    [House Hearing, 106 Congress]
    [From the U.S. Government Publishing Office]

                   INTERNET GAMBLING PROHIBITION ACT OF 1999

    =======================================================================

                                    HEARING

                                   before the

                      SUBCOMMITTEE ON TELECOMMUNICATIONS,
                         TRADE, AND CONSUMER PROTECTION

                                     of the

                             COMMITTEE ON COMMERCE
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JUNE 15, 2000

                                   __________

                               Serial No. 106-150

                                   __________

                Printed for the use of the Committee on Commerce

                                   __________

                        U.S. GOVERNMENT PRINTING OFFICE
    65-902                     WASHINGTON : 2000

                        ------------------------------

                             COMMITTEE ON COMMERCE

                         TOM BLILEY, Virginia, Chairman

    W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
    MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
    MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
    JOE BARTON, Texas                    RALPH M. HALL, Texas
    FRED UPTON, Michigan                 RICK BOUCHER, Virginia
    CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
    PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
      Vice Chairman                      SHERROD BROWN, Ohio
    JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
    CHRISTOPHER COX, California          PETER DEUTSCH, Florida
    NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
    STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
    RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
    BRIAN P. BILBRAY, California         BART STUPAK, Michigan
    ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
    GREG GANSKE, Iowa                    TOM SAWYER, Ohio
    CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
    TOM A. COBURN, Oklahoma              GENE GREEN, Texas
    RICK LAZIO, New York                 KAREN McCARTHY, Missouri
    BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
    JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
    JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
    HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
    JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
    CHARLES W. ``CHIP'' PICKERING,
    Mississippi
    VITO FOSSELLA, New York
    ROY BLUNT, Missouri
    ED BRYANT, Tennessee
    ROBERT L. EHRLICH, Jr., Maryland

                       James E. Derderian, Chief of Staff

                       James D. Barnette, General Counsel

          Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                     ______

       Subcommittee on Telecommunications, Trade, and Consumer Protection

                   W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

    MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
      Vice Chairman                      RICK BOUCHER, Virginia
    CLIFF STEARNS, Florida               BART GORDON, Tennessee
    PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
    CHRISTOPHER COX, California          ANNA G. ESHOO, California
    NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
    STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
    BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
    JAMES E. ROGAN, California           RON KLINK, Pennsylvania
    JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
    HEATHER WILSON, New Mexico           GENE GREEN, Texas
    CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
    Mississippi                          JOHN D. DINGELL, Michigan,
    VITO FOSSELLA, New York                (Ex Officio)
    ROY BLUNT, Missouri
    ROBERT L. EHRLICH, Jr., Maryland
    TOM BLILEY, Virginia,
      (Ex Officio)

                                      (ii)

                                C O N T E N T S

                                   __________
                                                                       Page

    Testimony of:
        Bowman, Michael, Vice President, Government Relations, Family
          Research Council...........................................    40
        Dean, Lisa, Vice President, Technology Policy, Free Congress
          Foundation.................................................    38
        Di Gregory, Kevin V., Deputy Assistant Attorney General,
          Criminal Division, Department of Justice...................    34
        Goodlatte, Hon. Bob, a Representative in Congress from the
          State of Virginia..........................................    12
        Nestel, Daniel, Assistant Director of Federal Relations, the
          National Collegiate Athletic Association...................    50
        Poulson, Anne, President, Virginia Thoroughbred Association..    43
        Sheldon, Reverend Louis, Traditional Values Coalition........    52
        Waldron, Gerard J., Partner, Covington & Burling.............    56
        Williams, Richard, Chairman, Lac Vieux Desert Band, Lake
          Superior Chippewa Indian Tribe.............................    59
        Ziemak, Gregory, Executive Director, Kansas Lottery..........    31

                                     (iii)

                   INTERNET GAMBLING PROHIBITION ACT OF 1999

                                  ----------

                            THURSDAY, JUNE 15, 2000

                  House of Representatives,
                             Committee on Commerce,
                        Subcommittee on Telecommunications,
                                Trade, and Consumer Protection,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 11 a.m., in
    room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
    Tauzin (chairman) presiding.
        Members present: Representatives Tauzin, Oxley, Stearns,
    Gillmor, Cox, Largent, Cubin, Shimkus, Fossella, Ehrlich,
    Markey, Gordon, Rush, Eshoo, Luther, Green, and McCarthy.
        Staff present: Justin Lilley, majority counsel; Cliff
    Riccio, legislative assistant; Andrew W. Levin, minority
    counsel; Brendan Kelsay, minority investigation; and Chris G.
    Ernst, minority staff.
        Mr. Tauzin. The subcommittee will please come to order. We
    will ask our guests to take seats and catch the doors so we
    have some quiet in the hearing room. Thank you.
        This morning we will consider legislation that the Speaker
    referred to this committee because of our historical experience
    in dealing with matters that affect interstate and foreign
    communications. In particular, we are here today to consider
    H.R. 3125, the Internet Gambling Prohibition Act, which is
    sponsored by Mr. Goodlatte, who will be testifying on the
    matter.
        The Congress has spent much of its time harrowing the
    promise of the Internet. Just yesterday, the House provided
    overwhelming support that an initiative sponsored by Mr. Bliley
    will help to establish a key foundation in the digital economy,
    namely, electronic signatures, and Mr. Dingell and Mr. Markey
    and Mr. Oxley were key components of the effort to work that
    bill through the House/Senate conference and through the floor
    vote yesterday, for which I want to thank my friends and
    colleagues.
        They also provided strong support for the idea that the
    Internet should remain tax free, or at least until State and
    localities dramatically simplify their patchwork of sales and
    use tax structures. The promise of the Internet is indeed real.
    What we all know is, promise always bring with it some risk
    and, in some cases, real and identifiable problems, such as
    spam, which the committee addressed yesterday through
    legislation, to protect consumers against this nuisance and
    sometimes very troubling and inefficient aspect of the
    Internet.
        Also, on-line pharmacies have come up for some discussion
    because we have learned that on-line pharmacies have the
    potential of preying on senior citizens.
        In addition to the prevalence of obscenity and pornography,
    the Internet's darkest side, rears the issue of Internet
    gambling. There is no mistaking the threat that Internet
    gambling poses to society, children in particular. We will hear
    firsthand evidence today. We will also hear evidence of how
    strong Internet gambling's future is unless Congress decides to
    act.
        As complicated as the problem is, the solution is no less
    complex. We will hear testimony today from numerous experts in
    the area of the law and policy, some in support of this bill
    and some in strong opposition. I note in particular that some
    resist the idea that a bill that is indeed intended to prohibit
    Internet gambling creates exemptions, which could have the
    effect of promoting some forms of gambling on the Internet. But
    we all know sports-related and casino-style gambling account
    for most of the gambling on the Internet. The bill that would
    allow State lottery will clearly bar such gambling in the
    future.
        I want to commend the work of Mr. Goodlatte and his
    colleagues at the Judiciary Committee. They have worked long
    and hard to try to craft a bipartisan solution. We have to
    begin the process so this important legislation can be refined
    further. We look forward to the testimony of this morning's
    witnesses, and I yield to my friend and colleague, Mr. Markey.
        Mr. Markey. Thank you, Mr. Chairman. I want to commend you
    for calling this hearing on legislation that proposes certain
    new regulations on the Internet, in this case, dealing with the
    subject of gambling.
        The legislation broadly proposes making gambling over the
    Internet illegal, providing criminal penalties for violations,
    authorizing civil enforcement proceedings by State and Federal
    authorities, as well as establishing regulations on how
    Internet service providers will terminate and block access to
    material or activity, which violates the gambling prohibition.
        On the other hand, the legislation contains provisions
    which might have made the late great Claude Rains blush. A
    number of exceptions to the general prohibitions on Internet
    gambling that permit, under certain circumstances, fantasy
    sports leagues, gambling on horse races, gambling on jai alai,
    and gambling on greyhound racing. The legislation also permits
    intrastate purchase of lottery tickets, but only if they are
    made in a public facility, which presumably means that you
    can't buy a lottery ticket from home over the Internet. This
    ``on the one hand, on the other hand'' approach to Internet
    gambling reminds me of the story of Father Murphy, who goes up
    into the pulpit on Sunday morning and says on Wednesday night
    in the church hall, Father Murphy lectures on the evils of
    gambling. Thursday night in the church hall, bingo.
        Ladies and gentlemen, there is no question that our society
    has a schizophrenic attitude toward this issue. Gambling can be
    very additive, a compulsion that many citizens struggle with
    gambling daily. It can poison professional and amateur
    athletics. It is opposed by many religious organizations. On
    the other hand, many otherwise pious people hop on flights
    every year to visit the modern day gambling mecca of Las Vegas
    or Atlantic City or to the Babylon on the Bayou, now that
    Louisiana has gambling.
        There are now casinos on Indian reservations and on river
    boats all over this country. And in the east, we have a button-
    down version that we call Wall Street. But we don't call that
    gambling, we call that capital formation. We will prohibit
    wagers on the Web unless, of course, it is a bet on the biotech
    stocks where the bookie isn't in the local bar but on the big
    board or on-line at Ameritrade, where you can place your bets
    for only $8 and double your bet if you are willing to play
    chicken with the office coffee boy named Stuart.
        How do we choose which type of gambling to ban? Should we
    place them all on a spinning roulette wheel and see where it
    lands? I know that I strongly opposed organized gambling on
    college athletics, but on the other hand, March madness, how
    much does it cost to join that pool in your office? H.L.
    Mencken once said that the definition of a puritan was someone
    who had the haunting fear that somewhere, someone, somehow was
    having a good time. And much of what we are talking about here
    is how ordinary people gamble, not on Wall Street or some new
    Internet company that they are putting $100,000 on, but they
    have no idea what the company does because somebody whispered
    this tip. Did I grow up in a community with two minds on
    gambling, in a word, bingo? I think we all did. That is why
    this subject is so complex, and it is going to require a lot of
    thought on our part before we craft rules that are going to be
    binding for a good long time on the American public.
        Mr. Tauzin. Rock on, Mr. Markey.
        If the gentleman yields a second, a real story, I was
    calling bingo once at my church in New Orleans and I called the
    wrong number, and in the day when people were using corn to
    cover the number on their cards. I had to ask the audience to
    look under all of their corn and to remove that and put the
    corn on the right number. There was a lot of grumbling in the
    audience. I said I made a mistake, which everybody does, and
    that is why we had erasers on the back of pencils. And some guy
    in the back of the room yelled up yeah, Billy, that's why we
    have elections now and then, too.
        [The prepared statement of Hon. Edward J. Markey follows:]
       Prepared Statement of Hon. Edward J. Markey, a Representative in
                    Congress from the State of Massachusetts
        Good Morning. I want to commend Chairman Tauzin for calling this
    hearing today on legislation that proposes certain new regulations for
    the Internet, in this case dealing with the subject of gambling.
        The legislation broadly proposes making gambling over the Internet
    illegal, providing criminal penalties for violations, authorizing civil
    enforcement proceedings by Federal and State authorities, as well as
    establishing regulations on how Internet service providers will
    terminate and block access to material or activity that violates the
    gambling prohibition. On the other hand, the legislation contains
    provisions that might have made the late, great Claude Rains blush: a
    number of exceptions to the general prohibition on Internet gambling
    that permit under certain conditions, fantasy sports leagues, gambling
    on horse races, jai lai, and greyhound racing. The legislation also
    permits intra-state purchase of lottery tickets but only if such
    purchases are made in a public facility, which presumably means you
    can't buy a lottery ticket from home over the Net.
        This ``on the one hand, on the other hand'' approach to Internet
    gambling reminds me of the story of the Catholic priest, who at the end
    of the Mass, announces upcoming parish functions by saying to the
    parishioners, ``Please note that on Wednesday evening in the parish
    hall, Father Murphy will lecture on the evils of gambling. And don't
    forget: on Thursday in the parish hall, `Bingo.' ''
        There's no question that our society has a schizophrenic attitude
    toward this issue. Gambling can be a very addictive, debilitating
    compulsion that many citizens struggle with daily. It can poison
    professional and amateur athletics. It is strongly opposed by many
    religious organizations.
        On the other hand, many otherwise pious people hop on flights every
    year to visit the modern day gambling Mecca of Las Vegas--or they go to
    Atlantic City or to the ``Babylon of the Bayou'' now that Louisiana has
    gambling. There are now casinos on Indian reservations and on
    riverboats.
        And in the East, we have a buttoned-down version that we call
    ``Wall Street''--but we also don't call that ``gambling'', we call it
    ``capital formation.'' We will prohibit wagers on the Web. Unless, of
    course, it's a bet on biotech stocks where the bookie isn't in the
    local bar but on the Big Board, or online at Ameritrade where you can
    place your bets for only 8 dollars--(and double your bet if you're
    willing to play chicken with the office copy boy named ``Stuart.'')
        How do we choose which type of gambling to ban? Should we place
    them all on a spinning roulette wheel and see where it lands? I know
    that I strongly oppose organized gambling on college athletics--but on
    the other hand . . . March Madness, how much to join the pool?
        H.L. Mencken once said that the definition of a Puritan was a
    person who was fearful that someone, somewhere, somehow might be having
    a good time. I grew up in a socially conservative, blue collar
    community that the Puritans might have liked--but it was within two
    miles of the dogs at Wonderland and the ponies over at Suffolk Downs.
        Did I grow up in a community with two minds on gambling?
        In a word: ``Bingo.''
        I look forward to hearing the testimony from our witnesses.

        Mr. Tauzin. The Chair is pleased to recognize the gentleman
    from Oklahoma, Mr. Largent, next.
        Mr. Largent. Thank you, Mr. Chairman. I wanted to thank you
    for holding this hearing on H.R. 3125, the Internet Gambling
    Prohibition Act. There is no dispute that there has been an
    explosive growth of Internet gambling over the past few years.
    The National Gambling Impact Study reports that Internet
    gambling revenues have doubled every year for the past 3 years.
    One study indicates that on-line gambling revenues have grown
    from $300 million in 1998 to $651 million in 1999. It is
    expected that revenues will go to $2.3 billion by 2001. There
    is dispute, however, if this legislation is sufficient to
    address the problem of Internet gaming. We will hear testimony
    today from some of the witnesses who believe that H.R. 3125
    strikes the proper balance between curbing the growth of on-
    line gaming, but allow otherwise lawful wagering on animal
    races, Indian gaming and jai alai.
        We will also hear from others who believe that H.R. 3125 is
    a special interest bonanza and if we are to prohibit on-line
    gaming, we need to prohibit all Internet gambling, and I look
    forward to hearing the pros and cons associated with H.R. 3125,
    and I yield back the balance of my time.
        Mr. Tauzin. I thank the gentleman.
        The gentleman from Texas, Mr. Green is recognized.
        Mr. Green. Thank you, Mr. Chairman.
        Like my colleagues, I am glad you called this hearing on
    the bill although I am confused by the legislative intent. Just
    recently, our subcommittee held a hearing on obscenity
    available over the Internet, and the tenor of that hearing was
    trying to prevent the spread of this destructive material to
    adults and children. I am quite surprised when I read H.R. 3125
    that we are going to legalize gambling over the Internet. It is
    just as addictive as drugs and alcohol, and the passage of this
    bill would allow residents of Texas to bet on horse and dog
    races in other States.
        Mr. Chairman, we already share our financial resources in
    Texas with the casinos in Louisiana, and we don't want to share
    anymore. That is one of the disturbing aspects of it. I can sit
    in my home and flush my family's financial security down the
    disk drive without anyone knowing about my actions until it is
    too late. The legislation would be a boon to compulsive
    gamblers, even if your State prohibits it. We should rename
    this legislation the ``Breakup the Family Act'' because I don't
    know what would happen if my wife came in at 10:30 at night and
    I said we lost our savings and our children's savings because I
    lost a horse race.
        Any bill dealing with gambling has the greed factor and
    this one is truly amazing. I didn't support gambling in the
    Texas legislature when I was there, and after I left, the
    citizens of Texas voted for a State lottery, and that lottery
    now provides over a billion dollars a year for our Texas public
    schools. I didn't vote for it during the referendum, and I
    would surely be concerned about allowing Internet gambling on
    horse racing and dog racing outside the State of Texas because
    the voters did not approve that type of gambling. It would have
    little benefit to the individual States.
        At least the lottery provides a billion dollars to the
    Texas public schools. My concern is States that have a lottery.
    We are supposed to support allowing horse and dog track owners
    in other parts of the country to have Internet gambling, and
    yet the lotteries would not be able to do that. I don't want to
    have to sell this vote back home in Texas. Texas has changed in
    the last few years. We now allow horse racing and dog racing
    gambling actually at our tracks on races around the country,
    but that still is to the benefit of the folks in Texas.
    Gambling, no matter what forms it comes in, needs to be decided
    on the State level, and I am sure that I am not the only member
    here today who feels that we are going to trample on the rights
    of our States by regulating gambling within their borders.
        I am interested to hear the panel discussion today, and
    particularly on improvements in the legislation. I have a
    suggestion. We could actually ban Internet gambling. Gambling
    in any form over the Internet should be illegal. For the sites
    that currently exist outside the borders of this country,
    hopefully the Justice Department could use its resources to
    shut them down. The subcommittee has spent a lot of time
    exploring the weaknesses of human behavior and how the
    telecommunications revolution affects it. Let's not pass
    legislation which would encourage something that would
    devastate people and their families, whether gambling or
    pornography.
        Mr. Tauzin. The gentlewoman, Mrs. Cubin, is recognized.
        Mrs. Cubin. Thank you, Mr. Chairman for holding this
    hearing on H.R. 3125, so that we can learn more about Internet-
    based gambling, how it has grown and how it is regulated, or,
    in most cases, unregulated, and what role the Federal
    Government should take to ensure that certain abuses don't
    occur.
        I understand fully why some argue that Federal legislation
    is needed. The Internet is unique and, as such, gaming over the
    Internet is also unique. The fact that one State could allow
    Internet gambling when it is prohibited by its neighboring
    States demonstrates some need for a Federal role. However, I
    have always been a States' rights advocate. The State of
    Wyoming is not much of a gaming State compared with other
    States. The revenue brought to the State just last year from
    one horse racing track is over $6 million.
        More significant are the 232 full-time and part-time jobs
    that that racetrack supports. I believe it is important, as we
    continue this debate, that we take into account the States and
    their rights to allow or to prohibit gaming within their
    borders. Equally important is the enforcement of current laws
    that prohibit fraudulent activities over the Internet, such as
    credit card fraud and underage gambling. I took a particular
    interest in the Department of Justice's testimony and its
    concerns with the bill expanding gambling opportunities instead
    of prohibiting them. In a way, I agree with the Department of
    Justice's read of this legislation.
        If it is the intent of the bill's author to prohibit
    gambling over the Internet, why should we allow certain types
    of gambling and not allow others? Furthermore, I agree that
    permitting gambling in one medium and prohibiting it in that
    same form of gambling in another medium just doesn't make a lot
    of sense to me.
        Instead of prohibiting gambling in certain forms of
    Internet, which I stated, doesn't seem workable, it is as if
    this bill is bolstering an already established brick-and-mortar
    gambling industry. I want to become educated with this entire
    issue, and it is my hope that the witnesses we have here today
    will be able to shed some light on the points that I have made.
    The fact that a number of people have been prosecuted by the
    Department of Justice for on-line gaming shows me that maybe
    the laws are already on the books, that they just need to be
    enforced, and those that violate the laws should be sought more
    aggressively.
        Again, Mr. Chairman, I have brought many of my concerns
    forward and I hope by the time this hearing is over today, we
    will have a lot better understanding as to how we should
    proceed with this legislation. Thank you for allowing me to
    speak.
        Mr. Tauzin. I thank the gentlelady. The gentlelady from
    California, Ms. Eshoo, is recognized.
        And let me say again, we thank the gentlelady for her
    important work on the digital signature bill, an important bill
    that moved yesterday.
        Ms. Eshoo. Thank you, Mr. Chairman. As partners in a
    previous Congress, I think we brought a very important issue to
    our colleagues and it really matches where we are in the
    beginning of this century. I also appreciate, Mr. Chairman, and
    Full Committee Chairman, Mr. Bliley, for making sure that we
    have a hearing on this legislation. I think the bill has
    serious implications for e-commerce and the whole issue of
    regulation of the Internet, so I think it is important that we
    have a chance to review these issues.
        I want to compliment Mr. Goodlatte and our colleagues for
    their efforts to attempt to protect society from the dangers of
    gambling and the abuses that are sometimes associated with it.
    It can be a corrosive agent and it is frequently a
    manifestation of addictive behavior. But I do think that the
    bill is deeply flawed. I want to make some comments about where
    and how I think it is flawed.
        It prohibits some types of gambling, and it actually
    expands other kinds. It puts an inappropriate burden in my view
    on high technology companies, and it also interferes with civil
    liberties of the American people. I think the legislation is
    rife with loopholes, which appear to be the result of special
    interest lobbying. Betting on horses and dogs is okay, sports
    and casino style games are out. Jai alai is in, State lotteries
    are out. It is a patchwork of prohibitions and exemptions which
    seem to be based on the degree of power of a particular
    interest group rather than good public policy. After all, if
    gambling on the Internet is wrong, then gambling on the
    Internet is wrong, period. So I think that we have a long ways
    to go to fill these gaps.
        I am going to be a little harsh here, but I am still going
    to express my disappointment with the NCAA and the NFL on their
    strident views on this issue. I hear a lot of concern about the
    threat that Internet gambling would pose to the values of young
    athletes and the integrity that sports have, but it seems to me
    that there are other practices that are tolerated by collegiate
    and professional sports organizations that pose a far greater
    risk of failing to instill the kinds of values that we want to
    instill in young people.
        Today, big-time college athletes are given special dorms.
    They eat at training tables. They are allowed to preregister
    for courses, and they frequently enjoy relaxed academic
    standards, and some even fail to graduate.
        If we are going to broaden the lens here, we need to take
    all of it and really be honest about it as we approach it. I
    know that the NFL is here today to testify to the threat of
    Internet gambling for young people, but I think they need to
    look within their ranks and really take a good hard look at
    what they can do with some of their players.
        Finally, the bill seeks to put regulatory boundaries on the
    Internet, and I think we have to take a look at whether these
    views are shortsighted, and also take into consideration civil
    liberties. The notice and the take-down provisions, in my view,
    are overly broad. They are too burdensome for ISPs, and I think
    they give the government too much power. The blocking
    provisions in the legislation intrude on individual privacy.
    They attempt to put artificial boundaries on the Internet when
    the Internet is designed specifically to transcend boundaries.
        So Mr. Chairman, I think that we have got a lot of work to
    do. I think that we have some miles to go and some places to
    see. I think that the bill has a long ways to go, and I think
    that we have a lot of work to do.
        I welcome the witnesses and I look forward to hearing their
    testimony, and I thank you and the chairman of the full
    committee for making sure that we have a hearing on the bill. I
    yield back the balance of my time.
        Mr. Tauzin. Thank you.
        Mr. Largent. Will the gentlelady yield? First of all,
    professional athletes don't have special dormitories. Second of
    all, student athletes graduate as a percentage far greater.
        Ms. Eshoo. Are there special floors in dorms for athletes?
        Mr. Largent. No, there are not.
        Ms. Eshoo. Thank you.
        Mr. Tauzin. The gentlelady's time has expired. The
    gentleman from Illinois, Mr. Shimkus, is recognized.
        Mr. Shimkus. I am not going to wax philosophically, but I
    join my colleague, Mr. Markey, in claiming that I am
    schizophrenic on this issue of gambling, and that is the
    importance of the hearing. I do have a question for the
    chairman. It is a question on seniority of committee
    assignments. Is Bob Goodlatte senior to me? It seems that he
    attends these hearings even more than members of the committee.
        Mr. Tauzin. He has commerce envy.
        Mr. Shimkus. I am looking forward to a time when we have a
    hearing on a bill when he does not show. I want to welcome him,
    and I yield back the balance of my time.
        Mr. Tauzin. Mr. Stearns is recognized.
        Mr. Stearns. Mr. Chairman, thank you for holding this
    hearing on H.R. 3125, the Internet Gambling Prohibition Act. I
    would like to thank my colleague, Mr. Goodlatte, for being here
    again. The commercial event of the Internet affords a consumer
    household a flood of resources. A couple of keystrokes and
    mouse clicks, one can track local weather, listen to music as
    well as make on-line purchases. Previously, one would have to
    travel to Las Vegas or Atlanta City to partake in gambling and
    games of chance. Now it is a matter of a couple of clicks and
    the Web surfer can stroll through a virtual cyber casino. Every
    home with on-line access now is also a home with a casino.
        Mr. Chairman, I would like to read from the National
    Gambling Impact Study Commission. Internet gambling is ``the
    newest medium offering a game of chance.'' Furthermore, the
    report states that the ``previously small number of operations
    has grown into an industry practically overnight.'' Last year
    alone, the Commission came across more than 250 on-line
    casinos, 64 lotteries, 20 bingo games and 139 sports books
    providing gambling over the Internet. Additionally, the FBI
    reported growth in Internet gambling from $300 million in 1998
    to $651 million in 1999. And Bear Stearns estimates that
    Internet gambling Web sites generated more than $1.2 billion
    last year, and that number will grow to $3 billion within the
    next 2 years.
        Regulation of gambling has been traditionally left to the
    States. However, due to the nature of the Internet, no single
    State or collection of States can adequately address the
    growing problem of on-line gambling. While I am generally
    cautious about posing regulations, thereby possibly strangling
    the growth of the Internet, I believe this bill brings the law
    up to date with Internet technology by clarifying Federal law
    that operating an Internet gambling business is illegal, all
    the while recognizing States' leadership role in regulating
    gambling within their borders. Additionally, this legislation
    does not prohibit legitimate businesses, which rely on legal
    gambling, from going on-line.
        Horse racing, for example, is a legal activity that is
    closely regulated in my home State of Florida. They have a $2.2
    billion annual impact on Florida's economy and employs more
    than 27,000 people in Florida. This bill obviously is not a
    perfect bill, but it is a step in the right direction, and I
    look forward to the testimony today and thank you, Mr.
    Chairman.
        Mr. Tauzin. I thank the gentleman. Are there any further
    opening statements?
        [Additional statements submitted for the record follow:]
       Prepared Statement of Hon. Michael G. Oxley, a Representative in
                        Congress from the State of Ohio
        Thank you, Mr. Chairman, for holding this timely hearing. I want to
    welcome our witnesses, including the gentleman from Virginia, who
    really ought to give up the pretense of being a member of the Judiciary
    Committee and formally come over to the Committee on Commerce.
        The issue before us is one we have confronted before and one we
    will undoubtedly encounter repeatedly in the coming years. That is the
    need to update federal law to apply it to the realities of the Internet
    society.
        In the case of gambling, you have a situation where state
    restrictions on gambling are being undermined by individuals operating
    outside of those jurisdictions, or even outside of the United States
    altogether. It is not unlike the effort against Internet pornographers,
    an effort to which I have devoted considerable effort.
        As with pornography, I reject the suggestion that we should throw
    up our hands in frustration at the scope of the problem, simply
    resigning ourselves to the negative impact on our children and on our
    society.
        I support the idea of a general prohibition on online gambling, and
    I commend Senator Kyl and Congressman Goodlatte for taking the issue
    on. Gambling is a habit forming obsession for many individuals,
    bankrupting and breaking up families. And easy access to on-line gaming
    by minors raises questions about the impact on young people during
    their formative years. I saw a quote from Senator Kyl recently, where
    he said that with online gambling kids could ``wager with Mom's credit
    card, click the mouse and bet the house.''
        As we all know, gambling has traditionally been regulated by the
    States, and this tradition has served us fairly well.
        At the same time, when you are dealing with a national and
    international medium--a medium that is subverting state prohibitions on
    casino-style gambling, for example--it does become a federal matter.
    And when you are addressing matters of interstate commerce and
    interstate communications networks, as we clearly are here, such
    matters fall under the jurisdiction of the Committee on Commerce and
    this Subcommittee.
        I wrote an individual letter to Speaker Hastert on May 3rd asking
    that the Commerce Committee be granted a sequential referral of this
    legislation making this very point. I am pleased that we have received
    that referral, although I was a little surprised at the abbreviated
    length of the referral.
        While I support the premise behind the legislation before us, I do
    have questions about the drafting. As I read it, under this measure an
    individual sitting at his home computer in Van Buren, Ohio could
    legally place a wager on a dog race in Pensacola, but he couldn't buy a
    ticket for the Ohio Lottery. Indeed, you have rather broad exemptions
    for parimutuel wagering and Indian gaming, but since the Judiciary
    Committee markup and the passage of the Pease amendment, rather
    restrictive provisions pertaining to State lotteries.
        I have to tell you, this seems backwards to me. 38 States have
    established lotteries, in many cases by ballot measure, and they draw
    revenue from a broad base of voluntary participants, with the proceeds
    dedicated to various public projects. Obviously, the citizens of these
    States have decided that lotteries are an innocuous form of gaming.
        My staff did a little research on the prevalence of lotteries in
    the States represented by Members of this Committee. Of the 53 Members
    of the Committee on Commerce, all but seven come from States with a
    legally authorized lottery. In most of our States, lottery proceeds are
    dedicated to educational purposes, although in a few they are used for
    seniors programs, transportation funds, conservation efforts, or
    general revenues. In Ohio, the beneficiaries are primary, secondary,
    vocational, and special education.
        While many States have parimutuel gambling and even off-track
    betting parlors, others don't, and several explicitly prohibit such
    activities. Obviously, those States have decided that there is
    something undesirable about parimutuel wagering, and while we are free
    to agree or disagree with that assessment, we do need to be respectful
    of the prerogative of the States.
        So, while I support the thrust of the gentleman's legislation, I'm
    troubled by the inconsistencies. Either we're respecting States'
    rights, or we're not. Either we're prohibiting Internet gambling, or
    we're not. I don't think we should try to have it both ways.
        With that, Mr. Chairman, I yield back.
                                     ______

     Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
        Mr. Chairman, thank you for holding this hearing on the Internet
    Gambling Prohibition Act.
        Because this legislation seeks to regulate Internet service
    providers and the interstate services they provide to subscribers, this
    legislation falls within the scope of this Committee's jurisdiction
    over interstate and foreign commerce.
        The Judiciary Committee lent its considerable experience in
    criminal law to this bill. Now this Committee will examine the
    implications of this bill on interstate and foreign communications, and
    in particular, the impact of this bill on the Internet.
        I share the goals that the sponsors of this bill have, including my
    friend and colleague, Mr. Goodlatte . . . who is with us once again
    today. Like him, I am troubled by the ills that gambling visits on our
    society. And I am especially troubled by the implications of Internet
    gambling . . . including its impact on children and those with
    compulsive gambling habits.
        Having said that, I come to this hearing with an open mind as to
    whether this bill, as reported by the Judiciary Committee, is the most
    effective means of addressing what we all agree is a serious problem. I
    am interested to learn more how the exemptions in this bill for horse
    racing and other forms of gambling can be explained as consistent with
    a bill designed to prohibit gambling.
        Moreover, I believe it is important that we hear from those who
    sought--but were ultimately denied--similar exemptions from the bill's
    prohibition . . . such as the state lotteries and charitable
    organizations.
        I am particularly curious to learn more about the bill's
    enforcement provisions. More to the point, I note that the bill would
    require any and all interactive computer services to essentially act as
    surrogates for federal and state prosecutors. I intend to explore
    further this issue of using the private sector as a means of
    implementing criminal law.
        Mr. Chairman, this is a distinguished panel of witnesses, and I
    look forward to learning more from them about this important issue, and
    this legislation.
        Thank you, and I yield back my time.
                                     ______

    Prepared Statement of Hon. Karen McCarthy, a Representative in Congress
                           from the State of Missouri
        Thank you Mr. Chairman for holding this hearing on H.R. 3125, The
    Internet Gambling Prohibition Act of 1999. 1 look forward to the
    testimony of our witnesses, especially Greg Ziemark of the Kansas State
    Lottery Commission--it is always nice to see individuals from my area.
    I welcome all of you and look forward to the discussion that will
    follow.
        From the privacy of your home, you can instantly find more than 800
    casinos on the Web. One can find electronic slot or poker machine,
    blackjack, or a sports bookie who will take wagers 7 days a week, 24
    hours a day.
        Fueled by the explosion of the Internet and acceptance of casino
    gambling as mainstream entertainment worldwide, online egambling is
    growing at a rapid rate.
        One would never know by the discussion we are having here today
    that on-line gambling is already illegal. In Section 1084 of The Wire
    Act, enacted in 1961, betting or wagering via a wire communication
    facility in interstate or foreign commerce was made illegal. My fear is
    that the bill before us today, if enacted, would create two
    inconsistent gambling prohibitions. One prohibition that applies to
    gambling over the Internet and the other prohibition, already in
    effect, that applies to gambling over wire communication facilities,
    which already includes the Internet.
        My home state of Missouri currently prohibits all Internet gambling
    based on The Wire Act of 1961. However, if HR 3125 were to pass,
    Missouri would have to allow the certain types of gambling that are
    permitted in HR 3125, gambling such as horse and dog races and fantasy
    sports leagues. It is hard to believe that this bill, titled the
    Internet Gambling Prohibition Act of 1999 actually expands gambling in
    my home state. If we are going to prohibit on-line gambling we need to
    do it without exemptions and we need to do it in technological neutral
    terms.
        Laws that are technology specific can lead to overlapping and
    cumbersome legal standards . . . this brings me to my next point. How
    are we going to regulate this gambling prohibition once it is in
    effect? The Internet is global in nature and that's why it is often
    hard to wrap our hands around, but if we are going to make laws
    prohibiting certain activities over the Internet, we need to be
    prepared to actually carry out the law without violating state rights.
        I fear that the overlap in statues will complicate the role of law
    enforcement at both the state and Federal levels.
        It is my hope we could simply amend existing gambling laws instead
    of creating a new technology specific law.
        I want to once again thank our witnesses and I yield back the
    remainder of my time.
                                     ______

        Prepared Statement of Hon. John D. Dingell, a Representative in
                      Congress from the State of Michigan
        Thank you, Mr. Chairman, for recognizing me, and I commend you for
    holding this important hearing today. I must note at the outset,
    however, that I have a strong sense of deja vu as we begin this debate
    about Internet gambling.
        Over the past few years this Committee has held numerous hearings
    on the issue of Internet tax policy. The primary point of contention in
    those hearings was whether Internet sales should be taxed in the same
    way as traditional sales in the off line world. This was not an easy
    question to decide. Some groups argued for a consistent policy; others
    advocated for special Internet exceptions.
        In 1998, Congress wisely chose a cautious route, and created a
    blue-ribbon commission to investigate the matter and report back its
    recommendations. The commission itself had difficulty reaching a
    consensus, and just last month Congress once again deferred this
    question by extending the moratorium for an additional five years.
        Now we are faced with a similar policy dilemma: how should we treat
    online gambling? Should we maintain the same rules that apply in the
    offline world, or are special Internet exceptions the better answer?
    After all, some would argue, the Internet is a burgeoning new economy
    that should not be saddled with old world constraints.
        Unfortunately, the bill before us today is a fine example of the
    schizophrenia underlying Congressional attempts to formulate sound
    Internet policy. While the legislation is titled the ``Internet
    Gambling Prohibition Act,'' it could just as well be called the
    ``Internet Gambling Enhancement Act.''
        The legislation starts out sensibly enough--true to its title--
    making clear that the existing offline ban on interstate gambling
    should apply to the Internet. But from there, the bill is literally off
    to the races, making it perfectly legal to bet across state lines on
    everything from horses and dogs to jai alai and fantasy sports, so long
    as the wagering is transacted over the Internet.
        Fortune magazine may have chosen the most fitting title for its
    June 12th article on the subject of H.R. 3125. The headline read, and I
    quote, ``Wanna Bet This Bill Is Really Strange?'' The article continues
    by stating, and I quote again:
            ``If you need further proof that Congress works in weird ways,
            here it is. Lawmakers are now considering a bill called the
            Internet Gambling Prohibition Act. Common sense says that such
            legislation would, well, prohibit gambling on the Internet. But
            common sense is as fleeting in Washington as the cherry
            blossoms. So while the bill would ban some forms of Web
            gambling--mostly casino-style games of chance--it would
            encourage others. Because of a little-noticed exception in the
            fine print, the legislation would actually expand parimutuel
            betting--wagers placed on the outcome of competitions like
            horse and dog racing and jai alai.''
        Frankly, I must agree with this article that the intent of the
    legislation is baffling. Particularly since the 104th Congress passed a
    sensible bill, sponsored by Rep. Wolf of Virginia, that created the
    National Gambling Impact Study Commission. After performing an
    intensive two-year study, the Commission issued its report. It found
    that the number of Internet gamblers in the United States had more than
    doubled in just one year--to 14.5 million people in 1998--and that the
    annual revenues from Internet gambling would reach a staggering $2.3
    billion by 2001.
        The Gambling Commission issued a clear recommendation to the
    President and Congress that, and I quote, ``the federal government
    should prohibit, without allowing new exemptions . . . Internet
    gambling not already authorized within the United States . . .''
        Clearly, Internet gambling is a complex issue, and one that should
    be handled with extreme care by this Committee and the Congress.
    Statistics show that compulsive gambling is on the rise. Common sense
    suggests that increasing the ease of access to it, particularly through
    the Internet, will greatly exacerbate the problem.
        Mr. Chairman, I understand the Committee's referral on this
    legislation is short, but I hope these issues can be deliberated
    thoroughly and with great care. The stakes are simply too high to rush
    this bill in its current form through the Commerce Committee--we are
    literally gambling with our children's future, and I hope the majority
    will seek an extension if necessary to process this bill in a fully
    informed manner.
        Thank you, again, for holding this hearing.

        Mr. Tauzin. Then the Chair is pleased to welcome our
    colleague and friend from the Judiciary Committee, Mr. Bob
    Goodlatte of the great State of Virginia, the author of the
    legislation. We appreciate your testimony today.

     STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS
                       FROM THE STATE OF VIRGINIA

        Mr. Goodlatte. Thank you very much, Mr. Chairman. It is
    indeed a pleasure to be back before the Commerce Committee. I
    would say to the gentleman from Illinois that I do introduce
    these bills in other committees--they all wind up visiting the
    Commerce Committee as well.
        Mr. Tauzin. You realize that doesn't help you before this
    committee.
        Mr. Goodlatte. Some of them I introduce here as well. But I
    do welcome the opportunity to speak about this legislation,
    which I believe is very important legislation. I do have a
    written statement that I would ask be made a part of the
    record.
        Mr. Tauzin. The written statements of all members as well
    as all of our witnesses will be introduced into the record.
    Without objection, so ordered. The gentleman may summarize his
    statement.
        Mr. Goodlatte. I would like to focus my remarks on
    statements made during the opening statements of the members of
    the committee. I am respectful of the issues raised and I want
    to take some time to address those. To the gentlewoman from
    California, I very much respect her interest in and love of the
    Internet. She serves with me on the Congressional Internet
    Caucus. She represents the heart of Silicon Valley and has a
    deep abiding interest in promoting the growth of the Internet.
    I think she knows, and I would say to her, I share that desire.
    We have worked together on many bills to promote the public's
    access to the use of the Internet through the use of encryption
    to protect their privacy on the Internet and a number of other
    things.
        The Internet, however, also has its seamier sides, just as
    society as a whole does. We have problems with child
    pornography on the Internet, and I think we have a serious
    problem with gambling on the Internet. It is something that
    different people will have different philosophical views on in
    general. I am opposed to gambling in general. Every State
    regulates it in different ways. But it is basically illegal
    unless regulated by the States and the Internet poses a very
    considerable challenge to that.
        For example, in my State of Virginia, we do not allow
    casino gambling, but virtually anybody in Virginia who is on-
    line can have access to more than 700 cyber casinos in their
    family room, bedroom or whatever part of their home. These
    operations are not regulated. In fact, I can't see how it would
    be possible for individual States to regulate them the way
    casinos are regulated in Nevada or New Jersey, and so on.
        So to me, the solution here is a ban on gambling on the
    Internet. Now, if I could roll back everything that has taken
    place thus far, I would do so, but I don't believe that this
    legislation has the capability to do that. But a couple of
    years ago, the National Association of Attorneys General, the
    State organization, experienced increasing frustration with
    having to deal with various types of gambling coming into their
    States, came to Senator Kyl and myself and asked us to
    introduce legislation. This legislation has twice passed the
    Senate. This Congress it has passed unanimously in the Senate,
    and it recently passed through the Judiciary Committee, and is
    supported by a wide array of organizations.
        The gentleman from Oklahoma made reference to the National
    Collegiate Athletic Association and the NFL. Their concern
    stems from the large percentage of gambling taking place on the
    Internet that is coming from betting on sports, particularly
    the NFL and college sports, and they are very concerned about
    this.
        I think the committee will hear from witnesses later on
    this morning about the problem of people being able to bet on-
    line, children, and so on, in a totally unsupervised
    atmosphere. We heard testimony in the Judiciary Committee about
    teenagers who lost thousands and thousands of dollars of their
    family's money betting on-line. In addition to the attorneys
    general and the sporting associations, the legislation is also
    supported by a number of organizations opposed to gambling,
    including the National Coalition Against Gambling Expansion,
    but also the Family Research Council, Focus on the Family,
    Christian Coalition, and once one be concerned this is only
    conservative religious organizations that are opposed to this,
    the National Council of Churches endorses this legislation as
    does the governing body of the Presbyterian Church.
        There are consumers groups which are supportive of this
    legislation, as is the National Gambling Impact Study
    Commission, a commission established by the Congress a couple
    of years ago under legislation introduced by Congressman Frank
    Wolf. So the effort here is to stop gambling. Now there have
    been some who have suggested that there are exceptions. I would
    suggest to you that we have stopped the advent of efforts to
    move into additional areas of gambling, but we are not
    expanding gambling on the Internet with this legislation. That
    charge seems to come from the provision in the bill that
    recognizes, under very limited State-regulated circumstances,
    you can have a closed-loop system for pari-mutuel betting on
    horses, dogs and jai alai.
        That is something that is already taking place on the
    Internet in a number of States and in recognition of that, we
    have stopped there. There are those who would like to have the
    legislation go further and authorize that for State lotteries.
    The fact of the matter is that there is not one State lottery
    in the country that is offering the sale of lottery tickets on-
    line at this time, and it seems to me to be very appropriate,
    given the problems of unsupervised circumstances where children
    can go on-line and buy lottery tickets from their homes, that
    the current system is a far better one. This legislation, which
    would ban casino-type gambling and which would impose other
    limitations on gambling in the country, is the properly
    balanced legislation that is now before the Commerce Committee.
        We have worked very carefully on the remedies available in
    this legislation as well, and we have worked very carefully
    with Internet service providers, one of whom I spoke to just
    moments before the hearing, and they have been very much
    involved and are very much satisfied with the language in this
    legislation, which provides for a set of circumstances very
    similar to the Digital Millennium Act. Upon violation of the
    Act, the Internet service provider is called upon to assist in
    taking down a Web site or disabling access to a Web site.
        Mr. Chairman, I would be pleased to answer questions of the
    committee.
        [The prepared statement of Hon. Bob Goodlatte follows:]
    Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress
                           from the State of Virginia
        Thank you, Mr. Chairman, for allowing me to testify at this
    hearing. I very much appreciate the opportunity to set the record
    straight on my bill, the Internet Gambling Prohibition Act, and to
    stress the importance of passing this very important legislation during
    this legislative session. It is obvious from the overwhelming interest
    in this legislation that the issue we discuss today 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.
        One of the main reasons that the Internet has not reached its true
    potential as a medium for commerce and communication is that many folks
    view it as a wild frontier, with no safeguards to protect children and
    very few legal protections 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 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.
        Gambling is an excellent example of this situation. It is currently
    illegal in the United States 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 negative consequences of online gambling can be as detrimental
    to the families and communities of addictive gamblers as if a bricks
    and mortar casino was built right next door. Online gambling can result
    in addiction, bankruptcy, divorce, crime, and moral decline just as
    with traditional forms of gambling, the costs of which must ultimately
    be borne by society.
        Current law already prohibits gambling over telephone wires.
    However, because the Internet does not always travel over telephone
    wires, these laws, which were written before the invention of the World
    Wide Web, have become outdated. My legislation simply clarifies the
    state of the law by bringing the current prohibition against wireline
    interstate gambling up to speed with the development of new technology.
        H.R. 3125 is similar to legislation sponsored by Senator Kyl and
    passed by the Senate by Unanimous Consent last Fall. This legislation
    has been carefully drafted over several years to address the recent
    explosion of Internet gambling and to respect the existing realities of
    lawful industries. The goal of the legislation is to hold the line--by
    not rolling back any activity that is currently legal but also not
    expanding what is currently lawful. Internet gambling is an extremely
    lucrative business and there is a lot of money that stands to be lost
    if this legislation is enacted. Therefore, the opponents of H.R. 3125
    who would like to expand Internet gambling have attacked the
    legislation from both sides arguing at the same time that the bill does
    too far in curbing Internet Gambling and that the bill does not go far
    enough, a hypocritical position meant to confuse the intent of the
    bill.
        First, we have heard that the legislation has become a ``magnet of
    favors for the gambling industry'' in the form of ``exceptions.'' This
    is incorrect. The legislation prohibits gambling on the Internet; there
    are no exceptions from this blanket prohibition. Betting on horse and
    dog racing, and betting on jai alai and by Indian tribes, are permitted
    only to the extent that they are currently lawful and only on closed-
    loop subscriber-based systems, not on the open Internet. H.R. 3125 does
    not expand the current scope of legally permissible activity.
        Second, we have heard that the bill would ``expand gambling
    opportunities'' for the parimutuel industry. It does not. Even a
    cursory reading of the bill reveals that it only permits what is
    ``otherwise lawful.'' The Judiciary Committee Report on the bill
    reinforces this by explaining that the parimutuel provision ``does not
    expand the current scope of legally permissible parimutuel wagering
    activity, but simply makes clear that the bill does not restrict that
    which is already legal.''
        At the very same time we are hearing complaints that the bill would
    prevent the states from selling lottery tickets in the home over the
    Internet. The legislation maintains the status quo by limiting such
    sales to places open to the general public, such as convenience stores
    where lottery tickets are already sold. This limit advances the goals
    of avoiding participation in lotteries by children, reduces the dangers
    of compulsive gambling, and diminishes the potential for fraud.
        The bill also maintains a hands-off policy toward Internet Service
    Providers by granting them protection from liability and ensuring that
    they do not have to police their networks for illegal activity. It
    would protect those ISPs whose facilities are used by another person to
    engage in Internet gambling, provided that the material is transmitted
    by a person other than the provider and through an automatic process.
    In addition, the liability protection is contingent on the provider
    responding expeditiously to a notice from law enforcement that illegal
    gambling is occurring on their network by removing or disabling access
    to the site containing the illegal activity. This language is similar
    to the liability provisions for copyright violations included in the
    Digital Millennium Copyright Act enacted in 1998.
        This legislation reflects careful and thorough consideration of the
    views of every affected interest. The result is a strong bill that
    prohibits Internet gambling and grants no interests or advantages. As
    you know, an aggressive lobbying campaign has been mounted by pro-
    gambling interests that want to defeat the bill. That is why action to
    prohibit Internet gambling may well be impossible if legislation is not
    enacted this year.
        Mr. Chairman, online gambling is currently a $600 million per year
    business, and could easily grow to $1 billion business in the next few
    years. There are more than 700 existing Internet gambling websites that
    could be taken down after the enactment of H.R. 3125. 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.
    I want to again thank you for holding this hearing and for allowing me
    to testify before the Subcommittee.

        Mr. Tauzin. I thank the gentleman.
        The Chair will first recognize himself and then the members
    in order.
        Mr. Goodlatte, I am trying to understand the way that the
    bill, as it comes from the Judiciary Committee, treats these
    closed loops or subscriber-based services or these Intranet
    activities in gambling.
        As it applies to horse track betting and I think jai alai
    and dog racing, the bill provides for closed-loop, subscriber-
    based service betting, but does not require that those wagers
    be placed in a facility that is open to the general public; is
    that correct?
        Mr. Goodlatte. That's correct.
        Mr. Tauzin. So the criticism the bill is receiving from the
    administration and from others, that it would permit people to
    bet on those forms of gambling on the Internet in their homes
    is accurate?
        Mr. Goodlatte. I would say that the criticism is accurate,
    but the statement that it is a different treatment is correct,
    and the reason is because it is already taking place in some
    States.
        Mr. Tauzin. I want to make sure. I didn't mean to make
    judgment.
        Mr. Goodlatte. I understand.
        Mr. Tauzin. What I am asking, is the statement correct in
    the administration's criticism of this bill, that the bill
    permits gaming on these forms of gambling in a person's home on
    a computer that might exist in a children's bedroom; is that
    correct?
        Mr. Goodlatte. For pari-mutuel betting, it is my
    understanding that that is correct, but as I say, that is
    already taking place. And the point that I would make to you
    regarding that is simply we would love to roll back gambling as
    far as possible, but this is where we think that we can draw
    the line.
        Mr. Tauzin. But this provision would allow States that do
    not yet permit closed-loop, subscriber-based gambling to occur
    from home computers to do so, does it not? It allows the
    expansion of this form of gambling in States that currently
    don't allow it; is that correct?
        Mr. Goodlatte. No, it does not allow the expansion. It is
    already taking place under certain circumstances.
        Mr. Tauzin. Suppose it is not taking place in a State,
    under this provision, can a State allow it?
        Mr. Goodlatte. Under current law, the State can do that.
    When the Justice Department says we are expanding gambling by
    changing the law, we disagree with that.
        Mr. Tauzin. You say you are not changing the current law
    that permits that to occur, but the fact is that it doesn't yet
    occur in many jurisdictions. So by not changing the law, at
    least in a practical sense, that form of gambling may expand in
    those jurisdictions, but it could so under the current law?
        Mr. Goodlatte. That's correct. In some States that have
    State-regulated horse racing, that takes place, and in other
    States it does not. This brings clarity to the law.
        Mr. Tauzin. When it comes to lotteries, on the other hand,
    there was a big carveout for lotteries in the original draft.
    The Judiciary Committee changed that provision. As I now read
    it, it now permits purchasing lottery tickets in a wholly
    intrastate situation, where there could be a closed-loop
    interactive computer service, subscriber-based service form of
    purchasing, but you impose on lotteries the condition that
    those bets, those purchases must be made at a facility that is
    open to the general public.
        So if I understand this correctly, the bill treats horse
    racing, jai alai and dog racing in a way that would permit the
    placing of bets on home computers. But when it comes to
    lotteries, I would say that you have to go to a public place to
    access the computer closed loop or Intranet system; is that
    correct?
        Mr. Goodlatte. That is accurate, and the reason for that is
    the States do not at this point, not one of them, have a
    service that offers the sale of lottery tickets in homes.
        Mr. Tauzin. Could you give us information as to which
    States currently allow these closed-loop systems to be used on
    home computers to gamble on horse racing, jai alai and dog
    racing?
        Mr. Goodlatte. Mr. Chairman, my understanding is that there
    are seven such States. I don't have them here.
        Mr. Tauzin. If you would please submit that for the record.
        The Chairman's time has expired. The gentleman from
    Massachusetts, Mr. Markey.
        Mr. Markey. Thank you, Mr. Chairman, very much.
        As has been noted over and over again, the bill allows for
    betting on horse racing and dog racing and jai alai, but not on
    lotteries on-line. The policy judgment on the horses and the
    dogs is essentially that it is regulated, it is by the closed-
    loop restricted system, and it is already in place, although in
    a small number of States.
        Lottery tickets, however, are not going to be given the
    same option, although you could set up closed loop for lottery
    ticket purchases, so you can protect against children betting.
        Mr. Goodlatte. You can try. I would say that there are
    going to be problems. If it were a situation where you could
    enact legislation that perfectly reflected my point of view, I
    would have none of this. But that is not the political reality
    that we are faced with.
        Mr. Markey. If the primary goal is to protect children and
    the closed loop does not work with dogs and horses, we need to
    legislate inside this bill on what we are going to require
    every racetrack to provide as an additional protection? If it
    does work, then we should not say that it cannot work for the
    lottery as well. We have a problem one way or the other. We
    have to tighten up legally what the requirements are.
        Mr. Goodlatte. If I might respond, my effort is to halt
    gambling on the Internet as much as possible. Horse racing is a
    very small percentage of the overall amount of gambling that
    takes place in the United States today. So we are saying that
    this halts 95 percent of the gambling on the Internet.
        Mr. Markey. But it is the only thing that is permitted so
    it is bound to grow. You are carving out an exception on
    something that is still in a limited number of States, but it
    is bound to grow if gambling is going to be the phenomenon.
        I guess the problem that I have is that the money from
    horse racing, dog racing, jai alai, it goes into the pockets of
    racetrack owners, jockeys, trainers. The money for lotteries
    goes for schools and police and fire. If you can justify
    gambling, you know, and limit its reach, then I think honestly,
    I would be more inclined to look at horse racing and dog
    racing. But at the end of the day we need a standard. You need
    to give to us a standard. What is the test that we are using to
    determine which gambling is appropriate and which gambling is
    inappropriate?
        Mr. Goodlatte. The test that we have is to hold the line
    where we have it right now. There is no State that has said
    ``Wouldn't it be great if you could buy lottery tickets at
    home?'' This is the time and place to stop that from happening.
    That has not taken place in the other area, and therefore, we
    regard this to be consistent with the current state of the law.
        And I would also add, Mr. Markey, that the dog tracks in or
    near your district in Massachusetts pay a lot of taxes to the
    State of Massachusetts. They exist under the supervision of the
    State because the State derives a lot of revenues from those
    facilities as well as it does from the sale of lottery tickets.
        Mr. Markey. Well, the bulk goes to the owners of the
    racetrack, which is fine. That is the private sector.
        Mr. Goodlatte. But there are carrying costs.
        Mr. Markey. But there is a pure opportunity for the
    government to collect revenues out of the lottery and it goes
    directly into those earmarked pockets, mostly for local
    communities across the country.
        It seems to me that we are going to be making these
    distinctions based upon categories, the bases of which are our
    favorite domestic indicated animals, and those will be
    permitted. This we seem to have a closed loop over here that
    works for them, but we can't set up something over here that
    has a closed loop over here for lottery, for money as raised is
    going to be directed toward societal needs.
        I think we need a uniform way of dealing with this, others,
    those that are grandfathered, even though they are new to this,
    and we are catching up with this, but I don't think that
    Congress should catch up with new technologies by saying those
    that figured out how to exploit it before anybody else, we are
    going to grandfather them. I think we need a uniform set of
    guidelines that we are all going to use right down the line
    with an articulated philosophy that we are applying, otherwise
    we wind up with a discriminatory system.
        It is one thing for baseball in 1920 to ban the spitball
    and grandfather everyone in that was throwing it up until then,
    so they could throw it until the end of their careers because
    you knew that was going to end in 6 or 8 or 10 years. Here we
    are going to say one whole group of people can do it in
    perpetuity. At the end of the day we are going to have a
    standard that we can explain to everyone, or we are not going
    to have a standard at all. It is a nonstandard standard which
    this legislation now has at its core, and I don't think that is
    going to be acceptable.
        Mr. Tauzin. The gentleman's time has expired. The gentleman
    from Oklahoma, Mr. Largent.
        Mr. Largent. Thank you, Mr. Chairman.
        I have been reading the dissenting view of the bill. In the
    first paragraph it says, H.R. 3125 not only expands gambling
    over the Internet, it arbitrarily favors certain forms of
    gambling over others. First of all, how can the dissenters of
    this bill from the Judiciary Committee claim that this bill
    would expand gambling over the Internet?
        Mr. Goodlatte. Thank you, Mr. Largent.
        The fact of the matter is that if you take action now
    against more than 700 cyber casinos doing more than a billion
    dollars in gambling on the Internet, if you take action to
    restrict new forms of gambling on the Internet, like the sale
    of lottery tickets, if you address probably the largest problem
    of all, sports betting on the Internet, this is going to be a
    substantial halt to a very, very rapidly and dramatically
    growing problem.
        You can just see it in what has taken place in a very short
    period of time growing from when I introduced this legislation,
    about 20 or 30 cyber casinos, to now more than 700, and the
    amounts being in the tens of millions of dollars instead of in
    the billions of dollars, how urgent it is, and we are talking
    about gambling, we are definitely talking about money here, and
    what is happening is that those people who are hoping to profit
    from this, to sell these services to State lotteries, for
    example, or to continue to expand this are going to grow larger
    and larger, and their reach greater and greater. Unless we take
    action on this legislation in this Congress, it is going to be
    difficult to continue to pursue it.
        So no, this legislation is a very strong effort to stop the
    growth of gambling on the Internet. It is not responsible for
    any expansion of gambling on the Internet. It does recognize
    one existing form of gambling and permits that regulated by the
    States in a closed-loop system where they can use the Internet
    to share information to exist. But that is not the same thing
    at all as in any way expanding the Internet.
        Mr. Largent. When we talk about a closed-loop system, when
    we say that pari-mutuel betting is legal over the Internet,
    aren't we expanding that closed loop?
        Mr. Goodlatte. No, because--well, obviously it depends upon
    the legal niceties of that issue, but those who have examined
    this closely, including myself, believe that that is already
    legal, and it is simply the one small thing that we have not
    made illegal by this act.
        Mr. Largent. How many States are like the State of Oklahoma
    where we don't have anything beyond class 2 gaming in the State
    of Oklahoma? We don't have a lottery. There are no casinos. We
    do have bingo that is legalized on--our Native Americans have
    bingo parlors. How many States are like that?
        Mr. Goodlatte. I don't have the number for you. I would be
    happy to get that.
        Mr. Largent. In Oklahoma, you said all gambling is illegal
    unless regulated by the States.
        Mr. Goodlatte. Right.
        Mr. Largent. So in the State of Oklahoma, there is nothing
    beyond class 2 gambling, bingo, but yet over the Internet, you
    essentially can do everything in Oklahoma that you can do in
    Las Vegas?
        Mr. Goodlatte. That's right. The sovereignty of the State
    of Oklahoma and its citizens is being impinged by the fact that
    the Internet is a massive way around that.
        Mr. Largent. So is it illegal in Oklahoma? Class 3 gaming
    is illegal in Oklahoma, and yet it is coming in through the
    Internet. Is that illegal?
        Mr. Goodlatte. Some State attorneys general--Mr. Chairman,
    if I might, I would ask to be made a part of the record a
    letter from the National Association of Attorneys General and a
    statement by the attorney general of the State of Wisconsin.
    They were not able to get a witness to the committee in time
    for the hearing.
        Mr. Tauzin. Without objection, so ordered.
        [The information referred to follows:]

                                     State of Wisconsin
                                          Department of Justice
                                                          June 15, 2000
    The Honorable Bob Goodlatte
    United States House of Representatives
    2240 Rayburn House Office Building
    Washington, D.C. 20515

    H.R. 3125--The Internet Gambling Prohibition Act

        Dear Representative Goodlatte: I write both to express appreciation
    for your ongoing efforts to ensure enactment of the Internet Gambling
    Prohibition Act and to underscore the ongoing support of the state
    Attorneys General for this legislation. State Attorneys General have
    been working on the serious law enforcement issues posed by Internet
    gambling since 1995.
        Gambling has traditionally been a state issue, and the individual
    states' laws reflect the diversity of the states and the key policy
    decisions made by and for their residents. The Internet threatens to
    disrupt each state's carefully crafted choice on gambling policy. Its
    ability to cross boundaries and make technological advances available
    to everybody has provided great benefits, but it has also led to the
    development of some of the problems addressed by the proposed Internet
    Gambling Prohibition Act. Without attempting to reach out and tackle
    these issues, individual state laws will have an uneven and minimal
    effect on the growth of this industry as a whole.
        Senator Jon Kyl has worked closely with my office and the National
    Association of Attorneys General for several years on this issue. After
    working closely with all of the parties affected by this legislation,
    he has been able to craft a bill which generally prohibits at-home
    gambling, while allowing existing licensed and regulated gambling
    enterprises to utilize technology to continue operating their own
    ongoing businesses. The strength of this legislation is that it allows
    states to continue to make their own decisions on what is legal and
    acceptable within their own borders, honoring their state laws and
    regulatory structures, while providing a complete prohibition on at-
    home gambling via the Internet. This is something that no individual
    state's law could assure.
        Federal legislation can help combat this activity. In spite of its
    continued illegality, the vast majority of the world's Internet
    gambling players are right here in the United States. The reach of the
    federal courts goes well beyond each state's borders. The tools for
    injunctive relief provide much-needed preventative measures. The
    clarification of the criminal measures provides real penalties for the
    businesses taking advantage of the perceived vacuum in the current wire
    act--a vacuum created by new technologies and their ability to allow
    new forms of gambling to occur over the wires.
        Once this legislation is enacted, we look forward to working with
    the Internet service providers to ensure that it is appropriately
    implemented. Over the years, we have developed a productive
    relationship with the wire communications carriers in implementation of
    the Interstate Wire Act, 18 U.S.C. Sec. 1084. In using that law, we
    have worked with the carriers, not against them. Likewise, it is not
    our intent to target the Internet service providers. Rather, we look
    forward to working jointly with them to ensure that the laws are
    respected and utilized with the least burden placed upon them.
        All of the amazing benefits of the Internet could be lost if we do
    not make serious efforts, like those reflected in this bill, to prevent
    illegal activities such as online gambling from running roughshod over
    state laws. The wire act is just not doing the job in preventing the
    wide variety of gambling activities available on the Internet. This is
    one of those unique situations where a federal prohibition will
    actually assure the continuation of states' abilities to control what
    occurs within their own borders.
                Sincerely,
                                                 James E. Doyle
                                                       Attorney General
    cc: Senator Jon Kyl

        Mr. Goodlatte. That is in support of the legislation.
        To respond to the gentleman from Oklahoma, the attorneys
    general have experienced frustration in attempting to operate
    under existing State laws and the existing Wire Act in terms of
    enforcement, and that is why they have sought this essentially
    modernization of Federal laws, and it is important, Mr.
    Chairman, for the committee, I think, to be aware that this is
    not new for the Congress to step in and regulate in this area.
        Congress has passed legislation prohibiting the use of the
    U.S. mails for the sale of lottery tickets. In the 1960's we
    passed the Wire Act, and now because the Wire Act deals with
    copper wires and we are communicating in a whole host of new
    ways, this legislation modernizes the Federal Government's
    prohibition against gambling and gives the States new tools to
    fight it if they do not want it in their State.
        Mr. Largent. I yield back the balance of my time, Mr.
    Chairman.
        Mr. Tauzin. I thank the gentleman. The Chair recognizes Ms.
    Eshoo, the gentlelady from California.
        Ms. Eshoo. Thank you, Mr. Chairman.
        I would like to explore the whole area of the closed loop,
    because as I read through parts of the bill, there is a heavy
    emphasis indeed somewhat of a promise of what the closed loop
    system will do and who it will protect. First, tell me what the
    purpose of the closed-loop system is relative to the bill?
        Mr. Goodlatte. The purpose of the closed-loop system is to
    recognize the fact that such States are using such a system now
    and for the purpose of allowing the State to regulate these
    industries that they have traditionally regulated, horse
    racing, dog racing and jai alai.
        Ms. Eshoo. How would it work? Walk us through--I can't help
    of--I think of AOL as an example. It doesn't differ from that
    in terms of the disk. How would an adult or anyone else make
    use of this closed-loop system?
        Mr. Goodlatte. Well, I think they would become a subscriber
    to the system and then----
        Ms. Eshoo. They would request of whom a subscription?
        Mr. Goodlatte. They must subscribe with the State.
        Ms. Eshoo. With the State. So they request of the State. Do
    they make application to the State for essentially a disk?
        Mr. Goodlatte. They would have to have a way to access the
    closed loop, that's correct.
        Ms. Eshoo. How is the State going to verify age,
    eligibility, et cetera?
        Mr. Goodlatte. I cannot speak for the ones that are
    operating now, but there would be ways that you can do that,
    and obviously you would do things like issue a PIN number or
    rely on some type of access code to enable it.
        Ms. Eshoo. I think these provisions are placed in the bill
    to protect minors, but I think there is a huge loophole in the
    closed-loop system, most frankly. Are we going to send them to
    individual's homes to verify? Are you going to do fingerprints?
    Are you going to have driver's licenses? I don't know how you
    are going to enforce this relative to verification. I mean, I
    agree with you about protecting minors relative to gambling. I
    hate gambling. The closest I have ever come to it is to buy the
    scratches for my mother. She likes the $2 tickets instead of
    the dollar tickets. She wins. I pay, she wins. I am the one who
    loses the 2 bucks, so it is quite a system.
        What I question is how this actually works. I applaud your
    efforts and what you are trying to do. I think it falls short.
    I don't know how you can guarantee that people are going to,
    with this closed-loop system, how it is going to work, how you
    enforce it.
        Mr. Goodlatte. To answer your first two questions, the
    definition of the closed-loop, subscriber-based service is on
    page 37 of the bill, and it leaves to the State the means by
    which it conducts that verification.
        Ms. Eshoo. Where does the bill require the consumer to
    apply to the State for the disk to subscribe to the gambling
    operation?
        Mr. Goodlatte. Again, it is subject to the regulations that
    the State would provide.
        Ms. Eshoo. Do all States have regulations on this?
        Mr. Goodlatte. No, only the States that have this system in
    place.
        Ms. Eshoo. You imagine or you know?
        Mr. Goodlatte. I can get you the details. Some may work
    better than others.
        Ms. Eshoo. Would they apply to the racetrack for the disk?
        Mr. Goodlatte. Again, it is up to the State government to
    determine how that works. As to the ones that are working now,
    I would be happy to get you some information about that.
        Ms. Eshoo. If it is already working in the States, what are
    we doing here, if they have a closed-loop system and they apply
    to the State? The States enforce, the States verify in the
    cases where this----
        Mr. Goodlatte. Ms. Eshoo, we are not here because of the
    one section, but because of the 700 cyber casinos, the sports
    betting, the effort----
        Ms. Eshoo. But they are not legal in a closed-loop system
    in the bill.
        Mr. Goodlatte. They would not be legal at all if this bill
    were passed into law, but they are now, and that is the
    problem.
        Mr. Tauzin. The gentlelady's time has expired.
        Ms. Eshoo. I would just conclude that I don't think it is
    workable. I think the goal is a good one, but I think you can
    drive a Peterbilt truck through this. I don't know how many
    kids in my district or other places in the country could just
    get this disk. They are the smartest--and is it an unfunded
    mandate?
        Thank you, Mr. Chairman.
        Mr. Tauzin. Let me suggest that Mr. Goodlatte has a small
    problem with a foot injury. We are going to take a 15 minute
    recess to allow Mr. Goodlatte to go vote.
        [Brief recess.]
        Mr. Tauzin. The subcommittee will please come back to
    order.
        Let me ask our guests to take seats.
        The Chair now recognizes the gentlelady from Wyoming, Mrs.
    Cubin, for a round of questions.
        Mrs. Cubin. Thank you, Mr. Chairman.
        Mr. Goodlatte, part of the written testimony that we had
    received, and then some of the discussions today have indicated
    that maybe we don't need this legislation because there are
    Federal laws already in place that take care of the issue, and
    in my opening statement, I cited some prosecutions which have
    taken place under the Wire Act, Racketeer Influenced and
    Corrupt Organization Act, RICO. There are many others.
        In this day of technology, you can get the Internet over
    the air, wireless, and you can get the Internet through cable
    television. Would it be your opinion that those are areas where
    there is not current Federal law to prevent gambling?
        Mr. Goodlatte. That's correct, Mrs. Cubin.
        The initial push for this legislation came from the
    attorneys general of the States who were frustrated dealing
    with existing laws. The Wire Act was written in the 1960's.
    Communications have changed very dramatically since that time,
    and they felt that this legislation was needed as an update to
    those circumstances. That is why we have pushed forward. We are
    simply trying to deal with how we have attempted to regulate,
    and frankly on the Federal level, make illegal gambling in a
    new era.
        Mrs. Cubin. And with technology changing, who knows what
    might come next. I think that there is a place for this
    legislation. In Wyoming, we don't allow gambling for the most
    part, and I would like to keep it that way.
        Will this bill do anything to prevent this from happening
    to prevent, you know, gambling coming into the homes really?
    How are we going to enforce it?
        Mr. Goodlatte. There are a number of provisions. First of
    all, there are criminal penalties, fines and penalties in the
    legislation for the violation of the law. So if someone in
    Wyoming, or more likely because it is indeed the Internet,
    somewhere elsewhere in the United States or somewhere outside
    the United States, violates the law, they become subject to
    this Federal law. If they are then entering the United States,
    and a great many of these offshore cyber casinos are actually
    owned by U.S. citizens who will presumably want to come and go
    from the United States, they can be apprehended and prosecuted.
        In addition, the legislation provides for a notice and
    take-down procedure where the attorney general for the State of
    Wyoming or Federal prosecutors can work with Internet service
    providers to either take down the site or to work with them, so
    that people in your State or wherever the action is taken from,
    cannot get access to the violator of the law.
        Obviously, if they are outside the United States, we don't
    have the ability to prohibit them from doing business. If they
    want to offer gambling in France and they are outside the
    jurisdiction of the United States, that is outside the purview
    of our law.
        In addition, I would note that Congressman Leach, the
    chairman of the Banking Committee, is going to hold hearings on
    a critical component here, and that is the only way that you
    can gamble on-line is to extend your financial credit to that
    other location, and eliminating the ability to use credit cards
    and other means of transferring funds would be a major part of
    this as well. Many States make it an unenforceable debt to have
    a gambling obligation, and so some of the credit card companies
    are already backing away from cooperating with some of these
    sites. His bill is designed to enhance that, and I think that
    is a major tool in making sure that people cannot operate from
    anywhere in the world and have a gambling site in your home in
    Cheyenne, Wyoming.
        Mrs. Cubin. Thank you. I yield back the balance of my time.
        Mr. Goodlatte. One of the questions raised by Ms. Eshoo
    related to the procedures that would be followed by the States
    in terms of the verification of the closed-loop system.
        I have a statement from the Oregon Racing Commission,
    Stephen Walters, who is, I believe, the chairman, and it is
    five pages long. It goes into minute detail how the State of
    Oregon handles this very set of circumstances right now, and I
    ask that it be made a part of the record.
        Mr. Tauzin. Without objection, so ordered.
        [The information referred to follows:]
                                       Oregon Racing Commission
                                                          April 3, 2000
    Honorable Bill McCollum
    Chairman, Crime Subcommittee
    House Committee on Justice
    U.S. House of Representatives
    Washington, D.C. 20515

    Re: H.R. 3125

        Dear Chairman McCollum: This letter is submitted to support the
    exceptions for pari-mutuel racing set forth in the Internet Gambling
    Prohibition Act (H.R. 3125). In particular, I write to support the
    distinction the bill makes between the Internet and the ``closed-loop,
    subscriber-based system'' required in the exceptions for pari-mutuel
    racing.
        I am the Chairman of the Oregon Racing Commission, the only state
    regulatory body that has authority and actively regulates the operation
    of two closed-loop, subscriber-based pari-mutuel wagering systems and
    multi jurisdictional wagering totalizator hubs. In Oregon, wagering by
    electronic means via a closed-loop, subscriber based system is
    currently legal and has been ongoing since September 1999.
        It is common knowledge that, when the general public thinks of the
    Internet, they are referring to the World Wide Web and specifically to
    the ability to insert a URL address code via a browser and connect to a
    specified website or to browse randomly via a search engine and select
    content from millions of available sites. This is characteristic of the
    open nature of the World Wide Web environment that the closed-loop,
    subscriber-based system is designed to prevent.
        There are important distinctions between a wide-open and readily
    available gambling site on the World Wide Web, which Oregon opposes,
    and the subscriber-based system required by the Internet Gambling
    Prohibition Act, which is consistent with Oregon law. The World Wide
    Web is a quintessentially open environment that allows anyone with a
    server to pay a modest amount to purchase a domain name and go into any
    business, including the gambling business. Conversely, a closed-loop
    subscriber-based system, by definition, precludes businesses or
    entities not licensed and regulated by state governments from operating
    under the Internet Gambling Prohibition Act.
        In Oregon, for example, the Commission has broad statutory
    discretion over the licensing and operation of a closed-loop
    subscriber-based system. A pari-mutuel wagering operator must file an
    application for a license with the Oregon Racing Commission that
    includes, among other things, proof of corporate financial ability and
    the posting of a surety bond, background checks on all corporate
    officers and wagering hub personnel, a detailed plan of operation that
    includes very specific details about the operating systems and the
    required certification of any electronic wagering technology by the
    Commission to ensure compliance with state mandates. The operator also
    must maintain a proactive program to ensure responsible wagering by
    adults over the age of 21. Even after issuing a license, the Commission
    maintains an onsite office at each facility and conducts ongoing
    quality assurance and audit procedures with state government personnel.
    Through comprehensive state regulation and enforcement, we are
    confident that wagering operators in Oregon adhere to the letter of
    state law, the spirit of the current language of the Internet Gambling
    Prohibition Act, and the Interstate Horseracing Act.
        Operationally, someone casually surfing the Web or using an online
    search engine has no access to regulated pari-mutuel wagering
    opportunities on a state licensed closed-loop subscriber-based system.
    Access is controlled by an electronic account sign-up process with age
    and residency verification and limited to subscribers of a state-
    sanctioned pari-mutuel system through account and personal
    identification authorization procedures. To become a subscriber of such
    a system, a person must supply verifiable proof of identity, age and
    residency--thereby limiting the possibility that a minor or a resident
    of a state where wagering is prohibited can use the online service. A
    non-subscriber to the service would have no access to the site or would
    not be able to proceed past a secure login page requiring account
    number and PIN security information. This process is consistent with
    advanced procedures in the financial industry for online trading and
    banking as well as ATM operation.
        There are other devices available to ensure the security of a
    closed-loop subscriber based system. Secure Sockets Layered Internet
    Security Technology--identical to technology used by financial
    institutions, service providers and brokerages (all state and/or
    federally regulated) to conduct e-commerce--further restricts access to
    pari-mutuel wagering via the Internet. Also, currently available
    Internet filter technologies such as Cyber-patrol and others can be
    employed to completely block access to state-regulated pari-mutuel
    wagering systems.
        This regulatory framework is effective in controlling access to
    wagering services operating in the state based on age, residency and
    the geographic location of a user. With on-site state personnel audit
    procedures in place, authorities have the ability to validate the age
    and residency of every accountholder with a licensed Oregon-based firm.
    The Internet Gambling Prohibition Act (H.R. 3125) imposes regulatory
    requirements on the states similar to those already enacted in Oregon.
    It provides that a ``closed-loop, subscriber-based system'' must:

     Be expressly authorized and operated in accordance with the
            laws of the state for placing, receiving or otherwise making a
            bet or wager;
     Include an effective customer and age verification system,
            operated in accordance with the laws of the state to ensure
            that all federal and state regulatory requirements for lawful
            gambling are met;
     Include appropriate data security standards to prevent
            unauthorized access by any person who has not subscribed or who
            is underage; and
     Require the account holder to take the affirmative steps to
            subscribe, to be registered by name, address, billing
            information and to be physically located in the state.
        In addition to these requirements, account wagering operators
    licensed in Oregon impose additional proactive standards designed to
    ensure that only adults of legal age have access to personal wagering
    accounts and wager responsibly at all times. These include:

     Age Verification Procedure--A comprehensive identity and age
            verification process at the time the account is set up. If a
            potential subscriber's age is not verified, the subscriber is
            required to submit a photocopy of his/her driver's license or
            another official form of photo-identification. An account will
            not be activated until verification of age is received in a
            notarized writing. This verification system ensures that only
            adults are able to open a personal wagering account.
     Blind Confirmation Letter--An account confirmation letter is
            sent in a nondescript envelope to each new subscriber. The
            letter ensures that each has authorized his/her name and
            address to be used to open a wagering account. In the event
            that an individual has not given their authorization, the
            account will be immediately disabled.
     Account Number and Pin Authorization Procedures--A thorough
            identification system involving an account number and a
            confidential Personal Identification Number (PIN) is used to
            ensure that only the subscriber of record can access his or her
            account.
     The ``Sleep-On-It'' Policy--Next-day-deposit availability is
            designed to help each subscriber manage his or her account in a
            responsible manner. When funds are deposited into a wagering
            account, the money will not be available for wagering purposes
            until the next day.
     Credit Card Policy--A one-time credit card deposit from a
            customer in the initial subscription phase is permitted in
            order to establish an account over the telephone is accepted.
            Beyond this initial deposit, credit card deposits from
            subscribers are not accepted.
        The Internet Gambling Prohibition Act, in its enforcement
    provisions, also contains the ultimate safeguard. If any state
    regulated pari-mutuel operator does not comply with federal or state
    mandates, the government can protect the public and enforce the law
    through the termination of access to the site by interactive service
    providers. The closed-loop subscriber-based system maintains the
    government's ability to enforce this law. Private networks, or
    ``Intranet'' wagering systems, however, do not require interactive
    service providers, circumventing the scope of proposed federal
    enforcement procedures.
        As written, the requirements in H.R. 3125, in addition to those
    that will be imposed by a state pursuant to the mandate in the
    legislation, are sufficient to ensure the safety and integrity of the
    system and to permit the continued offering of such personal wagering
    accounts by state-regulated and licensed domestic pari-mutuel
    operators.
        In sum, we must not forget that it is the authority of the states,
    consistent with the intent of the proposed federal legislation, to
    impose and enforce any mandates and requirements on the system in use
    that is the controlling and overriding factor in this discussion.
    Similar to the justification for the Federal Wire Act of 1961, the
    Internet Gambling Prohibition Act is intended to assist states in
    enforcing their own gaming laws. The bill, in its current form
    accomplishes the goal of enhancing the states' longstanding and
    successful regulation of legal, state sanctioned gaming such as
    domestic pari-mutuel wagering.
        If you have any questions, please contact me.
                Very truly yours,
                                             Stephen S. Walters
                                     Chairman, Oregon Racing Commission

        Mr. Tauzin. But with the gentleman's consent, I would also
    like to make a part of the record Web site documents for
    capital--RTB Racing 2000, it looks like. It contains
    information on Off Track Betting information requirements in
    New York, which is quite different from Oregon. We ought to see
    both of those. Without objection, that will be made a part of
    the record.
        The gentleman from Texas, Mr. Green, is recognized.
        Mr. Green. Thank you, Mr. Chairman.
        I wasn't here for part of your testimony where you talked
    about, under certain circumstances, you can have a closed loop.
    For example, in Texas we have horse racing, and off track, but
    you have to be at a local site, so I guess we get part of the
    revenue. Is it legal for me to have a closed loop to bet
    whether it be horse races or dog races?
        Mr. Goodlatte. If the State of Texas were to permit that
    under those circumstances, the answer would be yes. If they did
    not, the answer would be no. Different States have different
    laws relating to this, and that is the reason why we have the
    provision in the bill that makes recognition of the States'
    rights to have these kinds of systems where you are dealing
    with a closed-loop system, which is defined in the bill and
    which requires verification of who it is that you are dealing
    with.
        Mr. Green. And that is up to the States?
        Mr. Goodlatte. It is totally up to the States. The State of
    New York has a different system than the State of Oregon, and
    so on.
        Mr. Green. Could a State under current law do that now?
        Mr. Goodlatte. To my knowledge, yes. That is why we don't
    feel that we are doing anything that enhances gambling on the
    Internet which is one of the attacks of some of our critics. We
    believe that we are rolling back 95 percent of all gambling on
    the Internet, and we are leaving in place this State-regulated
    area.
        Mr. Green. Could a State now allow interstate and not just
    intrastate?
        Mr. Goodlatte. That is one of the things that we made clear
    in the law, that you cannot do that unless the other State
    agrees to that. If the State of Texas had a system and they
    wanted to extend that loop into Virginia and Virginia did not
    agree with that, did not make it lawful statutorily, they could
    not do this under this legislation. If they did, they could.
        Mr. Green. Without this legislation that we are discussing
    here today, could the State of Texas allow for interstate
    gambling from Texas citizens to Louisiana under current Federal
    law?
        Mr. Goodlatte. If it is totally lawful in both States.
        Mr. Green. If it is lawful in both States?
        Mr. Goodlatte. Right.
        Mr. Green. Mr. Chairman, obviously you would want us from
    Texas to drive over to Louisiana----
        Mr. Tauzin. Not necessarily, it would depend who you are.
        Mr. Green. Thank you, Mr. Chairman. I yield back the
    balance of my time.
        Mr. Tauzin. I want to follow up. In the New York case, the
    only thing required to bet on-line, the on-line information you
    need to post is your name and your e-mail address. They have
    forms where you can put an address and theoretically you can
    put any address. It requires a check on the document that I am
    18 years old. What is to stop me just listing an address in
    Texas or just putting an e-mail address?
        Do you follow what I am saying? In other words, you are
    saying that the bill says that only if the two States agree.
    But if the citizens of Texas, which may not agree to gamble on-
    line in Louisiana, if they can get on-line and claim a
    Louisiana address or no address at all and put an e-mail
    address, is it enforceable?
        Mr. Goodlatte. I believe it is because I believe there are
    a number of ways that you can verify where you are doing
    business from. Not being familiar with the details of the
    current New York system, this bill would actually enhance that.
    This would require greater steps be taken in order for them to
    continue that system because it does require more verification
    than what you described under the current system in New York.
        Mr. Tauzin. The gentleman's time has expired. The gentleman
    from Illinois, Mr. Shimkus, is recognized.
        Mr. Shimkus. Thank you, Mr. Chairman.
        Bob, is there any way to technologically prohibit someone
    within the continental United States from using a casino Web
    site in Barbados or--and prohibiting that access in that
    gambling venue?
        Mr. Goodlatte. Yes. There are several things. We talked
    about the enforcement provisions of the bill, but obviously
    they are directed at the offeror of the service. If they are in
    the jurisdiction of the United States or extradited to the
    United States, they can be prosecuted under law. But in terms
    of technologically being connected, yes. The provisions in this
    bill that relate to keeping people from doing business where
    they shouldn't be doing business, where they are prohibited
    from doing business are based upon the provisions in the
    Digital Millennium Copyright Act that Congress passed related
    to copyright violations where someone has a Web site up
    somewhere and they are giving away free copyrighted material
    that is in violation of the law.
        And that bill and this bill have a provision called a
    notice and take-down provision where in that case the owner of
    the copyright, in this case the law enforcement agency--the
    attorney general of the State, can notify the Internet service
    providers through which access is gained to these different
    sites around the world that this site is in violation of U.S.
    law and that the site either can be taken down or access to the
    U.S. be restricted.
        Second, I mentioned just a few moments ago to Mrs. Cubin
    that there is legislation in the Congress introduced by
    Congressman Leach, the chairman of the Banking Committee, to
    increase dramatically the difficulty with which you could use
    credit. It is not like going into a casino, you take cash out
    of your pocket and put it on the table. If you have to transfer
    funds in order to gamble, measures can be taken, not in this
    legislation but hopefully in legislation to follow, that would
    make that more difficult.
        Mr. Shimkus. Just to follow up, suppose I have my Internet
    access here with our server here at the Capitol and then I go
    and get on AOL and then I use AOL to get Microsoft and I use--
    and you can go from Internet provider to Internet provider to
    the gambling site. Who is held accountable?
        Mr. Tauzin. Which Microsoft did you use?
        Mr. Shimkus. I am not sure which one yet. That is coming
    later on.
        Mr. Goodlatte. The court could issue an injunction under
    the circumstances requiring that those sites act accordingly.
    If a State is attempting to take action against a site, they
    are going to contact all of the leading Internet service
    providers. Could somebody find some way going through a lot of
    loopholes to do it, I am sure that there is going to be a
    technological escalation of warfare on that issue.
        Mr. Shimkus. Actually, I would predict some conniving,
    entrepreneurial gambler to make it easy to not only go through
    the Internet providers here, but then to go offshore and then
    go back in.
        Mr. Goodlatte. Even if the server is outside of the United
    States, the backbone of the Internet into the United States can
    be utilized to block these.
        Mr. Shimkus. Thank you, and I yield back the balance of my
    time.
        Mr. Tauzin. Thank you. The gentleman from Tennessee, Mr.
    Gordon.
        Mr. Gordon. Thank you, Mr. Chairman. I think these
    questions demonstrate why we have this hearing. We have to try
    to make room for this next panel. They have been waiting for a
    long time. So I am just going to say that I have learned more
    about this closed loop. I came in late. If Billy's scenario of
    what goes on in New York is part of that closed loop, then
    clearly I would suggest to you, Bob, that you need to be
    looking for some type of an addendum to this legislation. I
    don't think that we can leave it to the States. There will need
    to be some kind of uniform security that closed with this
    closed loop or it looks like there is no security.
        Mr. Goodlatte. Except that I would add that the legislation
    itself is stronger than what is provided for in New York. By
    passing this legislation, you would require States, and I don't
    want to speak for New York, but if they have a lax system, they
    would be required--and I will read just briefly--what it
    requires is well beyond that--``a device or combination of
    devices expressly authorized and operated in accordance with
    the laws of the States exclusively for placing, receiving or
    otherwise making a bet or wager described in subsection
    (F)(1)(b) by which a person located within any State must
    subscribe and be registered with the provider of the wagering
    service by name, address and appropriate billing information,
    be authorized to place, receive or otherwise make a bet or
    wager and must be physically located within that State in order
    to be authorized to do so and be an effective customer
    verification and age verification system expressly authorized
    and operated in accordance with the laws of the State in which
    it is located to insure that all applicable Federal and State
    legal and regulatory requirements for lawful gambling are met
    and appropriate data security standards to prevent unauthorized
    access by any person who has not subscribed or who is a
    minor.''
        Mr. Gordon. Is there an enforcement vehicle or penalty that
    goes with that?
        Mr. Goodlatte. Basically the answer is they meet the
    requirement or they do not qualify under the law for being
    allowed to offer a closed loop system.
        Mr. Gordon. I think there needs to be a penalty for
    falsification or against the States for not abiding by it.
        Mr. Tauzin. Would the gentleman yield? The problem that the
    gentleman points out is if you leave it up to the States to
    define what is legally required under the standard, and second
    to enforce that standard, it may not provide protections for
    the citizens of other States who have made different decisions.
    The concern that the gentleman makes in regard to that is
    perhaps that needs to get some attention.
        Mr. Gordon. The fundamental problem is any kind of
    electronic transaction in terms of establishing venue,
    establishing age, whether it is pin numbers and somebody steals
    it, you are a part of the problem that this whole new era of
    electronic commerce has brought to us, but we have to be
    looking for, I think, whatever continuity we can provide as
    well as looking for technology to try to help it.
        Mr. Tauzin. The gentleman's time has expired. We have a
    member who has to catch a plane. I want to ask you on one
    criticism that the Justice Department has made of your bill,
    that it is not technologically neutral. If, for example, the
    bill only applies to Internet gambling and therefore sets up
    new restrictions or laws or conditions upon gambling on the
    Internet, but does not change and leaves in place current law
    on gambling of a wire communications facilities, so if I make a
    bet on a telephone, I am covered by one kind of law. If I make
    a telephone call on the Internet, under this bill I would be
    affected by a different set of laws. So that the Justice
    Department is saying in effect, you are writing a bill that is
    designed for a particular technology when it may create
    inconsistent legal treatment, depending on whether you use the
    phone or you used Internet telephony to make the same bet. What
    is the answer?
        Mr. Goodlatte. Mr. Chairman, that is exactly what the Wire
    Act was in the first place. It created a separate form of
    treatment for the telephone. This technology is different than
    the telephone. We have had this philosophical debate.
        Mr. Tauzin. So it does treat them differently?
        Mr. Goodlatte. It is a procedural difference. I think the
    end result is very similar, if not the same, in terms of the
    substantive result. And I would point out, for example----
        Mr. Tauzin. If I can, if you can do something on a phone
    that you can't do on the Internet, isn't that a substantive
    difference? Isn't somebody subject to a different perhaps
    criminal violation depending on whether you used the phone or
    the Internet and do you really want to do that, particularly
    when the Internet is going to have voice communications on it
    more and more? Internet telephony is upon us.
        Mr. Goodlatte. Mr. Chairman, I am not sure that I am aware
    of any substantive difference. The Wire Act makes illegal these
    types of bets in interstate----
        Mr. Tauzin. The Justice Department thinks so.
        Mr. Goodlatte. The Justice Department has had a different
    approach. They want us to take a current section of the Wire
    Act and amend that instead of creating a separate section. We
    feel that the technology is so different----
        Mr. Tauzin. Can I bet on jai alai right now on the phone?
        Mr. Goodlatte. I don't know about jai alai, but my
    understanding is that you can for----
        Mr. Tauzin. Can I bet on dogs and horses on the phone?
        Mr. Goodlatte. Horses you can.
        Mr. Tauzin. Under your bill, I can't on the regular phone?
        Mr. Goodlatte. If you can pick up the phone and place a bet
    on horses, you can under a State regulated closed loop system.
        Mr. Tauzin. I think you are right. I think you can make a
    phone call and place a bet on a horse. In many States, at least
    seven and perhaps with loopholes many States you can make a bet
    on the Internet on a horse.
        Can you pick up the phone and make a bet on a dog race or
    jai alai today? I think the answer is, no. I think the answer
    is, no.
        Mr. Goodlatte. Very similar to what the bill says. If you
    are in the State and participating in a closed loop, pin number
    type system, yes, you can do that. That is why we think that
    our bill is compatible with current law and consistent and it
    is not an expansion.
        Mr. Tauzin. But your closed loop system for jai alai
    betting on the Internet is interstate. It need not be
    intrastate.
        Let me try to summarize. If I read it right, you are saying
    with a closed loop system, people can use the Internet to bet
    interstate on jai alai and dogs?
        Mr. Goodlatte. Only if the other State participates in the
    closed loop system.
        Mr. Tauzin. But you can bet interstate on the Internet on
    jai alai and dogs in your bill. The current law does not allow
    you under the Wire Communications Act to bet on dogs and jai
    alai interstate on the phone, and the Justice Department is
    questioning whether or not that creates a real problem when I
    pick up the telephone on the Internet, telephone telephony, and
    I can do something that is not permitted on the telephone. Is
    that a real criticism or not?
        Mr. Goodlatte. No, it is not. Right now on the telephone,
    interstate bets of the nature we described are taking place.
        Mr. Tauzin. On dogs and jai alai?
        Mr. Goodlatte. Dogs, horses, jai alai.
        Mr. Tauzin. I think there is some dispute about that.
        Bob, thanks so much. You have given us a lot of your time.
    Thank you.
        We will introduce the next panel and let me make a request
    that we take one of the witnesses out of order who has a
    problem with time, Mr. Ziemak, Executive Director of the Kansas
    Lottery. Let me bring the second panel up, which includes Kevin
    Di Gregory, Deputy Assistant Attorney General, Criminal
    Division, DOJ; Ms. Lisa Dean, Free Congress Foundation; Mr.
    Michael Bowman, Family Research Council; Ms. Anne Poulson,
    Virginia Thoroughbred Association; Daniel Nestel, NCAA;
    Reverend Louis Sheldon, Traditional Values Coalition; Greg
    Ziemak; Gerard Waldron of Covington & Burling; and Richard
    Williams, Chairman, Lac Vieux Desert Band, Lake Superior
    Chippewa Indian Tribe. Welcome.
        We want to welcome you all and we will start, with the
    permission of all of the other witnesses, with Mr. Ziemak of
    the Kansas lottery in Topeka, Kansas. Please don't read your
    testimony to us. Think about the highlights.

       STATEMENTS OF GREGORY ZIEMAK, EXECUTIVE DIRECTOR, KANSAS
        LOTTERY; KEVIN V. DI GREGORY, DEPUTY ASSISTANT ATTORNEY
     GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE; LISA DEAN,
     VICE PRESIDENT, TECHNOLOGY POLICY, FREE CONGRESS FOUNDATION;
     MICHAEL BOWMAN, VICE PRESIDENT, GOVERNMENT RELATIONS, FAMILY
          RESEARCH COUNCIL; ANNE POULSON, PRESIDENT, VIRGINIA
    THOROUGHBRED ASSOCIATION; DANIEL NESTEL, ASSISTANT DIRECTOR OF
          FEDERAL RELATIONS, THE NATIONAL COLLEGIATE ATHLETIC
        ASSOCIATION; REVEREND LOUIS SHELDON, TRADITIONAL VALUES
    COALITION; GERARD J. WALDRON, PARTNER, COVINGTON & BURLING; AND
        RICHARD WILLIAMS, CHAIRMAN, LAC VIEUX DESERT BAND, LAKE
                     SUPERIOR CHIPPEWA INDIAN TRIBE

        Mr. Ziemak. Good afternoon. My name is Greg Ziemak. I am
    the President of the North American Association of State and
    Provincial Lotteries. NASPL are a nonprofit, professional
    organization to which every sanctioned U.S. lottery and
    Canadian lottery belong in addition to Puerto Rico, the Virgin
    Island and Jamaica. I am also the Executive Director of the
    Kansas Lottery. I have been professionally involved in the U.S.
    Lottery industry for over 25 years, and I appreciate the
    opportunity to testify before you regarding H.R. 3125, Internet
    Gambling Prohibition Act.
        For as long as Congress has been in existence, never has it
    attempted to regulate the methods on which States govern gaming
    within their borders. NASPL and its members oppose passage of
    H.R. 3125 on the grounds that it violates the right of the
    Nation's Governors and State legislators to authorize gaming
    within their borders. We urge you to reject this language
    unless there are provisions admitted back into the bill which
    protect the State's right to govern its own lottery. In the
    current form, H.R. 3125 allow for limited benefit gaming, those
    forms of gaming whose profits benefit only a limited group of
    individuals, horse racing, greyhound racing and jai alai, to be
    played from a public or private venue. Under this legislation,
    limited benefit gaming operators will be required to operate
    their on-line system using what is known as a closed loop
    subscriber based service, which we have been discussing
    already, and verify the eligibility of the individual placing
    the wager to engage in such activity. For public benefit
    gaming, defined as State lotteries, whose profit benefits
    programs such as primary and secondary education, programs for
    the elderly, the environment, property tax relief, the
    situation is quite different. Under the provisions of the
    current bill, State Governors and legislatures would only be
    allowed to authorize Internet State lottery games that could be
    played from a public venue using a private network, in reality
    providing Federal regulation of State obligations.
        In its original form, H.R. 3125 offered language that would
    at a minimum protect the State's right to offer Internet games
    on a level playing field with private benefit gaming through
    the use of a closed loop subscriber based service. As you know,
    this language was removed in the Judiciary Committee after
    strong protest from anti-lottery groups. The opponents of State
    lotteries said it would be dangerous to children to allow State
    lottery games to be played on the Internet because the
    technical security would not be sufficient to protect minors.
    They stated that lottery games would be an expansion of gaming.
    I would be doing a disservice to the Americans who benefit from
    lottery programs if I did not discuss the truth on these
    issues.
        First of all, it is interesting to point out that the
    closed loop subscriber based service that would be used by
    State lotteries is the same type of system used for limit
    benefit gaming interest. So if the technology is not secure
    enough for State lotteries, why is it secure for select benefit
    gaming interests where the wagers are much greater? It is a
    fact that security standards for State lottery games have been
    proven to be some of the most stringent in the world, and it is
    in our best interest to keep it that way if we are to maintain
    the level of public trust we have gained from our players and
    taxpayers of our lottery jurisdictions.
        Second, I would like to point out that you can purchase
    lottery tickets over the telephone and in fact in some States
    retailers are developing systems that allow you to purchase
    lottery tickets when they buy their groceries on-line. It is my
    understanding that has not been implemented yet, but there are
    some out in the West that are looking at that. It is assumed
    that by allowing Governors and State legislatures the right to
    continue controlling the way their State lotteries operate
    means that all State lotteries will begin to offer Internet
    products, and this is simply not true. There are several
    members of our organization, and our organization includes all
    sanctioned lotteries in the United States, 38 lotteries, 37
    States plus the District of Columbia, and there are some
    members in our organization that feel strongly about this and
    would oppose any attempt by their State legislature to
    authorize such games. But there are States that feel that there
    may come a time when their governments feel it is appropriate
    to offer these games.
        I make this point to urge--even though the members of NASPL
    may not agree on the value of Internet lottery games, and there
    is some disagreement, we are united in the belief that the
    Federal Government has no place in determining the way in which
    State lotteries operate or the games they offer--I would urge
    the committee to amend H.R. 3125 to include the strongest
    language possible to protect the State's right to control
    gaming within its borders.
        Before concluding, there is a second issue that, while not
    as fundamental as the States rights argument, is still worth
    mentioning. Because the language of H.R. 3125 would mandate
    that public benefit gaming would be limited to public arenas
    only, State lotteries would be put at a competitive
    disadvantage to other participants in the industry.
        Here is a little scenario I would like to give the
    committee. Saturday afternoon, it is raining. You have a
    choice, walk or drive to the local convenience store to
    purchase a lottery ticket or remain in the comfort of your own
    home and wager a larger sum of money on horse, greyhound race
    or jai alai game from a personal computer. The potential
    revenue lost to State lotteries and the programs they fund
    could potentially be staggering.
        Mr. Chairman, I have attached to my statement a detailed
    State by State list of where lottery profits are used in each
    State, and I ask you to allow this information to be entered
    into the record along with my statement. I would like to ask
    the committee to take a strong stand in support of States
    rights by either amending the original lottery provisions back
    into the bill or removing the special privileges for special
    benefit gaming interests.
        [The prepared statement of Gregory Ziemak follows:]
         Prepared Statement of Greg Ziemak, President, North American
      Association of State & Provincial Lotteries, Director, Kansas State
                                    Lottery
        Good morning Mr. Chairman, my name is Greg Ziemak and I am the
    President of NASPL--North American Association of State & Provincial
    Lotteries as well as Director of the Kansas State Lottery. I have been
    professionally involved in the US lottery industry for over twenty-five
    years and I appreciate the opportunity to testify before you this
    morning regarding your work on H.R. 3125--The Internet Gaming
    Prohibition Act. For as long as the Congress has been in existence
    never has it attempted to regulate the method in which states govern
    gaining within their borders. NASPL and it's members oppose passage of
    H.R. 3125 on the grounds that it violates the right of the nation's
    governors and state legislators to authorize gaming within their
    borders. We urge you to reject this language unless there are
    provisions amended back into the bill that would protect a state
    government's right to govern its own lottery.
        In its current form H.R. 3125 would allow for ``limited benefit
    gaming''--those forms of gaming whose profits benefit only a limited
    group of individuals--horse racing, greyhound racing and Jai Alia--to
    be played either from a public or private venue. Under this
    legislation, limited benefit gaining operators would be required to
    operate their online systems using what is known as a closed-loop
    subscriber based service that would verify the eligibility of the
    individual placing the wager to engage in such activity.
        For ``public benefit gaming''--whose profits benefit programs such
    as primary and secondary education, programs for the elderly, the
    environment and property tax relief--state lotteries--the situation
    would be quite different. Under the provisions of the current bill,
    state governors and legislatures would only be allowed to authorize
    Internet state lottery games that could be played from a public venue
    using a private network. In reality providing Federal regulation of
    state obligations.
        In its original form, H.R. 3125 offered language that would, at
    minimum protect a state's right to offer Internet games on a level
    playing field with private benefit gaming through the use of the same
    closed-loop subscriber based service. This language was removed in the
    Judiciary committee after strong protests from anti-lottery forces. The
    opponents of state lotteries said that it would be dangerous to
    children to allow state lottery games to be played on the Internet
    because the technical security would not be sufficient to protect
    minors. In addition, opponents of state lotteries stated that Internet
    lottery games would be an expansion of gaming. I would be doing a
    disservice to the millions of Americans who benefit from lottery funded
    programs if I did not set down the truth on these issues.
        It is interesting to point out that the closed-loop subscriber
    based service that would be used by state lotteries is the same type of
    system that would be used for limited benefit gaming interests. If the
    technology isn't secure enough for state lotteries, why is it secure
    for select benefit gaming interests--where the wagers and payoffs are
    much greater? It is a fact that security standards for state lottery
    games have been proven to be some of the most stringent in the world
    and it is in our best interest to keep it that way if we are to
    maintain the high level of public trust we have gained from the
    taxpayers of our states.
        Second, it is important to point out that under current law, you
    can purchase lottery tickets over the telephone and, in fact, in some
    states retailers are developing systems that would allow residents to
    purchase lottery tickets when they by their groceries online.
        It is assumed that by allowing Governors and state legislatures the
    right to continue to control the way their state lotteries operate, it
    is means that all state lotteries will begin to offer Internet
    products. This is simply not true.
        In fact, there are several members of NASPL who are opposed to
    offering state lottery games online. They feel strongly about this and
    would oppose any attempt by their state legislature to authorize such
    games. But there are states who feel that there may come a time when
    their governments feel it is appropriate to offer such games. I make
    this point Mr. Chairman to illustrate that even though the members of
    NASPL may not all agree on the value of Internet lottery games, we are
    united in the belief that the Federal government has no place in
    determining the way in which state lotteries operate or the games they
    offer.
        Mr. Chairman, I would, again, urge the committee to amend H.R. 3125
    to include the strongest language possible to protect a states right to
    control gaming within its borders.
        Before concluding, there is a second issue that, while not as
    fundamental as the states rights argument, still is worth mentioning.
    Because the language of H. R. 3125 would mandate that public benefit
    gaming would be limited to public arenas only, state lotteries would be
    put at a competitive disadvantage to other participants in the
    industry. Let me paint this picture for you. It's Saturday afternoon
    and it is raining. You have a choice, put on your coat and walk/drive
    in the rain to a local convenience store to purchase a lottery ticket,
    or remain in the comfort of your own home and wager a larger sum of
    money on a horse or greyhound race or a Jai Alai game from your lap
    top. The potential revenue loss to state lotteries and the programs
    they fund could, potentially, be staggering. Mr. Chairman, I have
    attached to my statement a detailed state-by-state list of where
    lottery profits are used in each state and I ask that you allow this
    information to be entered into the record along with my statement.
        Mr. Chairman, I ask that the committee take a strong stand in
    support of states rights by either amending the original lottery
    provisions back into the bill or removing the special privileges for
    special benefit gaming interests.
        Thank you.

        Mr. Tauzin. Thank you.
        We will start with Mr. Di Gregory. Again, we thank you for
    your attendance.

                    STATEMENT OF KEVIN V. DI GREGORY

        Mr. Di Gregory. Thank you, Mr. Chairman. It is indeed a
    pleasure to be before your committee. And Mr. Chairman, members
    of the committee, it has been discussed already and I will make
    the point very briefly that of course proliferation of Internet
    gambling opportunities is well documented and the proliferation
    of these opportunities concerns the Department of Justice, most
    particularly those in the Department of Justice who are
    concerned with enforcing current Federal law, the Criminal
    Division of the Department and the United States attorneys
    around the country, and we are troubled for three reasons.
        We are troubled because of the potential for fraud by
    Internet gambling operators. The potential is far greater than
    for traditional gambling because the Internet of course is
    instantaneous and anonymous, which means that we would have
    difficulty as prosecutors, as enforcers of the law, in tracking
    those perhaps responsible for perpetrating fraud through
    Internet gambling.
        Second, we are concerned about opportunity and
    availability. Anyone who has access to the Internet can at any
    place and at any time, this includes compulsive gamblers, place
    a bet and wreak financial devastation possibly upon themselves
    and their families.
        Third, we are concerned about anonymity and availability,
    and we are concerned that anonymity and availability may equal
    an inability to ensure that minors will not gamble. We do not
    think that there currently exists a technological way to grant
    any of us any such assurances, but we welcome any industry
    representatives to come in and talk with us at the Department
    of Justice and tell us how it is that they can technologically
    assure us that minors will not have access to Internet
    gambling.
        Despite these problems, Mr. Chairman and members of the
    subcommittee, we have made enforcement inroads and some
    references were made to those this morning. I would
    specifically note in the Southern District of New York an
    offshore sports betting operation run by Jay Cohen, which used
    both the telephone and the Internet, was prosecuted recently
    and Mr. Cohen was found guilty after a trial of violating
    current Federal law, 18 United States Code 1084.
        18 United States Code 1084, which I have a copy with me
    today, prohibits the interstate transmission of bets or wagers
    over a wire communication facility. It also prohibits the
    transmission of information assisting bets or wagers interstate
    over wire communications facilities with a single exemption of
    allowing such transmission of information assisting bets or
    wagers between two States where such betting or wagering is
    legal. It prohibits gambling businesses from transmitting that
    information, Mr. Chairman.
        Now, to talk about H.R. 3125, first and foremost, we
    believe at the Department of Justice that H.R. 3125 does indeed
    expand gambling opportunities. Pari-mutuel wagering is
    exempted. It allows not only the horse racing industry but dog
    tracks and jai alai frontons to do over the Internet what
    Federal law prohibits them from doing on the phone.
        Not only is H.R. 3125 inconsistent with current Federal
    law, its inconsistency exposes another what we believe to be a
    significant weakness. It is not technologically neutral. It
    would apply specific and different rules to the Internet. We
    would encourage Members of this body, Members of Congress, to
    legislate based on conduct and not on the medium used to
    perpetrate that conduct.
        In considering whether the operation of interstate gambling
    businesses should be prohibited, we recommend amending existing
    law, most specifically 18 United States Code 1084, and I
    mentioned what it prohibits. Currently it prohibits the
    transmission of bets or wagers on sporting events or contests
    over wire communications facilities interstate. It also
    prohibits the transmission of information assisting in the
    placing of bets or wagers on sporting events or contests
    interstate over wire communications facilities.
        We urge you to consider a proposal that we have made, and I
    will highlight what that proposal would do.
        It would clarify that 18 United States Code 1084 applies to
    all betting and not just betting on sporting events or
    contests. Our proposal would update 18 United States Code 1084
    so that it applies to the use of any, not just wire
    communications facilities. Our proposal would also ensure that
    existing protection from liability given common carriers who
    deny services to gambling businesses upon notice by law
    enforcement, it ensures that protection would be provided to
    any person, including Internet service providers, who are
    required by that notice to terminate a customer service.
        Our proposed amendment, Mr. Chairman and members of the
    committee, would not prohibit any gambling currently permitted
    nor would our proposal permit anything that is currently
    prohibited.
        I believe that our draft proposal has been attached to my
    written statement. I thank you for allowing my written
    statement to be added to the record and later on I will try to
    answer any questions that you may have.
        [The prepared statement of Kevin V. Di Gregory follows:]
     Prepared Statement of Kevin V. Di Gregory, Deputy Assistant Attorney
        General, Criminal Division, United States Department of Justice
        Thank you, Mr. Chairman and Members of the Subcommittee, for
    providing me this opportunity to provide the Subcommittee with the
    Department of Justice's views on Internet gambling and H.R. 3125, the
    ``Internet Gambling Prohibition Act of 2000.''
        The growing availability of emerging technologies has had a
    prolific effect on gambling. The Internet and other new technologies
    have made possible types of gambling that were not feasible a few years
    ago. For example, a U.S. citizen can now log on from his living room
    and participate in an interactive Internet poker game operated from a
    computer located in Antigua. Not only have the Internet and other new
    technologies brought gambling into the home, they have made it
    anonymous and readily available to virtually anyone at any time and at
    any place where there is an Internet hookup. As a result, the number of
    Internet gambling sites operating illegal betting and wagering
    businesses online has increased at an alarmingly rapid rate. The
    Department is deeply troubled by this proliferation of gambling on the
    Internet for three reasons.
        First, since the Internet allows virtually instantaneous and
    anonymous communication that is difficult to trace to a particular
    individual or organization, the potential for operators of Internet
    gambling sites to successfully defraud their customers is significantly
    greater than with traditional casino-style gambling. Fraudulent
    activities can range from credit card fraud to the manipulation of
    gambling odds. Of course--and as the Deputy Attorney General noted
    before the Subcommittee on Crime of the House Committee on the
    Judiciary on February 29, 2000--we recognize that there are legitimate
    reasons to allow anonymity in communications networks. A whistleblower
    or a member of a battered woman's support group, for example, may
    understandably wish to use the Internet and other new technologies to
    communicate with others without revealing his or her identity.
    Nonetheless, such admittedly legitimate uses for anonymity on the
    Internet involve legal activities and are inapplicable in connection
    with gambling on the Internet, which is illegal.
        Second, because the Internet provides people with virtually
    unfettered access to the opportunity to gamble at any time and from any
    place, Internet gaming presents a greater danger for compulsive
    gamblers and can cause severe financial consequences for an
    unsuccessful player.
        Last, because the Internet is both anonymous and widely available,
    it is much more difficult to prevent minors from gambling. Currently,
    Internet gambling businesses have no reliable way of confirming that
    gamblers are not minors who have gained access to a credit card and are
    gambling on their web sites.
        Despite the proliferation of Internet gambling, the Department is
    optimistic about its ability to combat this form of illegal gambling.
    On February 28, 2000, a jury in federal district court in New York
    found Jay Cohen, the owner of an Internet gambling site in Antigua,
    guilty of violating 18 U.S.C. Sec. 1084, a statute that makes it
    illegal for a betting or wagering business to use a wire communication
    facility to transmit bets or wagers in interstate or foreign commerce.
    Several of the counts for which Mr. Cohen was found guilty solely
    involved his Internet operations. That is not to say that section 1084,
    as written, will apply in every case. As I will explain later in my
    testimony, the Department believes that the statute may need to be
    amended to assist us in our efforts against gambling and organized
    crime.
        Before I discuss that, however, let me say that the Department has
    reviewed H.R. 3125 in great detail and is very concerned about how it
    proposes to deal with Internet gambling. The Department is most
    concerned about the following three issues.
        First, the Department is concerned that the bill does not really
    prohibit Internet gambling, but rather facilitates certain types of
    gambling from the home and, therefore, arguably expands gambling
    opportunities. Specifically, the Department recognizes that H.R. 3125
    exempts parimutuel wagering from the prohibition against Internet
    gambling. The result is that people will be able to bet on horse
    racing, dog racing, and jai alai from their living rooms. While the
    bill provides that such gambling must be done on a ``closed loop
    subscriber based service,'' the definition of that term is extremely
    broad. I could receive a free disk in the mail, load it on my computer,
    connect through my regular Internet service provider, and start betting
    on horse racing from my living room. Additionally, if my children have
    access to that same computer, they may also be able to get online and
    bet and wager on parimutuel activities.
        Simply stated, the Department does not understand why the
    parimutuel wagering industry should be allowed to accept bets from
    people in their homes, when other forms of gambling have rightly been
    prohibited from doing so. The same concerns that we have expressed
    about children and compulsive gamblers having unfettered access to
    gambling via the Internet is true whether the betting is on horse races
    or on casino games.
        Related to this point is the Department's second concern that the
    passing of H.R. 3125 will allow gambling online that currently is not
    allowed in the physical world. For example, currently a gambling
    business that accepts bets on horse races cannot accept interstate bets
    on the races over the telephone. Yet, H.R. 3125 would allow them to
    place the same such bets over the Internet. It is hard for the
    Department to understand why conduct previously deemed unacceptable in
    the physical world and over the telephone should now be legal when
    carried out in cyberspace.
        Third, H.R. 3125 is not technology-neutral, but applies only to
    Internet gambling while leaving the existing prohibition on gambling
    over ``wire communication facilities'' in general unchanged. While the
    Department is generally concerned about legislation designed for
    particular technologies such as the Internet, it is specifically
    troubled here by the creation of two inconsistent gambling prohibitions
    - one expressly for the Internet and a different one for the use of
    wire communication facilities (which includes the Internet).
        Indeed, any effort to distinguish Internet transmission from other
    methods of communication is likely to create artificial and unworkable
    distinctions. For example, we expect digital Internet telephony to grow
    in popularity over the next few years. How would we deal with gambling
    that occurred over this technology, which would use the Internet or
    other packet-switched networks for pure voice communications? Would it
    be under the proposed section 1085, which is designed specifically for
    the Internet, or under section 1084, which deals with wire
    communications in general (but also includes the Internet)? This is
    especially problematic, as section 1084 and the new section 1085
    proposed by H.R. 3125 would have different standards and punishments.
        The Department urges Congress to identify the conduct that it is
    trying to prohibit and then to prohibit that conduct in technology-
    neutral terms. The fact that gambling has gone high-tech and can now be
    done through the Internet, is no reason to pass new laws that
    specifically target the Internet for regulation. Passing laws that are
    technology-specific can create overlapping and conflicting laws
    prohibiting the same activity, but with different legal standards and
    punishments. This will be the result if H.R. 3125 is enacted in its
    current form. We will have both section 1084, which we've used to
    prosecute Internet gambling, and a new section 1085 which would
    prohibit some, but not all, types of Internet gambling. This overlap in
    the statutes can only complicate law enforcement's efforts on the
    Internet gambling front.
        The Department encourages Congress, especially as it encounters
    more traditional crimes online, to ensure that existing laws are
    sufficient and technology-neutral in their approach and do not single
    out the Internet for regulation. If existing laws are deemed
    insufficient, please consider legislation, whether prohibitive or
    permissive, which focuses on specific conduct and not on the specific
    medium employed to perpetrate that conduct.
         Moreover, the Department believes that any Internet gambling
    legislation should not repeal or amend the rights or privileges secured
    tribes under IGRA. Of course, to the extent that Indian Tribes seek to
    offer gaming to citizens of various states, where such gaming does not
    take place solely on Indian lands and is not otherwise authorized by
    law, there is no compelling reason to exempt Indian Tribes from the
    otherwise generally applicable provisions of the legislation for such
    off-reservation gambling.
        For all of the reasons I've discussed, the Department urges
    Congress to amend existing gambling laws, rather than create a new
    technology-specific statutory scheme.
        As I noted earlier, section 1084 criminalizes those betting and
    wagering businesses that transmit bets or wagers on sporting events or
    contests over the Internet. The Department recognizes, however, that
    section 1084, which was enacted almost forty years ago, may need to be
    amended to bring it into the 21st Century. The Department believes that
    this can be done through the following actions:
    (1) Amending section 1084 so that it clearly applies to all betting or
            wagering and includes the transmission of bets or wagers over
            any communications facilities. Such an amendment would
            eliminate any doubt about whether section 1084 only applies to
            bets or wagers on sporting events and contests. It would also
            ensure that future technologies that are not wire-based
            communication facilities are covered by section 1084.
    (2) Adding several definitions to 18 U.S.C. Sec. 1081. For example, we
            would recommend adding the following definitions for
            ``transmission,'' ``bets or wagers,'' and ``information
            assisting in the placing of bets or wagers.''
    (3) Amending section 1084 to specifically cover those individuals in
            the betting and wagering business who are located outside the
            territorial jurisdiction of the United States, when those
            individuals knowingly facilitate or aid in unlawful betting and
            wagering by transmitting a bet or wager to or from an
            individual located within the United States. While the current
            statute includes those transmissions involving interstate and
            foreign commerce, it is unclear whether the statute would cover
            someone on a boat in the middle of the Atlantic Ocean who is
            using a cellular phone to take bets or wagers from a U.S.
            citizen located in Miami.
    (4) Requiring any person, not just a common carrier, that provides a
            facility to an individual in the business of betting and
            wagering to disconnect service when served with proper lawful
            process by law enforcement agencies. We would also extend the
            same protections against liability contained in the existing
            statute for common carriers to these persons.
    (5) Clarifying that section 1084 does not repeal or amend the rights or
            privileges secured tribes under IGRA.
    (6) Clarifying that section 1084 does not prohibit how states are
            currently legally using communication facilities in the
            operation of multi-state lotteries.
        The Department of Justice believes that if section 1084 were to be
    amended in these ways, many of our concerns, as well as the concerns
    that led to the introduction of Internet gambling bills, would be
    addressed. We would be happy to work with Congress towards this goal.
    We have prepared a draft bill that incorporates our recommendations. A
    copy of our draft bill is attached for the Subcommittee's convenience.
         I want to thank the Subcommittee again for asking me to present
    the Department's views on Internet gambling. I would now be pleased to
    answer any questions you may have.

        Mr. Tauzin. Mr. Di Gregory, thank you very much.
        Ms. Lisa Dean, the Vice President of the Free Congress
    Foundation here in Washington, DC, is recognized for your
    statement.

                         STATEMENT OF LISA DEAN

        Ms. Dean. Thank you very much, Mr. Chairman, and thank you
    for hearing my testimony today. The Free Congress Foundation is
    a nonprofit, conservative based think-tank, and we do not
    endorse gambling or encourage gambling in any way. However, we
    have problems with H.R. 3125.
        One of the problems is of course mentioned--was mentioned
    earlier, States rights, and we believe that H.R. 3125 takes the
    power away from the States to regulate their own lotteries as a
    usurpation by the Federal Government to usurp one of the most
    fundamental rights of States, the right to self-governance.
        Also, this legislation is inconsistent. It says that
    Internet gambling should be prohibited except in cases where
    gambling takes places on horse racing and dog racing and
    similar activity.
        Third is the issue of government regulation, and that is
    where our strongest opposition lies. It has been discussed
    earlier, the issue of enforcement, how will this bill be
    enforced if passed into law. Will the Federal Government
    propose to enforce nearly unenforceable legislation, which is
    what H.R. 3125 is? Will they begin to monitor everyone's e-
    mail, and will they create a list of banded sites that Internet
    service providers must block? Will it stage dead of night raids
    to seize the hard drives of unsuspecting individuals? Frankly,
    we hope not. But it is difficult to see how, short of using
    tactics like these, that this legislation could be enforced and
    effective in shutting down an industry which is legal in
    countries all over the world.
        Also, by suggesting who can and cannot place bets on-line,
    it divides the Internet up by geography, which is exactly what
    those who would tax the Internet need. As such, we believe it
    is not inconceivable that passage of this legislation could be
    the first nail in the coffin of a tax-free Internet.
        The taxation is only one potential problem. When we use the
    term ``gambling,'' we are referring to casinos, horse racing,
    lotteries and other games of chance. The definition is rather
    narrow, but for those seeking the opportunity to regulate the
    Internet, they would likely use this legislation to expand the
    definition of gambling to include perhaps on-line auction or
    even day trading, and from there it is not much of a stretch to
    include other industries as well which Washington may not like.
        I realize that this is not the intent of the sponsors of
    H.R. 3125, but rather the intent of those who seek to control
    an industry that is young and inexperienced in the world of
    Washington politics. Nevertheless, it is a stark reality, and
    this legislation would give the green light to those who wish
    to regulate this new medium and marketplace and for those
    reasons the Free Congress Foundation opposes H.R. 3125.
        I thank you for allowing me to speak today.
        [The prepared statement of Lisa Dean follows:]
    Prepared Statement of Lisa Dean, Vice President for Technology Policy,
                            Free Congress Foundation
        Mr. Chairman, members of the Committee, thank you for allowing me
    the opportunity to present testimony on H.R. 3125, the Internet
    Gambling Prohibition Act. My name is Lisa Dean. I am the Vice President
    for Technology Policy at the Free Congress Foundation, a Washington, DC
    based think-tank focusing on the culture of American conservatism and
    our Constitutional liberties.
        The Free Congress Foundation strongly opposes H.R. 3125 because we
    believe it flies in the face of conservative principles of federalism,
    individual responsibility, and limited government.
        As you may know, we are deeply concerned about the speed with which
    gambling has spread from Las Vegas across the country and into American
    living rooms. However, of much greater concern to us is the speed with
    which the long arm of the federal government has spread from
    Washington, DC, into American living rooms.
        When balancing the possible benefits of this legislation with its
    certain costs, the ledger ends up in the red. H.R. 3125 represents a
    major step backward in the fight against the creeping assault on
    individual liberty.
        There are some who would stop the spread of gambling at any cost.
    We are not among them. In this case, in fact, we believe the costs are
    much too high.
        H.R. 3125 puts several critical components of American democracy at
    risk.
        First, this legislation makes a mockery of States' rights and the
    Tenth Amendment to the United States Constitution. Throughout the
    history of this country, gambling has wisely been dealt with as a state
    issue. Community standards differ from state to state, and from region
    to region. Imposing a one-size-fits-all policy from on high in
    Washington, DC, is at best, misguided, and at worst, dangerous. We
    strongly believe that gambling in cyberspace, like gambling in the real
    world, should be dealt with at the state level, not at the federal
    level.
        In addition, this legislation represents a blatant disregard for
    the principles of federalism on which this country was founded. Nowhere
    is that disregard more evident than in the way the bill deals with
    gambling on State lotteries. Taking the power away from states to
    regulate their own lotteries is an arrogant usurpation by the federal
    government of one of the most fundamental rights of states--the right
    to self-governance.
        Second, this legislation represents the worst kind of government-
    enforced industrial policy. The bill essentially says that all Internet
    gambling should be prohibited--except gambling on horse racing, dog
    racing, and similar activity. While some might suggest that the broad
    carve-outs contained in this legislation exist to preserve states'
    rights, why is there no carve out for state lotteries? Or for state-run
    blackjack games? Or for state-run video poker?
        We believe that allowing some gambling over the Internet while
    outlawing others is nothing more than the federal government picking
    winners and losers in the marketplace, and question where the federal
    government gets the moral or legal authority to say that a bet on the
    Kentucky Derby is acceptable, but a bet on the Superbowl should be
    outlawed.
        Third, and perhaps most important, is the issue of government
    regulation of the Internet. How does the federal government propose to
    enforce this nearly unenforceable legislation? Will it begin to monitor
    everyone's email? Will it create a list of federal-government-banned
    sites that Internet Service Providers must block? Will it stage dead-of
    night raids to seize the hard drives of unsuspecting individuals?
    Frankly, we hope not. However, it is difficult to see how, short of
    tactics like these, that the government could be at all effective in
    shutting down an industry that is legal in countries all over the
    world.
        We believe that the issue of Internet gambling is very much like
    the issue of smoking. While many of us abhor smoking, would never do
    it, and teach our children to stay away from cigarettes at all costs,
    we do not want the government to step in and tell us whether or not we
    are allowed to smoke. Because if the federal government can tell us
    whether we can smoke, or whether we can gamble, eventually it is going
    to try to tell us what we can read and where we can worship.
        We also believe that this legislation represents the first major
    threat by the federal government to impose a wide-ranging regulatory
    scheme on the Internet. This regulatory scheme is a true slippery
    slope. By suggesting who can and cannot place bets online, it divides
    the Internet up by geography--which is exactly what those who would tax
    the Internet need. As such, we believe it is not inconceivable that
    passage of this legislation could be the first nail in the coffin of a
    tax-free Internet.
        But taxation is only one potential problem. When we use the term
    ``gambling'', we are referring to casinos, horse racing, lotteries and
    other games of chance. The definition is a rather narrow one but for
    those who are seeking the opportunity to regulate the Internet, they
    would likely use this legislation to expand the definition of gambling
    to include online auctions or even day trading. From there, it is not
    much of a stretch to include other industries as well which Washington
    doesn't like.
        I realize that this is not the intent of the sponsors of H.R. 3125
    but rather the intent of those who seek to control an industry that is
    young and inexperienced in the world of Washington politics,
    nevertheless, it is a stark reality and this legislation would give the
    green light to those who wish to regulate this new medium and
    marketplace.
        This bill is also one of those pieces of legislation that separates
    those who are willing to have the federal government step in no matter
    what from those who truly believe in a limited federal government, and
    are leery of Washington stepping in to try to achieve goals that are
    best accomplished by the states or the private sector.
        For these reasons, we strongly urge the Committee to reject the
    approach taken by H.R. 3125.
        Thank you for allowing me to testify. I would be happy to answer
    any questions you may have.

        Mr. Tauzin. Thank you, Ms. Dean.
        Next we hear from Mr. Michael Bowman, of Family Research
    Council here in Washington, DC.

                       STATEMENT OF MICHAEL BOWMAN

        Mr. Bowman. I am Michael Bowman, Vice President of the
    Family Research Council. This has been a tough bill for us. Let
    me just say, we sympathize with you working through this, and
    there are some strange alliances here today on both sides.
        Mr. Tauzin. That is the understatement of the day.
        Mr. Bowman. Let me just say that we, like you, think that
    the Internet is an amazing technology for a lot of good, but we
    also know that there is a lot of amazing things that are not so
    good, such as child obscenity, slave trade, drug trafficking,
    things that clearly undermine State and Federal sovereignty. We
    are talking about an international technology crashing on the
    boundaries of our laws.
        We are strongly in support of the bill, knowing that it is
    slightly what we call flawed. We would like to see some of
    the--we don't support any form of gambling, but when you look
    at the amount of gambling today that is going on, we believe
    that this bill takes the heart out of an industry that is just
    about ready to flourish. We have seen such quotes from the Las
    Vegas Sun that the casino industry will launch next year on the
    Internet. Right now they are not on-line.
        How are we to come next year before this committee with the
    full force of the casino industry, the pari-mutuel industry,
    the lotteries who have States like Ohio which are planning to
    go on-line. Let me make clear that the lottery is not just
    tickets. There is nothing--they are talking about in South
    Dakota blackjack and video poker. They are talking about all
    games of chance, and that is nationalism and we are going to
    have the States run the business, and if we do that, we might
    as well do cigarette companies and HMOs and gun manufacturers
    because those are also controversial issues.
        So when you look at this, we need a place to start and we
    see this as an incremental purist approach with some
    understandings of some existing realities that are already
    happening.
        I have submitted a more lengthy testimony, but this gets to
    the heart of the issue. Let me just say this. This would
    prohibit and give the way for the attorneys general, and we
    have not been satisfied with the Department of U.S. Justice in
    its prosecution of gambling sites. One site out of 750, that to
    us is not a glowing record. We can give you sites just doing a
    Yahoo search and find how many sites you can put up with a $2
    bet.
        So H.R. 3125 gives a take-down measure for the State
    attorneys general to be able to enforce the law if the
    Presidential level does not. This bill also prohibits all
    lotteries from being on-line. Let me just say Family Research
    Council does believe there are worst forms of gambling and
    lotteries in our judgment, as in the judgment of the Gambling
    Commission, but electronic type convenience gambling is far the
    worse. It is accessible at the home. Forcing someone to go to a
    destination and casino, not that we support that, is far
    different than going into your bedroom and having the
    availability to go on-line.
        Finally, this bill also prohibits sports betting, which is
    clearly the largest type of betting that is going on-line. We
    are talking about NCAA fixing in colleges. We have worked
    aggressively with the NCAA as well. We are trying to prohibit
    gambling through in and throughout.
        Finally, the attorneys general at the State level will now
    be able to have a mechanism to enforce the law if the Federal
    Government will not. Thank you.
        [The prepared statement of Michael Bowman follows:]
      Prepared Statement of Michael Bowman, Vice President of Government
                       Relations, Family Research Council
        Mr. Chairman and Honorable Members of the Subcommittee on
    Telecommunications, Trade and Consumer Protection. My name is Michael
    Bowman and I serve as the Vice President for Government Relations at
    Family Research Council. I thank you for the opportunity to discuss our
    support for HR 3125, the Internet Gambling Prohibition Act, sponsored
    by Bob Goodlatte.
        Family Research Council believes the Internet should remain a forum
    of lawful ideas, a medium of information, entertainment, and commerce.
    The Internet is clearly a remarkable technology that allows tremendous
    access to information never before dreamed of. The Internet and
    telephone, for example, can be used for unlimited good. As we have
    learned with child molesting, obscenity, and drug trafficking, however,
    both the telephone and Internet can also be used for illegal gains. FRC
    does not believe the Internet should be able to undermine state or
    federal laws that are designed to protect the safety and general
    welfare of its citizens.
        FRC is concerned about the prolific growth and expansion of the
    gambling industry in America. This bill does not solve all the
    problems; it does however, provide a powerful framework to prevent
    gambling from illegally entering millions of homes in America via the
    Internet. Let me reiterate we are opposed to the expansion of all forms
    of gambling, and are especially concerned about the easy accessibility
    of gambling of state lotteries, and other forms of convenience
    gambling, such as video poker and keno, and above all, the Internet.
    Much of our future focus on the gambling issue will be at the state
    level. We will continue our fight but Congress will enable the states
    to make these decisions with credibility if this legislation becomes
    law.
        Are some forms of gambling worse than others? The answer is clearly
    yes. Family Research Council strongly opposes state-sponsored gambling.
    The National Gambling Impact Study Commission states, ``The Commission
    recommends to state governments and the federal government that states
    are best equipped to regulate gambling within their own borders with
    two exceptions--tribal and Internet gambling.'' The federal government
    is involved in this issue because of the ability of the Internet to
    transcend state boundaries. No single state can adequately address this
    problem, so the federal government must intervene and strengthen
    federal law in this area.
        According to Tim Kelly, former executive director of the National
    Gambling Impact Study Commission, ``states spend more than $400 million
    annually promoting their lotteries with often misleading and deceptive
    advertising.'' Currently, state lotteries are exempt from the Federal
    Trade Commission truth-in-advertising standards. It is clear that
    themes such as, ``Answers to your dreams'', are at best misleading if
    not outright lies. The most common theme in advertisements is enticing
    people with the size of the jackpot, yet never posting, educating or
    alerting people to the actual odds of winning. In contrast, private
    companies must post odds for simple sweepstakes. What is even worse is
    the message gambling sends to children: ``luck'' is the ticket to
    success, not hard work. These types of ads also target those who can
    little afford to purchase tickets.
        Family Research Council is greatly concerned about the lack of
    consumer protection from an industry that has created 7.5 million adult
    problem or pathological gamblers. The 1997 National Gambling Commission
    study also estimated there are 7.9 million adolescents who are problem
    or pathological gamblers and all evidence shows that these numbers are
    continuing to rise. The National Academies of Science found that,
    ``pathological gamblers engage in destructive behaviors: they commit
    crimes, they run up large debts, they damage relationships with family
    and friends, and they kill themselves.'' People have lost their entire
    life savings in a single night due to gambling addictions. In fact, one
    16-year-old boy attempted suicide after losing $6,000 on lottery
    tickets!
        Additionally, the provisions in the bill that allow the pari-mutuel
    industry to continue its activities on the Internet is unfortunate but
    does nothing to expand existing realities. This bill provides a strong
    incremental approach to banning all forms of gambling on the Internet.
    Many groups support H.R. 3125, including: Focus on the Family,
    Christian Coalition, the FBI, the National Association of Attorneys
    General, the National Football League, the National Collegiate Athletic
    Association, the National Council of Churches, Jerry Falwell
    Ministries, and the Presbyterian Church (USA). Please be aware,
    however, that FRC will oppose the bill if any additional exceptions are
    listed, including any provision that would allow for state lotteries to
    sell tickets or any type of lottery game over the Internet.
        We applaud Congress for taking a serious look at how Internet
    gambling has crept into our homes and lured many, even children, to
    become desperate addicts. With the stroke of a pen, it should be
    banned, just as fast as it now can be accessed with a click of a mouse.
        Finally, I would like to close with a quote from the Gambling
    Commission report. The report stated, ``The central issue is whether
    the net increases in income and well-being are worth the acknowledged
    social costs of gambling.'' Members of the Committee, the social costs
    are simply too high. I urge you to pass H.R. 3125 and help protect
    American families.

        Mr. Tauzin. Thank you.
        We will next hear from Anne Poulson.

                        STATEMENT OF ANNE POULSON

        Ms. Poulson. Thank you, I appreciate this opportunity to
    present the views of the horse industry on H.R. 3125. I am
    testifying today in my capacity as President of the Virginia
    Thoroughbred Association. In addition to my oral testimony here
    today, I would like to include the more detailed written
    testimony submitted to the committee yesterday for the record.
        We strongly support the legislation which would prohibit
    gambling on the Internet or through interactive computer
    service. Without this legislation, our industry is threatened
    by a proliferation of unregulated offshore gambling activities
    conducted on the Internet. There are provisions that
    grandfather activities now being offered by legitimate,
    licensed and regulated gaming operators, including pari-mutuel
    horse racing and dog racing. With regard to horse racing the
    bill permits interstate simulcast wagering and account wagering
    on live pari-mutuel horse racing on a closed loop system,
    already discussed, under strict requirements, including the
    Interstate Horse Racing Act of 1978. The racing provisions
    ensure that the legislation does not have the unintended effect
    of prohibiting pari-mutuel activities that have been conducted
    for many years by allowing State licensed racing facilities to
    continue to operate on an interstate basis pursuant to the
    restrictions and limitations set out in the bill.
        Importantly, the bill does not expand pari-mutuel wagering
    on horse racing but instead preserves the existing rights of
    individual States to determine what types of wagering occur
    within their borders. Nothing in this bill legalizes any
    wagering that is illegal today. Horse racing is a sport that
    can be legally wagered on in the U.S. Pari-mutuel racing is the
    only wagering activity for which a Federal law, the Interstate
    Horse Racing Act of 1978, was passed to ensure its interstate
    activities were encouraged and regulated and, further, which
    requires industry and State regulatory approvals. This protect
    the States, the industry and the public and ensures that all
    revenue involved in these activities is shared with each, as
    required by State law or contractual obligations.
        The racing industry has been offering interstate simulcast
    wagering since 1968, and interstate merging of wagering pools;
    that is, combined money wagered at each location into one pool,
    for a decade under the Interstate Horse Racing Act, State
    licensing and regulation. Indeed, interstate simulcast wagering
    pools is now commonplace and represents over 80 percent of the
    amount wagered on horse racing in the U.S. Racing has a long
    record of interstate account wagering which has been offered
    and successfully regulated in Connecticut, Kentucky and
    Pennsylvania for 20 years and in New York through a State-owned
    off-track betting system for nearly 30 years.
        The Internet Gambling Prohibition Act respects State laws
    in this area and does not override any State requirements or
    prohibitions. Without the current racing provisions, this
    legislation would prohibit what racing has been doing legally
    on an interstate basis for many years. The result would be
    catastrophic for the $34 billion racing and breeding industry,
    the 40-plus States that rely on it for significant tax revenue,
    and the 500,000 jobs it supports.
        In my home State of Virginia, for example, the horse
    industry supports 25,000 full-time jobs and has an annual
    economic impact of $1 billion on the State's economy, making it
    the fifth largest agribusiness in the State. While the legal
    and commercial issues being debated in this bill are of great
    importance to Congress, State legislators and law enforcement
    officials, the racing and breeding industry I am a part of has
    an additional perspective. People in my home State have been
    breeding horses to race for more than 300 years. There are
    hundreds of farms in Virginia today ranging from multi-million
    dollar show places to the more numerous mom and pop operations
    where people go out each day at the crack of dawn to care for
    their horses and prepare them for their careers in the racing
    world. To them, to me this is a sport, a business and a way of
    life.
        Horse racing is built upon a foundation that includes those
    farmers and their employees and many thousands of owners,
    trainers, jockeys, track employers and yes, customers who come
    to the track or use off-track facilities to legally bet on
    their favorite sport, thus providing the revenue strain to
    support this great infrastructure.
        As you heard me state earlier, racing has been able to
    utilize the advances in telecommunications to facilitate
    customer transactions and was a highly competitive
    entertainment and gaming marketplace. Ultimately, the
    industry's purpose in taking these steps has been to protect
    and enhance its product, that of live horse racing, which, in
    turn, supports the economy for those thousands of people whose
    livelihood and way of life are centered around the horse.
        What House bill H.R. 3125 does is to let our industry
    continue to do what it does best, blending agriculture and
    entertainment for millions of industry participants and racing
    fans, and perpetuating a tradition that is deeply rooted in my
    home State and in most of the States which you represent.
        Let me close by saying that the raising provisions in the
    bill are carefully crafted to ensure that what racing has been
    offering for decades with respect to interstate simulcast
    wagering, merging pools and account wagering is maintained. It
    is not an expansion of those activities. Rather, it is a
    congressional recognition that with respect to those
    activities, that a State approves and regulates particularly in
    the area of gambling that has traditionally been licensed and
    regulated by States, the Federal Government should continue to
    not interfere.
        We urge the members of this committee to support the bill
    as reported by the House Judiciary Committee. Thank you so much
    for your time.
        [The prepared statement of Anne Poulson follows:]
     Prepared Statement of Anne Poulson, President, Virginia Thoroughbred
                                  Association
        I appreciate this opportunity to present the views of the horse
    industry on H.R. 3125, the ``Internet Gambling Prohibition Act.''
        I am testifying today in my capacity as President of the Virginia
    Thoroughbred Association, which represents the owners and breeders of
    Thoroughbred horses in the State of Virginia. In my home state of
    Virginia, the horse industry supports 25,000 full-time jobs and has an
    annual economic impact of over $1 billion on the State's economy.
                  the pari-mutuel racing and breeding industry
        Pari-mutuel horse racing, including off-track and inter-track
    wagering is legal in 43 states and involves the racing of
    Thoroughbreds, Standardbreds, Quarter Horses, Arabians, Appaloosas and
    Paints. There are over 175 racetracks in the U.S. Racing and racehorse
    breeding is a widespread and diverse industry that includes gambling,
    sport, recreation and entertainment, and is built upon an agricultural
    base that involves the breeding and training of the horses.
    Economic Impact
        According to the study of the Economic Impact of the Horse Industry
    in the United States done by Barents Group, LLC, the economic and
    fiscal consulting unit of KPMG Peat Marwick LLP, for the American Horse
    Council Foundation, racing and racehorse breeding have a total economic
    impact in the U.S. of $34 billion and generate 472,800 total full-time-
    equivalent jobs. There are 941,000 people and 725,000 horses involved
    in the racing industry,
        Wagering on horse racing is permitted in 43 states and there is an
    active horse breeding and training business in all 50 states. In many,
    the economic contribution of the racing and breeding industry to state
    and local economies is substantial and the industry ranks among the
    state's most significant economic entities. For example, in Florida, it
    involves 37,000 horses, has a $2.1 billion economic impact and
    generates 27,300 full-time equivalent jobs; in California it involves
    69,000 horses, has a $4.1 billion economic impact and generates 52,000
    FTE jobs; in Illinois, it involves 52,000 horses, has a $2 billion
    economic impact and generates 30,700 FTE jobs; in Ohio, it involves
    40,000 horses, has a $1.3 billion economic impact and generates 17,000
    FTE jobs; and in Texas, it involves 74,000 horses, has a $1.8 billion
    economic impact and generates 27,900 jobs.
        Pari-mutuel racing generates over $500 million annually in direct
    state and local revenue from pari-mutuel taxes, track licenses,
    occupational licenses, admission taxes and miscellaneous fees.
    Racing as a Sport
        Racing is an activity that attracts many fans who appreciate it and
    follow it as a sport and who enjoy the excitement of the race and the
    athletic ability of the horses. The Triple Crown races are considered
    among the most important sporting events conducted in the United States
    each year and are widely reported in the sports media. Over 130
    additional hours of top Thoroughbred races are broadcast on national
    television each year, including the Breeders' Cup and the NTRA
    Champions on Fox Series. The national championships of Standardbred and
    Quarter Horse racing are also televised nationally and widely covered
    by the media. In addition, most major U.S. newspapers cover racing and
    print the results of the races at their local tracks on a daily basis,
    much like they print the box scores of other sports.
    The Pari-Mutuel System
        While horseracing is a sport on which one can gamble, it would be
    erroneous to assume that pari-mutuel wagering is the same as other
    forms of gambling. Unlike most other forms of gambling, horseracing
    uses the pari-mutuel system in which bettors wager against one another
    instead of against the ``house.'' Of the total amount wagered on a
    particular race, approximately 80% is returned to winning bettors. The
    other 20%, called the ``takeout,'' is shared between the state
    government, the racetrack and the horsemen who race at the track.
    Takeout rates, which vary from state to state, are published in track
    programs, which are available at race tracks and at simulcast wagering
    sites away from the track, so that fans know the rates and how they
    might affect their wagering.
        Wagering computations are accomplished by a totalisator machine, a
    computer, which adds bets over and over again during the course of
    betting. Every 30 to 60 seconds the ``tote'' flashes new betting totals
    and odds for each horse. The machines contain a number of features
    designed to minimize the potential for pari-mutuel fraud or machine
    malfunction. These features include coded ticket paper and duplication
    of all critical functions by two computers working independently of one
    another.
        I point this out because the pari-mutuel system and the published
    information available ensures that the public has easy access to data
    regarding their true chances of winning. There is little chance of
    manipulating the odds and therefore the payouts. The use of the tote
    machine allows bettors to determine their chances of winning every 30
    to 60 seconds. In addition, the race upon which the wager is made, and
    paid, is a public event, watched by fans at the track or off-track
    facility, often viewed by others on television or cable, and always
    overseen by the stewards at the track itself and the state racing
    commission to ensure the integrity of the race.
        In 1998, over 30 million people attended the races and wagered over
    $14 billion, approximately 80% of which was returned to the winning
    players.
                     federal and state policies on gambling
        Gambling, including that conducted on horseracing, has always been
    of concern to the federal and state governments. Throughout American
    history, the prohibition or legalization and regulation of gambling has
    primarily been a function of the states. The only time that the federal
    government has become involved has been when one or more states could
    not solve a problem without federal intervention. But even in these
    instances, for the reasons discussed above and others, pari-mutuel
    racing has often been either treated differently or specifically
    considered under federal gambling laws. The racing industry has
    developed to its current status under a regulatory framework of state
    law and regulation and the Interstate Horseracing Act of 1978
    (discussed below). If racing and breeding hopes to continue to compete
    in today's economy, it must be able to continue to do so under these
    same statutes.
    State Regulation--A Long History
        Pari-mutuel racing has been conducted in the United States under
    state authority and regulation for over 75 years. In every state that
    has allowed legalized wagering on horseracing, strict state oversight
    and regulation has accompanied its introduction and growth. In each
    state the pari-mutuel industry is regulated by an agency most commonly
    known as the state racing commission. Among commission prerogatives are
    the licensing of track and horse owners, trainers, jockeys, drivers and
    all others involved in the pari-mutuel sport, and the promulgation and
    enforcement of the specific regulations under which the industry must
    operate. All matters pertaining to the operation of pari-mutuel racing,
    including wagering, are regulated by these agencies on behalf of the
    governors and state legislatures.
        Over the years the states have consistently acted on the perceived
    need to closely regulate legal wagering and protect the public's
    interest in pari-mutuel sports. The actions of state legislatures and
    the racing commissions which carry out their policies have been
    predicated on the desire to: (1) maintain the integrity of the events
    on which the public is allowed to wager; (2) oversee the state's tax-
    related and economic interest in that wagering; (3) ensure that
    licensees meet specific standards of qualification; and (4) control any
    unsavory elements which may attempt to associate with the wagering
    aspects of the sport.
    The Interstate Horseracing Act of 1978
        In 1978, Congress enacted a federal statute that specifically deals
    with interstate gambling on horseracing. The Interstate Horseracing Act
    of 1978 (``IHA'') made clear that a racetrack controlled wagering on
    its races in interstate and international commerce and provided for
    industry and regulatory approvals before betting was permitted between
    Jurisdictions where the wagering was legal.
        In the findings to the IHA, Congress said that states have the
    primary responsibility for determining what forms of gambling may take
    place within their borders, but that the Federal government should
    prevent interference by one state with the gambling policies of
    another. In the IHA Congress provided that with respect to the limited
    area of interstate off-track wagering on horse racing:
            There is a need for Federal action to ensure that States will
            continue to cooperate with one another in the acceptance of
            legal interstate wagers.
        Importantly, in passing the IHA, Congress specifically recognized
    that ``pari-mutuel horseracing is a significant industry which provides
    substantial revenue to the States'' and that ``properly regulated and
    properly conducted interstate off-track betting may contribute
    substantial benefits to the States and the horseracing industry.''
        Consistent with these findings, Congress stated as a matter of
    congressional findings and policy that:
            It is the policy of Congress in this chapter to regulate
            interstate commerce with respect to wagering on horseracing, in
            order to further the horse racing and legal off-track betting
            industries in the United States.
        The combination of state statutes and regulations and the IHA have
    provided the racing industry with a workable regulatory framework for
    over two decades that has allowed the industry to develop its current
    activities within clear parameters and guidelines.
                          current activities of racing
        The dissemination of information about racing, simulcasting, off-
    track and intertrack wagering, common pool wagering and account
    wagering have been initiated, operated and expanded under the IHA and
    state approval, licensing and regulation.
    Information
        Communication today is very complicated in the highly complex and
    ever-changing technological world. In this environment new industries
    have sprung up virtually overnight forcing existing industries to adapt
    and change practices in order to compete for the public's support. This
    is particularly true in the areas of wagering and entertainment.
        Like others, the horseracing industry has had to adapt and change
    dramatically in the face of exploding competition and new technology.
    An example of that is that many racetracks, horsemen's associations and
    private businesses are now advertising and offering information on the
    sport through various media, both traditional and more technological
    state-of-the-art, including the Internet.
        The process of betting on horse racing and selecting the winner is
    called ``handicapping.'' It is a cerebral process for serious bettors
    who spend a great deal of time at the track, and elsewhere, pouring
    over information that will help them select the winners of races. For
    students of the sport this is not a random selection. The
    ``handicapping'' information used in this process has been available in
    written forms since racing began and is similar to the statistical
    information available for other sports.
        The racing industry is presently offering a great deal of this type
    of ``handicapping'' information in publications, on-the-wire, over
    toll-free numbers and over the Internet in the form of advertisements
    for state-licensed and regulated race tracks, information and ``how-
    to'' sites, ``tout'' sheets, past performance information, betting
    lines and similar information, that will market the racing product to
    new fans and allows existing patrons to participate more successfully.
        This continued flow of this information is critical to the racing
    business and we submit should not be affected by any changes to current
    law.
    Simulcasting and Common Pool Wagering
        Prior to 1970, legal pari-mutuel wagering on racing was limited to
    those at the track where the race was run. In 1970, the New York
    legislature approved off-track wagering. As an aside, at that time the
    computerized system operated by New York OTB (Off-Track-Betting) was
    one of the first real-time, on-line computer systems in the U.S. Since
    then, many states, and the federal government under the Interstate
    Horseracing Act, have authorized racetracks to simulcast or transmit
    signals of their races off-track into other states and jurisdictions
    under applicable law.
        With the continued development of technology, by the early 1980s
    racing was able to make its product better for its patrons again.
    Additional technological changes allowed the linking of pari-mutuel
    wagering pools among tracks in separate jurisdictions, called 14
    commingled pools,'' so that payouts could better reflect the size and
    wagering behavior of the entire betting public.
        The racing industry's continuing utilization of state-of-the-art
    technology has resulted in the ability of the industry to survive and
    offer its patrons a better product. In fact, today over eighty percent
    of the money wagered on racing is bet at facilities or locations other
    than where the race itself is run. Again, all with the approval and
    regulation of the states involved.
    Account Wagering
        Another process for pari-mutuel wagering on racing that has
    expanded over the two last decades is account wagering, primarily
    telephone betting. Currently, nine states, including Connecticut,
    Kentucky, Louisiana, Maryland, Nevada, Ohio, Oregon, Pennsylvania and
    New York, have enacted legislation specifically authorizing the
    acceptance of account wagers by licensed facilities within those States
    and a number of others are considering similar legislation. For
    example, California is currently considering legislation that would
    allocate the proceeds from account wagering by California residents
    among the California pari-mutuel industry.
        Account wagering is not a new activity in the United States.
    Telephone account betting has been offered in New York for over 25
    years by New York City Off Track Betting and upstate New York Off Track
    Betting entities--all state agencies. These entities have accepted
    wagers from residents of New York and other states who had established
    accounts in New York.
        In order to keep pace with modem technological advances, the
    horseracing industry needs to be able to continue these activities,
    provided that such activities are conducted in accordance the IHA and
    applicable state laws or regulations.
        In summary, the IHA and individual state statutes and regulations,
    under the supervision of state racing commissions. combine to form a
    very capable regulatory system for pari-mutuel racing.
            the internet gambling prohibition act of 1999--h.r. 3125
        The Internet Gambling Prohibition Act of 1999, H.R. 3125, is a
    natural response to the current changes in technology. The regulated
    and licensed pari-mutuel horse racing industry agrees with the intent
    of this legislation, as characterized by Congressman Bob Goodlatte when
    he introduced a previous version of H.R. 3125 in 1997:
            . . . this legislation does not preempt any state laws, does
            not cover online news reporting about gambling, and does not
            apply to transactions that are legal in both the State in which
            they originate and the state in which they are received.
        The regulation of gambling is essential to protect state policies
    and revenues, the racing industry's ability to control its own product
    and the integrity of racing. Our industry is opposed to any unregulated
    or unauthorized gambling, particularly on racing.
        As you know, this legislation, as reported out of the Judiciary
    Committee would prohibit gambling on the Internet or through an
    interactive computer service.
        There are provisions in the bill that grandfather in activities now
    being offered by legitimate, licensed and regulated American gaming
    operators, including pari-mutuel horse racing, dog racing, lotteries,
    casinos and fantasy sports leagues.
        With regard to horseracing, the bill permits interstate simulcast
    wagering and merging wagering pools. It also permits interstate
    wagering on live pari-mutuel horseracing provided it is (1) expressly
    authorized and licensed or regulated by the state in which the wager is
    received, (2) placed on a closed-loop, subscriber-based service, (3)
    initiated from and received in a state in which wagering on horse
    racing is lawful, (4) made in accordance with the requirements of the
    state in which the bet originates, and (5) made in accordance with all
    the requirements of the Interstate Horse Racing of 1978. The closed-
    loop system must include an effective customer and age verification
    process to ensure that all federal and state requirements for lawful
    gambling are met and appropriate data security standards to prevent
    unauthorized use by a minor or nonsubscriber. (Attached is an April 3,
    2000 letter from Stephen Walters, Chairman of the Oregon Racing
    Commission, further describing the racing provisions and clarifying the
    distinctions between the Internet and the closed-loop system required
    under the current bill.)
        The racing provisions ensure that the legislation does not have the
    unintended effect of prohibiting pari-mutuel activities that have been
    conducted for many years by allowing state-licensed racing facilities
    to continue to operate on an interstate basis pursuant to the
    restrictions and limitations set out in the bill.
        This legislation involves very complicated legal and technical
    issues. We believe the provisions in the current legislation that allow
    horseracing to continue to conduct its existing activities are fair and
    consistent with existing law and practice under which horseracing has
    operated for decades. We are concerned, however, about any changes to
    the current legislation that may adversely impact what racing is doing
    now under state regulation and the IHA with respect to the
    dissemination of information, common pooling and account wagering.
        The worst possible result for all concerned would be to enact
    legislation that would restrict licensed and regulated entities from
    conducting their current business using modem technology with the
    result being that many of those who wish to wager on horseracing will
    be forced to deal with unlicensed and unregulated vendors, either off-
    shore or operating illegally within the United States. This would open
    the door to consumer fraud and result in significant decreases in
    revenues for the licensed operators, purses (which are directly derived
    from licensed wagering revenues) and tax revenues for the Federal and
    State governments.
        It is critical to the future of the racing industry, the
    agribusiness it supports, the state revenue and employment it
    generates, the sporting and the entertainment benefits it provides to
    countless fans, that all distribution mechanisms of racing information
    and its product be available, so long as they continue to meet
    regulatory criteria established by state governments and comply with
    the IHA. It is also critical that the racing industry have the
    opportunity to take advantage of any and all technological advancements
    in the future distribution of its information and products in order to
    successfully compete against other forms of gambling, sport and
    entertainment.
        Because of the unique status of pari-mutuel racing and the present
    regulatory structure applicable to it, we believe that the purposes of
    this legislation and the particular needs of racing have been
    accommodated by this legislation without infringing on federal or state
    public policies, abrogating strict regulation or lessening the current
    protections of the public.
    Justice Department Comments
        In the context of the above remarks, we would also like to address
    the comments submitted by the Justice Department to the House Judiciary
    Subcommittee on Crime in March during its consideration of the Senate
    version of the Interstate Gambling Prohibition Act and similar comments
    recently submitted to the New York State Racing and Wagering Board.
        These comments can be summarized as questioning the legality under
    the Wire Act (18 U.S.C. 1084) of the current practices of interstate
    simulcasting, commingling of pools and account wagering and opposing
    exemptions to the Internet Gambling Prohibition Act that would allow
    racing to continue to conduct these activities using modem technology.
    We believe this is an extreme and incorrect interpretation of the Wire
    Act that disregards the specific purpose behind the Wire Act of
    combating organized crime, the passage by Congress of the Interstate
    Horseracing Act of 1978, and the reality that State sanctioned and
    licensed businesses have been conducting these activities in compliance
    with existing State and federal laws for over twenty years.
        The Wire Act is undeniably directed at illegal gambling and
    bookmaking conducted by organized crime. It was enacted 1961 as part of
    a package of bills directed against organized crime and racketeering.
    See The Attorney General's Program to Curb Organized Crime and
    Racketeering, Hearings before Committee on the Judiciary, U.S. Senate,
    87th Cong., 1st Sess. (1961).
        In its report accompanying the Wire Act, the House Committee on the
    Judiciary wrote that:
            ``The purpose of the bill is to assist the various States and
            the District of Columbia in the enforcement of their laws
            pertaining to gambling, bookmaking and like offenses and to aid
            in the suppression of organized gambling activities . . .''
        Any fair reading of the Wire Act and the Congressional record
    accompanying the Act makes clear that the Wire Act is not directed at
    nor intended to make illegal licensed state regulated activities.
        The Wire Act was enacted in 1961. Seventeen years later, Congress
    enacted the Interstate Horseracing Act of 1978 for the express purposes
    of ensuring proper regulation of ``Interstate off-track betting'' and
    ``furthering the horseracing and legal off-track betting industries in
    the United States.'' The interpretation of the Wire Act currently
    propounded by the Justice Department would appear to disregard
    Congress' enactment of the IHA and the supporting Congressional record.
        Lastly, although the Wire Act was enacted almost 40 years ago and
    interstate simulcasting and account wagering have been conducted in
    this country since the early 1970s, neither the Justice Department nor
    any federal prosecutors have ever used the Wire Act to prosecute any
    state licensed and regulated entities for conducting interstate
    simulcasting, commingling of pools or account wagering. The reasons for
    this should be clear. The legislative history of the Wire Act, coupled
    with the passage of the IHA and the existing framework of extensive
    state regulation leads to the inescapable conclusion that the Wire Act
    simply does not apply to the licensed regulated sport of horseracing.
        Stated another way, the logical conclusion of the Justice
    Department's current position would render criminally illegal
    interstate wagering on legal, state-regulated horseracing that
    currently provides hundreds of millions of dollars in annual tax
    revenues, supports hundreds of thousands of jobs, and has been an
    ongoing state-sanctioned activity for decades.
        In conclusion, the current form of H.R. 3125 has been carefully
    crafted to allow the sport of horseracing to continue to conduct its
    business in the same way it has been operating for the last two
    decades. The bill does not in any way expand wagering, but instead
    preserves the status quo. We appreciate the opportunity to present
    these comments on this important legislation and would be happy to
    respond to any questions.

        Mr. Tauzin. Thank you, Ms. Poulson.
        Next will be Mr. Daniel Nestel representing the NCAA here
    in Washington, DC.
        Mr. Nestel.

                       STATEMENT OF DANIEL NESTEL

        Mr. Nestel. Thank you for the opportunity to testify on
    behalf of the National Collegiate Athletic Association in
    support of H.R. 3125. My primary role here today is to
    introduce videotape testimony from a college student who got
    heavily involved in sports gambling on the Internet. However,
    before I do, I would like to briefly discuss why the NCAA is so
    concerned about this activity. Believe me, Mr. Chairman, I
    received your marching orders and I sure you these are the
    highlights.
        The NCAA has long opposed sports gambling because of its
    potential to jeopardize the integrity of the intercollegiate
    athletics contests and to threaten the welfare of student
    athletes. Despite Federal and State laws that prohibit sports
    gambling in nearly every State, this activity remains a growing
    problem on college campuses. In recent years, NCAA institutions
    have suffered damaging point shaving scandals, have witnessed
    the spread of bookies on college campuses, and have taken
    notice of a growing consensus of research that reveals rates of
    pathological and problem gambling among college students that
    are three times higher than the adult population.
        Clearly, sports gambling is not a victimless crime. Now,
    along comes the Internet and Internet gambling. It should not
    be surprising that Internet gambling presents a multitude of
    new potential dangers for young people. College students are,
    perhaps, the best wired group in America. They can surf the Web
    in their school library, in the computer lab or in the privacy
    of their dorm room. Now, with the emergence of Internet
    gambling, students can wager behind closed doors in virtual
    anonymity. This new industry not only increases the ease for
    participation in illegal game fixing schemes, but it also is
    highly attractive to college students.
        In a moment you will hear a videotaped account of a college
    student who, in just a few months, lost $10,000 gambling on
    sports over the Internet. Unfortunately, his story is not
    unique. It is representative of the types of problems that are
    occurring with more frequency on college campuses. This student
    contacted the NCAA after watching an ESPN segment on Internet
    gambling. After months of discussion, the student agreed to
    tell his story and a number of NCAA seminars held for athletic
    administrators. This videotape was filmed at one of these
    sessions. The student has asked the subcommittee to keep his
    identity unknown, after all, he is graduating soon and is
    looking toward a bright future.
        Before we roll the tape, I have one final message to
    deliver. Internet gambling is growing at a rapid pace.
    Agreements have already been made with equipment manufacturers
    to bring Internet gambling to wireless hand-held devices.
    Imagine students placing Internet bets on their cell phones.
    Nevada officials are already warning that if Federal
    legislation fails, U.S. casinos will likely enter the
    marketplace. You can bet that Internet gambling will really
    take off if casinos like Harrah's were to establish its
    recognized brand name in cyberspace.
        The House sponsors of H.R. 3125 have worked several years
    on trying to craft a bill that addresses the areas of concern
    and that has the best chance of passage. The NCAA urges
    Congress not to let this opportunity slip away. If legislation
    is not enacted by the end of this legislative session, it is
    likely that Congress will not be able to check the explosive
    growth of Internet gambling in the future. With that, I would
    like to roll the videotape.
        Mr. Tauzin. Let's see if we can get some lights too, thank
    you. By the way, have you been watching the University of
    Lafayette Cajuns in Omaha and LSU? Isn't that amazing? Awesome,
    awesome.
        [Video played.]
        Mr. Tauzin. Let me suggest you put a mike or something by
    it because we can't really hear it. Pause it for a second.
        Ms. Eshoo. Can we start again, Mr. Chairman, because we
    can't see it.
        Mr. Tauzin. Let's stop it for a second, pause it, back it
    up, let's get a mike on those speakers so that, if you don't
    mind, I want everybody to hear it, otherwise this won't work.
    Let's get it all going. We will try again. Get your volume up.
        [Video played.]
        Mr. Tauzin. The Chair will ask that the demonstration--let
    me ask the demonstration be halted. I am hearing from members
    that they can't understand it. Can you halt it. We can't
    understand it. If we are going to do a demonstration my
    apologies to the presenter, we can't hear it. We can't
    understand it. And let me ask if you would submit a written
    transcript of the gentleman's testimony at this event.
        And let me apologize for the sound in this room, but we are
    wasting I think valuable time when we can't understand the
    young man on that mike. I will do my best whenever I have that
    capacity to make sure this room is high-teched by the time we
    do more demonstration.
        Mr. Nestel, if you would kindly submit to us a transcript
    of his testimony. And basically, I think I understood he
    started betting, he won the first time, he got to betting more
    and more, and personality change, messed up his life real bad,
    and he lost 10 grand. Is that about it? Thanks very much.
        [The prepared statement of Daniel Nestel follows:]
        Prepared Statement of Daniel Nestel, Senior Assistant Director,
                    National Collegiate Athletic Association
        Mr. Chairman and members of the Subcommittee, thank you for the
    opportunity to testify on behalf of the National Collegiate Athletic
    Association (NCAA) in support of H.R. 3125, the ``Internet Gambling
    Prohibition Act of 1999.'' The NCAA is a membership organization
    consisting of nearly 1,000 universities and colleges and is devoted to
    the regulation and promotion of intercollegiate athletics for over
    330,000 male and female student-athletes.
        The NCAA has long opposed sports gambling because of its potential
    to jeopardize the integrity of intercollegiate athletics contests and
    to threaten the welfare of student-athletes. Despite federal and state
    laws that prohibit sports gambling in nearly every state, this activity
    remains a growing problem on college campuses nationwide. Over the past
    several years, point shaving scandals on the campuses of Northwestern
    University and Arizona State University have received widespread media
    coverage. The impact of these cases must not be minimized. Several of
    the student-athletes involved were indicted and sentenced to serve time
    in federal prisons. Coaches and teammates were betrayed and the two
    schools involved have seen their reputations tarnished. It is clear
    that sports gambling is not a victimless crime.
        A growing consensus of research reveals that the rates of
    pathological and problem gambling among college students are three
    times higher than the adult population. This fact surely did not go
    unnoticed when the National Gambling Impact Study Commission
    recommended a federal ban on Internet gambling nearly one year ago
    today.
        As you can see, there is reason to be concerned about the impact of
    gambling on today's youth. Therefore, it should not be surprising that
    Internet gambling presents a multitude of new potential dangers for
    young people. College students are perhaps the most wired group in this
    country. They can surf the Web in their school library, in a computer
    lab or in the privacy of their dorm room. Now, with the emergence of
    Internet gambling, students can wager behind closed doors, in virtual
    anonymity. This new industry has raised the fears of those concerned
    about the threat of sports gambling. Three years ago, there were 50
    Internet gambling sites, now there are 750. Today, the possibility
    exists for student-athletes to place wagers over the Internet and then
    attempt to influence the outcome of the contest while participating on
    the court or playing field.
        However, the impact of Internet gambling on campus is not a problem
    that is limited to athletics. If left unchecked, the growth of Internet
    gambling could be fueled by college students. Today, you will hear a
    video taped account of a college student who, in just three months,
    lost $10,000 gambling on sports over the Internet. This student
    contacted the NCAA after watching an ESPN segment on Internet gambling.
    After months of discussion, the student agreed to tell his story at a
    number of NCAA seminars held for athletic administrators. This video
    tape was filmed at one of these sessions.
        Please be assured that this student's experience is not unique. The
    NCAA has heard from others with similar stories and the media is widely
    reporting on this emerging problem among young people. The reality is
    that students have the means to participate freely in this activity.
    Studies reveal that over 70% of students have credit cards and 20% have
    four or more cards. They are being aggressively solicited by credit
    card companies who are awarding cards with up to $5,000 credit limits
    to students who have no jobs and little, if any, credit history.
        For students, the question of whether Internet gambling is legal
    has caused great confusion. Visit an Internet gambling site's Web page
    and you will find misleading statements like the one from Diamond
    Sportsbook International (DSI). It reads: ``DSI is a fully licensed
    offshore race and sports book, . . . founded as an alternative to the
    illegal bookmaking operations found within the U.S.'' DSI conveniently
    fails to mention that its sports gambling operations are, in fact,
    illegal in the U.S. But perhaps the best explanation of why there is
    such uncertainty surrounding the legal status of these gambling sites
    among students is that many of them conclude that ``if it is on the
    Internet it must be legal.''
        Federal legislation is desperately needed and we are running out of
    time. Internet gambling is growing at a rapid pace. Agreements have
    already been made with equipment manufactures to bring Internet
    gambling to wireless handheld devices. Imagine students placing
    Internet bets on their cell phones. A Nevada legislator has already
    warned that if federal legislation fails, U.S. casinos will enter the
    marketplace. You can bet that Internet gambling will really take off if
    casinos like Harrah's work to establish its recognized brand name in
    this industry. The House sponsors of H.R. 3125 have worked several
    years on trying to craft a bill that addresses the areas of concern and
    that has the best chance of passage. The NCAA urges Congress not to let
    this opportunity slip away. If legislation is not enacted by the end of
    this legislative session, it is likely that Congress will not be able
    to check the explosive growth of the Internet gambling in the future.
        Thank you.

        Mr. Tauzin. The next witness will be the Reverend Louis
    Sheldon of the Traditional Values Coalition here in Washington
    DC.
        Reverend Sheldon.

                   STATEMENT OF REVEREND LOUIS SHELDON

        Mr. Sheldon. Thank you, Mr. Chairman, and thank you for
    holding this hearing today and giving us the opportunity to
    testify and express our viewpoints on behalf of our 43,000
    member churches that comprise the Traditional Values Coalition.
    I want to make it as clear as possible our strong opposition to
    H.R. 3125, as the bill has been reported out of the Judiciary
    Committee. And Mr. Chairman, I would like to speak candidly to
    you and the members of the committee, because I am very
    passionate about this issue. I know the members of the
    committee have worked very hard to present this bill. But there
    is an angle here that we must seriously consider, and that is,
    this angle of these exemptions and some of these statements
    that have been given to us: 95 percent of gambling is included.
        I call that into question and I'd like to have those
    statistics really substantiated in front of us. And
    furthermore, I think it is important to realize that in the
    home, once you invade the home, once you have the right and I
    give you the key to my house, and I gave you a lease to come
    into my house, children, parents, friends, anybody, people are
    then going to become very vulnerable. They are going to find
    that something is happening that they can not control. As the
    Congressman from Texas, Mr. Green, mentioned about his own home
    this morning, and as the Congresslady from California stated
    very clearly these things.
        Protecting children from addictive gambling is very
    important. It is our moral responsibility. Gambling tempts
    people for the quick fix, for the quick wealth. And yet, the
    holy scriptures teach us that the only wealth that is going to
    last is that wealth which has come by the sweat of the brow. It
    may be ingenious, it may be intellectual, it may be labor work,
    but that is the only wealth that is going to have endurance,
    and it is going to have benefit for the full community.
        Gambling, too, often leads people to become dominated with
    other kinds of characteristics in their life that are not
    necessarily acceptable or appropriate. It causes them to
    abandon their commitment to family and to the community and
    even to God. And that is why I cannot stand and understand
    really how my dear friends are particularly supporting this
    bill. And I am on the phone to Pat, I am on the phone to Jerry,
    I want to find out it they know are these exceptions in this
    bill. And already I have spoken to their senior staff in both
    of those offices, and they are saying they don't know.
        So we are going to find out exactly what is happening at
    this level. Mr. Chairman, it is true that a wolf sometimes
    comes dressed in sheep's clothing but this is a wolf itself.
    Everyone knows that certain gambling interests have gutted the
    bill. They know it. Let's face it. The horse racing, dog
    racing, jai alai lobbies obtained the exemptions and that's
    their right.
        I support free enterprise. I like horses, I like dogs. I
    don't race with them. We know that these loopholes will
    increase gambling. We know that. It was stated by, I think Mr.
    Markey, very well. He said earlier to Mr. Goodlatte, hey, you
    have given the exemptions to the people that have been the most
    crafty in getting around the law. So therefore, now you have
    given out, you carved these out, everyone knows that this is
    going to happen. I think it is very important that Justice
    Department has said very clearly in the case with Mr. Cohen,
    they have the ability to prosecute, but they haven't prosecuted
    enough. Fine. That is another case.
        The Congress maybe should do a resolution to Mrs. Reno,
    they should do a resolution to encouraging her, you know, she
    comes before the committees for budget and for money, hey, put
    the screws on it there. Get it done. We at TVC are not ignorant
    of the give and take that is required to pass legislation. We
    know the perfect can not become the enemy of the good. And we
    do not want it to become the enemy of the good.
        With all due respect, Mr. Chairman, what criteria has been
    used for this decision to carve out these exemptions? Is it the
    size of the wealth of the lobbies fighting the ban or is it the
    risk of the harm posed by the conduct? We see how the gambling
    interests have used their influence to gut this well-
    intentioned bill. And I would like to submit to the record two
    very simple things, The Washington Post on ``gambling bill of
    Web industry favors,'' the other article is by the Wall Street
    Journal called, ``Click place or show: Playing the ponies in
    your underwear.''
        The story makes clear the horse racing lobby is exciting at
    the prospect of bringing betting into the home. I want to read
    you a brief passage from the Wall Street Journal, ``Still
    things are looking up lately for online racing fans. A bill
    working its way through Congress would ban most forms of
    Internet gambling, but excludes an exemption for horse racing.
    It continues for track operators and horse trainers. It is
    critical to keep bettors playing with officially sanctioned
    companies, because these concerns share revenue with tracks,
    supporting big money, purses for the horses.''
        I would ask the members of the committee, is that what this
    is all about? Big money purses? Do you want to use your vote
    here in Congress to create officially sanctioned companies?
    That can bring gaming into our homes. Certainly this can't be
    the case.
        Now, I do not want to question the motives of my good
    friend, Mr. Goodlatte, or intentions of the sponsors of the
    bill. I know they are trying to do the right thing. I know the
    members of the committee and the Congress want to do the right
    thing. But here's the problem: We are taking what is illegal,
    there are five laws now on the books that say that this kind of
    gambling is illegal, the five laws, and we are now taking what
    is illegal and we are making it legal with these exceptions.
        Mr. Chairman, I hope this bill will have a markup next
    week. I hope you will plead with Mr. Bliley to let that, and I
    hope this bill will not go to the floor unless these exemptions
    are removed. Thank you.
        [The prepared statement of Reverend Louis Sheldon follows:]
     Prepared Statement of Rev. Lou Sheldon, Chairman, Traditional Values
                                   Coalition
        Mr. Chairman, and members of the committee, I am Rev. Lou Sheldon,
    Chairman of the Traditional Values Coalition. I appreciate the
    opportunity to testify before you today on behalf of Traditional Values
    Coalition's 43,000 member churches.
        This bill, the Internet Gambling Prohibition Act, has become the
    Internet Gambling Expansion Act. That which is illegal according to the
    wire act, is now made legal in the current version of H.R. 3125.
        Like gun violations, the Justice Department has chosen not to
    prosecute Internet gambling until recently. However, they recently
    indicted 21 people for illegal Internet sports gambling. It's a good
    (albeit late) start. More should follow.
        Internet gambling is already illegal under federal law, as we have
    said. The Congressional Research Service has noted that Internet
    gambling operators are criminally liable under at least five existing
    federal laws:

    1. The Wire Act, 18 USC sec. 1084 (use of wires for sports gambling is
            a federal crime)
    2. The Travel Act, 18 USC sec. 1952 (use of any facility of Interstate
            commerce to break state gambling laws is a federal crime)
    3. The Crime Control Act, 18 USC sec. 1955 (it is illegal under federal
            law to own any share of a gambling business that operates
            illegally under state law)
    4. Racketeering Influenced and Corrupt Organizations (RICO) Act, 18 USC
            sec. 1964 (it is illegal to conduct a criminal enterprise that
            involves a collection of an unlawful debt OR a pattern of
            activity in which state gambling laws are broken)
    5. Amateur and Professional Sports Protection Act, 28 USC sec. 3702
            (making it illegal to promote or accept wagers on sporting
            events)
        This bill, H.R. 3125, has been hijacked and pushed by horse racing,
    dog racing, jai alai, and sports betting companies. It would allow for
    in-home gambling via the Internet when it would otherwise be illegal.
        According to the testimony of Deputy Assistant Attorney General
    Kevin Di Gregory, March 9, 2000, before the House Crime Subcommittee,
    ``H.R. 3125 exempts parimutuel wagering from the prohibition against
    Internet gambling. The result is that people will be able to bet on
    horse racing, dog racing, and jai alai from their living rooms.''
        This bill does not merely preserve current law . . . it expands in-
    home gambling opportunities.

    1. There is nothing in current law to allow for in-home gambling on jai
            alai or dog racing. Nevertheless, under H.R. 3125, in-home
            gambling on dog races and jai alai matches would be legal.
    2. In a letter to Sen. Patrick Leahy on June 9, 1999, Acting Asst.
            Attorney General Jon Jennings stated, ``The Interstate Horse
            Racing Act does not [currently] allow for [interstate horse]
            gambling, and if a parimutuel wagering business currently
            transmits or receives interstate bets or wagers (as opposed to
            intrastate bets and wagers on the outcome of a race occurring
            in another state), it is violating federal gambling laws.''
    3. H.R. 3125 also contains a broad carve-out for so-called ``fantasy
            sports.'' While some of these fantasy sports leagues are
            legitimate recreation, we are concerned that gambling interests
            will structure their wagers so that they fall under the fantasy
            sports exemption.
          For instance, the language in the legislation exempts ``any
            otherwise lawful bet or wager that is placed, received, or
            otherwise made for a fantasy sports league game or contest, and
            defines such a contest as one that ``is not dependent solely on
            the outcome of any single sporting event or non-participant's
            singular individual performance in any single sporting event;
            has an outcome that reflects the relative knowledge and skill
            of the participants; and 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.''
          There is no harm in individuals competing against each other,
            trying to pick which athletes are going to perform best in
            their real-life leagues. However, the existing fantasy sports
            carve-out in the hands of gambling interests could be a
            dangerous loophole.
    4. H.R. 3125 would require a ``closed loop, subscriber based system''
            for pari-mutuel gambling. We have already seen the success of
            such a system--America Online. AOL WOULD MEET EVERY TEST FOR
            THE ``CLOSED LOOP, SUBSCRIBER BASED SYSTEM'' under H.R. 3125.
        The companies that would benefit from these exemptions have already
    broken the law. They should not be rewarded with legislation that gives
    them new opportunities for in-home gambling.

    1. Youbet.com--the company that already conducts in-home gambling on
            horse races using the Internet--was prosecuted by the
            California Attorney General Bill Lockyer last year. Passing
            H.R. 3125 would lift a consent decree that currently bars
            Youbet.com from taking California wagers.
    2. Youbet.com and others like it are waiting in the wings to aim their
            marketing toward compulsive gamblers.
        a. Youbet's Internet page attracts gamblers by loudly claiming:
                ``Make the bet, Feel the rush, All on Line.''
        b. H.R. 3125 contradicts the National Gambling Impact Study
                Commission's statement that horse racing has the highest
                incidence of compulsive gambling. This bill allows for
                these compulsive gamblers to place bets from the
                convenience of their own home.
        c. In that same report, the National Gambling Impact Study
                Commission called on Congress to pass a ``clean'' Internet
                gambling ban--one that does so ``without allowing for new
                exceptions, or expanding current exemptions in federal
                law.'' NGISC Recommendation 5-1. Again this bill ignores
                the commission's recommendation.
        This bill is a Trojan horse for the horse racing, dog racing, jai
    alai, and sports betting companies. If federal prosecutors already have
    laws on the books to prosecute Internet casinos, why pass a bill that
    does nothing but allow new companies to push another form of gambling
    into our homes?
        If we need to pass legislation to wake up America, we should pass a
    sense of the Congress bill that calls on Janet Reno to prosecute
    Internet gambling businesses with the tools she already has in her
    arsenal.
        I have been told that the Justice Department is planning to
    recommend a veto of this bill because it expands gambling. Does
    Congress want to pass a bill that the American people will see as an
    expansion of gambling?
        In conclusion, please remove all exemptions to H.R. 3125 so that
    the bill will be able to accomplish its original intent. With the
    demonstrated problems gambling inflicts upon communities and families,
    these exemptions will only exacerbate the problems. Until they are
    removed Traditional Values Coalition will oppose the bill. Thank you
    for your consideration of Traditional Values Coalition's concerns.

        Mr. Tauzin. Thank you very much, Reverend.
        And next we will hear from the NFL represented by Mr.
    Gerard Waldron, a partner of Covington & Burling here in
    Washington DC.

                     STATEMENT OF GERARD J. WALDRON

        Mr. Waldron. Thank you, Mr. Chairman, and members of the
    committee. My name is Gerry Waldron. I represent the National
    Football League. And let me start off by saying that I think
    the exaggerations have overwhelmed and swept over the core
    principle underlying this bill. The problem that the NFL sees,
    along with the NCAA and the other sports leagues, is
    essentially, technology is being used to repeal the fundamental
    laws against sports gambling in our country. That those laws
    have been on the books for many years. They were recently
    updated in 1992 in the form of PASPA, and that the Internet is
    essentially repealing with technology this fundamental law
    against sports gambling.
        The nature of the legislative process and the nature of
    hearings, and I certainly appreciate that, is to the focus on
    maybe the 10 percent of the bill that people have issues with.
    Well, what I am here to tell you is that 90 percent of the bill
    that goes after the issue of sports gambling is a comprehensive
    and complete solution to the problem of sports gambling on the
    Internet. It is an issue of sports gambling on the Internet,
    which frankly is the dominant part of Internet gambling. And
    let's be clear about that. The statistics Reverend Sheldon
    alluded to came from the Nevada Gambling Commission. I
    testified before the Nevada Gambling Commission, along with the
    Attorney General from Wisconsin 2 months ago, and it was that
    body that came forward, and that is certainly consistent with
    it. So the lion's share of gambling on the Internet is on
    sports, and frankly the lion's share of sports gambling is on
    professional football.
        So that is why the NFL, frankly, is so concerned about this
    issue, and we think that any bill that gives significant
    enforcement mechanisms to the Justice Department is a step
    forward.
        I want to underscore what we heard from the Justice
    Department today. What we heard is that they agree that the
    current law is not adequate. Mr. Di Gregory referred to the
    prosecution of Jay Cohen in New York. The fact is that Jay
    Cohen used telephone wires just like people have been using
    telephone wires for years. And Mr. Di Gregory also said that
    the Justice Department supports changes to current laws because
    the mechanism doesn't work.
        Imagine you have a betting parlor at 101 Main Street. Law
    enforcement officer discovers that there is a bettor parlor
    there. What do they do? They call up Bell Atlantic and they say
    cut the wire to 101 Main Street. The betting parlor is out of
    business. That has been on the book since 1961, it works very
    well. Take it in 2000, what happens when they discover that a
    Web site is operating a gambling operation? They call Bell
    Atlantic and they say cut the wire to AOL? No that would annoy
    22 million people, and that would be a stupid thing to do.
    There is no enforcement.
        Prosecution, frankly, is not a very effective step in
    dealing with this issue. There are 700 Web sites. The Justice
    Department has prosecuted one. We don't expect they have
    important crimes to chase after, it takes a lot of resources,
    we do not expect them to spend all their prosecutorial time
    prosecuting gamblers. What we do want, however, is an effective
    enforcement mechanism such as there is certainly now with
    section 1084. That is what Mr. Di Gregory underscored, that we
    need an update of the law in order to give law enforcement
    those kinds of tools. And that is what is contained in section
    3125.
        Let me also address a point that Mr. Markey and Mr. Shimkus
    both raised about the sort of schizophrenia. And I was a son of
    St. Josephs and I also had--for me it was Saturday night. And
    certainly the clean and pure way, the perfect way, if you will,
    would be to have a one sentence bill. All gambling is
    prohibited on the Internet. Period. The problem is that--and
    frankly, I think some of the sponsors started out with the one
    sentence bill.
        The problem is that our land-based laws on gambling are a
    lot more complicated than that. We have an interstate Horse
    Racing Act of 1978. We have interstate lotteries that are
    permitted. We have the sharing of horse racing and power balls
    that are permitted with compacts. We have the Indian gaming,
    and there is a whole Federal Indian Gaming Regulatory Act.
    Actually, our existing land base laws are fairly complicated.
    And so, the one sentence bill that this started out with,
    unfortunately, frankly from the NFL's perspective, got complex.
    And that is, as this subcommittee knows well, the nature of the
    legislative process.
        But I do also want to just, finally, underscore that the
    enforcement mechanism came directly from the provisions that
    this subcommittee wrote into the WIPO bill, and it is a notice
    and take down provision. They were carefully negotiated over
    months with the Internet service providers and their trade
    associations. The bill, and I want to make sure to address the
    point that Ms. Eshoo and others raised, the bill explicitly
    disclaims any obligation on Internet service providers to
    monitor usage. The bill gives anyone who has been disconnected
    an automatic right to get reconnected.
        So the civil liberties of users have been balanced in here.
    And that it is important to recognize that the notice and take
    down provision in the copyright works well. Just to finish up,
    I am essentially--sports and gambling do not mix. Gambling
    threatens the integrity of the game. And we do not want our
    players used as poker chips on-line or off-line. We think the
    bill accomplishes that goal. We urge it to be adopted.
        [The prepared statement of Gerald J. Waldron follows:]
       Prepared Statement of Gerard J. Waldron on Behalf of the National
                                Football League
        Mr. Chairman and members of the Subcommittee, my name is Gerry
    Waldron, and I represent the National Football League. I appreciate the
    opportunity to express the NFL's strong support for the Internet
    Gambling Prohibition Act of 1999. The NFL strongly supports this bill
    because it would strengthen and extend existing prohibitions on
    gambling on sports events. The bill comprehensively addresses the most
    popular form of gambling on the Internet, which is sports gambling. If
    the lion's share of gambling on the Internet is sports gambling, the
    lion's share of sports gambling is on professional football. Thus, the
    NFL has a special concern on this matter, and we believe that a bill
    that addresses sports gambling with enhanced enforcement tools tailored
    to the Internet helps a great deal to arrest this growing problem. We
    join the State Attorneys General and other sports leagues in urging
    adoption of this important legislation.
        Simply put, gambling and sports do not mix. Sports gambling
    threatens the integrity of our games and all the values our games
    represent--especially to young people. We don't want our players used
    as poker chips--on-line or off-line.
        For this reason, the NFL has established strict policies relative
    to gambling in general and sports betting in particular. The League
    also has been an active proponent of federal efforts to combat sports
    gambling. We strongly supported the passage of the Professional and
    Amateur Sports Protection Act of 1992. This law, known as PASPA,
    prohibits states from legalizing sports betting. Like PASPA, the
    proposed legislation is a logical and appropriate extension of existing
    Federal law and policy.
        The Internet Gambling Prohibition Act is a necessary and
    appropriate federal response to a growing problem that, as the State
    AGs have testified, no collection of states can adequately address. Ten
    years ago, a gambler might have used the telephone to call his bookie.
    Today, he or she simply logs on. Gambling businesses around the
    country--and around the world--have turned to the Internet in an
    obvious attempt to circumvent the existing prohibitions on gambling
    contained in the Wire Act and PASPA. Many offshore gambling businesses
    provide betting opportunities over the Internet, effectively beyond the
    reach of federal and state law enforcement authorities.
        The bill is needed because it updates our laws to reflect new
    technology. The problem of Internet gambling is significant--and
    growing. The League is aware of numerous sites that offer U.S. citizens
    a chance to gamble on NFL games and other sports. And that is just part
    of the problem. According to recent publications, the Justice
    Department has estimated that Internet gambling generated $600 million
    in revenue in 1997 alone. A recent cover story in USA Today predicts
    that Internet betting will grow to $2.3 billion by 2001. Some scholarly
    articles and Wall Street reports expect Internet gambling revenue to
    grow even faster, up to $10 billion by the year 2003.
        Internet gambling is successful largely because so little effort is
    required to participate. Unlike traditional casinos, which require
    gamblers to travel to the casino and place their bets at that location,
    Internet gambling allows bettors to access on-line wagering facilities
    twenty-four hours per day, seven days a week, from the comfort of their
    home or office. No airfare or lengthy travel time is required. In
    short, Internet gambling is quick, easy, anonymous, but not painless.
        Internet gambling sites are easily accessible and offer a wide
    range of gambling opportunities from all over the world. Any personal
    computer can be turned into an unregulated casino where Americans can
    lose their life savings with the mere click of a mouse. Many of these
    gambling web sites have been designed to resemble video games, and
    therefore are especially attractive to children. But gambling--even on
    the Internet--is not a game. Studies have shown that sports betting is
    a growing problem for high school and college students, who develop
    serious addictions to other forms of gambling as a result of being
    introduced to ``harmless'' sports wagering. As the Internet reaches
    more and more college students and schoolchildren, the rate of Internet
    gambling among young people is certain to rise unless Congress
    addresses this problem early and effectively.
        This legislation is needed because prosecutors lack adequate tools
    under current law to curb Internet gambling. Asserting jurisdiction
    over offshore gambling businesses that use the Internet can be
    problematic. More significantly, the Wire Act does not include direct
    and effective mechanisms for ensuring termination by Internet service
    providers of access to online gambling sites. That is why the bill
    contains carefully negotiated provisions that use a ``notice-and-take
    down'' system borrowed from the WIPO bill that this Subcommittee helped
    write last Congress. The ``notice and take down'' regime has
    protections built into it for ISPs. In fact, this bill carefully
    balances the needs of law enforcement with the efficient operation of
    Internet service providers. Moreover, the bill makes explicit that ISPs
    have no duty to monitor usage and if they comply with requests of law
    enforcement, they will not be subject to prosecution.
        Just as Congress enacted the Wire Act to prohibit the use of the
    telephone as an instrument of gambling, so Congress should now adopt
    specific legislation to prohibit the use of the Internet as an
    instrument of gambling. And just as the Wire Act provides an effective
    mechanism for terminating telephone service to gambling businesses, so
    the Internet Gambling Prohibition Act, through its injunctive relief
    provisions, would provide an effective mechanism for terminating or
    blocking access to gambling sites. In our view, an effective mechanism
    for terminating or blocking access to illegal gambling sites is
    critical to the success of Internet gambling legislation.
        Left unchecked, Internet gambling threatens to expand exponentially
    the amount of legalized gambling in our country. Its effects on the
    integrity of professional and amateur sports and the values they
    represent are pernicious. Just as Congress intervened to stem the
    spread of legalized sports gambling in 1992, so it must intervene to
    stem the spread of Internet gambling today.
        In conclusion, we urge this Subcommittee to support the bill as
    currently drafted. The Internet Gambling Prohibition Act will
    strengthen the tools available to federal and state law enforcement
    authorities to prevent the spread of Internet gambling on sports and
    casino games into every home, office and schoolhouse in this country.
    It also will send the vital message--to children and adults alike--that
    gambling on the Internet is wrong. We strongly support the passage of
    this bill.
        Thank you.

        Mr. Tauzin. Thank you.
        We have time to hear a final witness. Here's our plan: We
    will hear from Mr. Williams for his 5 minutes. That will give
    us time to get to the floor, and we are also going to recess
    for about 40 minutes when we do recess. Give you a chance to
    all go, you know, and take care of some lunch, whatever you
    need to do. We will come back after we hear Mr. Williams
    testimony and take rounds of questions.
        Let me introduce Mr. Richard Williams, chairman of the Lac
    Vieux Desert Band, Lake Superior Chippewa Indian Tribe.
        Mr. Williams.

     STATEMENT OF RICHARD WILLIAMS; ACCOMPANIED BY ROBERT ROSETTE,
                                COUNSEL

        Mr. Williams. It is indeed an honor to be in front of you
    today representing the Lac Vieux Desert Band of Lake Superior
    Chippewas. We achieved the sovereignty issue with the Federal
    Government in 1988, September 1988. And also ironically, the
    Indian Gaming Regulatory Act became effective in October 1988.
    The testimony I present to you today I would hope that you
    would allow me to reserve 1 minute of that testimony so that my
    counsel could speak on some of the legal complexities of the
    testimony. And I also thank you for acknowledging the
    government-to-government relationships between the United
    States and Indian tribes.
        My testimony also carries with it resolutions from the
    oldest largest and respected Indian organization, the National
    Congress of American Indians, and also two other smaller
    organizations, the Midwest Alliance of Sovereign Tribes, United
    South and Eastern Tribes. So we do have a diverse geography
    that the Indian people are being made aware of the Goodlatte
    bill.
        We ourselves would support an outright prohibition of all
    gaming on the Internet. Such a blanket prohibition would be
    fair to everybody. As of right now, language in the Kyle bill
    and the Goodlatte bill puts us back on our reservations. We
    have come a long ways. It has been quite a struggle in many
    cases, but we are here. We want to be a part of this world. We
    need to be a part of the Internet world. We have created a
    game, we spend a lot of money on it. We have invested millions
    of dollars presenting the world with a game of integrity. And
    what we would like to see inserted as far as language into the
    bill, any otherwise lawful wager for class 2 or class 3 gaming
    as defined in section 4 of the Act of October 17, 1988. This is
    the Indian Gaming Regulatory Act. That is where we took our
    lead from. That is where we did our research from.
        This Congress and this government gave us the authority to
    go forward and use technological advancements to produce and
    rosette our audience. And I believe that is what we did in
    compliance with the law.
        Now, this bill will take everything that is legal and put
    it on the site. Even though they do say we protect your rights,
    but if you want to exercise your rights, you stay out on your
    reservation and do it. I, Mr. Chairman, live off the
    reservation. I cannot even play this game because I live off my
    reservation.
        So in conclusion, I would like to present my counsel,
    Robert Rosette, just for a brief minute of your time so that he
    can explain some things.
        Mr. Tauzin. You have got about a minute and a half, sir.
        Mr. Rosette. Thank you. As counsel for the tribe and a
    member of the Chippewa tribe as well----
        Mr. Tauzin. Give your name for the record.
        Mr. Rosette. My name is Robert Rosette. As you heard, the
    chairman, he was discussing a legal class 2 bingo game that the
    tribe operates completely and entirely on the Indian
    reservation. Very quickly, the tribe did say that they would
    support this legislation if it was a blanket prohibition for
    all of gambling interests. However, in this case, the Indian
    tribal provisions are inadequate for three reasons. The first
    of which is it may violate the Equal Protection clause of the
    United States Constitution. The second, it makes this otherwise
    class 2 bingo game illegal. And third, it doesn't consistently
    apply a criteria for granting carveouts for these other
    gambling interests as it would for class 2 bingo.
        Very quickly, on the due process issue, that can best be
    illustrated by giving you an example. Many tribes have
    compacted with their States through tribal State compacts to
    conduct simulcast wagering. This legislation puts these tribes
    at an extreme competitive disadvantage because while their
    company counterparts or their United States business
    counterparts can offer these games in home now, tribal
    governments are still required that the players be physically
    located on the Indian reservation. That means that the tribes
    cannot market or conduct in-home gambling simulcast wagering,
    which is both sanctioned by the State and by the Indian Gaming
    Regulatory Act, simply because of their status that they are an
    Indian tribe and the companies are not.
        Second, the class 2 bingo game that the chairman is talking
    about is legal. They use the Indian Regulatory Act to design
    it. They took careful attention in designing it. As we heard
    today, the intent to some of these carveouts was to sort of
    stop the line at what is legal and ongoing. Well, not in this
    case, because we see this game as legal, yet they are taking
    away from the tribes, and at the same time, extending the law
    to provide these companies their games.
        Finally, I would just ask if you didn't look at the Indian
    Gaming Regulatory Act or the constitutional due process or
    equal protection implications, that you would look at this from
    a policy standpoint, this game from a policy standpoint, and
    you would see that it compares more to the carveouts than it
    does the games they are trying to prohibit. For example, the
    class 2 gaming is regulated, it is allowed in the State, and
    our amendment that we are offering would not allow tribes to
    conduct any form of class 3 gaming, it would not allow tribes
    to do anything else. All it is is a paramutual game just like
    horse racing.
        [The prepared statement of Richard Williams follows:]
    Prepared Statement of Richard Williams, Chairman, Lac Vieux Desert Band
                       of Lake Superior Chippewa Indians
                                i. introduction
        My name is Richard Williams, and I am the elected Chairman of the
    Lac Vieux Desert Band of Lake Superior Chippewa Indians. I first would
    like to respectfully request that I reserve five minutes of my time so
    that my counsel, Robert Rosette, may address you as to some of the
    legal complexities of my testimony.
        As you know, H.R. 3125, the Goodlatte Bill, which is intended to
    prohibit Internet gaming, is steadily progressing through the House
    process, and Indian tribal leaders have had no opportunity to testify
    as to the negative effects of H.R. 3125 on Indian Nations or the Indian
    Gaming Regulatory Act (IGRA). Therefore, I am thankful that the Sub-
    committee has the fairness and fortitude to acknowledge the government-
    to-government relationship that exists between the U.S. and Indian
    tribes, and grant my Tribe this opportunity to testify before you
    today.
        That being said, I have attached a resolution from the oldest,
    largest and most respected Indian organization, the National Congress
    of American Indians, which fully supports what I present to you today.
    I have also attached resolutions from the Midwest Alliance of Sovereign
    Tribes and the United South and Eastern Tribes to demonstrate my
    support from the broad spectrum of Indian Country.
        It should be first noted that H.R. 3125's sponsors in the House
    have made an effort to address some of the concerns of Indian Country
    by enacting language that negatively amends the IGRA. The Goodlatte
    amendment that was added to H.R. 3125 at the full Judiciary Committee
    mark-up, which purports to protect Indian Gaming, is in fact a roll
    back of current federal law and is fundamentally unfair to Indian
    tribes. As such, it is unacceptable as a compromise in the present
    legislation.
        Specifically, the Goodlate amendment is inadequate for three
    reasons, to wit: i) It may violate the Equal Protection Clause of the
    Constitution; ii) It makes otherwise legal games under federal policy
    and the IGRA illegal, thus representing a fundamental departure from
    the delicate balance struck by tribes, states and the federal
    government under the IGRA; and iii) It does not consistently apply
    policy considerations for granting carve-outs for certain types of
    special interests.
             ii. h.r. 3125 may violate equal protection for tribes
        It is the Tribes contention that carve-outs within H.R. 3125 will
    be available to the private sector but the exact same carve-outs are
    not available to legitimate Indian tribal government gaming. For
    example, H.R. 3125 includes a novel carve-out for pari-mutual horse and
    dog racing. At the same time, however, the Goodlatte amendment has a
    very strict blanket prohibition against Indian tribes lawfully
    conducting these same games, even though many tribes have secured the
    right to legally conduct pari-mutual horse and dog racing through the
    IGRA, and accordingly, Tribal-State Compacts.
        For example, many Tribal-State Compacts allow tribes to offer
    simulcast wagering to horse and dog racing enthusiasts, which is the
    same privilege as other U.S. horse racing simulcast and gaming
    companies within the same states. These tribes are now at a tremendous
    competitive disadvantage because they can not utilize the Internet to
    expand player participation like their non-tribal counterparts. For
    example, pursuant to H.R. 3125, U.S. companies like YouBet and
    Ladbrooke can offer simulcast horse wagering to a player in the
    player's own home via the Internet. Meanwhile, tribes can not market to
    these same players or enjoy the same in-home wagering benefits because
    players for the tribes must be ``physically located on Indian lands''.
        Therefore, H.R. 3125 does not treat tribes equally because while it
    expands in-home gambling opportunities for U.S. companies, it restricts
    tribes from legally conducting the very same in-home opportunities
    solely because they are Indian tribes and the U.S. companies are not.
     iii. h.r. 3125 makes otherwise legal class ii bingo illegal for tribes
        Even though H.R.3125 expands currently illegal in-home wagering for
    horse, dog, and jai-alai wagering for U.S. companies, it at the same
    time takes away existing legal Internet Class II Bingo from Indian
    tribal governments. For example, my Tribe invested millions of dollars
    and countless hours developing a Class II Bingo game that utilizes
    Internet technology to expand its audience. My Tribe legally developed
    this game based on IGRA, and with the encouragement of Congress.
    (Please see the attached legal analysis, which provides a detailed
    legal description of the Tribe's Class II Bingo game). We developed
    this game because we are located in the Upper Peninsula of Michigan,
    which is very rural, and in order to provide for our future. We
    carefully developed the game so that it fell squarely within the
    purview of existing law.
        As you know, Congress contemplated the use of technological aids to
    link participating individuals to play Bingo from remote locations in
    order to increase player participation for Tribes when it enacted IGRA.
    It is clear the use of telecommunication devices, including the
    Internet, are technological aids available to Class II Bingo operations
    on Indian lands. My Tribe's Class II Bingo game is designed so that all
    elements of the game are played entirely on the Reservation. In
    summary, when applying Class II Internet Bingo to the language, design,
    and object of IGRA, the statute clearly demonstrates that Class II
    Internet Bingo is protected by the preemptive effect of IGRA.
        What is most disappointing is that the Goodlatte amendment is
    deliberately taking away this otherwise legal Class II Bingo from
    tribes, but at the same time, H.R. 3125 is expanding illegal in-home
    Internet gambling for other U.S. gaming interests by allowing gambling
    on-line that is not currently allowed in any other medium.
         iv. h.r. 3125 avoids policy considerations for class ii bingo
        Notwithstanding the Equal Protection and IGRA implications set
    forth above, the Tribe respectfully requests that you analyze our Class
    II Bingo game from the same policy perspective that you analyzed the
    carve-outs. With the special interest carve-outs in H.R.3125, the
    legislation creates two groups: i) gaming that is prohibited on the
    Internet (such as off-shore video slots and black-jack), and ii) gaming
    that is allowed on the Internet (such as horse and dog racing). An
    analysis of the characteristics of these respective groups demonstrates
    that Indian Class II Bingo better fits into the group that is granted
    carve-outs.
        For example, off-shore gaming interests are either unregulated, or
    are regulated within questionable jurisdictions outside of the U.S..
    Due to this inadequate regulation, most companies offer illegal games
    in many states such as video slot machines and video blackjack. Many
    Internet gaming companies receive bets from minors or fraudulent credit
    cards. The U.S. also can not adequately protect consumers from the
    unscrupulous business practices of these off-shore companies.
        Class II Bingo, however, avoids these problems and has similar
    characteristics to the carve-out games that receive an exception under
    H.R 3125. Like horse and dog racing for example, Class II Bingo is
    regulated by the federal government, which ensures the integrity of the
    game, and further, protects consumers from unscrupulous operators.
    Second, Class II Bingo must be played pursuant to state laws and is
    only offered in those state jurisdictions where it is legal to play.
    Third, Class II Bingo is pari-mutual, meaning the players play against
    each other trying to win a portion of a money pool, rather than against
    a machine. And finally, like the carve-outs, Class II Bingo is
    conducted live, whereby players may witness results.
        In analyzing these respective groups from a policy perspective, I
    ask you one simple question: Which group does Indian Class II Bingo
    best belong? Clearly, the answer is that it better fits with the carve-
    outs under H.R. 3125. Therefore, if Congress prohibits the Tribe's
    Class II Bingo game--even in light of its similarities to the carve-
    outs--then we respectfully request that the House provide rationale for
    placing Class II Bingo in the prohibited group and not the carve-out
    group. It is extremely unfair and unjustifiable that Indian tribal
    governments are not granted the same protection as other gaming
    interests, especially because the Class II Bingo game developed by the
    Tribe falls squarely within the statutory regulations of state and
    federal laws.
                                 v. conclusion
        Since H.R. 3125 treats Indian tribal governments unfair, prohibits
    tribes from conducting gaming that it allows to other U.S. companies,
    and prohibits many tribally operated games that are currently legal
    under IGRA, I would like to recommend language as an Amendment to H.R.
    3125:
        Insert the following new section and renumber accordingly:
            SEC. 4. INDIAN GAMING REGULATION ACT
            ``. . . any otherwise lawful wager for Class II or Class III
            gaming as defined in Section 4 of the Act of October 17, 1988
            102 Stat. 2467, conducted by an Indian Tribe on Indian lands.''
        This Amendment prohibits tribal governments from conducting
    internet gambling that is not allowed by Tribal-State compacts or that
    is not allowed by H.R. 3125. Thus, this language would enable Tribes to
    enjoy the same benefits that H.R. 3125 confers upon other private
    sector companies such as simulcast horse racing, and also preserves
    current legal gaming so long as the gaming is allowed pursuant to a
    Tribal-State Compact and legal under H.R. 3125. The Amendment also
    requires that Indian gaming occur entirely on Indian lands, which means
    for example, that tribes could not offer any Class III (Las Vegas
    style) gaming over the Internet. Also, the amendment recognizes the
    carefully constructed regulatory framework that IGRA provides for
    states and the federal government. The Congressionally approved
    framework of IGRA is the best vehicle to regulate Indian gaming.
        Because my testimony is legally complex, I would encourage you and
    your legislative counsels to review the attached legal analysis before
    coming to any conclusions about prohibiting Class II gaming. If you
    have any questions or comments, please do not hesitate to contact me or
    Robert Rosette at (916) 441-2700. Thank you for your time and
    consideration.
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        Mr. Tauzin. We have got to make a vote. So we will have to
    wrap. Let me thank you all. I am particularly going to be
    interested, Mr. Di Gregory, in some of your rebuttal to some of
    the statements that were made, particularly that the later law
    trumps the earlier law, in specific, we want to know what law
    rules here. We will get back to that in just about 40 minutes.
    We'll take a good break. We will come back at 2:45. Without
    objection the committee stands in recess.
        [Brief recess.]
        Mr. Tauzin. The committee will please come back to order.
    We will ask all our guests to take seats and the members to
    assemble.
        I apologize for being a little late. You won't believe it,
    but in the time we left one another we not only took votes on
    the floor but I went and handled another bill in another
    committee and got two passed. Very productive of me--multi-
    tasking.
        Let me thank you again for your testimony. As we left, if
    you recall, I was really interested in the state of the current
    law. We have heard a lot of conversation in the morning about
    whether this bill codified existing law or went beyond existing
    law, whether it allowed things to happen that couldn't happen
    under current law, whether it restricted things that were
    happening under current law from happening in the future. And I
    must confess to you I am in some doubt here. I don't know who
    is right or wrong.
        So I suggest, Mr. Di Gregory, why don't we start with that
    discussion? What is the state of current law as it affects--
    let's go through the whole range--paramutual betting, let's
    take Jai Alai, let's take lotteries, let's take gambling
    casinos, whether they are owned by corporate America or an
    Indian tribe. What is the state of current law? Let's see if we
    can debate it out and find out where it is.
        Mr. Di Gregory. The state of current law is--let me first
    start off by pointing out that Federal gambling law is premised
    on assisting State governments in the enforcement of their own
    gambling laws. For example, you have got 1084 which allows us
    an exception, as I mentioned earlier, the transmission of
    information assisting in the placing of bets or wagers where
    the placing of those bets or wagers are legal between those two
    States where the bets or wagers are legal.
        And when you are talking about other Federal gambling
    statutes----
        Mr. Tauzin. Give us an example of that so we understand
    what that means.
        Mr. Di Gregory. Let's take Nevada and New Jersey. New
    Jersey and Nevada transmit line information on sports betting
    between the two States using telephone facilities. That is
    information assisting the placing of a bet or wager.
        Mr. Tauzin. So the facilities are exchanging information
    about the betting that is going on.
        Mr. Di Gregory. Not about the betting itself but the kinds
    of information which would be helpful to them in perhaps
    setting odds or establishing lines. You know----
        Mr. Tauzin. I gotcha.
        Mr. Di Gregory. So that is one example of information
    assisting in. So currently----
        Mr. Tauzin. I tell you what, I will maybe get it quicker
    this way. Is it legal today to get on an interstate phone call
    and place a bet paramutual bet?
        Mr. Di Gregory. No.
        Mr. Tauzin. No. You see, there was some confusion about
    that.
        Ms. Poulson, do you think it is legal to do that? Is it
    legal today to get on the phone and make a long distance
    interstate call and place a paramutual bet?
        Ms. Poulson. On a State-by-State basis----
        Mr. Tauzin. Between any two States? Can I call from one
    State to another and place a bet in that other State on the
    phone line--interstate long distance phone call?
        Ms. Poulson. If it is regulated and approved by the two
    States that are involved.
        Mr. Tauzin. Do you agree with that, Mr. Di Gregory?
        Mr. Di Gregory. No.
        Mr. Tauzin. Why not?
        Mr. Di Gregory. I don't agree with it. But let me first
    point to the language of 1084. Section 1084, whoever being
    engaged in the business of betting or wagering knowingly uses a
    wire communication facility for the transmission in interstate
    or foreign commerce of bets or wagers----
        Mr. Tauzin. Wait. Let me stop you, because we are going to
    get confused. I want to know what current law says. Are you
    reading the current law?
        Mr. Di Gregory. Current law.
        Mr. Tauzin. I am sorry if I interrupted you.
        Mr. Di Gregory. Whoever being engaged in the business of
    betting or wagering knowingly uses a wire communication
    facility for the transmission in interstate or foreign commerce
    of bets or wagers or information assisting in the placing of
    bets or wagers on any sporting event or contest or for the
    transmission of a wire communication which entitles the
    recipient to receive money or credit as a result of bets or
    wagers or for information in assisting in the placing of bets
    or wagers shall be fined under this title or----
        Mr. Tauzin. So you say that is a criminal violation to make
    a phone call across States lines, interstate commerce to place
    a paramutual bet. The language covers that you are saying,
    right?
        Mr. Di Gregory. For someone in the business, yes. It is a
    prohibition directed at the gambling business operator and not
    at the person placing the bet.
        Mr. Tauzin. Oh, so are you saying that I can make a phone
    call today--if I am not in the business of gambling, I am just
    a gambler, I can make a phone call and place a paramutual bet,
    interstate commerce today.
        Mr. Di Gregory. You can do that and avoid as a bettor
    Federal prosecution. You may not be able to do that and avoid
    prosecution under State law, depending upon what State law is.
        Mr. Tauzin. And do you agree with that Ms. Poulson?
        Ms. Poulson. Let me tell what you the account wager and
    practices are here. Currently, we have account wager legalized
    in nine States, which is 20 percent of the States, that allow
    wagering on horse racing. You had asked earlier what those
    States are. They are Connecticut, Kentucky----
        Mr. Tauzin. What is account wager so we have the record
    clear.
        Ms. Poulson. It is telephone wagering, where you set up an
    account between States.
        Mr. Tauzin. So how many States that allow you to make a
    phone call wager?
        Ms. Poulson. Nine. And----
        Mr. Tauzin. Would those States allow me to do it over in
    interstate commerce?
        Ms. Poulson. It is our understanding, yes----
        Mr. Tauzin. Okay.
        Ms. Poulson. [continuing] they do. You know, clearly, our
    industry has a disagreement with Justice's position. And we
    believe that their interpretation of the Wire Act disregards
    the specific purpose of that act of combating organized crime
    and the passage of the Interstate Horse Racing Act of 1978
    which federally regulates the----
        Mr. Tauzin. Did the 1978 act come after the Wire Act?
        Ms. Poulson. Yes.
        Mr. Tauzin. So you are saying it came after, and it
    specifically says what now----
        Ms. Poulson. The interstate----
        Mr. Tauzin. [continuing] with regard to interstate calls to
    place bets or paramutual betting?
        Ms. Poulson. What the interstate regulatory framework does,
    it was enacted to provide a Federal regulatory structure for
    interstate wagering on horse racing, and it ensures that all of
    the interests, the States through their racing commissions, the
    race tracks and the horse owners, are participants in that
    process.
        Mr. Tauzin. But that is a special act for horse racing.
        Ms. Poulson. Yes.
        Mr. Tauzin. Let me go back to the other two, Jai Alai and
    dog racing. Sorry.
        Mr. Di Gregory. I would like to comment on the Interstate
    Horse Racing Act, if I might.
        Mr. Tauzin. Please.
        Mr. Di Gregory. First of all, the Interstate Horse Racing
    as, was correctly stated, is a civil regulatory act. It is not
    a criminal prohibition. And what the Interstate Horse Racing
    Act does allow, it allows an interstate off track wager, but it
    is defined in the act as a legal wager placed or accepted in
    one State with respect to the outcome of a horse race taking
    place in the other State. So it allows an intrastate bet.
        And, actually, there is nothing in 1084 which prohibits an
    intrastate bet. Section 1084, and I would submit to you the
    interstate--1084 prohibits an interstate bet from being placed.
    I would also like to read to you, if I may, the legislative
    history of 1084.
        Mr. Tauzin. So you are saying the statute passed in 1978
    only permits the calling inside a State to place a bet inside
    that State of an event that is happening in another State?
        Mr. Di Gregory. Yes.
        Mr. Tauzin. It does not permit the calling into the other
    State to place a bet on the event occurring in that State. Is
    that your interpretation?
        Mr. Di Gregory. That is our interpretation.
        Mr. Tauzin. You disagree with that, Ms. Poulson?
        Ms. Poulson. What I'd like to do, actually, is to read you
    how we interpret that act.
        Mr. Tauzin. Let's do that.
        Ms. Poulson. Congress enacted the Federal statute
    specifically dealing with interstate gambling on horse racing.
    That act made clear that a racetrack controlled wagering on its
    races in interstate and international commerce and provided for
    industry and regulatory approvals before betting was permitted
    between jurisdictions where the wagering was legal.
        The findings of the Interstate Horse Racing Act, Congress
    said that States have the primary responsibility for
    determining what forms of gambling may take place within their
    borders but that the Federal Government should prevent
    interference by one State with the gambling policies of
    another. In the IHA, Congress provided that, with respect to
    the limited area of interstate off track wagering on horse
    racing, quote, there is a need for Federal action to ensure
    that States will continue to cooperate with one another in the
    acceptance of legal interstate wagers.
        Mr. Tauzin. Let me stop you there. Then I hear disagreement
    on the interpretation of the 1978 act. That is what I am
    hearing. You interpret it to say you can make the interstate
    calls to place a bet where the event is happening in another
    State if both States permit that. You are saying, no, they can
    only make a call inside the State, place a bet inside a State
    on the event that is happening in the other State. And I take
    it that is the best way I can describe the disagreement. Has it
    been tested in court?
        Ms. Poulson. No.
        Mr. Tauzin. So we don't have a--have you tried to make a
    case, Mr. Di Gregory? Have you tried to make a case on your
    interpretation? Have you tried to prosecute anyone?
        Mr. Di Gregory. No, we haven't prosecuted anyone.
        Ms. Poulson. You know, one of the things that we
    specifically like to bring up is that these activities have
    been highly visible--interstate simulcasting, account wagering.
    They have been practiced for over 20 years and in a strictly
    regulated----
        Mr. Tauzin. Interstate simulcasting is one thing. Watching
    an event in another State and placing a bet on it in the State
    you are watching it in is one thing. We are being told that he
    agrees with you. That is clearly covered by your act. What I
    hear the dispute on is not the simulcasting in two States of an
    event in one State, it is whether the bet is placed over the
    State line into the other State. And you seem to have a
    legitimate difference of opinion on that, and that is what I
    was trying to get.
        Ms. Poulson. Again, not once in 30 years has the Justice
    Department or any Federal prosecutor----
        Mr. Tauzin. I just heard that, too, they never prosecuted
    anyone. Why haven't you prosecuted someone over all this time?
        Mr. Di Gregory. I can't answer for the last 30 years. I can
    only tell you that this debate that began at least a couple of
    years back to me--back a couple years ago for me has
    highlighted this issue for us at the Justice Department, and we
    are paying attention to it. And we are aware of at least one
    off track betting association which does its mightiest to avoid
    taking phone calls interstate because of their belief, at least
    on the part of some folks, that----
        Mr. Tauzin. We are going to get to the--I want to close
    this out, because I really have to move. I have to give other
    members a chance. I want to tie this down before I move. So we
    don't have this settled in court. We have a dispute of
    interpretation, and that obviously means that maybe either a
    court or Congress has to settle it somewhere. That is the first
    thing I conclude.
        But let's go to dog racing and Jai Alai racing.
        Ms. Poulson. Can I make one statement?
        Mr. Tauzin. Yes, if quickly.
        Ms. Poulson. The problem is the logical conclusion of what
    the Justice Department is saying, that it would render
    interstate wagering illegal on legal State-regulated horse
    racing, which would cripple our entire industry.
        Mr. Tauzin. That is your argument. I understand.
        Ms. Poulson. But it is important.
        Mr. Tauzin. Saying that it is bad for them to do it or
    interpret it that way is not concluding, is not settling the
    question what is legal and not legal. I think what I am saying
    is that we have got a dispute here, very clearly. Somebody is
    probably going to have to settle it 1 day. Either somebody is
    going to get prosecuted and it gets settled or we settle it
    here.
        Let's go to dog racing.
        Mr. Di Gregory. There is one----
        Mr. Tauzin. I want to go to the dogs.
        Mr. Di Gregory. There is one case that I am aware of that
    deals with the subject of the Interstate Horse Racing Act. It
    was not based upon a prosecution brought by the Justice
    Department. We didn't have a chance to argue that case. And we
    can get you all the information, including the copy of the
    case.
        Mr. Tauzin. Thank you, sir. I am going to the dogs. If you
    can help me with this.
        Mr. Williams. Is there any way we can get bingo on the
    agenda, also?
        Mr. Tauzin. Yeah, we are going to talk bingo in a second. I
    am trying to get to bingo.
        Mr. Di Gregory. Can I make one final comment on the horses?
    And this applies to dogs as well.
        Mr. Tauzin. Okay.
        Mr. Di Gregory. It is in the legislative history of 1084
    when they discuss the transmission of information assisting
    between Nevada and New York. But nothing in the exemption says
    the legislative history, however, will permit the transmission
    of bets and wagers or money by wire as a result of a bet or
    wager from or to any State, whether betting is legal in that
    State or not. That is the legislative history of 1084.
        Mr. Tauzin. Okay. That bolsters your argument.
        Now, let's go to dogs and Jai Alai. We know what the new
    bill would propose. Tell me what the current law is. Can I
    place a call in interstate commerce to bet on dog racing, on
    Jai Alai racing? Does anybody say I can do that legally today?
    No. So it is illegal.
        Mr. Di Gregory. Again, depending upon the States, you can
    place the call. It is illegal under current Federal law to
    accept the betting operated business based upon the
    acceptance----
        Mr. Tauzin. So it is illegal to conduct betting operations
    through interstate calls on Jai Alai and dog racing today. Does
    anybody disagree with that?
        Ms. Poulson. There is nobody here to represent them, but it
    is my understanding you can on dog racing but cannot on Jai
    Alai.
        Mr. Tauzin. Is there a special dog racing statute that we
    need to look at?
        Ms. Poulson. It is my understanding through the industry--
    and we will be happy to provide you with that information.
        Mr. Tauzin. Do you know, Mr. Di Gregory, whether there is a
    special statute?
        Mr. Di Gregory. I don't think there is, and I think you can
    look to 3125 for some instruction on that. When 3125 talks
    about the exceptions for horse racing and dog racing and Jai
    Alai, it refers to live horse racing made in accordance with
    the Interstate Horse Racing Act, then live dog racing subject
    to regulatory consent agreements that are comparable to those
    required by the Interstate Horse Racing Act, and live Jai Alai
    subject to regulatory consent agreements that are comparable.
        Mr. Tauzin. All right. The staff is instructed, staff, to
    research the state of the law when it comes to both dog racing
    and Jai Alai racing and to provide the committee with
    information on that.
        Ms. Poulson. We did state earlier that the Interstate Horse
    Racing Act is the only Federal legislation out there.
        Mr. Tauzin. It is. It is the only other law we have to deal
    with. I don't think there is a special dog law, but we have to
    check it out.
        Now, let's go from those three categories to lotteries and
    bingos and other forms of gambling, okay.
        Mr. Williams makes a claim that this bill before us would
    diminish his capacity to conduct his Indian gaming and bingo
    from the state of the current law. Does anybody dispute that?
    Is he correct that current law gives him more rights to conduct
    bingo operations than will this Internet Gaming Act that is
    presented to us?
        Let me ask you, please, Mr. Waldron, do you want to answer
    that?
        Mr. Waldron. If I might just say, is the question whether
    he could provide--and I was not clear what position he is
    taking--the IGRA, which is the Indian Gaming Regulatory Act,
    regulates gaming on Indian lands. Whether the suggestion is
    that one can gamble and whether it is bingo or some other type
    of gaming off of Indian lands I think that is clear. The
    current law does not--the current--the IGRA does not permit
    that. I am not--can't address whether it is all on----
        Mr. Tauzin. Let me ask Justice. Can I place a long distance
    call--or a local call for that matter--can I use the wire to
    place a bet on an Indian reservation at one of its gaming
    institutions? We have one in Charenton, Louisiana. Can I, in
    Thibodaux, call Charenton and place a bet?
        Mr. Di Gregory. You can make an interstate call on an
    Indian reservation.
        Mr. Tauzin. How about intrastate?
        Mr. Di Gregory. If it is intrastate and the call is placed
    on Indian lands--it depends upon the kind of gambling that is
    permitted in the State and that the tribe has compacted for.
        Mr. Tauzin. So the answer is, it depends.
        Mr. Di Gregory. That is always a good answer when you don't
    know all the facts.
        Mr. Tauzin. Mr. Williams is pointing out that he has some
    rights to do that under some compacts. It may be compromised by
    this bill. Is that correct, Mr. Williams?
        Mr. Williams. That is correct.
        Mr. Tauzin. You can perhaps get your counsel to the table.
    I want you to be as concise, as specific as you can. What in
    this new bill compromises your current rights to provide gaming
    opportunities to people off the reservation?
        Mr. Rosette. Well, under the Indian Gaming Regulatory Act,
    it only requires that class 2 bingo be conducted entirely on
    Indian lands. And, at the same time, the Indian Gaming
    Regulatory Act exempts tribal bingo from the anti-lottery
    statutes which deal with the interstate transportation of
    tickets.
        And, second, in the legislative history it specifically
    brings up the fact that--the legislative history of the Indian
    Gaming Regulatory Act brings up the fact that Congress would
    like to see Indian tribes in the bill itself use current
    technology and telecommunication devices to expand player
    participation between the different States.
        Mr. Tauzin. I take it in your testimony that you have those
    things cited?
        Mr. Rosette. Yes.
        Mr. Tauzin. I would like if your office could examine those
    arguments that are made, Mr. Di Gregory, that Congress did
    intend them to use these new technologies to provide gaming
    opportunities off reservation, and if you can give us the
    Justice Department position on those things.
        Mr. Di Gregory. I can tell you that I do not believe that
    Congress intended to provide the technological opportunities
    for off-reservation gaming. I can tell you those opportunities
    were restricted to class 2 gaming, and nowhere in the Indian
    Gaming Regulatory Act does it say that the prohibition with
    respect to Indian lands or the provision that the gaming take
    place on Indian lands applies only to class 2 gaming.
        Just very briefly, class 2 gaming refers to bingo and
    similar games. You are aware of that because you are from----
        Mr. Tauzin. Louisiana.
        Mr. Di Gregory. [continuing] Louisiana. Lottery is a form
    of class 3 gaming, and you need to enter into a compact with
    the State in which the reservation sits.
        In order to enter into the compact, the game that you want
    to play must be the same kind that the State wants to play. Let
    me give you an example of a recent case where the issue of
    whether or not the game was being played on Indian lands
    occurred. The Coeur d'Alene tribe in Idaho wanted to operate an
    interstate lottery using a telephone line and also using the
    Internet. Thirteen State attorneys general using provision 1084
    D notified AT&T that the activity that the Coeur d'Alene wished
    to engage in if they engaged in that activity in their States,
    operating a gambling business in their States, would be
    violative of State law. AT&T denied service to the Coeur
    d'Alene, and they had a remedy.
        The remedy was going to Federal district court to seek
    relief which denied them that relief. So there is an instance
    you see 1084 D in play.
        Mr. Tauzin. Mr. Rosette.
        Mr. Rosette. Our position is that we clearly agree with the
    Department of Justice with regard to class 3 gaming, and the
    Coeur d'Alene game is a class 3 game. What the tribe purports
    to do class 2(b), which occurs entirely on Indian lands and
    through the legislative history of the Indian Gaming Regulatory
    Act, you can conduct class 2 bingo entirely on Indian lands
    which is distinguishable from Coeur d'Alene.
        Mr. Di Gregory. That kind of situation is distinctable.
        Mr. Tauzin. Real quick because we are going to get all of
    this analyzed. Where a lottery is concerned, what is the
    current law? Can I, under current law, use the wires to
    purchase lottery tickets in interstate calls?
        Mr. Di Gregory. No.
        Mr. Tauzin. Does anybody disagree with that?
        Can I call Maryland and purchase a Maryland lottery ticket
    from Virginia? The answer is, no?
        Mr. Bowman. We don't know because no one has tried it yet.
    Again, the Department of Justice says one thing and does not do
    it. We know we are on the verge of having multi States coming
    on-line.
        Mr. Tauzin. Are people doing that and making calls?
        Mr. Bowman. There is not a State that is authorized yet.
        Mr. Di Gregory. I don't think that is a problem.
        Mr. Tauzin. How do you know that people are not using the
    telephone to buy lottery tickets?
        Mr. Bowman. I don't think anybody is aware that that has
    been done.
        Mr. Tauzin. So there is nothing in the current law that
    permits, and you think that it is outlawed----
        Mr. Di Gregory. It would depend on 1955, which prohibits
    the operation of gambling business. Section 1084 applies to
    sports betting but not to contests like a lottery.
        Mr. Tauzin. Finally, did we have any disagreement on sports
    betting? Was that pretty clear from everybody here?
        Mr. Waldron. I don't think that there have been any
    objections raised to that.
        Mr. Tauzin. The gentleman from Tennessee, Mr. Gordon.
        Mr. Gordon. Mr. Nestel, do you think that the States could
    do a better job of regulating this gambling on the Internet
    than having Federal legislation?
        Mr. Nestel. The whole reason that we got involved in this
    effort was in part because the national attorneys general came
    to Congress after throwing up their hands saying they couldn't
    regulate it, and once Senator Kyl and Representative Goodlatte
    got involved, we sought a Federal solution as the only way to
    go.
        Mr. Gordon. Do you think that's the camel's nose under the
    tent and other kinds of Federal regulation as to athletics?
        Mr. Nestel. In this case, we already have a Federal law, at
    least when we talk about the 1992 Act, which prohibits sports
    gambling in 49 out of the 50 States. We are working on the 50th
    State.
        We have circumvention when it comes to sports gambling in
    this country. The Federal Government has already gotten
    involved when it comes to sports gambling. I think this is a
    surgical strike when it comes to the Internet, and really,
    given the global communications medium that the Internet is the
    only way to address this problem.
        Mr. Gordon. You think it is better to have a Federal
    legislation than State legislation then?
        Mr. Nestel. I am not a prosecutor. I can only go on what
    the attorneys general have been saying for the past 3\1/2\
    years.
        Mr. Gordon. But regarding the NCAA, it is better to have
    Federal legislation and continuity rather than individual State
    legislation?
        Mr. Nestel. The NCAA wants definitely to keep in force and
    in compliance with the 1992 Professional and Amateur Sports
    Protection Act, and this doesn't do it. Our concern is if the
    attorneys general are throwing up their hands, that this is the
    only way to do it.
        Mr. Gordon. So you think that it is better to have Federal
    legislation rather than State legislation?
        Mr. Nestel. From what I am hearing from law enforcement,
    yes.
        Mr. Gordon. I want to ask on a quick collateral issue. If a
    sports agent talks to an athlete in certain States, offers them
    money, a suit of clothes or whatever to sign a contract, that--
    under NCAA, that athlete would lose his eligibility and the
    school would be penalized, and oftentimes the agent would have
    no penalty against them, are you aware of that?
        Mr. Nestel. Absolutely.
        Mr. Gordon. Why on earth when legislation was proposed on
    the Federal level to punish those agents and not let them get
    by with those few States that allow that, even though coaches
    supported it and the junior college equivalent of the NCAA
    supported it, why on earth would your organization be opposed
    to it saying that it was a bad precedent, it was Federal
    legislation and you were afraid that would lead to other
    Federal legislation when here, today, you are asking for
    Federal legislation?
        Mr. Nestel. I know when you have 1,000 members, you have
    varying opinions.
        Mr. Gordon. This was the board. The board had discussion.
        Mr. Nestel. They looked at the problem and they felt a
    uniform State law was the approach to go. We have been working
    for 4 years to develop a uniform State law with the National
    Conference of Commissioners. I can't say any more than that
    that, except that is what our membership chose to do in terms
    of the approach.
        Mr. Gordon. I was told it was the camel's nose under the
    tent, so it looks to me like the camel is already in there. I
    will be discussing that legislation with your board again. I
    hope that you will follow your members and the coaches all
    around the country rather than just a few board members'
    suggestions, and maybe try to be some help to the athletes and
    the schools that you represent.
        Mr. Nestel. Congressman, I thank you for being interested
    in this issue. We want to continue to work with you.
        Mr. Gordon. We have a bill, and I would like for you to
    work with me. So far you have worked against me. I hope that
    you would like to work together on this.
        Mr. Chairman, I appreciate your indulgence on this
    collateral issue.
        Mr. Tauzin. I thank the gentleman. Mr. Cox, the gentleman
    from California.
        Mr. Cox. Thank you, Mr. Chairman. I wonder, with Mr. Di
    Gregory, if I can go over some of the questions that I have
    about the way that the statute is put together.
        It is my reading of the bill, it is not yet a statute and
    it may never be a statute, that it places a requirement on, at
    a minimum, an Internet service provider to take down a site
    after notice based on probable cause. Is that burden one that
    is imposed on Internet service providers alone or is it also
    imposed on search engines?
        Let me tell you why I asked the question. The dissenting
    views from the Judiciary Committee read as follows. I need my
    reading glasses unfortunately, this is awfully fine print. The
    bill's enforcement scheme is premised on several broad notice
    and take-down blocking and injunctive requirements, which
    principally rely on so-called interactive computer service
    providers to act as surrogates for law enforcement.
        Presumably, this would include Internet service providers
    such as AOL or the Microsoft Network, but potentially would
    include a far broader range of companies such as search engines
    and portals. Then there is a footnote that truly is so small I
    can't read it without a magnifying glass.
        Mr. Waldron. Section 1085(a)(6) defines interactive
    computer service, and one of the changes that was added during
    the Judiciary Committee process was a reference to search
    engines. So search engines are included in that group of
    Internet service providers that would both be subject to a
    notice and also enjoy immunity under that provision.
        Mr. Tauzin. Would the gentleman yield?
        Mr. Cox. Sure.
        Mr. Tauzin. If the gentleman would look at that definition
    with me, it also says interactive computer service means and
    information service or system. Could that be interpreted to
    mean a teleco? What does that mean? It is a new kind of
    definition, and one of the concerns that we've got in
    dissenting views was that it was so broad it could conceivably
    incorporate a teleco.
        Mr. Waldron. This definition was taken from the WIPO bill,
    and I would suggest that system modifies information system or
    access software provider. I think that is the better way of
    parsing it, and that language was borrowed directly from the
    WIPO bill.
        Mr. Cox. The copy of the bill that I have doesn't say
    anything in the definition of interactive computer service that
    I can see about search engines.
        Mr. Waldron. 6 B, the version that I have.
        Mr. Cox. Is engaged in the business of providing an
    information location tool, which means a service that refers or
    links users to an on-line location.
        So if you are a service that links users to an on-line
    location, you have this obligation. I include links in my e-
    mails all the time. What does that make me?
        Mr. Waldron. You would not be engaged in the business of
    providing an information location tool.
        Mr. Cox. Is that because I am not in business?
        Mr. Waldron. That's correct.
        Mr. Cox. If I were in business, would that----
        Mr. Waldron. But you are not in the business of being a
    search engine. My understanding, and perhaps the Judiciary
    Committee staff would be better to address this, this language
    was suggested by the search engine members of the Internet
    service provider to describe the business that they are engaged
    in.
        Mr. Cox. Mr. Chairman, we don't have any members of the
    Internet community on this panel, but one of the reasons as I
    read through this with my lawyer's hat on, and I am concerned
    about the bill, is that it is so darn complicated. It raises
    enormous questions, and I would think if we were to enact the
    bill in its present form, we could truly say that we had
    enacted the first thorough-going regulation of the Internet,
    something that we have thus far been able to avoid.
        The Communications Decency Act that the Senate added some
    years back that we in the House had an anecdote for, was struck
    down by the Supreme Court on first amendment grounds, but it
    had other problems as well, chiefly that it relied upon a
    government-industry partnership to try to track down the
    content of Web sites, and we have a similar system here that
    concerns me greatly.
        In the DOJ formal testimony, the point is made that we
    would be wise to adopt a statute here that is technologically
    neutral, and I want to congratulate the Department of Justice
    for that approach because I think that is a very, very
    important principal in drafting legislation in this area. A few
    years ago, we didn't have an Internet, and it is my hope a few
    years from now that we won't have one either, and that we will
    have progressed to something that we haven't thought of right
    now.
        If you write into legislation-defined terms that are
    technical in nature, such as ramaframmer, you have to have
    certain kind of compliance with your ramaframmer with the
    statute that we are writing here, what are the lawyers going to
    tell the techies?
        They are going to say, we realize that the ramaframmer is
    becoming outdated, but it is referred to in the statute and we
    want to make sure, because it may be years before Congress can
    revisit this, we want to make sure that you are in compliance
    with the law, particularly this is a criminal statute, so we
    would like you to continue to have in your system a
    ramaframmer, because otherwise, we don't know what the statute
    will mean, whether the judge will allow us to draw an analogy
    to the son of the ramaframmer that we have invented, and as a
    result, our legislation, which is technologically specific,
    will slow down the pace of technology.
        We have got to find a way to draft a bill like this without
    mentioning the Internet. We have to find a way to build on the
    statute that we already have, which, after all, for the most
    part, covers what we are talking about here anyway.
        The laws of the 50 States for starters, and I will put this
    in the form of a question because I believe it to be true but I
    am not sure that it is. The laws of the 50 States, to a greater
    or lesser degree, prohibit gambling within the jurisdictions of
    those States. Some jurisdictions, like New Jersey and Nevada,
    have especially liberal regimes, but for the most part, States
    have treated these problems.
        Then you have 18 USC 1084 and there has been a recent
    successful prosecution of Internet gambling under that statute,
    which deals with interstate and foreign problems so that we
    have State regulation; we have Federal regulation that
    collectively cover gambling by whatever means, including the
    Internet, within the jurisdiction of a State or conducted
    overseas, but somehow involving the United States.
        So existing law, if I am not mistaken, without mentioning
    the Internet, because it was written before Al Gore invented
    the Internet, somehow manages to cover all of this, isn't that
    right?
        Mr. Nestel. If it is done through wire communication, as we
    mentioned, and as you read from the gambling industry, this
    industry is going wireless. The gambling industry has entered
    into agreements with Erikson to bring this to a cell phone. I
    believe that the current section, 1084, would not cover
    wireless communications.
        Mr. Cox. I understand that there are tweaks that are
    necessary and, in fact, the Department of Justice has
    specifically proposed legislative language to tweak section
    1084. My point is that we had a prosecution of an Internet
    gambling case under a statute that was written before the
    invention of the Internet. Somehow we managed to reach that
    conduct with definitionally, technologically neutral language
    because the Congress that wrote it didn't know about the
    Internet. So it is possible to do. And that is my question.
        Is it your view that it is possible to improve the statute
    to cover the new technologies that we can't even imagine yet
    without being technologically specific?
        Mr. Di Gregory. We believe that it can be done, absolutely.
    That is our proposal.
        Mr. Cox. We happen to agree on that, and I have given you
    one reason that I believe it is important. What were your
    reasons behind the assertion that we should be technologically
    neutral.
        Mr. Di Gregory. One reason was that we felt when you are
    legislating criminal prohibitions, you should focus on the
    conduct involved and not on the telephone or on the Internet or
    anything else, and that for consistency sake you needed to be
    technologically neutral.
        Mr. Cox. By way of analogy, we don't have a murder statute
    for death by knife and another one for death by gun and death
    by bowling pin and so on?
        Mr. Di Gregory. Except there are enhancements if you use a
    firearm in certain jurisdictions.
        Mr. Cox. Should we have a stricter penalty if you gamble by
    Internet?
        Those are my main concerns. I appreciate the Department of
    Justice raising them in this hearing.
        Mr. Tauzin. The answer on the definitional section of
    interactive computer service, the definition that was modeled
    after WIPO, it seems to me is inaccurate. So we don't know what
    an interactive computer system is. The only definition provided
    in the WIPO was a service provider in the 512 K-1 which is much
    narrower. So one of the concerns that those of you who are
    supporting the legislation should take into account is that
    this definition seems to be much broader than anything that we
    have seen before. While the notice and take-down provisions
    seem to be modeled after WIPO, who gets noticed and who is told
    to take down could be considerably broader. It could be whole
    systems as well as subscribers to those systems, and that could
    pose a substantial problem.
        Mr. Markey.
        Mr. Markey. Thank you very much, Mr. Chairman.
        Ms. Poulson, I understand that there is some disagreement
    between you and Mr. Di Gregory over the issue of whether or not
    it is currently legal under the Federal Wire Act to accept
    telephone wagers over State lines. You say that it is legal. He
    says it isn't legal. Can you tell us which facilities that are
    part of your association, can you tell us who--Mr. Di Gregory
    wants to know it is--which associations that are making bets,
    wagers across State lines using wires?
        Ms. Poulson. Who is making those?
        Mr. Markey. Yes.
        Ms. Poulson. It is a State-by-State determination on
    account wagering.
        Mr. Markey. No, you say it is State by State. Mr. Di
    Gregory is making a point that you can't make a call from one
    State into a second State in order to gamble. It is possible
    within a State to make a bet within that State on an event
    outside of the State. Which of those two are you talking about?
    Are you saying that the first is also legal, in your opinion,
    that you can make a bet from across State lines?
        Ms. Poulson. Yes. It is being done currently.
        Mr. Markey. A phone call made from Massachusetts to a place
    in New York State?
        Ms. Poulson. If the State allows it, yes.
        Mr. Di Gregory. It may be being done, but that doesn't make
    it legal. If you are talking about interstate telephone calls,
    it is illegal under 1084 for a gambling business or someone who
    holds himself out as a gambling business to accept a bet.
        Mr. Markey. Can you provide the names?
        Ms. Poulson. Sure. New York State does it. It has its own
    system set up and has, for 30 years, provided account wagering.
    We have the other States that have the account wagering. The
    whole purpose of the Interstate Horse Racing Act of 1978 which
    we have already discussed, followed the Wire Act, so there had
    to be some coordination along those lines to have one follow
    the other to allow this to be occurring. It has been an
    ongoing, highly visible system.
        Mr. Markey. As an ongoing, highly visible, nonprosecuted
    illegal activity?
        Ms. Poulson. It has been 30 years that this has been going
    on, and there hasn't been a single prosecution by the
    Department of Justice or Federal prosecutor of this issue. And
    the reason being you have the legislative history of the Wire
    Act, you have the Interstate Horse Racing Act.
        Mr. Markey. Let's let Mr. Di Gregory reconcile the
    Interstate Racing Act and the Wire Act.
        Mr. Di Gregory. By looking to the definitions in the Wire
    Act, and you reconcile it by noting that the definition of
    interstate off track wager is defined in section 300.23 as a
    legal wager placed or accepted in one State with respect to the
    outcome of a horse race taking place in another State. And then
    you look to the language in 1084 and to the legislative
    history, which says 1084 prohibits the interstate transmission
    of bets or wagers on sporting events.
        Mr. Markey. Ms. Poulson says that in New York State there
    has been open, continuous notorious----
        Ms. Poulson. I didn't say it was notorious.
        Mr. Markey. I am saying a highly visible engagement of that
    kind of activity.
        We absolutely are going to need some kind of written
    statement from you with regard to the contact that Ms. Poulson
    is referring to so that we have some kind of understanding as
    to whether or not we are breaking new ground.
        Mr. Markey. And if they think that it is legal already, why
    do we need the bill? Why do we need a bill if under the Horse
    Racing Act? Ms. Poulson says that they have been doing it. It
    is legal, and why are we wasting our time? So it seems to me
    that there is some reason here why we are reconciling these
    differences.
        Ms. Poulson. From the horse racing perspective, one of the
    reasons that we feel that the bill is important is that the
    legislation deals with the unlicensed and unregulated vendors,
    whether they are offshore or----
        Mr. Markey. But you don't think that you need any
    permission to go across State lines?
        Ms. Poulson. We believe that we have been practicing it and
    it is allowed.
        Mr. Markey. And Mr. Di Gregory does not believe that is
    already current law.
        Mr. Di Gregory. I take your point if the horse racing
    industry is permitted to do what it says that it is permitted
    to do, why do we need any exemption?
        Mr. Markey. Right. We don't have to have them in the
    language of the bill at all, and I would make the amendment to
    delete them if it is already legal. We can deal with offshore
    people.
        Mr. Di Gregory. We, of course, would dispute that point.
        Mr. Markey. We can just mention those that we don't want to
    be able to do it.
        Ms. Poulson. We do believe that it provides an umbrella for
    us for the existing practices simply because of the type of
    thing that is coming up with Justice. I think we need to have
    that umbrella of the protection of the existing practices that
    are there. That is why we have been pushing for the provisions
    that are currently there in light of the Justice Department's--
    what we would consider a new position and not one that----
        Mr. Markey. I understand. Much of what we have to do on
    this committee is to take the values of the old world and build
    them into this new world. The first thing that we have to do is
    establish what were the values of the old world. We have a
    significant dispute here as to what those were. This hearing
    has not resolved it. We are going to have to ensure that we do
    so before we mark up, if we do mark up.
        Mr. Williams. Also, Mr. Markey, the socially acceptable
    game of bingo should be held in that category because of IGRA
    which specifically States that we should be allowed to produce
    a class 2 game using technology. So therefore, bingo, I think,
    should be held in that same category.
        Mr. Markey. Okay. For me this is helpful to the extent to
    which I understand it. There is still an atmosphere of
    ambiguity which characterizes this entire area that clearly was
    not resolved definitively in the Judiciary Committee, and I
    think it is the responsibility of Commerce Committee to ensure
    that we do understand exactly what laws we are modifying.
        And I bring to this subject many visits to Wonderland and
    Suffolk Downs. Personal experience counts, so I think I can
    engage in this debate as a fully informed participant. I thank
    you, Mr. Chairman, and I yield back the balance of my time.
        Mr. Cox [presiding]. Thank you. I would ask each panel
    member if you are willing to get back to the subcommittee in
    writing your evaluation of the legislative language that was
    proposed by the Department of Justice. That legislative
    language is appended to their testimony and that testimony was
    distributed at this hearing. If, for any reason, you haven't
    been able to lay your hands on it, the subcommittee staff will
    be pleased to provide it to you. If you can do that within,
    let's say, 10 days, that would greatly facilitate our
    consideration of these issues because our referral is time
    limited.
        And with respect to that language, I would ask Mr. Di
    Gregory if you could satisfy my curiosity on a couple of
    points. There is a long definition in the legislation of
    fantasy sport leagues or rotisserie leagues. It is
    exceptionally detailed. I wonder about the wisdom of making
    that valiant attempt for the same reasons that I was concerned
    about technological neutrality in writing particularly a
    criminal statute.
        I am a bit concerned that we have gone to such great
    lengths in this proposed legislation that you submitted to nail
    these colors to the mast. I would ask, for example, what would
    happen if a rotisserie league awarded de minimus prizes on a
    quarterly basis. It would fall without the definition that you
    have here in the statute, and surely you didn't mean for that
    inconsequential detail to determine whether or not it fell
    within or without the definition.
        Mr. Di Gregory. We were concerned, when we put that
    language together, with the concept of gambling involving
    consideration, chance, and prize or reward. And because there
    were a number of fantasy sports leagues that we were aware of
    that did give out de minimis prizes, and one of the prizes was
    a hockey cap being given out on a regular basis, whether
    quarterly or monthly, I don't recall, and we wanted to try to
    eliminate the situation where someone could argue that that de
    minimis prize would kick in this consideration chance and
    reward aspect of gambling.
        There is considerable debate we found in our research over
    whether or not fantasy sports leagues constitute gambling or
    whether they are simply a contest, and we tried to resolve the
    matter in our legislation by excluding fantasy sports leagues
    or actually defining bets and wagers in such a manner and
    defining the fantasy sports leagues we think would be
    appropriately played, making sure that those leagues were
    outside the scope of the definition of bets or wagers.
        Mr. Cox. And in your description, just now you said that
    you were not sure whether in the example it was monthly or
    quarterly, but in your statute, in your proposed bill, if it
    were quarterly, it would fall without the definition. If would
    not be rotisserie. If it were monthly, it would. It seems to me
    that is one of the perils of trying to do it this way because
    you wouldn't want, I don't think, to exclude from your
    definition someone who is giving away de minimis prizes on a
    quarterly basis. What is the prosecutorial policy of the
    Justice Department with respect to fantasy sports leagues right
    now?
        Mr. Di Gregory. I don't believe that we have engaged in any
    prosecutions of fantasy sports leagues.
        Mr. Cox. Is anybody else doing that?
        Mr. Di Gregory. I know that there are laws on the books in
    some jurisdictions. Montana comes to mind, although I may be
    wrong, which prohibits fantasy sports leagues and State
    governments, as they have always been, are, of course, going to
    regulate in their own States, the kind of conduct that they
    consider gambling, and regulate accordingly.
        Mr. Cox. All right. I don't want to abuse the opportunity
    that I have, as the only remaining member of the committee, to
    ask endless questions of the panel. We appreciate your being
    here. This is a very complicated topic and we want to make sure
    that while we are doing good, we don't mess it up. We will keep
    the record open for the period of time between now and whenever
    you can submit responses in writing to that final question. If
    you can remain for just a minute, I am going to yield the gavel
    to the chairman.
        Mr. Tauzin. Ladies and gentlemen, let me thank you.
    Generally, at the end of a long day like this where we have a
    lot of questions and a lot to say, there is something that
    somebody wants to add to the record. If you have a final
    statement, the last thing that you want us to remember, Mr. Di
    Gregory.
        Mr. Di Gregory. Only that we believe that legislation in
    this area can be much more simply done by utilizing the
    proposal that we have submitted.
        Mr. Tauzin. Thank you.
        Mr. Bowman?
        Mr. Bowman. I would encourage the committee to address the
    problem this year on Internet gambling and get something done.
        Mr. Tauzin. Ms. Poulson?
        Ms. Poulson. I think the horse racing industry feels the
    same way, that we need to move this forward and it is important
    to the preservation of the very cornerstone of our industry.
        Mr. Tauzin. Mr. Nestel?
        Mr. Nestel. I am just going to echo what everybody on the
    panel has already said. We need a bill this year and we are not
    going to probably get an opportunity to do anything in the
    future.
        Mr. Rosette. I would like to say, while the Department of
    Justice and I have both agreed that class 2 bingo is conducted
    legally with technology, Mr. Goodlatte's bill does make that
    activity illegal.
        Mr. Tauzin. Mr. Williams?
        Mr. Williams. I would just like to reassure you that the
    tribe is available to any subcommittee, and these government-
    to-government talks need to be upheld and continue. I thank
    you, Mr. Chairman.
        Mr. Di Gregory. Mr. Tauzin, I did not mean to agree that
    class 2 gaming can be conducted through Internet gambling.
    There are technological aids that are permissible, and whether
    or not the Internet can be used is dependent upon the
    circumstances and the game that the tribes are trying to play.
    I wanted to make that point.
        Mr. Tauzin. I would very much appreciate both of you
    elaborating in this area in writing because I need to fully
    understand the two arguments.
        We ask the Department of Justice, for the record, how do
    you think Department of Justice would enforce the blocking
    provisions in the bill for offshore Web sites? You can submit
    it in writing. How burdensome for the 7,000 ISPs would it be to
    block each and every one, and how will they get the information
    and how frequently would they need to update that information?
    Those are the some of the questions that we would like you to
    come back to us on.
        The record will stay open for 30 days. You heard a lot from
    each other. That is why I like big panels. If you don't mind,
    use the time in the next 30 days to send us new information or
    clarifying information that you thinks needs clarifying. I will
    keep the record open if members wish to submit questions to
    you, the record will stay open. We will have an announcement as
    to procedure, strategy, what is to happen with the bill,
    probably sometimes next week, so stand by.
        We deeply appreciate your testimony and as I said, please
    respond in writing to whatever written questions we send you in
    the future. Thank you very much. The hearing is adjourned.
        [Whereupon, at 4 p.m., the subcommittee was adjourned.]