[Senate Hearing 108-317]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-317
 
                         PROPOSALS TO REGULATE 
                       ILLEGAL INTERNET GAMBLING 
=======================================================================



                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

 PROPOSALS TO REGULATE ILLEGAL INTERNET GAMBLING, INCLUDING S. 627, TO 
PREVENT THE USE OF CERTAIN PAYMENTS INSTRUMENTS, CREDIT CARDS, AND FUND 
                TRANSFERS FOR UNLAWFUL INTERNET GAMBLING

                               __________

                             MARCH 18, 2003

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs









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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

             Kathleen L. Casey, Staff Director and Counsel
     Steven B. Harris, Democratic Staff Director and Chief Counsel
               Peggy R. Kuhn, Senior Financial Economist
              Stephen R. Kroll, Democratic Special Counsel
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor

                                  (ii)













                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 18, 2003

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................     3
    Senator Dodd.................................................     4
    Senator Carper...............................................    27
    Senator Bunning..............................................    31
    Senator Dole.................................................    31

                               WITNESSES

Jon Kyl, a U.S. Senator from the State of Arizonia...............     6
    Prepared statement...........................................    32
John G. Malcolm, Deputy Assistant Attorney General, Criminal 
  Division
  U.S. Department of Justice.....................................     8
    Prepared statement...........................................    33
Richard Blumenthal, Attorney General, State of Connecticut, on 
  behalf
  of the National Association of Attorneys General...............     9
    Prepared statement...........................................    35
L. Richard Fischer, Attorney at Law, Morrison & Foerster, LLP....     9
    Prepared statement...........................................    36
Frank J. Fahrenkopf, Jr., President and CEO, American Gaming 
  Association....................................................    11
    Prepared statement...........................................    38
William S. Saum, Director of Agent, Gambling, and Amateurism 
  Activities
  National Collegiate Athletic Association.......................    13
    Prepared statement...........................................    41
Stewart A. Baker, General Counsel, U.S. Internet Service 
  Providers
  Association....................................................    15
    Prepared statement...........................................    43
Frank Catania, President, Catania Consulting, on behalf of the
  Interactive Gaming Council.....................................    16

              Additional Material Supplied for the Record

Statement of Jeffrey Pash, Executive Vice President and General 
  Counsel National Football League...............................    47
Letter to Senator Richard C. Shelby from James C. Dobson, PhD, 
  President, Focus on the Family, Colorado Springs, Colorado, 
  dated March 14, 2003...........................................    51

                                 (iii)











                         PROPOSALS TO REGULATE
                       ILLEGAL INTERNET GAMBLING

                              ----------                              


                        TUESDAY, MARCH 18, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:05 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Richard C. Shelby 
(Chairman of the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The Committee will come to order.
    Today, the Committee begins its consideration of the proper 
response of the Federal Government to the growing problem of 
Internet gambling. I frame the issue in such a way because I 
believe that there must be a Federal response to this rapidly 
growing 
social problem. As we all know, regulation of gambling has 
traditionally been a matter of State law. As a conservative 
Republican, I believe that a Federal response is appropriate to 
a social evil only to compliment State or local enforcement. 
But clearly, Internet gambling poses such a problem. Offshore 
Internet casinos continue to proliferate and illegal Internet 
gambling continues unabated, despite the fact that no State has 
yet authorized a virtual casino.
    The very nature of Internet gambling defies regulation at 
the State or local level. Bets are electronic transactions in 
which no physical good or commodity need be transferred between 
the gambler and the casino. Clearly, the casinos themselves are 
out of the reach of even Federal authorities, and can be 
expected to continue to flaunt U.S. law. The only available 
means of effective interdiction is through the media by which 
the gambler and the casino interface--namely, through the 
Internet service provider, or ISP, or the payment system 
provider. This is the approach adopted in legislation that has 
been introduced in the Senate and the House. Senator Jon Kyl 
and Representative Jim Leach are the leading proponents of such 
legislation. Last week, Senator Kyl, who is our first witness 
today and has led the fight in the Senate against Internet 
gambling, introduced legislation, S. 627, that would establish 
a framework for preventing the use of our payment systems and 
ISP's to engage in illegal gambling. I am proud to be an 
original cosponsor of this important legislation. I believe 
this legislation represents a measured and appropriate response 
to a demonstrated social evil that grows worse by the day.
    I describe Internet gambling as an ``evil,'' and I do not 
use that word lightly. The dangers of gambling are manifest, 
and that is why gambling is so heavily regulated in every 
jurisdiction within the country in which it is permitted. The 
Internet makes gambling accessible to those who are most 
susceptible to the addictive power of gambling--the young. The 
Internet offers ease of access and anonymity. Children are the 
most computer-literate segment of our 
society and can find these sites with ease. Unfortunately, they 
are also the most susceptible to gambling's addictive powers. 
And the overwhelming majority of Internet casinos have no 
meaningful screening mechanism to block children from gambling.
    Internet gambling may prove irresistible for the 
pathological or problem gambler trying to overcome a gambling 
addiction. For the recovering addict, the Internet makes casino 
gambling easily accessible in the comfort and privacy of your 
home. And, in so doing, it removes the impediment of traveling 
to a casino or track, and shields the problem gambler from the 
public stigma that may help the addict to refrain. And let us 
not forget--for 15 million Americans with gambling problems, 
gambling is every bit as addictive as alcohol or illegal drugs 
can be. Recovering from a gambling problem is a lifelong 
struggle and Internet access tilts the playing field against 
the addict. Dr. Howard Schaeffer, Director of Addiction Studies 
at Harvard Medical School, has described the effect of the 
Internet through a disturbing analogy. And I quote: ``As 
smoking crack cocaine changed the cocaine experience, I think 
electronics is going to change the way gambling is 
experienced.''
    Gambling is not a harmless vice or a victimless crime. 
According to the National Academy of Sciences, ``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.'' The fallout from 
problem gambling--
domestic violence, theft, burglary, foreclosure, bankruptcy, 
and 
suicides--is as devastating to family and friends as it is to 
the gambler himself. And unregulated, offshore Internet casinos 
offer an anonymity and portability that make them a logical 
medium for laundering money.
    I look forward to hearing the testimony of the witnesses 
today. I would like again to thank our first witness, our 
colleague from Arizona, Senator Kyl, for his continued 
leadership on this issue, and for his presence here today. Our 
second panel includes the Deputy Assistant Attorney General of 
the Criminal Division, as well as witnesses representing the 
views of the various stakeholders in this debate--the gaming 
and financial services industries, and collegiate athletics. I 
look forward to their testimony on this very grave matter. I 
would also like to thank my colleague, Senator Sarbanes, the 
Ranking Democrat on this Committee, for his continued concern 
about Internet gambling, and for his cooperation in organizing 
this hearing. Curtailing illegal gambling operations is clearly 
an issue on which there is bipartisan accord, and I look 
forward to moving forward and working with my colleagues on 
both sides of the aisle to move remedial legislation through 
Committee as quickly as possible.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Today, this Committee has an opportunity to hear testimony 
about Internet gambling. I want to commend you, Mr. Chairman, 
for calling a prompt hearing on this subject and I look forward 
to working with you on this important issue. I also want to 
welcome Senator Kyl, our colleague, here this morning as our 
lead-off witness, and to commend both him and Senator Johnson 
for their leadership on this important matter.
    Gambling websites make possible immediate, 24-hour access 
to the full range of wagering opportunities. Anyone, anywhere, 
can bet at any hour on sporting events, and on casino games, 
such as virtual roulette, poker, blackjack, et cetera. Bets can 
be made from every home or office, or, indeed, from any 
computer or Internet-ready hand-held device.
    The GAO estimates that there may be between 1,500 and 1,800 
Internet gambling websites--1,500 to 1,800. Virtually all of 
those sites operate from computer servers located outside the 
United States, in jurisdictions in which Internet gambling has 
been legalized. The gambling website operators expect revenues 
in 2003 of at least $4 billion. Fifty to 70 percent of that 
amount is projected to come from wagering by individuals in the 
United States, despite the fact none of the States permit 
Internet gambling, and only one State, Nevada, permits general 
betting on sporting events at all.
    Defenders of Internet gambling assert that it is simply 
another example of the Internet's ability to increase personal 
freedom, and that we should replace outmoded laws to the 
contrary. They also add, in a familiar refrain, that legalizing 
Internet gambling could enhance Federal or even State revenues.
    But the plain fact is that placement of bets, through the 
Internet, with offshore gambling operators undercuts American 
gambling regulation. The States decide the extent to which--and 
the ways in which--gambling is permitted within their 
respective borders. Federal law is designed to prevent 
interstate or other attempts to evade or avoid State decisions; 
for example, the Federal Appeals Court in New York recently 
held that the operator of an offshore sports book who took 
wagers from U.S. citizens, calling from a State where gambling 
was illegal, had committed a Federal crime.
    Offshore Internet gambling could not attract U.S. customers 
without making use of our payments system. Every Internet 
gambler must use a credit card, fund transfer, or bank 
instrument to open and fund an account from which to gamble on 
a website. The uncertain legal status of Internet gambling--
both in terms of potential criminal liability and of the 
collectability of gambling debts incurred over the Internet--
has already led some responsible banks and Internet service 
providers to move away from a connection with Internet gambling 
websites. But those commendable private efforts do not amount 
to an adequate solution to the problem.
    The fact that the new ways to attract potential gamblers 
and facilitate their wagering are clothed in the aura of the 
Internet should not change our ideas of what is lawful or 
socially responsible. This technology is being used to cloak 
basic judgments and considerations of what is appropriate 
social behavior. So they say, well, you know, it is the 
Internet. And all of a sudden, since it is the Internet, 
somehow it is supposed to assume some validity. We have this 
technology and if we do not use it, somehow, we are creating 
something approximating a moral sin. So, I emphasize that just 
because we clothe it in the aura of the Internet, it shouldn't 
change our ideas of what is lawful or socially responsible. I 
am prepared to work closely with the Chairman and other Members 
on legislation to deal comprehensively with this important 
subject, and I look forward to hearing today's witnesses and to 
reviewing the statements submitted to the Committee.
    Thank you very much, Mr. Chairman.
    Chairman Shelby. Senator Dodd.

            STATEMENT OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. Thank you, Mr. Chairman. I apologize for 
being a few minutes late. But I want to welcome our colleague, 
Senator Kyl, and thank him immensely for his work on this 
issue. I want to thank you, Mr. Chairman, as well for holding 
this hearing.
    Senator Sarbanes, I only caught the last part of his 
remarks, but I could not agree more with him. There is this 
mystical quality--if it is the Internet, it must be somehow 
inherently good. And there are obviously wonderful benefits 
that have accrued to millions of people across the globe as a 
result of the development and the expansion of Internet 
services. But the idea that anything associated with it is 
somehow inherently going to be good, or inevitable, is 
troubling.
    Mr. Chairman, thank you for having a very good panel of 
witnesses on the subject matter as well. One of the witnesses 
appearing on the second panel is the Attorney General from the 
State of Connecticut, Dick Blumenthal, who has been I think one 
of the longest-standing attorney generals now in the country 
and has done a very fine job on these issues as well. He has 
been very, very thoughtful and a tireless advocate for the 
people of our State.
    I have been told that 48 of the 50 States currently allow 
gambling of one kind or another. Certainly, my State is an 
example where we have significant gambling activities. Two of 
the largest casinos in the world now are located in the State 
of Connecticut and do a very fine job, in my view, with their 
activities, their employment, and the like. But we are a little 
small State, about the size of Yellowstone National Park, and 
have become a major venue for people in gambling activities. 
Internet gambling is illegal. As we know, at least to some 
extent, the Federal Wire Act of 1961 was written to prevent 
sports betting by telephone and has been successfully applied 
to the Internet by some--though not all--of the Federal courts 
in the country. As the Attorney General from Connecticut, Mr. 
Blumenthal, points out in his written statement which you will 
hear shortly, the mere existence of the Federal Wire Act and 
the threat of possible criminal prosecution has been enough to 
discourage the establishment of online gambling web-
sites here in the United States.
    Unfortunately, there are two problems that have allowed 
Internet gambling websites outside of the United States to 
cater to Americans. First, the Wire Act was written before 
anyone had any idea of course, or contemplated the Internet as 
a means of communication and commerce, so there is some 
confusion about how to apply the Act. The second problem is 
enforcement, obviously. Because the online casinos are 
physically located outside of the territory of the United 
States, enforcement of the Wire Act is difficult, to put it 
mildly.
    The reality is, of course, that tens--perhaps hundreds--of 
thousands of Americans are going online and losing millions of 
dollars each day. The current estimates of online gambling 
suggests that Americans are losing between $1.6 billion and 
$4.1 billion each year to offshore Internet gambling 
facilities. That fact alone is not in and of itself troubling--
because in our country the right to throw your money away has 
never been in dispute.
    [Laughter.]
    But online gambling poses some particular risks that have, 
likewise, never been in dispute. These include the risk of 
children's welfare, not to mention their families' finances, 
the risk of greater abuse and addiction, the risk of consumer 
fraud by operators of rigged games, and the risk of money 
laundering.
    On the flip side, there is little to be gained in the way 
of new jobs and other economic benefits associated with online 
versus casino gambling.
    The anonymity of the Internet also creates new problems. 
Every State in the country prohibits minors from betting. It is 
also illegal for adults to knowingly accept bets from children. 
But online gambling sites do not see their customers and they 
do not effectively check, of course, the age or the identity of 
those who are using their services. According to the Federal 
Trade Commission, it is now very easy for children to gamble 
online, especially if they have access to credit cards. This is 
a problem that I think the Congress must address.
    I think it is wise for Congress to consider banning the use 
of credit cards and other financial instruments in furtherance 
of online gambling transactions. Indeed, I applaud the recent 
actions taken by Citibank, Bank of America, Chase Manhattan 
Bank, PayPal, and others who have started to block gambling 
transactions. Offshore casinos and gambling websites should not 
be able to take advantage of American citizens by taking 
advantage of our credit card system.
    However, I believe that we have to be careful not to 
provide exceptions that will consume the rule. When Congress 
passed the Federal Wire Act, Congress decided that it would be 
a bad idea to allow the dial-a-bet industry to develop in the 
United States and, as far as I can tell at this point in the 
debate, it seems to me that the same reasoning should apply to 
the Internet. It is hard to see why click-a-bet services--even 
if sanctioned by State government--would be any better for 
consumers than dial-a-bet.
    Obviously, this is a complex issue. However, as we consider 
reform, I think we must be certain that whatever Congress does 
in this area is carefully measured to provide the fullest 
possible protection to the public--especially children and 
their families.
    So, Mr. Chairman, I look forward to the testimony of our 
witnesses today. I thank them for being here. And again, I 
thank you for holding this hearing.
    Chairman Shelby. Thank you.
    Senator Kyl, your written statement will be made part of 
the record in its entirety. We welcome you to the Committee. 
Please proceed as you see fit.

                      STATEMENT OF JON KYL

            A U.S. SENATOR FROM THE STATE OF ARIZONA

    Senator Kyl. Thank you, Mr. Chairman, Senator Sarbanes, and 
Senator Dodd. If I were still practicing law, I think I would 
be tempted to say, I rest my case in view of your very strong 
and supportive statements, which make most of the points that I 
would make. I will be, therefore, very, very brief.
    To note the bipartisan nature of this, Paul Simon was one 
of the first people that helped to get me involved in this 
issue and I have tried to keep him up-to-date with what we have 
been doing in the years since we began work on this.
    In December 1995, when I introduced the first Act, and then 
we were complaining because there were two dozen Internet 
gambling websites--and now, as you have noted, there are almost 
2,000, according to the GAO report, with wagers estimated to be 
upward of $5 billion.
    You have also mentioned the addiction and, indeed, referred 
to the testimony or the statement of Dr. Howard Schaeffer, who 
talked about the addictive nature of the Internet and likening 
it to crack cocaine.
    I just saw in the paper, too, on the sports pages, the 
problems that Jaromir Jagr has gotten into, racking up over 
half a million dollars in Internet gambling losses, which just 
illustrates the point and especially makes it with respect to 
sports betting.
    As you have also noted, youth are particularly susceptible 
to this. The college dormitories are rife with this, we are 
told by our friends at NCAA. And the thousands of dollars that 
have been lost to gambling on the Internet by students is well-
documented. The American Psychiatric Association's Dr. Sheila 
Blum confirms that young people are particularly susceptible to 
Internet gambling addiction. There has also been similar 
testimony before the National Council on Problem Gambling.
    Unfair payouts are another matter that I do not think 
anybody alluded to, but a national gambling impact study made 
this point, that anybody who gambles over the Internet is 
probably making a sucker bet.
    Senator Dodd, you made the point that there are certain 
kinds of gambling permitted in most of the States, which is 
highly regulated, and that is the problem--this is something 
that is just virtually impossible to regulate. The New York 
Times recently cited one analyst who estimated that 35 percent 
of Internet casinos might not pay what they owe, or might 
fiddle with the odds in an underhanded way.
    You also alluded to the problem of crime. One estimate is 
that up to 90 percent of pathological gamblers commit crimes to 
pay off their wage-earning debts.
    And there is an interesting State Department report cited 
in the International Narcotics Control Strategy Report last 
year that noted, and I am quoting now: ``Internet gambling 
executed by the use of credit cards and offshore banks 
represents yet another powerful vehicle for criminals to 
launder funds from illicit sources, as well as to evade 
taxes.''
    For all of these reasons, and more, the National Gambling 
Impact Commission recommended that Congress address the problem 
of Internet gambling. We have been trying to do that now for 
the last several years.
    As you noted, Mr. Chairman, this is both a national problem 
and a Federal problem because the Internet knows no State 
boundaries.
    And it was interesting to me that when we first began this 
effort, the National Association of Attorneys General came back 
to testify before my Subcommittee of the Judiciary Committee. 
Now Governor of Wisconsin, then Attorney General, Jim Doyle, 
testified, and I am quoting him here: ``The National 
Association of Attorneys General took that step that many of us 
never imagined. The organization recommended an expansion of 
the Federal Government's traditional law enforcement role.''
    Specifically, we urged the Federal Government to enact 
legislation to prohibit gambling on the Internet. And he has 
made a point of that before, that this is going to require 
close cooperation between the States and the Federal Government 
with the Federal Government playing a key role here because of 
the interstate nature of this problem.
    As you know, the Leach-Oxley bill passed the Financial 
Services Committee in the House Thursday by a voice vote 
without amendment. The version that is before you is virtually 
identical to that.
    I would like to thank both Senator Sarbanes and Senator 
Shelby, and their staffs, who have been enormously helpful to 
us in analyzing this. They have suggested a few changes to the 
legislation, all of which in my view strengthen the 
legislation. I appreciate the professional staff that you have 
put to this problem as well.
    As I said, I think all of you made the case, so I will not 
take further time, unless you have any questions you would like 
to ask me.
    Chairman Shelby. Senator Sarbanes, any questions?
    Senator Sarbanes. No questions, Mr. Chairman.
    Chairman Shelby. Senator Dodd.
    Senator Dodd. No. Thank you, Jon.
    Senator Kyl. Thank you. Thank you very, very much for your 
interest in this legislation.
    Chairman Shelby. Thank you, Senator Kyl.
    Moving on, our second panel will be: John G. Malcolm, 
Deputy Assistant Attorney General, Criminal Division, U.S. 
Department of Justice; Richard Blumenthal, Attorney General, 
State of Connecticut, on behalf of the National Association of 
Attorneys General; L. Richard Fischer, Attorney at Law, 
Morrison & Foerster; Frank J. Fahrenkopf, Jr., President and 
CEO, American Gaming Association; William S. Saum, Director of 
Agent, Gambling, and Amateurism Activities, National Collegiate 
Athletic Association; Stewart A. Baker, General Counsel, U.S. 
Internet Service Provider Association; and Frank Catania, 
President, Catania Consulting, on behalf of the Interactive 
Gaming Council.
    We welcome all of you here today. All of your written 
testimony will be made part of the record in its entirety.
    We will start with Mr. Malcolm.
    Mr. Malcolm, welcome to the Committee.

                  STATEMENT OF JOHN G. MALCOLM

               DEPUTY ASSISTANT ATTORNEY GENERAL

         CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Malcolm. Thank you, Mr. Chairman.

    Mr. Chairman, Members of this Committee, thank you for 
inviting me to testify before you today. The issue before this 
Committee is one of singular importance, and I commend the 
Committee for holding a hearing on this issue. I would also 
like to commend Senator Kyl, as well as Congressmen Goodlatte 
and Leach, for their tireless efforts and longstanding 
commitment to provide law enforcement with additional tools to 
combat Internet gambling. Today, I am pleased to offer the 
views of the Department of Justice about Internet gambling.

    As you all know, the number of Internet gambling sites has 
increased substantially in recent years. As set forth more 
fully in my prepared testimony, the Department of Justice has 
concerns about Internet gambling because of the potential for 
gambling by minors and compulsive gambling, the potential for 
fraud and money laundering, and the potential for the 
involvement of organized crime.

    Most of these Internet gambling businesses are operated 
offshore in foreign jurisdictions. If these businesses are 
accepting bets or wagers from customers located in the United 
States, then these businesses are violating Federal laws, 
including Sections 1084, 1952, and 1955 of Title 18 of the 
United States Code. While the United States can bring 
indictments against these companies or the individuals 
operating these companies, the Federal Government may not be 
able to bring such individuals or companies to trial in the 
United States.

    In addition to online gambling itself, the U.S. Government 
is also concerned about the substance and scope of advertising 
for online gambling. Such advertisements are omni-present on 
the Internet, in print ads, and over the radio. The sheer 
volume of advertisements for offshore sports book and online 
casinos is troubling because it misleads the public in the 
United States into believing that such gambling is legal, when 
in fact it is not. Indeed, many of these advertisements 
affirmatively foster that erroneous belief.

    In addition to the Federal Government, many State 
governments have also taken actions against online gambling. 
For instance, the New York State Attorney General reached an 
agreement with Citibank to block credit card payments of online 
gambling transactions by its customers. The same Attorney 
General recently reached an agreement with PayPal to stop 
processing payments from New York State customers to online 
gambling merchants.

    On behalf of the Department of Justice, I want to thank you 
for inviting me to testify here today. We thank you for your 
support over the years and reaffirm our commitment to work with 
Congress to address this significant issue of Internet gambling 
and to cut off the transfer of funds to and from illegal 
Internet gambling businesses. While we have some technical and 
other concerns about these bills, we support the sponsors' 
efforts to address gambling on the Internet.

    I will be happy to answer your questions.

    Chairman Shelby. Mr. Blumenthal.

                STATEMENT OF RICHARD BLUMENTHAL

             ATTORNEY GENERAL, STATE OF CONNECTICUT

                        ON BEHALF OF THE

           NATIONAL ASSOCIATION OF ATTORNEYS GENERAL

    Mr. Blumenthal. Thank you very much, Mr. Chairman, and 
thank you for including the Attorneys General of the States in 
this hearing. We have been very vocal and vigorous advocates of 
the kind of legislation that Senator Kyl has championed and you 
have aided and others on this Committee, such as Senator 
Sarbanes and Senator Dodd, have advocated as well. This area 
offers a unique opportunity, indeed, an obligation, for 
Federal-State cooperation.
    Under current law, all of the difficulties mentioned by the 
U.S. Department of Justice afflict our enforcement efforts and 
many more. The challenge is one of enforcement against a 
spreading evil that has all of the very troubling social and 
economic impacts that Members of this Committee have described 
so well.
    As Senator Dodd said, the appeal to children, the 
vulnerability to addiction, the possibility of fraud and money 
laundering, all are aggravated by online and Internet gambling.
    I believe that the States should continue to have a role, 
as the legislation that we have seen suggests. The States 
should continue to have an enforcement role, but should be 
working with the U.S. Government to attack the financial 
infrastructure, the financial lifeblood of this spreading 
industry.
    If we can shut down the means of payment, the credit card, 
financial instruments, e-payment, and other kinds of similar 
financial infrastructure, we can get to the root of this 
problem and really have an effective enforcement mechanism with 
tough penalties--and I urge that the penalties be tough--and 
without exceptions.
    If I can just leave you with one thought. I believe this 
law should be clear, broad, unassailable, without any 
exceptions, even for State-sanctioned gambling. If we have 
exceptions, they will swallow the rule. And as much as we may 
be advocates of State revenue in tough economic times, and many 
of the State-sanctioned forms of gambling produce revenue for 
the State, to provide an exception for that type of gambling, I 
think, makes this system intolerably porous and open for abuse.
    And so, I thank you for this opportunity to be with you and 
I look forward to the other testimony.
    Chairman Shelby. Thank you.
    Mr. Fischer.

                STATEMENT OF L. RICHARD FISCHER

           ATTORNEY AT LAW, MORRISON & FOERSTER, LLP

    Mr. Fischer. Thank you, Chairman Shelby, Ranking Member 
Sarbanes, and Senator Dodd. I am Rick Fischer. I am a partner 
in the law firm of Morrison & Foerster. I was asked to come in 
here today because I have over 30 years' of experience advising 
banks and payment systems on compliance issues, particularly 
those, for purposes of this hearing, relating to blocking of 
Internet gambling transactions and responding to litigation and 
customer disputes arising out of Internet gambling.
    As you have heard already, Internet gambling presents 
unique challenges not only for law enforcement, but also for 
payment systems. Internet gambling can be done entirely over 
the Internet. There is no need for exchange of cash or illicit 
goods.
    And as we have heard, the casinos are typically located 
offshore, where Internet gambling is illegal and beyond the 
reach of U.S. law enforcement authorities. This makes gambling 
uniquely difficult to detect or control, and I think that 
really is the point here. As a result, efforts to address 
Internet gambling have focused on payment systems--you have 
heard that--including Visa and MasterCard. I am not here on 
behalf of either of those associations. I am here because the 
Committee staff asked me to come in as an expert in this area. 
These associations are composed of thousands of regulated 
financial institutions. They process billions of transactions 
for millions of merchants located throughout the world. 
Internet gambling casinos do, in fact, seek payment from the 
associations or, really, from their card-issuing members.
    But those card issuers and the associations have no 
interest in these illegal Internet gambling transactions. In 
fact, system rules in both associations prohibit the use of 
cards for any illegal transactions. Internet gambling 
transactions in particular have led to costly litigation. I 
have advised clients in and through that litigation. And also, 
customer disputes, including disputes with customers who 
otherwise are model customers. Internet gambling also affects 
the ability of cardholders to meet their account obligations 
generally, not just these transactions, but generally. As a 
result, they create risks that extend far beyond the gambling 
transactions both to reputational risks and regulatory 
responses.
    Therefore, card issuers and the associations have taken 
steps to limit the use of cards for this purpose. We have heard 
reference to some of those already. But more specifically, the 
associations require gaming merchants to use a combination of 
codes--gaming codes and electronic commerce codes--to enable 
those transactions to be blocked. And in fact, now most major 
card-issuers already do block those transactions. According to 
a December report from the GAO, the Internet casinos now 
estimate that four out of every five requests for credit card 
payments are denied.
    Blocking these transactions, though, is no small 
undertaking since the associations typically process thousands 
of transactions every second. For example, Visa alone processes 
between 3,000 and 6,000 transactions every second. As a result, 
the associations and their members must rely on coding systems 
to identify these Internet gambling transactions and to block 
those transactions.
    It is also important to recognize some of these 
transactions are miscoded and, in fact, as a result, some 
transactions will escape the blocking mechanisms.
    It is also important to recognize that although the 
legislation is directed at illegal Internet gambling 
transactions, not all Internet gambling transactions are 
illegal. For example, a U.S. cardholder who is visiting London 
or, in fact, has moved to London for a period of time, using a 
U.S. bank card, can engage in Internet gambling in the United 
Kingdom, where it is completely legal.
    As a result, what the coding systems can say is that these 
transactions are likely Internet gambling transactions. They 
cannot say whether they are legal or illegal. Therefore, with 
the current blocking mechanisms, all transactions identified as 
Internet gambling transactions are blocked. This means both 
legal transactions and 
illegal transactions.
    As a result, the legislation you are considering should 
recognize that fact and provide a safe harbor for both the card 
issuers and the associations that are, in fact, blocking 
transactions, whether or not those transactions are legal or 
illegal. And in fact, that safe harbor also should extend to 
situations where they are not covered.
    Several card issuers are already blocking transactions as I 
have indicated, and the participants in the system are prepared 
to work with this Committee and the Congress and doing so in 
the future.
    Thank you.
    Chairman Shelby. Mr. Fahrenkopf.

             STATEMENT OF FRANK J. FAHRENKOPF, JR.

         PRESIDENT AND CEO, AMERICAN GAMING ASSOCIATION

    Mr. Fahrenkopf. Thank you, Mr. Chairman, Senator Dodd. I am 
Frank Fahrenkopf, the Chairman of the American Gaming 
Association, which is the national trade association for the 
commercial 
casino industry and commercial casino manufacturers. We do not 
represent Native American casinos or the lotteries, the pari-
mutuel industry, and other legal gaming. They have their own 
spokes-
people who represent them. Our member companies are industry 
leaders, such as most of you have probably heard--MGM MIRAGE, 
Harrah's Entertainment, Park Place Enterainment, and others. We 
operate land-based casinos and riverboat casinos in 11 
jurisdictions. The vast majority of our companies are publicly 
held and listed either on the New York or Nasdaq stock 
exchanges.
    It is a pleasure to appear before you today on behalf of 
the AGA with regard to S. 627.
    The position of the American Gaming Association has 
remained constant since Congress first began considering 
Internet gambling legislation. I think, as Senator Kyl said, it 
was 7 or 8 years ago when he made his first endeavor here in 
the Senate. The AGA maintains the view that the technology 
necessary to provide appropriate regulatory and law enforcement 
oversight does not presently exist with regard to Internet 
gambling so as to properly regulate the integrity of the games 
and the security and legality of financial transactions, and to 
minimize the potential for underage and pathological gambling. 
Unless and until those concerns can be adequately addressed, 
the AGA remains opposed to Internet gambling.
    In addition, Mr. Chairman, as we review any bills here in 
the Congress of the United States with regard to gaming 
legislation, we look at them to try to meet three tests. One, 
any legislation should not create an unfair advantage for any 
one segment of the gaming industry. Two, it should not impinge 
upon or curtail States' rights. And three, it should not make 
anything that is currently legal, illegal.
    Let me quickly talk about those.
    First, we would not support any bill that gives 
preferential treatment to any other form of legal gaming at the 
expense of our segment of the industry. In other words, all 
forms of legal gaming in this country should be treated with 
parity.
    Second, we oppose any changes to the 200-year-old framework 
of the State-based oversight of gambling. Federal law has 
always ``back stopped'' the right of each State to determine 
its own policies on gaming pursuant to the 10th Amendment. As a 
result, each State should have the right to determine whether 
or not it will allow any form of gambling and, if so, how it 
will be regulated and taxed. Federal Internet gaming 
legislation, we believe, should follow the model of the Wire 
Act and permit States to make decisions about the use of 
technology within their borders by licensed gaming companies.
    Third, I would ask you to take into account the rapid 
advances in technology today and not criminalize activity that 
is currently legal. Our industry, like other businesses, will 
want to take advantage of these two technologies to make 
operations more efficient.
    In short, we feel that it is important to draw a 
distinction between the use of technology to circumvent Federal 
and State restrictions and regulations as we believe is done by 
those operating illegal offshore Internet gambling sites and 
the use of technology by licensed operators to more efficiently 
deliver their services where, to whom, and under what 
conditions they are authorized by Federal and State law to do 
so. Any changes to Federal or State laws in the pursuit of 
making Internet gambling illegal need not and should not be 
drawn so broadly as to lump the use of technology within 
otherwise legal limits in the same prohibited status as illegal 
Internet operations. I think this position is consistent with 
the Wire Act, which, since the 1960's, permits the use of wires 
for wagers and information assisting in the placing of wagers 
where the transactions are entirely intrastate, or between 
States, in which the wagering in question is legal.
    Our major concern with illegal Internet gambling as it 
exists today is it allows the approximately 2,000 offshore 
websites to circumvent State policies, including current 
restrictions on the availability of gambling within each State. 
Although every State except three have some form of legalized 
gaming today, illegal Internet gambling makes casino gambling 
and sports wagering available in every State, regardless of 
existing Federal or State laws.
    Illegal Internet gambling also allows unlicensed, untaxed, 
unsupervised operators to conduct business alongside gaming 
operators who are subject to some of the most comprehensive 
Federal and State controls of any industry in this country. 
Nearly every aspect of a commercial casino business--from 
licensing to operations--is strictly regulated. In the 11 
States where commercial casinos are legal, they are not 
permitted to operate without prior State approval, which 
includes exhaustive background checks on key personnel and 
major shareholders and investors. Some States do the same for 
major vendor-suppliers.
    In addition to State regulations, there are important 
Federal requirements applicable to commercial casinos and other 
forms of legal wagering in this country. For example, U.S. 
commercial casinos are subject to Federal corporate taxation, 
publicly traded companies comply with financial disclosure and 
other SEC rules. Our casinos file information reports on large 
winnings. We withhold Federal taxes on certain winnings. And 
most importantly, in this instance, our casinos adhere to 
antimoney laundering legislation and statutes and regulations 
administered by the U.S. Treasury Department's Financial Crimes 
Enforcement Network.
    These Federal laws, rules, and regulations, as well as the 
States', are there to prevent abuse. Illegal Internet gambling, 
we believe, threatens the integrity of all business involved in 
legalized gambling in the United States.
    In conclusion, Mr. Chairman, I would say that S. 627 
attempts to find a way to address this problem by essentially 
banning the use of credit cards and other financial instruments 
to conduct illegal Internet gambling. The American Gaming 
Association did not oppose similar legislation in the House. We 
worked with Mr. Leach and Mr. Oxley's staff. I would say, 
however, that that support was the result of careful 
negotiation based upon those three rules that I talked about 
earlier and how we view all attempts to limit gaming. We 
believe that we are in the middle of evaluating the present 
bill by Senator Kyl, whom we have worked with for years. We 
just received the bill I think on Friday, so we haven't had a 
chance to go through it. But assuming that there are no 
substantial changes in the bill, we would expect to have the 
same position here in the Senate with Senator Kyl's bill that 
you are a co-sponsor of.
    Thank you very much.
    Chairman Shelby. Mr. Saum.

                  STATEMENT OF WILLIAM S. SAUM

                  DIRECTOR OF AGENT, GAMBLING

                   AND AMATEURISM ACTIVITIES

            NATIONAL COLLEGIATE ATHLETIC ASSOCIATION

    Mr. Saum. Chairman Shelby, Ranking Member Sarbanes, and 
Senator Dodd, on behalf of the National Collegiate Athletic 
Association, thank you for inviting me to testify today to 
provide our perspective on collegiate sports wagering. This is 
a matter of great importance for our over one thousand colleges 
and unversities and hundreds of thousands of student athletes. 
As an individual on the NCAA staff who has spent nearly 7 years 
working daily on this issue, it is a matter of personal and 
professional importance.
    I am not here today to promise that banning Internet 
gambling is the total answer to such an insidious problem as 
gambling on college sports, but it is part of the equation. The 
NCAA believes that there should be a prohibition on all legal 
and illegal sports 
wagering. It is about what is right for student-athletes and it 
is about what is right for college athletics.
    The NCAA membership has adopted specific rules prohibiting 
athletics department staff members, conference office staff, 
and student-athletes from engaging in sports gambling 
activities, which also include Internet wagering. It is not 
permissible to provide information to individuals who are 
involved in organized gambling activities, or to solicit or 
accept a wager on college or professional athletics. This rule 
also applies to NCAA national office staff.
    We have established other Association policies for 
activities associated with gambling. The NCAA Division I Men's 
and Women's Basketball Championships may not be conducted in a 
metropolitan area with an open legal sports book. For example, 
there are no men's basketball championship sites in the State 
of Oregon, where the lottery is based on the outcome of NFL 
contests. The NCAA does not permit its committees to meet or 
conduct formal social activities in casinos. We have also 
requested our corporate champions not to engage in promotions 
connected to the outcome of games. For the fourth straight 
year, we have conducted background checks on game officials who 
officiate in the Division I Men's and Women's Basketball 
Championships to assure that they have had no involvement in 
sports wagering. We do the same for the national office men's 
basketball staff members; the agent, gambling, and amateurism 
activities staff members; and the members of the Division I 
Men's and Women's Basketball Committees.
    While the Internet offers tremendous educational potential, 
this technology should not be used to circumvent State and 
Federal laws. Accessibility to the Internet is perhaps the 
greatest reason for concern regarding Internet gambling. Many 
students have unlimited use of the Internet and most of their 
residences are wired for Internet access. In fact, there may be 
no group in this country who has more readily available access 
to computers and the Internet than college students. For the 
NCAA, the potential exists for a student-athlete to place a 
wager via the Internet and then attempt to influence the 
outcome of the contest while participating on the court or the 
playing field. Our students, many of whom have access to credit 
cards, are lured into online gambling by unscrupulous 
operators. A recent Nellie Mae study revealed that 90 percent 
of 20-year-olds have credit cards, with the average number of 
cards being four and the average debt being approximately 
$2,200. The proliferation of Internet gambling is fueling the 
growth of illegal sports gambling on college campuses across 
our country.
    As an organization, we have committed to conducting 
national research regarding student-athletes and sports 
gambling. We recognize that estimates indicate more than $3 
billion will be wagered at approximately 2,000 Internet 
gambling sites in 2003, with 50 to 70 percent of that total 
coming from the United States.
    The Association has developed relationships with and made 
presentations to various law enforcement groups, including the 
FBI and the U.S. Attorney General's advisory group, campus 
security officers, coaches associations, and campus student 
life personnel. This spring, we are again reaching hundreds of 
our Association members through sessions about sports wagering 
at our annual compliance seminars.
    We use various tools to educate our student-athletes and 
coaches with our messages about sports wagering. Among those 
initiatives are locker room visits with members of the men's 
and women's Final Four, the Frozen Four teams, and the 
finalists of the College World Series. Our approach is truly 
grassroots, and must be.
    It is important to remember that the NCAA is a member of 
the higher education community. Among our primary functions are 
those of providing athletics participation opportunities within 
the framework of higher education and providing protection for 
student-athletes. We are about education and providing 
information to our membership that can lead to life-changing 
experiences both in the classroom and on the field. Our mission 
as an Association is to build an infrastructure of awareness 
and support to equip those involved with student-athletes with 
the tools to educate them about damaging influences, including 
sports wagering.
    We are not an organization poised to infiltrate illegal 
gambling networks. We are not an organization with the 
authority or the charge to investigate illegal gambling 
activities on college campuses or elsewhere. We have, and 
continue to, process cases involving sports wagering when they 
come within the authority of our organization. We have brought 
attention for more than 5 years to a problem we would prefer 
did not exist, which is there is illegal gambling on college 
campuses involving student-athletes. We support closer scrutiny 
of illegal wagering throughout society--this is not isolated 
just to our college campuses--and certainly, it should be 
discussed within the framework of the entire issue.
    The NCAA's strategy to attack problems associated with 
wagering on college sports is multifocused. We continue to 
carry the message that sports wagering is an issue for our 
student-athletes and we have worked diligently to educate them 
about the problem. But we need assistance and we believe that 
strong legislation is needed to prohibit gambling over the 
Internet.
    The system of intercollegiate athletics we have is unique 
to the world. We must do everything we can to protect the rich 
heritage, tradition, and integrity of its competition. We need 
to do what is right for the college game and what is right for 
our student-athletes and make gambling on college sports 
illegal everywhere, all of the time.
    Thank you.
    Chairman Shelby. Mr. Baker.

                 STATEMENT OF STEWART A. BAKER

                        GENERAL COUNSEL

          U.S. INTERNET SERVICE PROVIDERS ASSOCIATION

    Mr. Baker. Chairman Shelby, Ranking Member Sarbanes, and 
Senator Dodd, my name is Stewart Baker. I am here on behalf of 
the U.S. ISP Association. But I am not here to tell you that 
everything that happens on the Internet is a good thing.
    We know that very well because our members have permanent 
staff who do nothing but track down unlawful activity on the 
Internet and put a stop to it. We work closely with the Justice 
Department and John Malcolm and also with the attorneys 
general.
    I am here to tell you that if you are going to try to 
regulate activity on the Internet, the best way to do it is in 
a fashion that takes into account how the technology works.
    In our written testimony, we have laid out some principles 
that we think allow the Government to deal with unlawful 
activity in ways that properly take account of how the Internet 
works.
    In that context, there are two or three principles that are 
worth bearing in mind.
    ISP's control parts of the Internet. No one controls the 
whole thing. The parts that ISP's control, they are happy to 
take action. When they get notice from courts that unlawful 
activity is taking place there, they will put an end to it. And 
all we ask is that the notice that we receive of the unlawful 
activity come in an orderly way so that we can actually 
identify that it is official and correct.
    There are a couple of things that we ask that you not do. 
And that is, please do not ask us to monitor and take 
responsibility for being sure that everything that happens on 
our network is lawful. That is like asking the phone company to 
make sure that every conversation that occurs on the phone is 
lawful. Also, please do not ask us to try to block activities 
that are outside of our network some place else on the 
Internet. That doesn't work and in the long run, it will cause 
the Internet to cease to function properly.
    Those are the basic principles. If I could take a personal 
moment.
    I am a former General Counsel of the National Security 
Agency, Senator Shelby. And I have to say that the report, the 
opinion that you have issued on the causes of September 11 is 
the most insightful, the most eloquent statement of the 
problems that the community faced, and we all owe a debt of 
gratitude to you for producing that report.
    Chairman Shelby. Thank you.
    Mr. Catania.

                   STATEMENT OF FRANK CATANIA

                 PRESIDENT, CATANIA CONSULTING

                        ON BEHALF OF THE

                   INTERACTIVE GAMING COUNCIL

    Mr. Catania. Chairman Shelby, Senator Sarbanes, Senator 
Dodd, I would like to thank you for the opportunity to testify 
today with regard to Internet gambling. I have been actively 
involved in all aspects of gaming, having served as Assistant 
Attorney General and Director of the New Jersey Division of 
Gaming Enforcement, which is the world's largest gaming 
regulatory enforcement agency. I have also served as Chairman 
of the International Association of Gaming Regulators, Chairman 
of the Forum of American Casino Regulators and Immediate Past 
President of the International Masters of Gaming Law.
    Internet gambling is a controversial subject in the United 
States. Some opponents in Congress have advocated a total ban 
on Internet gambling for Americans. Supporters of legal 
Internet gambling have been steadily at work dispelling myths 
and lobbying against prohibitory legislation. As a result, very 
little consideration has been given to developing and proposing 
a practical and politically palatable regulatory scheme for 
legal and regulated Internet gambling in the United States. 
Both supporters and opponents of legal Internet gambling agree 
that something must be done. It is my opinion that a serious 
discussion of regulation, rather than prohibition, is needed.
    Gambling is one of the fastest growing forms of 
entertainment in the world, particularly now when governments 
are exploring other means to produce revenue. The application 
of gambling to the Internet has created a market force that 
cannot be stopped without pulling the plug on the entire World 
Wide Web.
    The total number of Internet gaming sites is estimated to 
be 1,800, as was said before, with a projected gross income of 
$4.3 billion for 2003. Remarkably, in spite of all attempts to 
place a domestic ban on Internet gambling, approximately 60 
percent of this figure will come from the United States.
    Internet gambling revenues are not just being generated by 
gamblers in the United States, but worldwide. Many countries 
are either embracing Internet gambling or tolerating it because 
there is no effective way to stop it, while some countries have 
actually concluded that modern technology has rendered their 
gambling laws obsolete.
    Financial Crimes Enforcement Network recently completed a 
survey of how other countries are dealing with the issue of 
Internet gambling and they confirmed that most countries have 
arrived at the conclusion that legalized Internet gambling, 
with oversight and regulation, is a ``workable solution'' from 
both an economic and law enforcement standpoint. For example, 
Great Britain has recently publicly endorsed legalized and 
regulated Internet gambling.
    U.S. Representatives John Conyers and Christopher Cannon 
recently introduced legislation to create a commission that 
would recommend ways that the Federal and State governments 
could potentially regulate Internet gambling.
    It is my hope that the Members of this Committee will 
recognize that legalization and strict regulation, rather than 
prohibition, could achieve important policy goals. A commission 
could learn about the Internet gaming industry and potentially 
develop sensible solutions for the protection of U.S. residents 
and businesses.
    The debate on Internet gaming needs to include discussion 
on how regulation can reverse the current situation where 
monies from U.S. citizens leave the United States with no 
subsequent benefit, directly or indirectly, to our Government 
or to our citizens. One consequence of this is the fact that no 
funds are dedicated for protecting children and problem 
gamblers through education or other programs.
    Money laundering is also a major concern today. Currently, 
Internet gaming involves credit card transactions with a clear 
record of every wager. The proposed legislation, similar to 
Representative Leach's legislation in the House, would appoint 
the 
financial services industry as the Internet police. If credit 
card companies and associations decline transactions for 
Internet gambling, Internet gaming operators and players will 
be forced to use alternative payment methods. Money laundering 
is extremely difficult in a situation where cash is not an 
option and every electronic transaction is recorded. However, I 
would caution that a ban on credit cards and other financial 
instruments for Internet gaming will likely result in the 
development of settlement solutions that banks cannot recognize 
and block--such as anonymous e-cash.
    This industry is a new phenomenon and requires thoughtful 
study. Some of the legal and technical issues a commission 
exploring potential regulatory schemes would look at include: 
Amending Federal law, preserving States' rights, cash 
transaction reporting practices and procedural safeguards to 
protect against money laundering, tax revenue sharing, random 
testing of games and software to ensure fairness and consumer 
protection, licensing requirements, background checks of 
qualified operators, enforcement of underage gambling statutes, 
and methods of identifying and helping problem gamblers.
    Taxation and tax preservation are major consideration for 
governments. Although Congress recently extended the ban on 
Internet taxes, it still receives revenue from companies that 
participate in e-commerce. However, the Federal and State 
governments are currently receiving no revenue from Internet 
gambling.
    While many in Congress view study commissions as a strategy 
to delay legislation, there has not been an issue more 
deserving of further study than Internet gaming policy. The 
complexities of Internet gaming demonstrate the complexities of 
traditional, regulated businesses evolving to the new truly 
global marketplace created by the Internet.
    Once again, thank you, Mr. Chairman, for the opportunity to 
speak here today.
    Chairman Shelby. I thank all of you. In addition to the 
witnesses that we have just heard from here, Dr. James Dobson, 
of Focus on the Family, was unable to join us today. However, 
he sent a strong letter in support of Congressional efforts to 
ban unlawful Internet gambling. That letter will be made part 
of the record in its entirety. But I would like to read just an 
excerpt from the letter, and I will quote it. This is from the 
letter from Dr. Dobson.

    During the course of my service on the National Gambling 
Impact Study Commission, my fellow Commissioners and I 
overwhelmingly concurred that all forms of Internet gambling 
should be outlawed. Because several of my colleagues were 
themselves representatives of the gambling industry, our 
findings are particularly significant.
    In addition, you may be aware that there is emerging data 
from other sources that points to the harmful consequences of 
online gambling. Young people and individuals who struggle with 
preexisting gambling addictions are among those who are 
especially vulnerable to the lure of this activity.
    And with more and more households gaining access to the web 
every day, Internet gambling is poised to penetrate an even 
broader segment of the population. Now is the time for our 
Nation's leaders to put a stop to this dangerous pursuit before 
it wreaks further havoc on the lives of these individuals and 
their families across the country.

    I have a few questions now.
    The American Psychological Association has studied 
pathological gambling in the United States and Canada and found 
that the young suffer from gambling problems at much higher 
rates than the adult population. Are these findings consistent 
with your experience at the NCAA? And by this I mean, are young 
people particularly susceptible to a gambling addiction?
    Mr. Saum. Senator Shelby, that information is what we also 
find as we go through our investigations and review. Young 
people, especially athletes, have characteristics that put them 
at risk, such as being risk-takers, being very aggressive 
individuals, believing they do not do anything wrong and having 
great confidence in what they do, all great characteristics of 
great athletes. But when they go to the wrong side, it puts 
them at risk for gambling issues.
    Chairman Shelby. Any of us who know teenagers and who have 
had children and have been around children and young adults are 
well aware of how computer-literate and savvy these youngsters 
are. It is a new generation.
    College students in particular are very likely to have 
access to the Internet, frequently in the comfort of their own 
dorm room or apartment. What types of efforts are being made by 
computer system administrators on college campuses to restrict 
access to Internet gambling sites?
    Mr. Saum. Our campuses, to be quite honest, still need to 
get better at doing what you are suggesting. We are trying to 
help educate them on how to do that.
    We have put in some procedures and policies at our 
collegiate athletic level by having to check for bookmarks. 
Also, we issue computers to our athletes, so we continually 
check those also.
    Chairman Shelby. Mr. Catania, in your testimony, you call 
for legalizing heavily regulated Internet gambling. However, 
even if 
legalized, it stands to reason that many Internet casinos would 
remain offshore. Even if Internet gambling were legal in the 
United States, what impetus would there be for an offshore 
casino to move to the United States and subject themselves to 
regulation and to the laws? And also, how do we regulate 
casinos that are outside the jurisdiction of the United States?
    Mr. Catania. Senator, I think that the first issue is if we 
had a regulated system here, U.S. players would not be looking 
offshore to play. They would be looking at the casinos that are 
regulated basically the same way that the casinos are 
regulated, land-based casinos are regulated.
    I have to say that land-based casinos are probably the most 
regulated industry in this country, in order to make sure the 
players are protected.
    That is what I think has to happen here. There has to be 
player protection. And if that occurs, then what will happen is 
that you then will have people moving away from the offshore 
and coming and playing with the companies that are regulated by 
the States.
    Chairman Shelby. Mr. Malcolm, do you have a comment?
    Mr. Malcolm. Yes, Senator. I think you hit the nail on the 
head. I think that there are places in the world in which 
regulation and law enforcement can be effective, and there are 
many places in the world in which regulation and law 
enforcement can be minimal or practically nonexistent. And 
illegal ventures tend to gravitate to those areas, for obvious 
reasons, as well to say that, all of a sudden, if we regulated 
this industry in this country, that people would not be 
attracted to offshore accounts, I think is to wink at reality. 
I believe that offshore enterprises can make themselves 
attractive in the same way that fraudsters today make 
themselves attractive in all manner of ventures.
    Chairman Shelby. How would you tell if a site is offshore 
or regulated? You have the World Wide Web.
    Mr. Malcolm. The short answer to your question is, not a 
very satisfactory answer, that we need to do a lot of gumshoe 
work and conduct an investigation. When you are using the 
Internet, it is very easy to route communications throughout 
the world.
    Indeed, through the United States and all manner of 
countries, it is easy to manipulate software, to change the 
odds, to favor the casino in this case. Internet businesses 
open and close. As you have already pointed out, they 
frequently collect from the losers and do not pay off the 
winners. You have to conduct an investigation.
    Chairman Shelby. How would you design a regulatory regime 
that would permit a casino to determine without a doubt that 
the bettor in front of each terminal is not under age? That 
would be hard, wouldn't it?
    Mr. Catania. It is difficult, but I have to say that even 
in the land-based casino where you have the physical presence 
of an individual who is underage, it is still difficult to keep 
an underage player off.
    I think that there are different ways of doing the 
registration process that could eliminate a large percentage, 
if not most.
    No one is going to say that it is going to be 100 percent. 
I could say that you could probably keep off 90 to 95 percent 
by the registration process, by having PIN numbers, by having 
that person sign up and not be allowed to wager, a limit would 
be placed on him until they get hard proof who that person is, 
and then something be sent back to that person at that address.
    Chairman Shelby. Mr. Fahrenkopf, do you have any comment?
    Mr. Fahrenkopf. Mr. Chairman, we have talked a lot here 
about States' rights and I think that that is something we 
should reflect on for a moment.
    As everyone has said, this industry is very tightly 
regulated at the State level. There are State regulators with 
law enforcement oversight in every one of the 11 States where 
commercial casinos exist. Those regulators, those 
professionals, do not believe the technology now exists to 
adequately regulate and control.
    I have people who come by my office every other day tell me 
that they have software that can prevent juveniles from 
gambling. They can prevent people in another jurisdiction where 
it is illegal from gambling. I always tell them--go see the 
Nevada Gaming Control Board. Go see the New Jersey Gaming 
Commission. Go to Illinois. Go to Mississippi. You have to 
convince those professionals first.
    Chairman Shelby. Mr. Baker, in your testimony, you state 
that the best way to remove gambling websites from the Internet 
is to get them at their source. That is, to compel service 
providers that actually operate the computer server on which 
the site resides to remove the content.
    Your statement indicates that to do otherwise would force 
service providers to block access to nongambling websites with 
the same IP address. Why is it such a priority to have shared 
IP addresses? Won't the market solve the problem? That is, 
websites will migrate from IP addresses shared with blocked 
gambling sites, won't they? And what has been the success rate 
of your industry with foreign service providers in obtaining 
cooperation with requests to block access to gambling websites?
    Mr. Baker. The difficulty that would occur if you tried to 
block sites in that fashion is that, first, this is a very 
surprising and recent development. Because there is a shortage 
of numbers on the Internet, people have begun sharing them 
without even telling their customers that the customer now 
shares an actual IP address with 40 or 50 other sites. We were 
astonished to discover that more than two-thirds of the sites 
on the Internet now share their number with as many as 50 other 
sites.
    You do not know, if you are on the Internet, that you are 
in that situation and you do not know that you have been 
blocked. Your traffic goes down without knowing why. It is 
actually a difficult thing to track back to determine why you 
might have been blocked.
    Bear in mind that you have to serve blocking orders on 
dozens of ISP's in order to achieve effective coverage in the 
United States. As these sources blink out for you, if you are a 
perfectly innocent site that happens to be served by the same 
website that has the gambling operation, you do not know it is 
happening until perhaps days or months afterwards. That is one 
of the problems that arises. Many innocent sites are going to 
get shut down in those circumstances.
    Second, the methods, as we have heard, even college 
campuses, which have an enormous interest in preventing access 
to these sites, have great difficulty actually making those 
methods work in practice. It is very, very difficult where you 
have a site that wants to reach customers and customers who 
want to reach the site to keep them with technical measures 
from finding each other.
    The blocking mechanisms, though they can clog up the 
Internet for everybody, and will, actually probably won't 
prevent the most pathological gamblers from reaching the most 
aggressive sites.
    Chairman Shelby. The programmers could not solve that 
problem, could they?
    Mr. Baker. Well, there are programmers and there are 
counter-programmers.
    [Laughter.]
    Chairman Shelby. Absolutely.
    [Laughter.]
    They might not want to solve that problem. It has been 
reported that as many as 5 percent of collegiate athletes have 
gambled on one of their own games, have shaved points or have 
provided inside information to gamblers. Does your experience 
bear these numbers out? Do you believe that access to Internet 
casinos will increase the likelihood college athletes will be 
tempted to bet on events in which they participate?
    Mr. Saum. We do believe those numbers. Those numbers have 
been reflected in two different studies. And we also have cases 
that we have become involved in that reflect those numbers, 
yes.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Malcolm, what is the Administration's specific position 
on the legislation in the House, and the legislation that 
Senator Kyl has introduced here?
    Mr. Malcolm. Senator, of course, with respect to the Kyl 
bill, we just received it and are still analyzing it. I would 
say that we do have certain concerns with respect to the 
criminal provisions. Specifically, they would be three.
    The first is that it does not cover telephone bets and a 
lot of these organizations that operate over the Internet 
receive the bets via telephone.
    Second is that, in terms of being an additional tool for 
law enforcement to use, the criminal provisions set forth in 
the Kyl bill, which is 5363, states that you need to prove that 
unlawful Internet gambling is occurring. So, you have to prove 
the violation of an existing Federal law in order for this 
provision to apply. In terms of getting an added tool, we would 
question whether its utility will be particularly great.
    Then the third category of concern is Section 5364(d)(2) 
provides a carve-out for ISP's.
    I do not disagree with anything my friend Mr. Baker said 
about not wanting to impose additional obligations on ISP's. 
But the way the bill is written, it requires that ISP's get 
exemptions from 1084, unless they violate this provision, have 
actual control over bets and wagers, and operate, manage, 
supervise, or direct websites. That is a significantly higher 
standard than standard aiding and abetting theory which applies 
now under criminal law.
    Senator Sarbanes. If those three matters were appropriately 
addressed, does the Administration support the legislation?
    Mr. Malcolm. Senator, I think it would be fair to say that 
Justice, which again is still studying the bill, also has some 
concerns about the standards that are applied for injunctive 
relief. However, we are having discussions with other agencies, 
including Treasury, for instance, and haven't formed a position 
yet.
    Senator Sarbanes. Well, when does Justice figure that they 
can reach a conclusion and come to the Committee and say, 
``This is our position?''
    Mr. Malcolm. I think that is a fair----
    Senator Sarbanes. We are in the process of legislating up 
here, obviously. The House, they are out of committee on that. 
What is your position on the House bill?
    Mr. Malcolm. Senator, I believe that the concerns that I 
have addressed are mimicked in the Leach bill. The same 
criticisms would apply with respect to getting a definitive 
position----
    Senator Sarbanes. Did you enter into the legislative 
crafting process on the House side?
    Mr. Malcolm. I am sorry, Senator.
    Senator Sarbanes. Did the Department of Justice enter into 
the crafting of the legislation on the House side?
    Mr. Malcolm. If I may have just a moment.
    [Pause.]
    No, sir, we were not.
    Senator Sarbanes. Well, when does the Department of Justice 
intend to get involved?
    You have a statement which is pretty strong, I thought, in 
terms of what the problems are. But now as I question you, we 
cannot get you to participate in the solution.
    Mr. Malcolm. Senator, I agree with respect to the strong 
statements about the concern. I believe that I have addressed 
three very specific points dealing with criminal liability. 
With respect to the concerns about the standards for injunctive 
relief, you have a fair criticism. We will consult with 
Treasury and respond to you promptly.
    Senator Sarbanes. Mr. Chairman, I suggest that the Justice 
Department get to work and let us have the benefit of their 
thinking.
    Chairman Shelby. I agree with you. I hope that they will 
get to work, sooner rather than later.
    Mr. Malcolm. I agree, Senator.
    Senator Sarbanes. Mr. Catania, I could not help but think 
as you listed all of the regulatory measures that might be 
advisable, or all of the matters that would be looked at by the 
study commission--you went right through a whole laundry list--
that the current situation must really have many harmful 
aspects to it because you have set out a lot of things that you 
think any regulation would have to address. But putting that to 
one side, what are these alternate payments measures that you 
are referring to?
    Mr. Catania. Senator, those are payment methods in which 
operators are able to have a card. And patrons are able to 
download on a particular card, very similar to an ATM card or a 
debit card. They download--either put on, whatever amount it 
is, onto that card and then use that card on the Internet.
    It is not specifically used for gaming. It is used for 
other forms of purchases on the Internet. And there is not any 
type of classification as you have with credit card companies.
    Senator Sarbanes. They still have to use the payment system 
in some way, though, to realize payment, don't they?
    It is not some Internet version of the hawalas, which we 
have heard a lot about in this Committee.
    Mr. Catania. It is not specifically used for gaming. You 
would use your recash transaction and download onto that card. 
You can download with your credit card. You can download by 
sending money into that card company. It doesn't have to be a 
bank right here in the United States. It could be any bank that 
is doing it. It doesn't even need a bank to do it.
    You would be inclined to do this because these companies 
are 
actually paying for them to open up the accounts because they 
get paid every time there is a download on to that particular 
card.
    Senator Sarbanes. Mr. Malcolm, you put your statement into 
the record. You did not touch on certain parts of it. But you 
have a long section in there on the money laundering issue. Now 
that is a matter that has been of key concern to this 
Committee. In fact, we passed a significant money laundering 
title after Septemeber 11. Could you just elaborate a little 
bit on the money laundering dimensions of this Internet 
gambling?
    Mr. Malcolm. Certainly, Senator. This entire industry is a 
cash-intensive business. It operates at a huge volume and 
speed. These are international transactions that frequently 
occur in offshore locations. There is encryption used with 
respect to these communications frequently, so anonymity is at 
a maximum.
    The maintenance of records for these offshore businesses 
can be minimal or nonexistent, and that creates a real haven 
for money laundering. People who wish to move cash quickly will 
gravitate to casinos because banks are increasingly being 
regulated. And in addition to that, a number of these casinos 
provide financial transactions, credit payments, or whatnot. It 
is a very good vehicle for money laundering.
    Senator Sarbanes. Is it in fact so being used, do you know? 
Are you just telling me about its potential, or is there actual 
use in this respect?
    Mr. Malcolm. I would say that it is safe to say, Senator, 
that we have matters under investigation that indicate that 
criminal organizations have entered the field of Internet 
gambling and money laundering is certainly something that they 
do.
    Senator Sarbanes. Now, Mr. Fahrenkopf, could I ask you, how 
do you in the gaming industry control minors from 
participating?
    Mr. Fahrenkopf. That is one of the things that is subject 
to State regulation. Any casino that is licensed in any of the 
11 States where we do business that allows minors--in fact, 
with casinos, Senator, it is different than, in fact, other 
forms of gambling in this country. You have to be 21 years of 
age to go into a casino.
    As you know, many people can bet on the lottery at 18 or 
they can go to a horserace track at 18. But in the commercial 
casino industry, you have to be 21.
    And so, just as the beverage industry has to be careful who 
they serve, we do our best to check the ID's of people who 
gamble. If we make a mistake, we are subject to severe 
sanctions from the States in which we are licensed for those 
mistakes.
    Senator Sarbanes. I am reflecting my own ignorance here, 
but do you have to be 21 to go into the casino, can you go in 
if you are under 21, but you cannot engage in gambling?
    Mr. Fahrenkopf. You can go into the casino if you are under 
21 if you are with an adult. In other words, in some hotels, 
for example, in Las Vegas, Reno, or in Mississippi or other 
States, where you may have to check in to get your room, you 
may have to walk past slot machines or part of the casino. You 
have to be with an adult when you do that.
    Senator Sarbanes. All right.
    Thank you, Mr. Chairman. My time is almost up.
    Chairman Shelby. Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman.
    Let me just ask the follow-up on Senator Sarbanes' 
question, Mr. Malcolm. Is it then the position of the 
Administration that you would oppose the Kyl bill as it 
presently is crafted?
    Mr. Malcolm. I would not say, Senator Dodd. I would say 
that we have concerns that we would hope to address to you 
shortly. I apologize for the fact that we have been remiss in 
not doing so, but we will respond promptly to those concerns.
    Senator Dodd. All right. That will be helpful. I want to 
underscore the point that Senator Sarbanes raised. I think that 
we are moving rather rapidly here, and the fact that you 
weren't involved in the House draft is troublesome.
    Mr. Malcolm. It is a fair criticism, Senator.
    Chairman Shelby. Senator Dodd, if you would yield for just 
an observation.
    I cannot imagine that this Justice Department under any 
circumstances, headed by our former colleague, John Ashcroft, 
would oppose this legislation. You may not have evaluated all 
of it, but I cannot imagine that. I would be dumbfounded if he 
did.
    Mr. Malcolm. Certainly, the concern it seeks to address is 
of great importance to the Department.
    Senator Sarbanes. Can I ask something?
    Senator Dodd. Yes, certainly.
    Senator Sarbanes. The Justice Department should be more 
than just a somewhat acknowledging bystander in this process. 
You have a lot of skill down there and obviously, we want to 
draw upon it in order to frame a good piece of legislation.
    I share Senator Dodd's view that it is troubling that 
apparently you weren't involved in the House process. I am 
trying to give you an opportunity, I think, to get into the 
Senate process.
    Senator Dodd. And the point being, obviously, that any good 
idea, and this is a good idea, you have heard us talk about it, 
that there are provisions that could be written into a good 
idea that can cause terrible problems for people down the road.
    I think at the State level and other places, if we created 
exceptions here that complicate the lives of attorneys general 
at the State level, I think that the bill can then become a 
problem, even though the goals are laudable, that if in the 
crafting of it and the provisions included in the legislation 
make the ability to pursue 
illegal activities that much more difficult at other levels 
because of what we put in here, then this becomes a bad bill, 
despite the laudable goals included.
    So, I would be surprised as well, given the laudable goals 
here. We count on you guys down there to help us sort our way 
through this. It becomes very, very important.
    Let me raise a question. I think most of the bills here 
impact to some extent, or could impact State lotteries. It has 
been raised just peripherally the issue of 18 being the age--I 
think, Frank, you mentioned the point that State lotteries can 
be conducted. Isn't it true that these bills include exemptions 
for State-approved gambling, which they do. And then couldn't 
this open up the door to Internet sales of lottery tickets.
    Mr. Blumenthal. If I may respond, Senator. Yes, they could 
and that is the reason why we oppose any exception for them.
    And I would just like to emphasize because I think this 
dialogue has been very useful in exposing one very overriding 
and profoundly important fact about Internet gambling. And that 
is, its appeal to young people. Not just at college age, but 
children of the age that are now in this room. That is a fact 
that pervades gambling now as we see it across the country--its 
increasing appeal to young people.
    Internet gambling provides the forum, the means, the 
vehicle. It is the Wild West of gambling because of its 
anonymity and access.
    And so, reluctant as we are to handicap somewhat our own 
lotteries and our own State-sanctioned gambling, we would 
oppose any exception for lotteries or other kinds of games that 
are now sponsored by the State.
    Indeed, many States, including Connecticut, have specific 
provisions of law that forbid appeals to young people. We just 
shut down the beginning of a new State lottery game that would 
have appealed to young people in our view because it used 
cartoon characters. But the point that you raise I think is 
very important.
    Senator Dodd. Obviously, of course, that raises the issue 
of credit card sales at the State level.
    I am presuming then that all of you, with the possible 
exception of Mr. Catania, would support the Federal preemption 
of State law when it came to Internet sales of lottery tickets. 
Is that correct?
    Mr. Blumenthal. Much as it pains me to agree with any pre-
emption----
    [Laughter.]
    --and I am not sure I speak for all of my colleagues here--
--
    Senator Dodd. Using the magical words here.
    [Laughter.]
    Mr. Blumenthal. --in even acceding to the use of that word 
and agreeing with it. We believe that Federal authority should 
be meshed with State preclusions so as to offer support for 
that general policy.
    Senator Dodd. I will raise the question.
    Mr. Fahrenkopf. I am not sure that I could totally agree 
with the Attorney General. I do not speak for the lotteries, 
but I know them, and I am sure that there are a lot of attorney 
generals for States who have lotteries that would not 
necessarily agree with that view also.
    I would have to look at the language very carefully, 
Senator. Again, my concerns, just to make sure about 
fundamental States' rights and that fundamental view that each 
State has the right to determine what type of gambling exists 
within its borders, how they are going to regulate and how they 
are going to tax it. So, I cannot give you a blanket yes now.
    Senator Dodd. But you understand the problem.
    Mr. Fahrenkopf. I understand the problem, absolutely.
    Senator Dodd. You can have Internet sale of a lottery 
ticket in Connecticut, that is not going to prohibit someone 
from Utah or Hawaii, the two States that do not allow any 
gambling, to be able to access that market, thus violating what 
Utah and Hawaii want to provide----
    Mr. Fahrenkopf. You have somewhat of that problem now, 
although it is not used with the Internet. You have the Big 
Game, and I am not an expert on lotteries, I think has eight or 
nine States that presently share the pot. They gamble. But I 
think you have to buy the lottery ticket in each individual 
State.
    But there are some real concerns there. I agree with you. 
But I would have to see language before I could necessarily 
agree.
    Senator Dodd. Does anyone else want to comment on this 
point before I move to another subject matter?
    [No response.]
    I have raised issues over the years about the proliferation 
of credit cards on college campuses. I haven't been very 
successful with it, but I have been deeply disturbed about the 
proliferation, in fact, the solicitation, people receiving, 
when they become freshmen in college, a credit card, whether 
they deserve it or not, and the problems of consumer debt among 
young people has been a 
serious problem and a growing one.
    I wonder if there is any knowledge or any background 
information to the extent of college consumer credit card debt, 
that is accumulated as a result of Internet gambling? Do you 
have any data on that?
    Mr. Saum. We have a Nellie Mae study that is not 
necessarily connected to the Internet, but connected to the 
number of credit cards and the average balances.
    Sixty-seven percent of entering freshmen have credit cards. 
And the average balance is about $2,000. About 25 percent of 
freshmen have four credit cards. We are actually seeing young 
people come to college with credit cards. Certainly, several 
years ago, it was at college that they were first receiving 
them. But now they are coming with them.
    This fall, the NCAA will survey 30,000 of our student-
athletes, both male and female, in all sports, in all three 
divisions, about some of the very questions you just asked, and 
we will have really good numbers by fall.
    Senator Dodd. I wonder if there is any way, given the 
record of several of the major banks that are being very 
cooperative in the area of trying to curtail Internet gambling, 
whether or not they have accumulated information about who 
those gamblers are in terms of whether or not they would be 
able to pull out information regarding the amount of that debt 
that young people are accumulating? Is it related specifically 
to Internet gambling?
    Mr. Fischer. Senator Dodd, let me respond to that, although 
I am not responding on behalf of any particular issuer.
    First of all, at present, if you think about four out of 
five of all requests for payments on credit cards these days 
being rejected, you can see that really, at least from a 
prospective basis, there is not going to be much.
    When we committed to the House Members and we have 
committed to staff here as well, that individual issuers and 
the two associations would cooperate, we meant that. And so, 
the blocking is in place.
    In terms of what is happened historically, because it is so 
decentralized in terms of individual issuers, I do not think 
you are going to see numbers in that sense. It is conceivable 
that you could go back and reverse engineer in terms of codes. 
But I think that is highly unlikely.
    Senator Dodd. Thank you very much. I am just curious. I saw 
this morning, Mr. Saum, where the NCAA made a mistake in 
scheduling potentially a basketball game with BYU. Now, we are 
assuming, since they are playing the University of Connecticut 
in the first game, that they won't get to a second round.
    [Laughter.]
    But if miracles occur, and they do, and we do a third 
round, you are going to have to shift them from one bracket to 
another.
    At least that is the news story this morning.
    Now, I am not promoting office pools, but how is that going 
to affect office pools?
    [Laughter.]
    Mr. Saum. It actually is an assistance in regards to 
fighting office pools.
    Senator Dodd. There you go.
    [Laughter.]
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Carper.

              COMMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you, Mr. Chairman, and to each of 
you, welcome today.
    I was the Governor of Delaware for 8 years. We actually put 
in place slot machine gambling, gosh, about 6 or 7 years ago.
    I vetoed the first bill and allowed the second one to 
become law without my signature. So these issues are ones that 
I have actually thought a little bit about in that position.
    We debated in the Senate last year, legislation of a 
different sort, but I think it may have some connection here 
and I just wanted to share it with all of you.
    The people who live in States with a sales tax can go to 
their local merchant and buy a particular item and pay sales 
tax for it. Many of those same people can get on the Internet 
and acquire from a remote vendor the same item and not pay any 
sales tax at all. And we are seeing a proliferation of that 
thing since people find purchasing over the Internet very 
convenient.
    States are struggling, as you know, with their finances 
these days. Particularly States that have sales taxes are 
hurting. Part of the reason why they are struggling is because 
they are losing sales tax revenues from remote purchases over 
the Internet.
    We debated, and we will probably debate again this year, 
what we should do about that. In my own view, I think there 
should be a level playing field and if a person is buying from 
a local merchant, the brick and mortar presence, they should 
pay a sales tax if their State has a sales tax. We do not in 
Delaware. We are one of about five States who do not. And if 
they are buying over the Internet from a remote vendor, but the 
purchaser lives in a State with a sales tax, that tax should be 
collected and turned over to the State.
    That is a long way of leading into my question. Here is my 
question. Is there a potential similar effect on the finances 
of States from Internet gambling that we have seen through the 
purchase of items over the Internet? And if so, has it been 
quantified? Has any thought been given to that?
    Mr. Fahrenkopf. I will take a shot at that, Senator.
    Senator Carper. Yes, sir.
    Mr. Fahrenkopf. We constantly do surveys, and again, I am 
talking about the commercial casino industry that does business 
in 11 States. We do not see a competitive nature.
    Our analysis show that people come to Las Vegas or go to 
Biloxi or go to Atlantic City for other reasons than just to 
gamble. They go there for good shows, food, rooms, 
entertainment, the whole entertainment package.
    That person who wants to sit in the quiet of their den with 
a beer playing against some computer in Belize is not really 
the same customer base that we have.
    So, we have not been able to, in our part of the industry, 
see anything of that effect. There is a study, however, that 
was done by--and his name escapes me right now, a professor in 
Boston, looking at the impact of one type of gaming coming into 
a jurisdiction and the effect upon the lottery.
    I will get you that information. There may be an analogy 
that can be made from it.
    Mr. Blumenthal. If I may offer a kind of supplement to 
that, just judging by the effect in Connecticut where we have 
two casinos operated by Federally recognized tribes.
    I would concur, we do not have studies, at least that are 
accessible to the State, that I am aware of. However, there is 
a harm to the State from Internet gambling that is obvious. It 
has been mentioned here, on our young people, on our elderly, 
who become victims and who unknowingly will play these games 
and be unable to recover their winnings. And of course, there 
is no benefit to the State from any tax, nor could there be. 
And that is obviously one of the reasons why we are in favor 
of, in effect, cutting off the air supply for Internet 
gambling. We receive no benefit. There are just negatives for 
us.
    Mr. Fischer. Senator, let me bring one back to Delaware.
    Obviously, a good number of card issuers are located within 
the State. There are no studies that I am aware of that would 
distinguish the two, except experience. And I think that the 
experience of card issues where customers take their cards and 
physically go to a casino location and the number of disputes 
that result from those in person transactions are very small. 
On the other hand, the disputes and the litigation that arise 
out of Internet gambling transactions are much higher. Now that 
is not a study, but it is experience.
    Senator Carper. Thank you.
    In our State, when slot machine gambling was put into 
place, it was established with several horse race tracks and it 
was put in our horse race tracks.
    There was a variety of factors that I think led the 
legislature to support making that decision. Among the 
interests were to preserve open space in the northern part of 
our State. Delaware Park, a large race track and really, a 
lovely area surrounded by a lot of development and there was 
interest in preserving that open space that led some people to 
support the introduction of slot machine gambling.
    In the central and southern part of our State, a place 
called Harrington, just south of Dover, which is the home of 
our Delaware State Fair every year, and a race track as well, 
the people who, the board of directors of the State fair board 
were interested in finding some alternative sources of capital 
investment for the fairgrounds. They saw this as something that 
might be helpful.
    We have other legislators who are interested in helping to 
develop and nurture a horse-breeding industry in the central 
and southern part of our State. And all of those factors came 
together and the open space that is represented by Delaware 
Park is still open space. The Delaware State Fairground looks a 
whole lot better than it did 10 years ago, remarkable 
improvements have been made. And there is a burgeoning horse-
breeding industry that is starting to show up in our State. So 
those who supported the introduction of slot machine gambling 
say that there has been some public benefit for our area.
    You have to balance that off by the fact that we have seen 
a resurgence, a strong surge of growth in addictive gambling, 
people who are addicted to gambling, which is very unsettling.
    What is the public benefit to people in this country from 
the introduction of Internet gambling? How does the public in 
this country benefit from that?
    Mr. Blumenthal. I think none, absolutely none. Of the many 
difficult questions before this body, and all of us as public 
officials, that is comparatively an easy one to answer. There 
is no benefit. There is no economic development or preservation 
of open space or other welcome byproduct of Internet gambling.
    But I would emphasize the very important point that you 
have just made, Senator, which is that Internet gambling is 
many more times likely to lead to addictive gambling. That is, 
to addiction. And these studies have been done. There is one 
that was recently done by the University of Connecticut which I 
can provide to you, which shows, again, the anonymity and ease 
of gambling--the fact that it is done out of sight and maybe 
out of mind, maybe even the close relatives, until there is a 
crisis--is a major cause of addiction.
    Mr. Malcolm. Senator, if I may add briefly.
    Senator Carper. Yes, sir.
    Mr. Malcolm. No less a body than the American Psychiatric 
Society has stated, and I quote: ``Internet gambling, unlike 
many other forms of gambling activity, is a solitary activity, 
which makes it even more dangerous. People can gamble 
uninterrupted and undetected for unlimited periods of time.''
    So, I believe precisely the anonymity and the availability 
24/7 makes it attractive to pathological gamblers.
    Mr. Catania. Senator.
    Senator Carper. Yes, sir.
    Mr. Catania. No matter what happens with this bill, if this 
bill is passed, it will not stop Internet gambling in this 
country. That is why I am saying that the alternative is 
regulation. If you provide regulations and all that I have said 
in my presentation, you are able to provide player protection 
to those people that do want this as a form of entertainment.
    Gambling is a form of entertainment, no matter whether it 
is a riverboat, a land-based casino, Internet is no different. 
But what happens with regulations, we provide protections for 
the players. Otherwise, what is going to happen, yes, you are 
going to have those people still playing from Belize without 
any type of protections at all, not knowing whether the games 
are honest, not knowing who the people they are playing with. 
That will happen, unless there is some regulation, because it 
is not going to stop, even if you ban the use of credit cards 
and other banking instruments.
    Senator Carper. Okay. Gentlemen, thank you very much.
    Mr. Chairman, thank you very much.
    Chairman Shelby. Mr. Fischer, your written statement 
indicates that illegal Internet gambling transactions have led 
to extensive and costly litigation on whether participating 
cardholders are liable for charges to their accounts. How much 
money have the card issuers lost on this type of litigation?
    Mr. Fischer. Chairman Shelby, there has been no money lost 
in the litigation at this point. Tremendous expenses. Most of 
the litigation is in California, some of it still ongoing.
    There have been a number of cases where the amounts that 
were outstanding have been settled. Those obviously are losses 
for transactions to the industry.
    There have been no penalties as a result of this. But 
litigation, as you know, is very expensive.
    Chairman Shelby. Gentlemen, we appreciate your testimony 
today.
    Mr. Malcolm, we would ask again that the Justice Department 
work with us to address some of the issues that you raise so 
that we can move ahead with this legislation.
    Mr. Malcolm. We certainly will, Senator.
    Chairman Shelby. We think it is very important, not only to 
you, but to the States, to all of us; and also especially the 
future victims, that we might keep them from destroying 
themselves.
    Mr. Malcolm. Absolutely.
    Chairman Shelby. This hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
               PREPARED STATEMENT OF SENATOR JIM BUNNING
    Mr. Chairman, I would like to thank you for holding this very 
important hearing.

    I do not think anyone here is not thinking about the probable 
military action in the Middle East. There is some hope that Saddam 
Hussein will seek exile, or the Iraqi military or others inside of Iraq 
will overthrow him. But that does not seem very likely, and it looks 
like many brave Americans will soon go into harm's way. Our thoughts 
and prayers are with those brave young men and women and their 
families.

    We must continue, however, with the work of the Senate, and we do 
have a very important issue before us today. My good friend Senator Kyl 
has worked very hard on this bill to outlaw illegal Internet gambling 
for a number of years and I have worked with him. I believe he has 
crafted a very fine balance in this legislation. A balance that will 
address illegal gambling and money laundering concerns, without 
intruding on legal gambling.

    I would especially like to applaud Senator Kyl for working with me 
to ensure his legislation would not harm State's rights in relation to 
the parimutuel gaming industry. Thoroughbred racing is not only very 
important to the economy of Kentucky, but also part of our heritage. 
Anyone who has heard ``My Old Kentucky Home'' sung by over one hundred 
thousand on the first Saturday in May knows how important horse racing 
is to Kentucky. I thank my good friend, Senator Kyl, for working with 
me to ensure his legislation does not harm Kentucky's heritage.

    However, I know there are some out there who might entertain 
altering this bill for their constituents or gaming interests. I will 
be watching this bill very carefully, and reserve all of my rights as a 
U.S. Senator to ensure that what is legal under a State's authority 
regarding parimutuel betting is not harmed by legislation before the 
Senate. If others introduce amendments that I believe may be 
detrimental, I will not only oppose them, but I also may feel the need 
to introduce my own amendments. It is my hope that it will not come to 
that and we can pass this bill as is with little, if any, changes.

    Once again, Mr. Chairman, I thank you for holding this important 
hearing.

                               ----------

              PREPARED STATEMENT OF SENATOR ELIZABETH DOLE
    I would like to express my appreciation for your holding this 
hearing today. In a few short years, the Internet gambling industry has 
exploded. According to an Internet gambling committee of the National 
Association of Attorneys General, there were less than 25 such sites on 
the Web in the mid-1990's. Today, the General Accounting Office 
estimates there are approximately 1,800 e-gaming websites. The GAO 
projects that such Internet sites could generate an estimated $5 
billion in revenues this year. That figure approximates more than half 
of the year 2002 casino earnings in the State of Nevada.

    The most serious threat in the Internet gambling arena is the 
virtual casinos operating offshore, beyond the reach of U.S. law. One 
estimate puts the number of foreign jurisdictions authorizing or 
tolerating Internet gambling at fifty. This includes not just the well-
known bank secrecy jurisdictions of the Caribbean but other countries 
like Australia. The lure of lucrative licensing fees and the 
possibility of sharing in gambling receipts are proving to be powerful 
incentives to enter the Internet gambling business. Antigua and Barbuda 
have reportedly licensed more than 80 Internet gaming websites already, 
charging a $75,000-$85,000 licensing fee for a sports betting site and 
$100,000 for a virtual casino. A report prepared for the South African 
Government revealed that Internet gaming revenues could yield up to 
$140 million in foreign exchange.

    While Internet gambling represents a jackpot for such foreign 
jurisdictions, it is a wheel of misfortune for far too many Americans 
who, with a click of a computer mouse and a credit card, can have 
instant, anonymous access to round-the-clock gambling from the privacy 
of their homes. All of the social hazards associated with problem 
gambling at brick-and-mortar sites are of equal, if not greater, 
concern when it comes to online gambling.

    Furthermore, Internet gambling poses a serious problem to our 
youth. In the areas in which gambling is legal, strict laws have been 
enacted to ensure our children are prohibited from participating. In 
many homes the children are far more computer literate than the parents 
who possibly would stop a child from placing a bet with their credit 
card. Since our society has made a conscious decision to keep our 
children away from this activity, we must take steps to ensure that 
online casinos do not victimize our children.

    In addition to the social problems associated with Internet 
gambling, U.S. authorities warn that Internet gaming offers a powerful 
vehicle for laundering funds from illicit sources, as well as to evade 
taxes. A 2000-2001 Financial Action Task Force (FATF) report on money 
laundering typologies indicates that there is evidence in some FATF 
jurisdictions that criminals are using the Internet gambling industry 
to commit crime and to launder the proceeds thereof. The use of credit 
cards and the placement of sites offshore make locating the relevant 
parties, gathering the necessary evidence, and prosecuting those 
parties difficult if not impossible.

    I look forward to working with my colleagues to enact a law to stop 
the threat of illegal Internet gambling and to protect our children.
    Thank you.

                               ----------

                        PRESS RELEASE OF JON KYL
                A U.S. Senator from the State of Arizona
                             March 18, 2003
    U.S. Senator Jon Kyl (R-AZ) will testify Tuesday before the Senate 
Banking Committee on behalf of legislation he authored to ban the 
practice of Internet gambling.
    ``Internet gambling is not a fun diversion, but feeds a dangerous 
and growing 
addiction,'' said Kyl. ``It is linked to organized crime, rife with 
fraud, ruins credit ratings, and allows many young people to build up 
thousands of dollars in debt on their parents' credit cards.''
    ``When I first proposed a ban in late 1995, there were roughly two 
dozen gaming sites. Today, there are nearly 2,000. Without 
Congressional action, nearly $5 billion will be wagered on Internet 
gaming sites this year alone.''
    Senator Kyl's bill, S. 627, applies criminal penalties of up to 5 
years in prison to operators of Internet gambling sites. Legislative 
action was requested by a Congressional commission in 1999 and by the 
National Association of Attorneys General.
Internet Gambling Lures Addicts
    More than 15 million Americans today suffer from a serious gambling 
addiction and the easy access to the Web is often an irresistible 
draw--what one expert from Harvard Medical School equated to a new 
delivery system for crack cocaine. The National Coalition Against 
Gambling Expansion reports as many as 90 percent of ``pathological 
gamblers'' commit crimes to pay off their debts.
Internet Gambling Linked to Crime
    The FBI reports that organized crime groups are heavily involved in 
Internet gambling, often using it to facilitate money laundering.
Potential for Fraud
    As opposed to licensed casinos, the Internet allows unlicensed, 
hard-to-track operators to defraud bettors and then disappear.
Targeting Young People
    The National Collegiate Athletic Association reports that many 
college students lose thousands of dollars on gaming sites--often using 
their parents' credit cards. Young people use the Internet more than 
any other age group.
Debts Can Be Staggering
    Washington Capitals hockey star Jaromir Jagr lost $500,000 from 
betting on sports events via an Internet site.
    Senator Kyl's bill is co-sponsored by Senator Dianne Feinstein (D-
CA) and Senate Banking Committee Chairman Richard Shelby (R-AL). A 
similar House bill was introduced by U.S. Representative Jim Leach (R-
IA). A ban was approved by the House and Senate before, but not in time 
to become law.
                 PREPARED STATEMENT OF JOHN G. MALCOLM
          Deputy Assistant Attorney General, Criminal Division
                       U.S. Department of Justice
                             March 18, 2003
    Mr. Chairman and Members of the Committee, thank you for inviting 
me to testify before you today. The issue before this Committee is one 
of singular importance, and I commend the Committee for holding a 
hearing on this issue. I would also like to commend Senator Kyl, as 
well as Congressmen Goodlatte and Leach, for their tireless efforts and 
longstanding commitment to provide law enforcement with additional 
tools to combat Internet gambling. Today, I am pleased to offer the 
views of the Department of Justice about Internet gambling, including 
the potential for 
gambling by minors and compulsive gambling, the potential for fraud and 
money laundering, the potential for organized crime, and recent State 
actions. The Department of Justice generally supports the efforts of 
the drafters of these bills to enable law enforcement to cut off the 
transfer of funds to and from illegal Internet gambling businesses.
    As you all know, the number of Internet gambling sites has 
increased substantially in recent years. While there were approximately 
700 Internet gambling sites in 1999, it is estimated that by the end of 
2003, there will be approximately 1,800 such sites generating around 
$4.2 billion. In addition to online casino-style gambling sites, there 
are also numerous offshore sports books operating telephone betting 
services. These developments are of great concern to the U.S. 
Department of Justice, particularly because many of these operations 
are currently accepting bets from U.S. citizens, when we believe that 
it is illegal to do so.
    The Internet and other emerging technologies, such as interactive 
television, have made possible types of gambling that were not feasible 
a few years ago. For example, a United States citizen can now, from his 
home at any hour of the day or night, participate in an interactive 
Internet poker game operated by a computer located in the Caribbean. 
Indeed, a tech-savvy gambler can route his bets through computers 
located in other countries throughout the world, thereby obscuring the 
fact that he is placing his bet from the United States or from some 
other country where it is illegal to do so.
Gambling by Minors
    Online gambling also makes it far more difficult to prevent minors 
from gambling. Gambling websites cannot look at their customers to 
assess their age and request photo identification as is possible in 
traditional physical casinos and Off-Track-Betting parlors. Currently, 
Internet gambling businesses have no reliable way of confirming that 
the gamblers are not minors who have gained access to a credit card and 
are gambling on their website. Although some companies are developing 
software to try to detect whether a player is old enough to gamble or 
whether that player is from a legal jurisdiction, such software has not 
been perfected and would, of course, be subject to the same types of 
flaws and vulnerabilities that could be exploited by hackers.
Compulsive Gambling
    Unlike onsite gambling, online gambling is readily available to all 
at all hours and it permits the user to gamble, in many cases, 
anonymously. This presents a greater danger for compulsive gambling and 
can cause severe financial consequences for an unsuccessful player. As 
was recently pointed out by the American Psychiatric Society: 
``Internet gambling, unlike many other forms of gambling activity, is a 
solitary activity, which makes it even more dangerous; people can 
gamble uninterrupted and undetected for unlimited periods of time.'' 
Indeed, the problems associated with pathological and problem gamblers, 
a frighteningly large percentage of which are young people, are well-
established and can be measured in the ruined lives of both the 
gamblers themselves and their families.
Potential for Fraud
    Although there are certainly legitimate companies that are either 
operating or want to operate online casinos in an honest manner, the 
potential for fraud connected with casinos and bookmaking operations in 
the virtual world is far greater than in the physical realm. Start-up 
costs are relatively low and cheap servers and unsophisticated software 
are readily available. Online casinos and bookmaking establishments 
operate in many countries where effective regulation and law 
enforcement is minimal or nonexistent. Like scam telemarketing 
operations, online gambling establishments appear and disappear with 
regularity, collecting from losers and not paying winners, and with 
little fear of being apprehended and prosecuted.
    Through slight alterations of the software, unscrupulous gambling 
operations can manipulate the odds in their favor, make unauthorized 
credit card charges to the accounts of unsuspecting gamblers, or alter 
their own accounts to skim money. There is also a danger that hackers 
can manipulate the online games in their favor or can steal credit card 
or other information about other gamblers using the site.
Potential for Organized Crime
    Additionally, the Department of Justice has a concern about the 
potential for the involvement of organized crime in Internet gambling. 
Traditionally, gambling has been one of the staple activities in which 
organized crime has been involved. Indeed, many of the recent 
indictments brought against members of organized crime groups have 
included gambling charges. We have now seen evidence that organized 
crime is moving into Internet gambling.
Internet Gambling Violates Federal Law
    Most of these gambling businesses are operating offshore in foreign 
jurisdictions. If these businesses are accepting bets or wagers from 
customers located in the United States, then these businesses are 
violating Federal laws, including Sections 1084, 1952, and 1955 of 
Title 18, United States Code. While the United States can bring 
indictments against these companies or the individuals operating these 
companies, the Federal Government may not be able to bring such 
individuals or companies to trial in the United States.
Money Laundering and Internet Gambling
    Another major concern that the Department of Justice has about 
online gambling is that Internet gambling businesses provide criminals 
with an easy and excellent vehicle for money laundering, due in large 
part to the volume, speed, and international reach of Internet 
transactions and the offshore locations of most Internet gambling 
sites, as well as the fact that the industry itself is already cash-
intensive.
    It is a fact that money launderers have to go to financial 
institutions either to conceal their illegal funds or recycle those 
funds back into the economy for their use. Because criminals are aware 
that banks have been subjected to greater scrutiny and regulation, they 
have--not surprisingly--turned to other nonbank financial institutions, 
such as casinos, to launder their money. Online casinos are a 
particularly inviting target because, in addition to using the gambling 
that casinos offer as a way to hide or transfer money, casinos offer a 
broad array of financial services to their customers, such as providing 
credit accounts, fund transmittal services, check cashing services, and 
currency exchange services.
    Individuals wanting to launder ill-gotten gains through an online 
casino can do so in a variety of ways. For example, a customer could 
establish an account with a casino using illegally derived proceeds, 
conduct a minimal amount of betting or engage in offsetting bets with 
an overseas confederate, and then request repayment from the casino, 
thereby providing a new ``source'' of the funds. If a gambler wants to 
transfer money to an inside source in the casino, who may be located in 
another country, he can just play until he loses the requisite amount. 
Similarly, if an insider wants to transfer money to the gambler, 
perhaps as payment for some illicit activity, he can rig the game so 
the bettor wins.
    The anonymous nature of the Internet and the use of encryption make 
it difficult to trace the transactions. The gambling business may also 
not maintain the transaction records, in which case tracing may be 
impossible. While regulators in the United States can visit physical 
casinos, observe their operations, and examine their books and records 
to ensure compliance with regulations, this is far more difficult, if 
not impossible, with virtual casinos.
Other Recent State Actions
    In addition to the Federal Government, various State governments 
have also taken actions against online gambling. For instance, in New 
York State, where unauthorized gambling is illegal, the New York State 
Attorney General reached an agreement with Citibank to block credit 
card payments of online gambling transactions by its customers. The 
same Attorney General recently reached an agreement with PayPal, which 
agreed to stop processing payments from New York State customers to 
online gambling merchants.
    Some companies have taken steps themselves against online gambling 
businesses. For instance, in 2002 PayPal was acquired by E-Bay, the 
online auction service, which announced that it would phase out 
PayPal's online gambling. Both Discover and American Express have 
company policies that restrict the use of their credit cards for 
Internet gambling and prevent Internet gambling sites from being issued 
credit card merchant accounts.
Conclusion
    On behalf of the Department of Justice, I want to thank you again 
for inviting me to testify today. We thank you for your support over 
the years and reaffirm our commitment to work with Congress to address 
the significant issue of Internet 
gambling. While we have some technical and other concerns about these 
bills, we support the sponsors' efforts to address gambling on the 
Internet. I will be happy to answer any questions that you might have.
                               ----------
                PREPARED STATEMENT OF RICHARD BLUMENTHAL
                 Attorney General, State of Connecticut
                            on Behalf of the
               National Association of Attorneys General
                             March 18, 2003
    I appreciate the opportunity to speak on the issue of Internet 
gambling.
    Use of the Web to place bets on the starting date of a war with 
Iraq speaks volumes about the sordid, despicable nature of an 
unregulated, faceless, nameless Internet gambling industry. Internet 
gambling is growing. Beginning with the first Internet gambling website 
in 1995, the industry has exploded--Bear Stearns estimates--to more 
than $8 billion in revenues in 2002.
    Now, without delay, clear and specific Federal measures are vital 
to add deterrent strength to current general prohibitions. State and 
Federal law enforcement authorities have the historic opportunity and 
obligation to work together and halt the ongoing abuse.
    Internet gambling threatens the integrity of our athletic and 
sports institutions--from college basketball to professional football. 
It turns homes into betting parlors and lures bettors with pop-up 
advertising. If bettors finally stop playing--typically after losing 
thousands of dollars or maybe even after seeking counseling for 
gambling addiction--the industry barrages them with personal emails.
    A 2002 study by the University of Connecticut found Internet 
gamblers are most likely to develop signs of problem gambling. The 
anonymity of Internet gambling makes it easier for problem gamblers to 
conceal their activity. These addicted gamblers do not have to explain 
the hours spent at a casino, OTB parlor, or face a store owner every 
day while purchasing hundreds of dollars in instant lottery tickets.
    Congress must act now to clearly and unequivocally ban Internet 
gambling. There are a number of Federal laws--including the Federal 
Wire Act, 18 U.S.C. 1084--that provide a legal basis for prosecuting 
Internet gambling websites located within the United States. In fact, 
several years ago, a successful prosecution was upheld involving the 
use of the Internet for sports betting. U.S. v. Cohen, 260 F.3d 68 (2nd 
Cir. 1999). The presence of these laws has been enough to prevent any 
organization from establishing a gambling website based in our country. 
There is still a need for Congress to make the prohibition clear and 
unassailable.
    Congress should enact provisions prohibiting the use of credit 
cards, debit cards, checks, and other financial instruments for the 
purposes of Internet gambling. As in our battle against money 
laundering and terrorism, we must take steps to eradicate the financial 
infrastructure for this illegal activity. If Federal law prohibits the 
use of credit cards and other financial instruments for Internet 
gambling, financial institutions are in a stronger position to reject 
any charge from such sources.
    In fact, Citibank, Discover, American Express, PayPal and others 
have already announced that they will not accept charges from online 
gambling facilities. A Federal law would ensure full industry-wide 
compliance with this common sense policy. It would also prevent any 
online gambling business from seeking a court order for such payments. 
Without American dollars flowing through our credit card and debit card 
facilities, Internet gambling companies will be stunted if not stifled.
    Any new Federal law must include Federal and State enforcement 
provisions as well as criminal and civil sanctions. Because of the 
international and interstate 
nature of the Internet, Federal criminal and civil enforcement is 
critical to the success of a law prohibiting Internet gaming and the 
use of credit and debit cards. States also must have enforcement 
authority. Many Federal consumer protection laws include authorization 
for State attorneys general to bring civil actions against violators of 
Federal law. This State enforcement role often meaningfully supplements 
Federal enforcement efforts and leads to greater compliance with the 
law's provisions.
    Finally, any ban on Internet gambling and the use of financial 
instruments in 
furtherance of such gambling must be clear and broad, admitting no 
exceptions. I 
oppose legislative proposals authorizing the use of the Internet for 
State-sanctioned gambling. These exceptions would almost certainly 
encourage States to use the Internet for State lotteries, OTB, and 
other gaming. These exceptions swallow the rule, leading to the use of 
credit card and debit cards to fund purchases of State lottery tickets 
and for other State gambling.
    Currently, no State, except for California's Off-Track-Betting 
game, uses the Internet for State gaming. Few States allow use of 
credit and debit cards to pay for State lottery tickets and other 
games. An exception may create more problems by encouraging people to 
play on the Internet and use credit or debit cards to fund excessive 
gambling, creating crushing personal debt and tragedy.
    Congress should take the simple, straightforward approach: Prohibit 
all online gambling and prohibit the use of credit and debit cards and 
other financial instruments for Internet gambling.
                               ----------
                PREPARED STATEMENT OF L. RICHARD FISCHER
               Attorney at Law, Morrison & Foerster, LLP
                             March 18, 2003
    Chairman Shelby, Ranking Member Sarbanes, and Members of the 
Committee, my name is Rick Fischer. I am a partner in the law firm of 
Morrison & Foerster, and practice in the firm's Washington, DC office. 
I have over 30 years of experience in advising financial institutions 
and payment systems on regulatory and compliance issues. In particular, 
for purposes of this hearing, I have advised card issuers and payment 
systems on responding to legal and operational issues involving the use 
of payment cards for Internet gambling transactions, including the 
development and implementation of procedures to block such 
transactions. I also have advised card issuers on questions relating to 
litigation and other customer disputes arising out of the use of 
payment cards for Internet gambling transactions. Thank you for the 
invitation to participate in this hearing.
    Internet gambling presents unique challenges for both law 
enforcement and U.S. payment systems. Because Internet gambling can be 
conducted entirely over the Internet, transactions can be initiated 
quickly and quietly--entirely in the privacy of the gambler's own home, 
or wherever else the gambler has access to the Internet. There is no 
need to exchange physical cash or illicit goods between the gambler and 
the gambling operation. Moreover, Internet gambling operations are 
typically situated at offshore locations that are beyond the reach of 
U.S. law enforcement 
agencies. Authorities in these foreign locations may consider the 
Internet gambling operations to be not only profitable, but also fully 
legal under local laws and, therefore, the foreign authorities may have 
no incentive to shut down these operations. In addition, Internet 
gambling has proven to be popular for both gamblers and gambling 
operations. The General Accounting Office (GAO) has reported that 
worldwide revenues for Internet gambling in 2003 are projected to 
exceed $5 billion. These factors make Internet gambling uniquely 
difficult to detect or control.
    In part because many Internet gambling operations are physically 
beyond the reach of jurisdictions where such transactions are illegal, 
efforts to address the unique and growing problem of illegal Internet 
gambling have included a focus on the payment systems that often have 
been used to fund illegal Internet gambling transactions, including the 
principal payment card associations--MasterCard and Visa. These 
associations are composed of tens of thousands of regulated financial 
institution members located throughout the world. Banks that are 
members of these associations issue credit cards and debit cards to 
their customers that can be used in person, over the telephone and over 
the Internet with merchants located throughout the world. Merchants 
submit proposed transactions to banks that act as acquirers of credit 
card and debit card transactions for authorization and, if authorized, 
the transactions are then submitted to the card-issuing bank for 
payment. The acquiring bank obtains authorization and payment from the 
issuing bank through the complex, worldwide communications and 
settlement systems established and maintained by the associations. 
These payment systems process billions of transactions originating at 
tens of millions of merchant locations throughout the world, usually 
delivering responses on individual transactions in seconds. Because 
such payment cards are the most efficient consumer payment vehicles in 
the world, and because payment cards are particularly well-suited for 
Internet and telephone transactions, illegal Internet gambling 
operations often seek to obtain payment from their customers through 
the use of payment cards.
    However, payment card issuers and the associations have no interest 
in having their cards used for illegal transactions. In fact, for 
example, Visa prohibits the use of Visa branded payment cards for 
illegal transactions of any kind. Illegal Internet gambling 
transactions in particular have led to extensive and costly litigation 
over whether participating cardholders are liable for charges to their 
accounts, even when the cardholders do not dispute that they 
participated in the gambling transactions. Even where the illegal 
Internet gambling transactions do not result in litigation, they often 
generate severe customer relationship problems with cardholders who 
otherwise may be model customers. In addition, repayment problems 
resulting from illegal Internet gambling transactions can adversely 
affect the ability of cardholders to meet their account obligations 
generally--including those relating to legal, nongambling transactions. 
As a result, illegal Internet gambling transactions create credit risks 
for financial institutions that extend far beyond the illegal 
transactions themselves, as well as reputational risks and regulatory 
responses harmful to both the financial institutions and the payment 
systems. In short, the costs to the payment card industry in the United 
States of illegal Internet gambling transactions far exceed any 
benefits that could possibly be gained by the marginal additional 
transaction volume due to such transactions.
    Consequently, both payment card issuers and the associations have 
taken a number of steps in their efforts to address the use of credit 
cards and debit cards for illegal Internet gambling. The good news is 
that these steps are having a demonstrable effect on the volume of 
Internet gambling transactions. According to a 
December 2002 GAO report on Internet gambling, the card industry's 
efforts to restrict the use of payment cards for Internet gambling has 
already had a substantial adverse effect on the growth and revenues of 
the Internet gaming industry. The bad news is that, according to this 
same GAO report, Internet gambling operations are already developing 
alternative ways to obtain payment for Internet gambling transactions, 
outside of the payment card systems.
    As to the specifics of the payment card industry's efforts to 
counter illegal Internet gambling, both of the associations require 
Internet gaming merchants that 
accept association branded payment cards to use a combination of 
``gaming'' merchant category and electronic commerce indicator codes 
for all Internet gambling transactions when they request authorizations 
from card issuers for payment card transactions. These codes are 
transmitted through the networks as part of the authorization message. 
The combination of codes informs the card issuer that the transaction 
is likely to be an Internet gambling transaction, thereby enabling the 
issuer to deny authorization for (or block) such transactions to 
protect the interests of both the card issuer and its cardholders. 
Many, if not most, card issuers already have taken advantage of this 
blocking capability, as well as other tools they have devised to deny 
authorization to any transaction coded as an Internet gambling 
transaction. The GAO report described earlier confirms that the 
blocking efforts of card issuing banks already are having an impact on 
Internet gambling transactions, and that, according to the GAO, some 
Internet casino operators now estimate that four out of every five 
requests for credit card payments are denied.
    It is no small undertaking for payment system participants to block 
Internet gambling transactions even when they can be identified through 
coding systems; and since the associations typically process thousands 
of authorizations per second, both the associations and card issuers 
must necessarily rely on such coding systems to identify illegal 
Internet gambling transactions. For example, since the Visa system 
alone currently processes between 3,000 and 6,000 transactions a 
second, it is operationally impossible to individually recognize, let 
alone examine, payment card transactions except through their routing, 
financial, and transaction codes. In fact, any effort to individually 
examine transactions would threaten the entire operation of the payment 
systems that all U.S. consumers rely on to conduct instantaneous 
transactions around town, across the country, and throughout the world.
    Because these systems rely on proper coding by merchants, the 
blocking may not be complete, for example, if Internet gambling 
operations miscode authorization messages, despite the aggressive 
efforts of the associations to enforce their coding rules. Also, as the 
GAO has recognized, blocking payment card transactions may lead to the 
use of other payment methods and, therefore, may not solve the problem 
of illegal Internet gambling. In addition, given the enormous volume of 
transactions handled by the payment card systems and card issuers, it 
is important to recognize that some Internet gambling transactions will 
evade even the most sophisticated 
detection and blocking mechanisms. For these reasons, any legislation 
designed to address illegal Internet gambling by focusing on the 
responsibilities of payment 
system participants to identify and block such Internet gambling 
transactions must recognize that mechanisms for achieving this end will 
not be infallible and that some transactions inevitably will leak 
through.
    It also is important to recognize that not all Internet gambling 
transactions are illegal Internet gambling transactions. For example, a 
cardholder residing in a particular State may engage in gambling 
transactions at a legal Internet gambling site located in that same 
State in a manner where both the gambler and the gambling institution 
are acting in full compliance with applicable State law; or the 
cardholder may be purchasing nongambling items on an online casino's 
website, such as tickets for casino shows. Alternatively, a U.S. 
cardholder currently visiting, or even residing in, London may engage 
in gambling transactions through use of a card issued by a United 
States bank at a legal Internet gambling site in the United Kingdom in 
full compliance with applicable United Kingdom law. These intrastate 
and international jurisdictional and choice of law questions present 
complex and politically sensitive issues, but these are policy issues 
for Congress, the Administration, and their counterparts in the States 
and in other countries, rather than for payment system participants.
    In addition, payment system participants have only a limited 
ability to differentiate between transactions. In this regard, it is 
important to recognize that coding mechanisms only inform the payment 
system and the card issuer that a transaction presented for 
authorization is likely to be an Internet gambling transaction; it 
cannot tell the payment system or the card issuer whether the 
particular transaction is illegal or not. As a result, the application 
of coding and blocking capabilities by payment systems and/or card 
issuers will necessarily result in the blocking of many legal, as well 
as illegal, transactions. In order to ensure that payment systems and 
individual financial institutions are not exposed to liability for 
contractual or regulatory violations because they failed to carry out 
transactions, in some cases fully legal transactions, requested by 
cardholders, any legislation focusing on the responsibilities of 
payment system participants to identify and block illegal Internet 
gambling transactions must provide that those engaged in attempting to 
block Internet gambling transactions will not be liable, by virtue of 
those actions, for violations of any statutory, regulatory, or 
contractual requirements because they have blocked, or attempted to 
block, any transactions coded as Internet gambling transactions, 
regardless of whether those transactions actually are gambling 
transactions or not, and regardless of whether the Internet gambling 
transactions actually are legal or not. In short, such a legislative 
safe harbor cannot be limited to blocking illegal Internet gambling 
transactions, but should extend to all transactions blocked in response 
to the statute. In addition, because payment systems and card issuers 
can only block Internet gambling transactions that are identified as 
such, the legislative safe harbor should extend to transactions which 
are not blocked, because they are not identified as Internet gambling 
transactions.
    Members of Congress, and other proponents of Internet gambling 
legislation, have reported that illegal Internet gambling presents 
significant and unique risks, and payment card issuers themselves have 
been confronted by significant litigation and unique credit and 
reputational risks as a result of such transactions. As a result, 
several card issuers already have expressed support for pending 
Internet gambling legislation and I would expect card issuers generally 
to work with Congress to address this issue by blocking Internet 
gambling transactions. Most major card issuers are already doing so 
and, as indicated above, as a result of these industry efforts, 
Internet casino operators estimate that four out of every five requests 
for credit card payments are already denied.
    Again, I appreciate the opportunity to participate in this hearing, 
and I would be pleased to answer questions from the Committee.
                               ----------
             PREPARED STATEMENT OF FRANK J. FAHRENKOPF, JR.
             President and CEO, American Gaming Association
                             March 18, 2003
    Mr. Chairman, distinguished Members of the Committee, thank you for 
inviting me to testify today about the American Gaming Association's 
position on Internet gambling.
    I am Frank J. Fahrenkopf, Jr., President and CEO of the American 
Gaming Association (AGA). The AGA is the national trade association of 
commercial casino companies, gaming equipment manufacturers, and other 
vendor-suppliers to the gaming industry. The Association acts as a 
national clearinghouse for information about commercial casinos and as 
an advocate on Federal legislative and regulatory issues for its member 
companies, including tens of millions of employees, patrons, and 
shareholders. Other trade associations represent Native American 
casinos, the lotteries, the parimutuel industry, and other legal gaming 
entities. Our member companies are gaming industry leaders such as 
Alliance Gaming, Ameristar Casinos, Argosy Gaming, Aristocrat 
Technologies, Atronic Americas, Aztar, Boyd Gaming, Harrah's 
Entertainment, Horseshoe Gaming, IGT, Isle of Capri Casinos, JCM 
American, Kerzner International, Konami Gaming, MGM MIRAGE, Mikohn 
Gaming, Park Place Entertainment, Penn National Gaming, Pinnacle 
Entertainment, Shufflemaster, Station Casinos, and Wynn Resorts. Our 
casino companies operate land-based and riverboat casinos in 11 States 
across the country, and our manufacturers sell equipment to those 
casinos. A majority of our members are publicly held companies listed 
on the New York and Nasdaq stock exchanges.
    On behalf of the AGA, I appreciate this opportunity to address the 
topic of Internet gambling generally and, more specifically, discuss 
our position on S. 627, a bill introduced last week by Senator Kyl that 
would in essence prevent the use of credit cards and other financial 
instruments for illegal Internet gambling.
    The position of the American Gaming Association has remained 
constant since Congress first began considering Internet gambling 
legislation. The AGA maintains the view that the technology necessary 
to provide appropriate regulatory and law enforcement oversight does 
not presently exist with regard to Internet gambling so as to properly 
regulate the integrity of the games and the security and legality of 
financial transactions, and to minimize the potential for underage and 
pathological gambling. Unless and until those concerns can be 
adequately addressed, the AGA remains opposed to Internet gambling.
    In addition, it is our view that any bill considered by this 
Committee should meet three tests: (1) It should not create an unfair 
advantage for any one segment of the gaming industry; (2) It should not 
impinge upon or curtail States' rights; and (3) It should not make 
anything that is currently legal illegal.
    Let me briefly address each of those elements.
    First, we would not support any bill that gives preferential 
treatment to any other form of legal gaming at the expense of our 
segment of the industry. In other words, all forms of legal gambling 
should be treated with parity.
    Second, we oppose any changes to the 200-year-old framework for 
State-based oversight of gambling. Federal law has always ``back 
stopped'' the right of each State to determine its own policies on 
gambling. The 10th Amendment of the U.S. Constitution states that any 
right not explicitly granted to the Federal Government lies with the 
States or with the people. As a result, each State should have the 
right to determine whether or not it will allow any form of gambling 
and, if so, how it would be regulated and taxed. Federal Internet 
gambling legislation should follow the model of the Wire Act and permit 
States to make decisions about the use of technology within their 
borders by licensed gaming companies.
    Finally, I would ask you to take into account the rapid advances in 
technology today and not criminalize activity that is currently legal. 
Our industry, like other businesses, will want to take advantage of 
these new technologies to make operations more efficient. Because some 
of those technologies will involve the Internet and others will involve 
non-Internet interactive computers, it is important that this reality 
is taken into account in considering any new legislation. Examples of 
these new technologies include common pool wagering, interactive 
computer systems, the use of the World Wide Web to advertise casino 
resorts or accept hotel and show reservations, and new technology to 
facilitate and safeguard the operation of intrastate account wagering 
on sporting events.
    In short, we feel that it is important to draw a distinction 
between the use of technology to circumvent Federal and State 
restrictions and regulations (as is done today by those operating 
offshore Internet gambling sites) and the use of technology by licensed 
operators to more efficiently deliver their services where, to whom, 
and under what conditions they are authorized by Federal and State law 
to do so. Any changes to Federal or State laws in the pursuit of making 
Internet gambling illegal should not be drawn so broadly as to lump the 
use of technology within otherwise legal limits into the same 
prohibited status as technology used by illegal operators. This 
position is consistent with the policy of the Wire Communications Act, 
which, since the 1960's, has permitted the use of the wires for wagers 
and information 
assisting in the placing of wagers where the transactions are entirely 
intrastate or between States in which the wagering in question is 
legal.
    However, our major concern with illegal Internet gambling as it 
exists today is that it allows the approximately 2,000 offshore 
websites to circumvent State policies, including current restrictions 
on the availability of gambling within each State. Although all States 
except three allow some form of legalized gambling, illegal Internet 
gambling makes casino gambling and sports wagering available in every 
State, regardless of existing Federal or State laws.
    Illegal Internet gambling also allows unlicensed, untaxed, 
unsupervised operators to conduct business alongside gaming operators 
who are subject to some of the most comprehensive Federal and State 
controls of any industry in this country. Nearly every aspect of a 
commercial casino business--from licensing to operations--is strictly 
regulated. In the 11 States where commercial casinos are legal, they 
are not permitted to operate without prior State approval, which 
includes exhaustive background checks on key personnel and major 
investors. Some States do the same for major vendor-suppliers.
    In addition to State regulations, there are important Federal 
requirements applicable to commercial casinos and other forms of legal 
wagering. For example, U.S. commercial casinos are subject to Federal 
corporate taxation, publicly traded com-
panies comply with financial disclosure and other Securities and 
Exchange Commission rules, casinos file information reports on larger 
winnings with the IRS and withhold Federal taxes on certain winnings, 
and casinos adhere to antimoney laundering statutes and regulations 
administered by the Department of the Treasury's Financial Crimes 
Enforcement Network. By contrast, those engaged in the business of 
illegal Internet wagering in the United States from offshore are not 
subject to U.S. law enforcement jurisdiction on these important matters 
of public administration.
    These Federal and State regulations exist to, among other things, 
guarantee the fairness of the games; ensure proper taxation of 
revenues; acknowledge problem gambling and offset any potential 
consequences; prevent underage gambling; and prevent theft, loss, 
embezzlement, or any other illegal activity--all safeguards that are 
vital to maintaining public trust and confidence in our business.
    Illegal Internet gambling threatens the integrity of all businesses 
involved in 
legalized gambling in the United States. S. 627 attempts to find a way 
to address this problem by essentially banning the use of credit cards 
and other financial instruments to conduct illegal Internet gambling. 
The AGA does not oppose similar legislation in the House. However, that 
position evolved only after careful evaluation and negotiation, which 
could be jeopardized by any modifications that violate the three tests 
outlined earlier in my remarks. The AGA will need to evaluate this bill 
to determine if our position on it is any different than our position 
on the House version of this legislation. If there are no significant 
differences between the two versions, our position on the Senate bill 
will likely mirror our position on the House bill.
    Despite our industry's consistent position on Internet gambling, 
some misper-
ceptions persist, so I would like to take a few moments to address 
them.
    There have been assumptions by many, particularly those in the 
media, that the commercial casino industry is concerned about Internet 
gambling because we are worried about competition from Internet 
gambling sites. The fact is that if Internet gambling were legalized, 
it is our members--the well-branded casino companies--who would be best 
positioned to garner the major share of the market. Many of our 
companies have explored Internet gambling as a business strategy, some 
more aggressively than others, in the event that it becomes legal here 
in the United States.
    There is simply no comparison between the social, group-oriented 
entertainment experience of visiting a casino resort and the solitary 
experience of placing a bet or wager using a personal computer. 
Visiting a casino today is about much more than legal wagering 
opportunities. Whether measured by how people spend their time or how 
they spend their dollars, guests of U.S. commercial casinos are 
increasingly 
attracted as much or more by restaurants, shows, retail, recreation, 
and other nongaming amenities.
    The view that Internet gambling is not a competitive threat to U.S. 
commercial casinos is shared by financial analysts at major Wall Street 
firms, whose job it is to analyze the competitive impact of market 
developments on the industries and firms they cover, including the 
major publicly traded gaming companies the AGA represents.
    Another common misperception is that the State of Nevada has 
legalized Internet gambling. The fact is that with Internet gambling 
growing by leaps and bounds, Nevada, the world leader in the gaming 
industry, believed it had the responsibility to step forward and act to 
determine what current and future regulatory actions might be taken in 
this area. As a result, the Nevada legislature passed a bill in 2001 
authorizing the Nevada Gaming Commission, the State body that sets 
regulatory policy, to promulgate regulations IF--and that was a big 
IF--certain conditions could be met: (1) The State had to be in 
compliance with all Federal laws; (2) There had to be an effective way 
to restrict access to those under age 21; (3) There had to be an 
effective way to limit access to those residing in jurisdictions that 
permitted Internet gambling; and (4) It had to be determined that 
Internet gambling would promote the general welfare of the State.
    The legislation established a licensing framework similar to the 
stringent requirements already in place to acquire a casino operator's 
license. Only existing Nevada licensees were eligible to become 
licensed Internet gambling operators. There were other requirements, 
depending on the location of the establishment within the State, that 
required existing licensees to have either a resort hotel, a certain 
number of rooms or seats or have held a license for at least 5 years. 
Each licensee would be required to pay a fee of $500,000 for the first 
2 years, in addition to a renewal fee of $250,000 a year. In addition, 
each operator would be required to pay a 6.25 percent tax on gross 
gaming revenue, the same tax rate paid by the land-based 
casino. Identical licensing requirements would apply to equipment 
manufacturers and suppliers. Any operators who created a site without 
the proper license would be subject to felony prosecution.
    While they were not spelled out in the legislation, other factors 
were considered by the Nevada Gaming Commission to provide additional 
safeguards for customers who might not be able to gamble responsibly. 
The Commission was going to ensure self-exclusion for individuals who 
wanted to prevent their access. It also planned to establish betting 
limits and time limits that would apply to not just one site but across 
all Nevada Internet gambling sites.
    Recently, activity in Nevada to legalize Internet gambling came to 
a screeching halt when the first of those conditions set forth in the 
legislation was not met: According to an August 2002 letter from the 
U.S. Department of Justice, the Federal Government declared Nevada's 
proposal illegal under the 1961 Wire Act. Today, this view is in direct 
conflict with a November 2002 decision by the U.S. Court of Appeals for 
the Fifth Circuit (Thompson v. MasterCard International et al.), which 
affirmed a lower court ruling that sports betting conducted over the 
Internet is illegal, but casino games are legal. Perhaps today when you 
hear from the Justice Department you will learn how they plan to 
proceed now that the courts have reached a different conclusion.
    Another area of confusion is the differing views of our member 
companies on Internet gambling. As I mentioned earlier, some of our 
member companies already are pursuing Internet gambling as part of 
their business strategies. MGM MIRAGE, for example, has launched an 
Internet gambling site on the Isle of Man. The difference between the 
MGM MIRAGE site and other sites located offshore is that 
www.playmgmmirage.com is located in a jurisdiction that has instituted 
tight regulatory requirements and limited its licenses to a small 
number of companies that met strict criteria. The MGM MIRAGE site only 
accepts wagers from jurisdictions where Internet gambling is clearly 
legal--in other words, not from the United States--and is employing 
technology to address concerns about underage gambling and problem 
gambling. If MGM MIRAGE were to engage in conduct in direct contrast to 
regulatory requirements in its U.S. jurisdictions, it could jeopardize 
the company's casino licenses in Nevada, Mississippi, and Michigan. 
When you work in a privileged industry such as the gaming industry, you 
must adhere to certain standards wherever you conduct your business.
    The bottom line is that the AGA is a trade association. Our members 
may make different business decisions as individual companies, but they 
also recognize the need to reach consensus on some of those issues as 
an industry. While we may be taking slightly different paths, we all 
share one thing in common: We are all opposed to illegal, unregulated 
gambling.
    Thank you again for the opportunity to discuss our views on 
questions surrounding Internet gaming. I would be pleased to answer any 
questions you may have on this matter.
                               ----------
                 PREPARED STATEMENT OF WILLIAM S. SAUM
         Director of Agent, Gambling, and Amateurism Activities
                National Collegiate Athletic Association
                             March 18, 2003
    Chairman Shelby, Senator Sarbanes, and the other distinguished 
Members of the Committee, on behalf of the National Collegiate Athletic 
Association, thank you for inviting me to testify today to provide the 
Association's perspectives on collegiate sports wagering. This is a 
matter of great importance to the more than 1,000 colleges and 
universities that are members of the NCAA and to the hundreds of 
thousands of student-athletes who participate in intercollegiate 
athletics annually. As an individual on the NCAA staff who has spent 
nearly 7 years working daily on this issue, it is a matter of personal 
and professional importance, as well.
    Our message to you today is simple: We are asking you to do what is 
right for the college game and what is right for the young people who 
have earned the privilege of participating in those games. We are 
asking you to take steps to eliminate the opportunity for individuals 
to place bets on intercollegiate sports contests on the Internet.
    I am not here to promise that banning Internet gambling is the 
total answer to such an insidious problem as gambling on college 
sports, but it is part of the equation. The NCAA believes that there 
should be a prohibition on all legal and illegal sports wagering. It is 
about what is right for student-athletes. It is about what is right for 
college athletics.
NCAA Sports Wagering Policies and Rules
    The NCAA has a clear, direct policy regarding sports gambling. The 
NCAA's position on sports gambling is this: The NCAA opposes all forms 
of legal and illegal sports wagering. Sports wagering has the potential 
to undermine the integrity of sports contests and jeopardizes the 
welfare of student-athletes and the intercollegiate athletics 
community. Sports wagering demeans the competition and competitors 
alike by a message that is contrary to the purposes and meaning of 
sport. Sports competition should be appreciated for the inherent 
benefits related to participation of 
student-athletes, coaches and institutions in fair contests, not the 
amount of money wagered on the outcome of the competition. For these 
reasons, the NCAA membership has adopted specific rules prohibiting 
athletics department staff members and student-athletes from engaging 
in gambling activities as they relate to intercollegiate or 
professional sporting events.
    The NCAA membership has adopted specific legislation prohibiting 
athletics department staff members, conference office staff and 
student-athletes from engaging in sports gambling activities, which 
include Internet wagering. It is not permissible to provide information 
to individuals who are involved in organized gambling activities, or 
solicit or accept a wager on college or professional athletics. This 
rule also applies to NCAA national office staff.
    In addition, in 2000, the membership imposed stricter sanctions on 
those who violate our rules. Student-athletes who participate in point-
shaving activities or who solicit or accept bets that involve their own 
institution lose all of their remaining eligibility. Those who are 
found to have bet or accepted bets on intercollegiate or professional 
athletics are ineligible for intercollegiate competition for a minimum 
of 1 year and lose one season of competition.
    We have established other Association policies for activities 
associated with gambling. The NCAA Division I Men's and Women's 
Basketball Championships may not be conducted in metropolitan areas 
with an open legal sports book. For example, there are no men's 
basketball championship sites in the State of Oregon, where the lottery 
is based on the outcome of National Football League contests. The NCAA 
does not permit its committees to meet or conduct formal social 
activities in casinos. We have also requested our corporate champions 
not to engage in promotions connected to the outcome of games. For the 
fourth straight year, we have conducted background checks on game 
officials who officiate in the Division I Men's and Women's Basketball 
Championships to assure they have had no involvement in sports 
wagering. We do the same for the national office men's basketball staff 
members; the agent, gambling, and amateurism activities staff members; 
and the members of the Division I Men's and Women's Basketball 
Committees.
NCAA Internet Gambling Studies and Statistics
    While the Internet offers tremendous educational potential, this 
technology should not be used to circumvent State and Federal laws. 
Accessibility to the Internet is perhaps the greatest reason for 
concern regarding Internet gambling. Many students have unlimited use 
of the Internet and most residences are wired for Internet access. In 
fact, there may be no group in this country who has more readily 
available access to computers and the Internet than students. For the 
NCAA, the potential exists for a student-athlete to place a wager via 
the Internet and then attempt to influence the outcome of the contest 
while participating on the court or the playing field. Our students, 
many of whom have access to credit cards, are lured into online 
gambling by unscrupulous operators. A recent Nellie Mae study revealed 
that 90 percent of 20-year-olds have credit cards, with the average 
number of four cards and the average debt of $2,264. The proliferation 
of Internet gambling is fueling the growth of illegal sports gambling 
on college campuses across the country.
    As an organization, we have committed to conducting national 
research regarding student-athletes and sports gambling. We recognize 
that estimates indicate more than $3 billion will be wagered at 1,800 
Internet gambling sites in 2003, with 50 to 70 percent of that total 
coming from the United States.
NCAA Educational Efforts
    The association has developed relationships with and made 
presentations to various law enforcement groups, including the FBI and 
the U.S. Attorney General's advisory group, campus security officers, 
coaches associations, and campus student life personnel. This spring we 
are again reaching hundreds of our association members through sessions 
about sports wagering at our annual compliance seminars at three 
locations across the country.
    We use a multitude of tools to educate our student-athletes and 
coaches with our messages about sports wagering. Among those 
initiatives are locker room visits with members of the men's and 
women's Final Four basketball teams, the Frozen Four teams, and the 
finalists of the College World Series. Our approach is truly grassroots 
and must be.
    It is important to remember that the NCAA is a member of the higher 
education community. Among our primary functions are those of providing 
athletics participation opportunities within the framework of higher 
education and providing protection for student-athletes. We are about 
education and providing information to our membership that can lead to 
life-changing experiences, both in the classroom and on the playing 
field. Our mission as an association is to build an infrastructure of 
awareness and support to equip those involved with student-athletes 
with the tools to educate them about damaging influences, including 
sports wagering.
    We are not an organization poised to infiltrate illegal gambling 
networks. We are not an organization with the authority or the charge 
to investigate illegal gambling activities on college campuses or 
elsewhere. We have and continue to process cases involving sports 
wagering when they come within the authority of the organization. We 
have brought attention for more than 5 years to a problem we would 
prefer did not exist, which is there is illegal gambling on college 
campuses, some involving student-athletes. We support closer scrutiny 
of illegal wagering throughout society--this is not isolated to college 
campuses--and certainly it should be discussed within the framework of 
the entire issue.
Conclusion
    The NCAA's strategy to attack problems associated with wagering on 
college sports is multifocused. We continue to carry the message that 
sports wagering is an issue for our student-athletes and we have worked 
diligently to educate them about the problem. But we need assistance. 
We believe that strong legislation is needed to prohibit gambling over 
the Internet.
    The system of intercollegiate athletics we have is unique to the 
world. We must do everything we can to protect the rich heritage, 
tradition, and integrity of intercollegiate competition. We need to do 
what is right for the college game and what is right for our student-
athletes and make gambling on college sports illegal everywhere all of 
the time.
                               ----------
                 PREPARED STATEMENT OF STEWART A. BAKER
      General Counsel, U.S. Internet Service Provider Association
                             March 18, 2003
    Mr. Chairman and Members of the Committee, my name is Stewart 
Baker. I serve as General Counsel to the U.S. Internet Service Provider 
Association (US ISPA). US ISPA is a trade association made up of major 
service providers. Its members include America Online, Cable & 
Wireless, EarthLink, eBay, Teleglobe, SBC Communications, Verizon 
Online, and WorldCom. US ISPA focuses on legal and 
policy issues that have a direct impact on the service provider 
industry in the areas of cybercrime, security, content liability, 
critical infrastructure protection, and unsolicited email. Its major 
goal is to work with lawmakers to formulate sound policy that avoids 
unintended consequences that may stifle the growth of the Internet.
    We appreciate the Chairman's invitation to testify at the hearing 
on ``Proposals to Regulate Illegal Internet Gambling.'' We welcome the 
opportunity to discuss several key principles that we believe Internet 
gambling legislation must contain to help foster industry and law 
enforcement cooperation without placing an undue burden on the service 
provider industry.
    Service providers are committed to a safe and secure online 
experience for our customers. Our members go above and beyond what the 
law requires to combat criminal activity online, at considerable 
expense to themselves, because they understand the need for good 
corporate citizenship and because they realize that building consumer 
trust in their service is critical to their own business success. Among 
other industry initiatives, US ISPA supports measures that encourage 
greater cooperation between law enforcement and service providers to 
combat online crime.
    Our members share your opposition to criminal conduct online. All 
of our members rigorously cooperate actively with law enforcement to 
combat illegal conduct. US ISPA's members have longstanding working 
relationships with law enforcement at both the Federal and State level. 
For example, our members work to respond thousands of times daily to 
judicial process to furnish electronic evidence relevant to 
investigations, and have worked to put in place internal procedures so 
that their responses are both timely and effective. They likewise 
include explicit language in customer contracts that prohibits illegal 
activity and makes clear that service providers have the right to 
terminate the accounts of customers who act in violation of the law.
    We believe that law enforcement and the service provider industry 
can most effectively work together to remove illegal gambling sites 
from the Internet by identifying its source and the service provider 
that controls the computer server (a machine on which users may make 
the website available) where that content has been placed online. Only 
the website operator or the service provider that controls the computer 
server where the material is located can make the content inaccessible 
to Internet users in a reliable and effective manner.
    We appreciate the opportunity to testify today and work with the 
Committee to develop legislation that will provide an effective tool 
against illegal Internet gambling. The service provider industry has 
worked with various lawmakers in the past in attempt to strike an 
appropriate balance between developing effective measures to combat 
unlawful Internet gambling, and avoiding unworkable measures that will 
stifle future economic growth on the Internet. In our efforts, we have 
developed key principles that any Internet gambling legislation must 
contain before it begins to strike this appropriate balance. First, 
Internet gambling legislation must not require service providers to 
block customer access to Internet gambling sites not residing on their 
networks and not under their control. This type of regulatory scheme is 
unworkable and will disrupt e-commerce and speech on the Internet. The 
most effective way to combat Internet gambling is by attacking it at 
the source, requiring website operators or service providers that 
control an illegal gambling website to take it down after receiving 
notice from a court of the illegal activity.
    Second, legislation should contain clear court-ordered notice and 
takedown procedures to ensure appropriate employees receive notices of 
illegal websites, so the service provider can quickly take down the 
illegal material. The notice and takedown procedures should also give 
these websites an opportunity to appear to refute notices for illegal 
activity that may not reside on the service providers networks or may 
not be illegal.
    Third, the service providers should be given immunity from 
liability for good faith efforts to comply with a notice. Service 
providers should not be held liable for complying with a notice and the 
inadvertent takedown of an innocent website.
    Fourth, any Internet gambling legislation should contain language 
that clearly states that no service provider has any duty or obligation 
to monitor its networks for illegal activity, or disable or block 
customer access to websites not under the service provider's direct 
control or residing on its network. Such obligations are not 
technically feasible in most circumstances, and in any event would 
create an incredible burden on the service provider industry that would 
have dire economic consequences.
    Finally, as service providers are already subject to portions of 
the Wire Act, 18 U.S.C. Sec. 1084, it is important that there be a 
single, clear Federal standard governing service providers' obligations 
with regard to gambling material that third parties place on their 
systems.
No Requirement for Service Providers To Block or Disable Access
to Websites that Do Not Reside on Their Networks
    Internet gambling legislation must not contain any requirement for 
service providers to block or disable access to websites that do not 
reside on their networks. Service providers are unable to block user 
access to websites on other service providers' networks with any 
reliability. Blocking efforts can be easily circumvented and will 
seriously disrupt legitimate e-commerce and speech. But, illegal gaming 
websites can easily circumvent blocking methods by rapidly change 
locations, or proliferate at multiple Internet addresses using the same 
Uniform Resource Locator (URL) (www.____.com/filename). This is because 
the actual location of a website on the Internet is not its URL 
(www.____.com/filename), but something called an ``IP address''--a long 
string of numbers punctuated by periods that is sometimes visible, for 
example, when a user types in a URL into a browser. All devices on the 
Internet communicate with each other using IP addresses, but because IP 
addresses are difficult for people to remember, web browsers allow 
users to access a site by using URL's instead of an IP address. When a 
user types the URL into a browser on the user's computer, that request 
is translated into a request for an IP address by one of many domain 
name system (DNS) servers located throughout the world. DNS thus 
operates like a set of phone books for the Internet. These DNS servers 
are not controlled by any one service provider. Rather, control of the 
domain name system is distributed among many unrelated entities in many 
different countries, with multiple levels of redundancy, and the 
various DNS servers are updated 
constantly.
    Blocking an unlawful website by its IP address also runs the risk 
of seriously disrupting a large number of lawful communications and 
legitimate e-commerce. The main reason for this is different websites 
can share the same IP address. In fact, it is a fairly common practice 
for large web hosting companies to place a large number of customer 
websites on the same IP address. According to a recent study entitled 
``Websites Sharing IP Addresses: Prevalence and Significance,'' 
developed by Benjamin Edelman of Harvard Law School's Berkman Center 
for Internet and Society, finds that ``eighty-seven percent of all 
active domain names are found to share their IP addresses with one, and 
more than two-third of active domain names share their addresses with 
fifty or more additional domains.'' If a service provider controlling 
another network attempts to block one of these websites by its IP 
address, it will block user access to all the other sites. This type of 
approach will almost certainly disrupt e-commerce by decreasing traffic 
to legitimate online businesses.
    The only way reliably to combat illegal Internet gambling is to 
make sure that the content is removed from the Internet at the source 
where it resides on the Internet. For example, service providers in the 
United States and in other countries routinely cooperate with law 
enforcement to remove illegal content from their computer servers when 
it appears there. Such cooperation cuts off availability of the illegal 
activity. It is essential to the service provider industry that any 
Internet gambling legislation does not require service providers to 
block access to remote websites not located on their networks.
Internet Gambling Legislation Should Contain Clear Notice
and Takedown Procedures
    Any Internet gambling proposal, requiring service providers to 
remove illegal gambling sites from their networks, must contain clear 
court-ordered notice and takedown procedures. A lack of clear 
procedures has serious consequences for operators and the effectiveness 
of the law. Notice and takedown procedures ensure the appropriate 
person in a service provider will receive appropriate notice from a 
court, and will quickly act to remove the website from the Internet. 
Without a clear procedure in place, it is very possible notices could 
be delivered to the wrong employee (possibly a low-level employee like 
a customer service representative). Once received, an untrained 
customer service representative may not understand the importance of 
the notice and not act on it; thereby increasing the time it takes to 
remove the illegal material, and possibly opening up an operator to 
criminal liability. To avoid confusion, and increase the efficiency and 
effectiveness of the statute, Internet gambling proposals should make 
it clear that an appropriate officer or counsel for the service 
provider shall receive the notice from a court to remove illegal 
content. Clear and simple notice procedures will make certain that 
court-ordered notices are quickly acted on and decrease the burden 
placed on service providers.
    Also, Internet gambling proposals should give service providers the 
ability to challenge a notice in the instance that the notice does not 
pertain to illegal activity. Service providers should have the ability 
to contest the legitimacy of a notice. Notices should not have the full 
weight of the law without giving a website any type of process to 
appear and refute a notice.
Immunity for Good Faith Efforts To Comply with a Notice
    If an operator is acting in good faith under the orders of law 
enforcement, it should be given protection from potential lawsuits 
resulting in the unintentional takedown of innocent material. In an 
effort to combat illegal activity, it is possible for a law enforcement 
agent mistakenly to order the takedown of a legitimate website, not 
engaged in gambling. In the spirit of cooperation and compliance, a 
service provider will probably not question the notice, and in good 
faith may remove a legitimate website from the Internet. Under these 
circumstances, a service provider should not be held liable for 
cooperating and complying with a law enforcement notice to takedown a 
website. An operator does not determine whether or not a website 
contains illegal material, and should not be held accountable for 
mistakes made by law enforcement.
No Duty To Monitor Networks or Disable Access to Websites Not
Residing on the Service Providers Network
    Service providers do not have the ability or means to monitor their 
networks for illegal activity, nor should they be required to serve as 
the policemen for the Internet. This principle has been widely accepted 
and included in various Federal and State statutes. Any Internet 
gambling bill should contain language that reinforces this principle by 
clearly stating that the statute does not require a service provider to 
monitor networks for illegal activity. Any Internet gambling 
legislation should also contain the principle already enacted in 47 
U.S.C. Sec. 230, which protects from liability service providers who 
voluntarily restrict access to objectionable or unlawful material. Any 
provision should make plain that Section 230(c) applies to any action 
taken by service providers against Internet gambling or provide similar 
protection. At the same time, the United States should embrace the 
concept that requiring service providers to block customer access to 
websites not under the service provider's control is an ineffective and 
unworkable solution for the reasons described in this testimony. 
Language should be included in Internet gambling legislation stating 
that service providers do not have any duty to block or disable 
customer 
access to websites not under that service provider's control or 
residing on its system. Requiring service providers to block access to 
websites not under their control threatens the functionality of the 
Internet.
Single Federal Standard Governing Service Providers' Obligations
    Finally, it is important that Congress adopt a single, clear 
standard governing service providers' obligations under Federal law for 
gambling content that third party users may place on service providers' 
networks. In particular, portions of the Wire Act, 18 U.S.C. Sec. 1084, 
apply to service providers' operations. It would be very helpful if the 
Congress adopted a single set of requirements that govern service 
providers' obligations under the Wire Act, and any legislation that 
this Committee may adopt.
Conclusion
    Members of US ISPA are committed to taking action against illegal 
activity on the Internet. When lawmakers craft liability rules, we ask 
that you do so carefully to assign liability to actual wrongdoers, 
while respecting free speech and legitimate e-commerce. Obviously, 
enforcement strategies must start with and focus on wrongdoers by 
deterring and punishing illegal conduct. Service providers play an 
important role in supporting enforcement of such laws by devoting 
significant resources to assisting law enforcement investigations 
promptly, taking down illegal sites and hypertext links to illegal 
material that they learn has been posted on their computer servers.
    Internet gambling proposals should adopt effective, efficient 
enforcement approaches to illegal gambling on the Internet, approaches 
that are adapted to the ways that Internet technologies function. At 
the same time, proposals should reward service providers for quickly 
cooperating and complying with the law by granting immunity for 
potential mistakes made in the enforcement of the law.
    We thank you, Mr. Chairman and Members of the Committee, for 
considering our views, and hope that you and other Members of this 
Committee will keep these principles in mind when considering what 
sorts of enforcement strategies should apply in the area of Internet 
gambling.
                       STATEMENT OF JEFFREY PASH
 Executive Vice President and General Counsel, National Football League
                             March 18, 2003
    Mr. Chairman and Members of the Subcommittee. My name is Jeffrey 
Pash. I am the Executive Vice President and General Counsel of the 
National Football League. I appreciate the opportunity to submit this 
statement expressing the NFL's strong support for the Unlawful Internet 
Gambling Funding Prohibition Act (S. 627). We commend Senator Kyl, 
Chairman Shelby, and Senator Feinstein for introducing this important 
legislation. As we stated with respect to the House companion bill 
(H.R. 556), in a letter last September to the Chairman and Ranking 
Minority Member of this Committee, the NFL strongly supports this 
legislation. We strongly support the legislation because it would 
strengthen and extend existing prohibitions on gambling, including 
gambling on sports events, and provide enhanced enforcement tools 
tailored to the unique issues presented by Internet gambling. I attach 
a copy of our letter and ask that it be included in the record of this 
hearing, together with this statement.
    Today, new technologies are undermining long-standing prohibitions 
against sports gambling. These new technologies are undermining the 
prohibitions on sports gambling that Congress approved when it passed 
the Professional and Amateur Sports Protection Act in 1992 (PASPA) (28 
U.S.C. Sec. 3702 et seq.) and the earlier statute that regulates 
interstate gambling, the 1961 Wire Act (18 U.S.C. Sec. 1081 et seq.). 
Congress did not contemplate these new technologies when it enacted 
PASPA in 1992, much less when it enacted the Wire Act in 1961. We are 
convinced that the proposed legislation provides tools that will help 
combat the rapid spread of Internet gambling and protect Congress's 
well-established policy against sports gambling in particular.
    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. For this reason, the NFL has 
established strict policies relative to gambling in general and sports 
betting in particular. The League prohibits NFL club owners, coaches, 
players, and anyone else connected with the NFL from gambling on NFL 
games or associating in any way with persons involved in gambling. 
Anyone who does so faces severe disciplinary action by the 
Commissioner, including a potential lifetime suspension. We have posted 
our antigambling rules in every stadium locker room and have shared 
those rules with every player and every other individual associated 
with the NFL.
    The League has also sought to limit references to sports betting or 
gambling that in any way are connected to our games. For example, we 
have informed the major television networks that we regard sports 
gambling commercials and the dissemination of wagering information as 
inappropriate and unacceptable during football game telecasts.
    Commissioner Tagliabue reemphasized recently that gambling and 
participation in the NFL are incompatible. The Commissioner has 
reiterated that no NFL club owner, officer, or employee may own any 
interest in any gambling casino, whether or not the casino operates a 
``sports book'' or otherwise accepts wagering on sports. The 
Commissioner has specifically stated that no club owner, officer, or 
employee may own, directly or indirectly, or operate any ``online,'' 
computer-based, telephone, or Internet gambling service, whether or not 
such a service accepts wagering on sports.
    The League also has been an active proponent of Federal efforts to 
combat sports gambling. We strongly supported the passage of the PASPA, 
and the League has worked for the past several years to promote the 
passage of Internet gambling legislation, including legislation 
sponsored as early as 1997 by Senator Kyl, whose leadership and efforts 
in this area have been truly outstanding. Like PASPA, the 
proposed legislation is a logical and appropriate extension of existing 
Federal law and policy. The precedents for Federal action in this area 
were well-canvassed by the full Judiciary Committee in its report 
accompanying the 1992 legislation.
    The Unlawful Internet Gambling Funding Prohibition Act is a 
necessary and 
appropriate Federal response to a growing problem that, as the State 
attorneys general have testified in previous years, no State can 
adequately address on an individual basis. Ten years ago, a gambler 
might have used the telephone to call his bookie. Today, he 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 proposed legislation is needed because it updates our laws to 
reflect new technology. In its report accompanying the PASPA 
legislation over a decade ago, the 
Judiciary Committee noted the growth of ``new technologies'' 
facilitating gambling, including the use of automatic teller machines 
to sell lottery tickets, and proposals to allow ``video gambling'' at 
home. It was, in significant part, the specter of expanded gambling 
raised by those ``new technologies'' that spurred Congress to enact 
PASPA. In those days, the ``new technologies'' did not yet include the 
Internet. That day, however, has now come.
    Internet gambling today is widespread. It is widespread largely 
because so little effort is required to participate. Unlike traditional 
casinos, which require gamblers to travel to the casino and place their 
bets onsite, Internet gambling allows bettors to access online wagering 
facilities 24 hours per day, 7 days a week. Gamblers can avoid the 
hassle and expense of traveling to a casino, which in many parts of the 
country requires out-of-State travel. Internet gamblers also can avoid 
the stigma that may be attached to gambling in public on a regular 
basis.
    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 click of a mouse. Many of these 
gambling websites have been designed to resemble video games, and 
therefore are very 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. Because no one currently stands between Internet 
casinos and their gamblers to check identification, our children will 
have the ability to gamble on the family computer after school, or even 
in the schools themselves. And we must not be lulled by the paper tiger 
set up by proponents of Internet gambling--that children cannot access 
gambling websites because they lack credit cards. It does not take much 
effort for a child to ``borrow'' one of his or her parents' credit 
cards for the few minutes necessary to copy down the credit card number 
and use it to access an Internet gambling service. The problems 
connected with Internet gambling transcend the NFL's concerns about 
protecting the integrity of professional sports and the values they 
represent. According to experts on compulsive or addictive gambling, 
access to Internet sports wagering dramatically increases the risk that 
people will become active, pathological gamblers. The National Council 
on Problem Gambling has reported that sports betting is among the most 
popular form of gambling for compulsive gamblers. in the United States. 
That means that once individuals become exposed to sports betting, 
there is a real problem with recurrent and uncontrollable gambling. 
Conducting a gambling business using the Internet is illegal under the 
Wire Act of 1961 and indeed has been prosecuted. But as prosecutors 
have recognized, asserting jurisdiction over offshore gambling 
businesses that use the Internet can be problematic. Just as Congress 
enacted the Wire Act to prohibit the use of the telephone as an 
instrument of gambling, so Congress or should now enact specific 
legislation to prohibit the use of the Internet as an instrument 
ofgambling. In supporting the PASPA legislation to prevent the spread 
of legalized sports betting, Commissioner Tagliabue testified:

          Sports gambling threatens the character of team sports. Our 
        games embody the very finest traditions and values. They stand 
        for clean, healthy competition. They stand for teamwork. And 
        they stand for success through preparation and honest effort. 
        With legalized sports gambling, our games instead will come to 
        represent the fast buck, the quick fix, the desire to get 
        something for nothing. The spread of legalized sports gambling 
        would change forever--and for the worse--what our games stand 
        for and the way they are perceived.

          Quoted in S. Rep. No. 248, supra, at 4.

    Left unchecked, Internet gambling amounts to legalized gambling. 
Its effects on the integrity of professional and amateur sports and the 
values they represent are just as pernicious. Just as Congress 
intervened to stem the spread of legalized sports gambling in 1992, so 
it should intervene to stem the spread of Internet gambling today.
    Mr. Chairman, we applaud your efforts and those of your colleagues 
to address this important problem. The Unlawful Internet Gambling 
Funding Prohibition Act will strengthen the tools available to prevent 
the spread of Internet gambling into every home, office, and 
schoolhouse in this country, and will send the vital message--to 
children and adults alike--that gambling on the Internet is wrong. We 
strongly support the passage of this legislation. Thank you.



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