executive of the applicant and other partners or senior executives and directors of the applicant, as determined appropriate by the Secretary, have a criminal record. (4)
Monitoring
The Secretary shall monitor continuously each licensee and all other persons having a material involvement directly or indirectly with the operation of the Internet skill gaming facility of such licensee to ensure that— (A)a license issued under this subchapter is held only by a person whom the Secretary considers qualified to operate an Internet skill game facility; and (B)the operation of an Internet skill game facility by a licensee has no material involvement of any person whom the Secretary considers unqualified or unsuitable for such operation. (d)
Approval of license
(1)
In general
The Secretary shall issue a license under this subchapter to an applicant if the Secretary determines, after considering the factors described in subsection (c)(2), that the applicant is qualified to operate an Internet skill gaming facility. (2)
Burden of proof
An applicant for a license under this subchapter has the burden of proving that the applicant is qualified and suitable for such license. (e)
Denial, restriction, or revocation of licenses
(1)
Denial
The Secretary may not issue a license under this subchapter to an applicant who has been convicted under the laws of any foreign country, the United States, or any State for any criminal violation involving gambling laws, laws relating to financial markets, or financial laws, including any provisions of law relating to money laundering, fraud, privacy, or information security. (2)
Conditions, limitations, and restrictions
The Secretary may provide any condition, limitation, or restriction on a license issued under this subchapter that the Secretary considers reasonable to ensure the integrity and fairness of Internet skill game facilities. (3)
Revocation
The Secretary shall terminate or revoke a license issued to a licensee under this subchapter if the licensee— (A)fails to comply with any provision of this subchapter; or (B)is convicted of a crime involving the payments system, financial markets, or Internet gambling laws of the United States or of the jurisdiction in which the licensee is located. (4)
Applicability to business entities
If a licensee or applicant for a license under this subchapter is a corporation, partnership, or other business entity, paragraphs (1) and (3) shall apply with respect to each partner, officer, or director of such corporation, partnership, or entity. (5)
Final action
An action by the Secretary under this subsection shall be treated as a final action by the Secretary. (f)
Term and renewal of license
(1)
Term
Each license issued by the Secretary under this subchapter shall be issued for a 1-year term beginning on the date of issuance. (2)
Renewal
The Secretary may renew a license issued under this subchapter in accordance with such requirements as the Secretary shall prescribe to ensure the continued compliance of licensees with the provisions of this subchapter. (g)
Safeguards and requirements
(1)
Safeguards
No person shall receive or retain a license under this subchapter unless the person implements and maintains the following safeguards and mechanisms with respect to any permitted bet or wager: (A)Reasonable safeguards to ensure that each individual placing a permitted bet or wager is 18 years of age or older. (B)Reasonable safeguards to ensure that each individual placing a permitted bet or wager is physically located in a jurisdiction that permits the operation of an Internet skill game facility at the time the permitted bet or wager is placed. (C)Reasonable mechanisms to ensure that all taxes relating to Internet skill games payable to Federal and State governments and to Indian tribes from persons engaged in Internet skill games are collected at the time of any payment of any proceeds of Internet skill games. (D)Reasonable mechanisms to ensure that all taxes relating to Internet skill games payable to Federal and State governments and to Indian tribes are collected as required by law. (E)Reasonable safeguards to prevent fraud and money laundering as may be prescribed by regulations promulgated by the Secretary. (F)Reasonable safeguards to prevent or mitigate social problems that some individuals may experience related to playing Internet skill games. (G)Reasonable safeguards to protect the privacy and security of any individual participating in an Internet skill game. (H)Reasonable mechanisms to ensure that any assessment required under subsection (h) is paid to the Secretary. (I)Such other safeguards and mechanisms as the Secretary may establish by regulation or order. (2)
Requirements
No person may receive or retain a license under this subchapter unless the person complies with anti-money laundering, anti-fraud, anti-terrorism, and such other regulations, requirements, and limitations as may be prescribed by the Secretary. (h)
Assessments for administrative expenses
(1)
In general
(A)
Costs
The cost of administering this subchapter with respect to each licensee, including the cost of any review or examination of a licensee to ensure compliance with the terms of the license and this subchapter, shall be assessed by the Secretary against the respective licensee by written notice in an amount appropriate to meet the expenses of the Secretary in carrying out such administration, review, or examination. (B)
Disposition
Amounts assessed by the Secretary as user fees under subparagraph (A)— (i)shall be maintained by the Secretary solely for use in accordance with clause (ii); (ii)shall be available to the Secretary to cover all expenses incurred by the Secretary in carrying out this subchapter; and (iii)may not be construed to be Government funds or appropriated monies, or subject to apportionment for the purposes of chapter 15 or any other authority. (C)
Hearing
Any licensee notified of an assessment under this paragraph shall be granted a hearing by the Secretary if the licensee submits a request for such hearing not later than 20 days after the date on which the notice of such assessment is issued. (D)
Collection
(i)
Referral
If the licensee fails to pay an assessment under this paragraph after the assessment has become final, the Secretary shall recover the amount assessed by action in an appropriate United States district court. (ii)
Appropriateness of assessment not reviewable
In any civil action under clause (i), the validity and appropriateness of the assessment shall not be subject to review. (2)
Direct and exclusive obligation of licensee
An assessment on a licensee under paragraph (1)— (A)shall be the direct and exclusive obligation of the licensee; and (B)may not be deducted from amounts available as deposits to any person placing a permitted bet or wager. (i)
Regulations
(1)
In general
Not later than 180 days after the date of the enactment of this subchapter, the Secretary shall prescribe such regulations, safeguards, and testing mechanisms as may be necessary to administer and enforce the provisions of this subchapter. (2)
Changes
The Secretary may revise or repeal the regulations prescribed under this subsection as the Secretary determines necessary to ensure the integrity and fairness of Internet skill game facilities. (j)
Administrative provisions
(1)
General powers of Secretary
The Secretary may— (A)require a class of licensees to maintain appropriate procedures to ensure compliance with this subchapter and regulations prescribed under this subchapter; (B)examine any licensee and any books, papers, records, or other data of licensees relevant to any recordkeeping or reporting requirements imposed by the Secretary under this subchapter; and (C)summon a licensee or an applicant for a license, an officer or employee of a licensee or any such applicant (including a former officer or employee), or any person having possession, custody, or care of the reports and records required by the Secretary under this subchapter to appear before the Secretary or a designee of the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give testimony, under oath, as may be relevant or material to any investigation in connection with the enforcement of this subchapter or any application for a license under this subchapter. (2)
Administrative aspects of summons
(A)
Production at designated site
A summons issued pursuant to this subsection may require that books, papers, records, or other data stored or maintained at any place be produced at any business location of a licensee or applicant for a license or any designated location in any State or in any territory or other place subject to the jurisdiction of the United States not more than 500 miles distant from any place where the licensee or applicant for a license operates or conducts business in the United States. (B)
No liability for expenses
The United States shall not be liable for any expense incurred in connection with the production of books, papers, records, or other data under this subsection. (C)
Service of summons
Service of a summons issued under this subsection may be by registered mail or in such other manner calculated to give actual notice as the Secretary may prescribe by regulation. (3)
Contumacy or refusal
(A)
Referral to attorney general
In case of contumacy by a person issued a summons under this subsection or a refusal by such person to obey such summons or to allow the Secretary to conduct an examination, the Secretary shall refer the matter to the Attorney General. (B)
Jurisdiction of court
The Attorney General may invoke the aid of any court of the United States within the jurisdiction of which— (i)the investigation which gave rise to the summons or the examination is being or has been carried on; (ii)the person summoned is an inhabitant; or (iii)the person summoned carries on business or may be found, to compel compliance with the summons.(C)
Court order
The court may issue an order requiring the person summoned to appear before the Secretary or a delegate of the Secretary to produce books, papers, records, and other data, to give testimony as may be necessary to explain how such material was compiled and maintained, to allow the Secretary to examine the business of a licensee, and to pay the costs of the proceeding. (D)
Failure to comply with order
Any failure to obey the order of the court may be punished by the court as a contempt thereof. (E)
Service of process
All process in any case under this subsection may be served in any judicial district in which such person may be found.
5383.
Financial institutions
(a)
Investment banking
A person may not be held liable for engaging in investment banking activities involving a licensee if such activities are performed in compliance with— (1)the provisions of this subchapter; (2)the provisions of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.); (3)the provisions of the Securities Act of 1933 (15 U.S.C. 77a et seq.); (4)the provisions of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); and (5)any other applicable provision of law that governs securities. (b)
Payment and transaction processing
A person may not be held liable for engaging in payments processing activities involving a licensee if such activities are performed in compliance with the provisions of this subchapter. (c)
Financial institutions
A financial institution may not be held liable for engaging in financial activities and transactions involving a licensee if such activities are performed in compliance with— (1)the provisions of this subchapter; and (2)applicable provisions of Federal, State, and foreign banking laws.
5384.
Prohibition and limitation of licenses in States and on Indian lands
(a)
State and Indian tribe opt out
(1)
In general
A licensee may not accept a permitted bet or wager from an individual physically located in any State or on tribal lands of any Indian tribe that prohibits permitted bets or wagers within such State or tribal lands if the Governor, or other chief executive officer of such State, or head of the tribal government of such Indian tribe informs the Secretary of such prohibition before the end of the 90-day period beginning on the date of the enactment of the Internet Skill Game Licensing and Control Act of 2008, or in accordance with paragraph (3), until such time as any notice of any subsequent repeal of such prohibition becomes effective under paragraph (3). (2)
Limitations imposed by States or Indian tribes
A licensee may not accept a permitted bet or wager with respect to a particular type of Internet skill game in any State or tribal lands of any Indian tribe that prohibits such permitted bet or wager with respect to such particular type of Internet skill game if the Governor, or other chief executive officer of such State, or head of the tribal government of such Indian tribe informs the Secretary of such prohibition, in a manner that clearly identifies the nature and extent of such prohibition, before the end of the 90-day period beginning on the date of the enactment of the Internet Skill Game Licensing and Control Act of 2008, or in accordance with paragraph (3), until such time as any notice of any amendment or repeal of such specific prohibition becomes effective under paragraph (3). (3)
Changes to State or Indian tribe limitations
The establishment, repeal, or amendment by any State or Indian tribe of any prohibition or limitation referred to in paragraph (1) or (2) after the end of the 90-day period beginning on the date of the enactment of the Internet Skill Game Licensing and Control Act of 2008 shall apply, for purposes of this subchapter, with respect to operating an Internet skill game facility in such State or on the tribal lands of such Indian tribe by any licensee beginning on the first January 1 that occurs after the end of the 30-day period beginning on the later of— (A)the date on which written notice of such establishment, repeal, or amendment is provided to the Secretary by the Governor, or other chief executive officer of such State, or the head of the tribal government of such Indian tribe; or (B)the effective date of such establishment, repeal, or amendment. (b)
Regulation of Internet skill gaming by States and Indian tribes
(1)
In general
A State or Indian tribe may establish a requirement relating to the regulation of an Internet skill game facility if such requirement— (A)applies only to the people in such State or on the tribal lands of such Indian tribe; and (B)such requirement provides protection for players of Internet skill games that exceeds the protection provided such players under this subchapter. (2)
Additional limitations imposed by States or Indian tribes
No licensee may accept a permitted bet or wager from an individual physically located in any State or tribal lands of any Indian tribe unless the licensee adheres to those the requirements established by such State or Indian tribe under paragraph (1). (3)
Changes to State or Indian tribe limitations
The establishment, repeal, or amendment of any requirement referred to in paragraph (1) by any State or any Indian tribe after the end of the 90-day period beginning on the date of the enactment of the Internet Skill Game Licensing and Control Act of 2008 shall apply, for purposes of this subchapter, with respect to offering an Internet skill game facility in such State or Indian tribe by any licensee beginning on the first January 1 that occurs after the end of the 30-day period beginning on the later of— (A)the date a notice of such establishment, repeal, or amendment is provided by the Governor, or other chief executive officer of such State, or head of the tribal government of such Indian tribe in writing to the Secretary; or (B)the effective date of such establishment, repeal, or amendment. (c)
Enforcing State and indian tribe limitations
(1)
In general
The Secretary shall take effective measures to ensure that each licensee complies, as a condition of the license, with any limitation or prohibition imposed by any State or Indian tribe to which the licensee is subject under subsections (a) and (b). (2)
Violations
It shall be a violation of this subchapter for a licensee to accept knowingly a permitted bet or wager from an individual physically located in a State or in the tribal lands of an Indian tribe for which a notice is in effect under subsection (a) or (b) without complying with all of the prohibitions, limitations, and requirements imposed by such State or Indian tribe under such subsections. (d)
Intermediate routing
The intermediate routing of electronic data shall not determine the location or locations in which a permitted bet or wager is initiated, received, or otherwise made.
5385.
Sporting events or contests
(a)
Construction
No provision of this subchapter may be construed to permit a bet or wager in connection with a sporting event or contest of a sporting league. (b)
Prohibition on facilitation by licensees of bets or wagers relating to sporting events
(1)
Prohibition
A licensee may not, as a condition of its license, facilitate a bet or wager in connection with a sporting event or contest of a sporting league. (2)
Enforcement
The Secretary shall take effective measures to enforce the provisions of paragraph (1).
5386.
Safe harbor
It shall be a defense against any prosecution or enforcement action under any Federal or State law against a licensee that the activity for which the defendant is being prosecuted is authorized under, and has been carried out in accordance with, the provisions of this subchapter.
5387.
Criminal penalties
(a)
In general
Any person who knowingly violates any provision of this subchapter shall be fined under title 18, imprisoned for not more than 5 years, or both. (b)
Permanent injunction
Upon conviction of a person under this section, the court may permanently enjoin such person from operating an Internet skill game facility.
5388.
Rules of construction
(a)
No effect on prior law
No provision of this subchapter may be construed as altering or limiting any Federal or State law or Tribal-State compact that permitted or regulated Internet skill gaming in the United States before the date of the enactment of the Internet Skill Game Licensing and Control Act of 2008. (b)
Coordination with certain gambling laws
No provision of this subchapter may be construed as permitting any bet or wager that would otherwise violate any provision of— (1)the Interstate Horse Racing Act of 1978 (15 U.S.C. 3001 et seq.); (2)chapter 178 of title 28; (3)the Gambling Devices Transportation Act (15 U.S.C. 1171 et seq.); or (4)the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
5389.
Periodic reports by licensees
(a)
In general
Each licensee shall submit to the Secretary, at intervals prescribed by the Secretary, a report on the operations of the licensee for the most recent period for which such report is submitted. (b)
Contents
Each report submitted by a licensee under subsection (a) shall include, for the most recent period for which the report is submitted to the Secretary, the following: (1)A comprehensive statement describing the limitations imposed on the licensee by any State, Indian tribe, or sporting league. (2)Such other information as the Secretary considers appropriate. (c)
Standardization of reporting
The Secretary shall prescribe, with respect to reports required under subsection (a)— (1)standard forms for reporting financial condition, results of operations, and other relevant financial information about licensees; (2)a uniform code of accounts and accounting classifications to assure consistency, comparability, and effective disclosure of financial information; and (3)the intervals at which licensees shall submit such reports.
5390.
Annual reports by Secretary
(a)
In general
Not later than 18 months after the date of the issuance of the first license under this subchapter and annually thereafter, the Secretary shall submit to Congress a report on the licensing and regulation of operators of Internet skill game facilities. (b)
Contents
Each report required by subsection (a) shall include, for the 1-year period ending on the date on which such report is submitted to Congress, the following: (1)Relevant statistical information on applications for licenses under this subchapter and licenses issued under this subchapter. (2)The amounts collected from licensees under section 5382(h). (3)Information on regulatory or enforcement actions undertaken by the Secretary. (4)Such other information as may be useful to Congress in evaluating the effectiveness of the provisions of this subchapter, including the effectiveness of such provisions in— (A)protecting against underage gambling, social problems that some players may experience related to Internet skill game play, money laundering, and fraud; and (B)preventing tax avoidance related to online activities.
. (b)
Conforming amendment
Section 1084(a) of title 18, United States Code, is amended— (1)by striking Whoever and inserting (1) Except as provided in paragraph (2), any person who; and (2)by adding at the end the following: (2)(A)The provisions of paragraph (1) shall not apply to a permitted bet or wager with respect to a licensee who operates an Internet skill game facility. (B)In this paragraph, the terms licensee, operates an Internet skill game facility, and permitted bet or wager have the meaning given such terms in section 5381 of title 31. . (c)
Clerical amendment
The table of sections for chapter 53 of title 31, United States Code, is amended by adding at the end the following: SUBCHAPTER V—Regulation of Internet skill game facilities Sec. 5381. Definitions. Sec. 5382. Establishment and administration of licensing program. Sec. 5383. Financial institutions. Sec. 5384. Prohibition and limitation of licenses in States and on Indian lands. Sec. 5385. Sporting events or contests. Sec. 5386. Safe harbor. Sec. 5387. Criminal penalties. Sec. 5388. Rules of construction. Sec. 5389. Periodic reports by licensees. Sec. 5390. Annual reports by Secretary. .