[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]
PROPOSED UIGEA REGULATIONS:
BURDEN WITHOUT BENEFIT?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE, AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
APRIL 2, 2008
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-102
U.S. GOVERNMENT PRINTING OFFICE
42-714 PDF WASHINGTON DC: 2008
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York RON PAUL, Texas
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York GARY G. MILLER, California
JOE BACA, California SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
BRAD MILLER, North Carolina TOM FEENEY, Florida
DAVID SCOTT, Georgia JEB HENSARLING, Texas
AL GREEN, Texas SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma KEVIN McCARTHY, California
DEAN HELLER, Nevada
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Domestic and International Monetary Policy, Trade, and
Technology
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York RON PAUL, Texas
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
PAUL E. KANJORSKI, Pennsylvania FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California DONALD A. MANZULLO, Illinois
GWEN MOORE, Wisconsin WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JEB HENSARLING, Texas
WM. LACY CLAY, Missouri TOM PRICE, Georgia
KEITH ELLISON, Minnesota PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio MICHELE BACHMANN, Minnesota
ROBERT WEXLER, Florida PETER J. ROSKAM, Illinois
JIM MARSHALL, Georgia KENNY MARCHANT, Texas
DAN BOREN, Oklahoma DEAN HELLER, Nevada
C O N T E N T S
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Page
Hearing held on:
April 2, 2008................................................ 1
Appendix:
April 2, 2008................................................ 39
WITNESSES
Wednesday, April 2, 2008
Abend, Valerie, Deputy Assistant Secretary for Critical
Infrastructure Protection and Compliance Policy, U.S.
Department of the Treasury..................................... 10
Abernathy, Wayne A., Executive Vice President, Financial
Institutions Policy and Regulatory Affairs, American Bankers
Association (ABA).............................................. 29
Kitada, Ted Teruo, Senior Company Counsel, Legal Group, Wells
Fargo & Company................................................ 32
May, Harriet, President and CEO, GECU of El Paso, Texas, on
behalf of the Credit Union National Association (CUNA)......... 27
Roseman, Louise L., Director, Division of Reserve Bank Operations
and Payment Systems, Board of Governors of the Federal Reserve
System......................................................... 8
Williams, Leigh, BITS President, the Financial Services
Roundtable..................................................... 30
APPENDIX
Prepared statements:
Gutierrez, Hon. Luis......................................... 40
Paul, Hon. Ron............................................... 42
Abend, Valerie............................................... 43
Abernathy, Wayne A........................................... 45
Kitada, Ted Teruo............................................ 59
May, Harriet................................................. 91
Roseman, Louise L............................................ 95
Williams, Leigh.............................................. 105
Additional Material Submitted for the Record
Gutierrez, Hon. Luis:
Letter from Americans for Tax Reform, dated April 1, 2008.... 119
Letter to Hon. Jim Nussle, OMB, from a coalition of
organizations, dated December 10, 2007..................... 120
Letter to Chairman Gutierrez and Ranking Member Paul from
Chamber of Commerce of the United States of America, dated
April 1, 2008.............................................. 122
Letter to Chairman Gutierrez and Ranking Member Paul from the
Center for Regulatory Effectiveness, dated March 31, 2008.. 125
Notice of Office of Management and Budget Action, dated
February 1, 2008........................................... 128
Statement of Marcia Z. Sullivan on behalf of the Consumer
Bankers Association, dated April 2, 2008................... 129
Letter to Chairman Gutierrez from the National Association of
Federal Credit Unions, dated April 1, 2008................. 134
Statement of Rick Smith, UC Group Limited, dated April 2,
2008....................................................... 136
Letter to Jennifer Johnson and Valerie Abend from the Office
of Advocacy of the U.S. Small Business Administration,
dated December 12, 2007.................................... 159
Statement of Gregory A. Baer, dated April 2, 2008............ 164
Statement of Joseph H.H. Weiler, dated April 2, 2008......... 171
Bachus, Hon. Spencer:
Letter from the National Association of Attorneys General,
dated November 30, 2007.................................... 181
Davis, Hon. Geoff:
Letter from the National Thoroughbred Racing Association,
dated December 11, 2007.................................... 186
King, Hon. Peter T.:
Statement of Hon. Pete Sessions, dated April 2, 2008......... 188
Letter to Hon. Henry Paulson and Hon. Ben Bernanke, dated
December 12, 2007.......................................... 190
Letter to members of the Financial Services Committee from a
coalition of family and faith-based organizations.......... 194
Meeks, Hon. Gregory W.:
Responses to questions submitted to the American Bankers
Association................................................ 197
Responses to questions submitted to BITS, the Financial
Services Roundtable........................................ 203
Responses to questions submitted to the Credit Union National
Association................................................ 207
Responses to questions submitted to Wells Fargo.............. 209
Board of Governors of the Federal Reserve System:
Responses to questions from Hon. Gregory W. Meeks............ 217
Responses to questions from Hon. Donald A. Manzullo.......... 221
U.S. Department of the Treasury:
Responses to questions from Hon. Gregory W. Meeks............ 222
Responses to questions from Hon. Donald A. Manzullo.......... 225
Paul, Hon. Ron:
Letter to members of the Financial Services Committee from a
coalition of family and faith-based organizations.......... 226
Letter to members of the Financial Services Committee from
major professional sports leagues and the National
Collegiate Athletic Association, dated April 2, 2008....... 229
Letter to the Board of Governors of the Federal Reserve
System and the U.S. Department of the Treasury from major
professional sports leagues and the National Collegiate
Athletic Association, dated December 12, 2007.............. 231
PROPOSED UIGEA REGULATIONS:
BURDEN WITHOUT BENEFIT?
----------
Wednesday, April 2, 2008
U.S. House of Representatives,
Subcommittee on Domestic and
International Monetary Policy,
Trade, and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:03 a.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding.
Members present: Representatives Gutierrez, Waters,
Sherman, Moore of Kansas, Clay, Wexler; Manzullo, Hensarling,
McHenry, and Marchant.
Ex officio: Representatives Frank and Bachus.
Also present: Representatives Murphy, King, and Davis of
Kentucky.
Chairman Gutierrez. This hearing of the Subcommittee on
Domestic and International Monetary Policy, Trade, and
Technology will come to order. Good morning and thank you to
all of the witnesses for agreeing to appear before the
subcommittee today. Today's hearing will focus on the proposed
regulations to implement the Unlawful Internet Gambling
Enforcement Act of 2006. These regulations were published for
comment in October of 2007, and the comment period closed on
December 12, 2007, with over 200 comments being received.
For our first panel, we will hear from the issuers of the
proposed regulation: the Treasury Department and the Federal
Reserve Board. Our second panel includes representatives from
the financial services industry, and I'm betting that we will
have a lively debate on this issue.
We will be limiting opening statements to 10 minutes per
side, but, without objection, all members' opening statements
will be made a part of the record. I yield myself 5 minutes.
The focus of today's subcommittee hearing is the proposed
regulations to implement the Unlawful Internet Gambling
Enforcement Act of 2006. The Act prohibits the U.S. payment
system from accepting payments or bets or wagers made by U.S.
citizens who seek to gamble online. The law also requires the
Federal Reserve Board and the Treasury Department to issue
regulations mandating that payment systems identify and block
all restricted transactions.
In October of 2007, the draft regulations were issued and
more than 200 comments were filed in response. As proposed, the
regulations would require most companies involved in the
payment systems, from banks and credit card companies, to many
transmitters and payment processors, to develop and implement
policies and procedures designed to identify and block unlawful
Internet gambling transactions.
The regulations have been widely criticized as being vague
and costly for financial institutions to implement. One of the
most common complaints is that the proposed rules fail to
sufficiently define key terms, leaving financial institutions
with significant compliance difficulties. For example, the
regulation fails to adequately define what constitutes
``unlawful Internet gambling'' or ``restricted transaction,''
yet requires the financial institutions to make a determination
on their own about what is lawful or unlawful. If the rule is
adopted in its current form, the response by many financial
institutions may likely be to overblock transactions to protect
themselves from legal liability. Although the regulation does
provide a safe harbor for financial institutions that block
transactions that are in fact legal, it does nothing to ensure
that legal transactions are not blocked. As a result, consumers
may be placed at risk of having lawful transactions blocked.
It is easy to see how these regulations, if implemented in
their current form, could wreak havoc on electronic commerce in
the United States. With that in mind, I want to take a moment
to question the priorities reflected by the underlying law,
which was passed while my party was in the minority, and which
seeks to eliminate Internet gambling by adults. In my opinion,
if Congress is going to impose additional regulations on
financial institutions, our time would be better spent
restricting payday lending or curbing unfair and deceptive
practices associated with credit card accounts and other types
of predatory lending.
But the reality is, we have a law that requires the
regulators to develop rules that ban Internet gambling, and I
have several concerns with the proposed rules. First, I am
concerned about the effect these regulations will have on the
remittances system that immigrants use to send billions of
dollars home each year. Money transmitter companies are already
having problems maintaining accounts with some banks, and I
fear that this rule could exacerbate that problem. I am also
troubled that these regulations could impose significant
compliance burdens on financial institutions during a time of
economic and financial turmoil.
Finally, I believe it is inappropriate to have financial
institutions essentially acting as final arbiter in determining
which transactions are legal or illegal, especially when the
result could be closing a consumer's account. This hearing will
be an opportunity for the regulators to address these and other
issues concerning the proposed rules. We will also have the
opportunity to hear directly from the financial services
industry on the potential cost, regulatory burden, and
compliance issues they anticipate if the regulation is
implemented as proposed.
I expect a vigorous debate on the issues, and the
subcommittee looks forward to working with the regulators as
they move through the process and decide whether to amend the
regulations or simply roll the dice and adopt them in their
current form.
The Chair will now recognize the ranking member of the full
committee and the author of the legislation, Mr. Bachus, for 5
minutes.
Mr. Bachus. Thank you, Mr. Chairman, for holding this
hearing on the regulatory implementation of the Unlawful
Internet Gambling Enforcement Act. The title of this hearing
deals with the regulation proposed by Treasury and the Federal
Reserve, although I believe also in our minds is Chairman
Frank's legislation, H.R. 2046, which would effectively repeal
the ban on illegal Internet gambling that we worked so hard to
enact. And I believe it of course is also material to today's
hearing. I know several of my colleagues are pushing for the
enactment of that legislation if they cannot, what I would
call, ``water down'' the regulations which have been proposed
by Treasury and the Fed.
I have a letter signed by 45 State attorneys general who
oppose Chairman Frank's H.R. 2046 and also oppose any weakening
of regulations to implement the Unlawful Internet Gambling
Enforcement Act. I'm just going to read one quote from a letter
that they signed. They said:
``H.R. 2046 effectively nationalizes America's gambling
laws on the Internet, harmonizing the law for the benefit of
foreign gambling operations that were defying our laws for
years, at least until the Unlawful Internet Gambling
Enforcement Act was enacted. We therefore oppose this new
proposal and any other proposals that hinder the rights of the
States to prohibit or regulate gambling by their citizens.''
I would like to enter that letter into the record.
Chairman Gutierrez. Without objection, it is so ordered.
Mr. Bachus. Thank you. Make no mistake, illegal Internet
gambling ruins lives and tears families apart. Study after
study has shown that gambling, Internet gambling, is a scourge
on our society that leads to addiction, bankruptcy, divorce,
crime, and moral decline.
Illegal Internet gambling intensifies the devastation
wrought by gambling by bringing the casino into the home.
According to a recent study, 74 percent of those who had used
the Internet to gamble have become addicted to gambling, and
many of these gambling addicts have turned to crime to support
their habit. Research also indicates that in 2006 alone, nearly
10 percent of college students gambled online.
Indeed, at our committee's last hearing on this subject, we
heard testimony from Greg Hogan, whose son was once the
president of his class at Lehigh University but now sits in a
Pennsylvania prison after committing bank robbery in a
desperate attempt to erase his Internet gambling debts. We also
heard testimony from the NCAA about several college athletes
who had turned to Internet gambling after betting on football
games, some of which they were involved in.
But the harm that illegal Internet gambling inflicts on our
society extends beyond the personal tragedies of the Hogans or
other American families like them. Illegal Internet gambling
also jeopardizes the security of our Nation. The FBI and the
Department of Justice both testified before this committee that
Internet gambling serves as a vehicle to launder the proceeds
of illegal activities, helps fund drug trafficking, facilitates
tax evasion, and perhaps most frightening of all, can be used
to finance terrorism.
To address these harms, this Congress enacted the Unlawful
Internet Gambling Enforcement Act of 2006. Since its enactment,
illegal Internet gambling among college-age youth has declined
from 5.8 percent in 2006 to 1.5 percent in 2007. This is a
significant achievement. But any success the Act has had in
decreasing the rate of illegal Internet gambling would be
short-lived if criminals believe that the Act will not be
enforced. That is why it is critical that the proposed
regulations that are the subject of today's hearing be done
right and implemented without further delay.
In its current form, the regulations that Treasury and the
Federal Reserve have proposed require U.S. financial
institutions participating in designated payment systems to
prevent transactions in connection with unlawful Internet
gambling. This requirement is an essential--could I have
unanimous consent to have one more minute?
Chairman Gutierrez. Without objection, it is so ordered.
Mr. Bachus. Thank you. This requirement is an essential
first step, but it is worth emphasizing that all forms of
payment should be covered, because a single exemption leaves
the law suspect to evasion. The proposed rules provide
exemptions for U.S. financial institutions that participate in
designated payment systems if the regulators jointly determine
that it is not reasonably practical for these firms to prevent
illegal transactions. This exemption ensures that the financial
institutions are not burdened with implementing impossible or
impractical standards, but the rules should make clear that
exempted financial institutions that do become aware of
restricted transactions should be required to block them.
Thank you again, Mr. Chairman, for holding these hearings
and for our witnesses.
Chairman Gutierrez. You are very welcome, Mr. Bachus. I
recognize the chairman of the full committee, Mr. Barney Frank.
The Chairman. Mr. Chairman, the ranking member is correct
in saying that I opposed this bill and would like to see it
repealed--not the bill, the underlying Act that these
regulations implement. I think it is an intrusion into personal
liberty motivated by the fact that a majority of members
dislike the purposes to which the liberty is being put. But
that does not mean there is no separate issue regarding
regulation. I would urge Members on all sides to contemplate
the arguments that are being made.
First, as to the attorneys general, let me say that we
thought we had preserved States' rights in the bill. We have
written to them and told them we would be glad, those of us who
sponsored the underlying repeal bill, to make clear that the
States have that right. But beyond that, what they are
objecting to is something that I thought many members of this
committee supported, namely, uniform rules on the Internet. So
understand the principle that is involved here and the
precedent that is being set, namely, if Members of Congress
have a moral objection, we can intrude on the freedom of the
Internet and we can tell people what they can and cannot do on
the Internet.
Now I had previously understood that to be something that
Members didn't support, and which States have said, well, we
want to be able to collect sales taxes. I have been all for
letting the States collect sales taxes through the Internet. I
cannot see what the intellectual and principal difference is
between saying that the States are wholly in charge of whether
or not individuals choose to gamble, but they have no say about
whether or not the sales tax can be levied. So you are setting
the precedent of a federalization of the Internet based on the
moral views of Members of Congress.
Now I understand that some people abuse gambling. Some
people abuse video games. Some people abuse alcohol. Some
people abuse a lot of things. The notion that a society
prohibits most people from doing something because a small
percentage abuse it, I had never thought to be the guiding
principle.
But then we get to the question of the regulations, and
here the argument appears to be that given the importance of
the underlying objective, let's not pay any attention to
whether the regulations are burdensome or not. Again, that is
not a position that I thought many of my conservative friends
adhered to. What we are being told in effect is, well, forget
about whether or not the regulations are burdensome or
inefficient. Virtually every sector of the economy affected by
these regulations has complained about them.
The Federal Reserve in testimony, and I appreciate their
candor, says: ``This is a challenging task. The ability of the
final rule to achieve a substantial further reduction is
uncertain. Our objective is to craft a rule to implement the
Act as effectively as possible in a manner that does not have a
substantial adverse effect on the efficiency of the nation's
payment system.''
This didn't come from gamblers. This came from the Federal
Reserve. And are we to say that, given the overriding
importance of the moral objection many Members have to
gambling, we will therefore go forward with regulations no
matter how much they might intrude on the efficiency of the
system? Well, that is not a great precedent to set. It does
seem to me that it is important to say there is the objective
and then there is a separate question as to the regulations.
Now I am of the view, and there are two separate questions
here, that the manner in which the Congress has chosen to
outlaw gambling is the wrong one. That is, we have an objection
to gambling, and we have enlisted the payment system and the
banks of America to be our anti-gambling cops, to the
detriment, I believe, of their ability to carry on their
important financial intermediation function. Maybe it was to
try and get it into this committee. I know the former chairman,
the gentleman from Iowa, my predecessor, who is ranking member,
the gentleman from New York, they really didn't like gambling,
and they wanted our committee to be the one that drove the
stake through its heart. But I think that was an error.
I think it was--and, again, I am not in favor of banning
gambling. I did not come here to tell other people what to do
with their leisure time. But even those of you who do feel
confident in your ability to supervise the leisure activities
of other adults ought to find a way to do it directly without
drafting the financial system of this country and putting it in
the service of your moral objections. And I believe that the
difficulties we are seeing in enforcing the regulation are not
due to any shortcomings on the part of those doing it. I think
the Federal Reserve and the Treasury are doing their best. We
just gave them the wrong job.
Again, if you want to get rid of gambling, find some other
way to do it, but don't impose--and, look, the Federal Reserve
is not given to hyperbole. When the official statement of the
Federal Reserve System is we are trying ``to craft a rule to
implement the Act as effectively as possible in a manner that
does not have a substantial adverse effect on the efficiency of
their payment system,'' that means that this could very well be
an adverse effect. They don't deal with chimera.
So what we are apparently being told is, well, a little
adverse effect on the payment system is worth it because we
will feel so much better when we stop people from gambling. I
do disagree with the underlying objective of the Act. But even
those who agree with it ought to be willing to say, you know
what, let's find a different way to enforce it. Let's not
burden the important payment system by doing it this way.
Chairman Gutierrez. All time has expired on our side. I
have a list handed to me by the staff of the minority, and
without objection, I will follow this: Representative
Hensarling of Texas for 2 minutes; 1 minute to Representative
Davis of Kentucky; and I would ask for unanimous consent of the
members of the subcommittee to allow Representative King 1
minute. Without objection, that--
The Chairman. Reserving the right to object, you never know
when you are going to want something from the Governor of New
York, so I won't object.
[Laughter]
Mr. Bachus. You mean if I object, he doesn't get--
Chairman Gutierrez. That's true, Mr.--
Mr. Bachus. Well, I guess I don't object.
Chairman Gutierrez. Okay. Representative Hensarling for 2
minutes.
Mr. Hensarling. Thank you, Mr. Chairman. I doubt I will
need the entire 2 minutes. Clearly, many interesting and
important issues are presented by the Unlawful Internet
Gambling Enforcement Act, but I just want to make one brief
point. And that is, if Congress passes a law that the Federal
Government itself finds difficult or impossible to enforce, and
turns to private enterprise to essentially enforce that law for
them, then we must have clarity in our regulatory framework. We
need black and we need white; we don't need shades of gray.
I think that a lot of very important issues have been
raised during the comment period on these regulations. And
having been a small businessperson before I came to Congress
and not being able in my own small business to afford an army
of attorneys, I know what happens is, the businesses tend to
get risk-adverse. When you're dealing in shades of gray, you
get very risk-adverse, and I do want to make sure that as
Congress tries to single in on one type of criminal behavior
that lawful commerce is not unduly burdened. I'm not sure that
these proposed regulations have met that mark, and so I would
hope that at the end of the day, we could at least have
regulatory certainty for all the legitimate businesses out
there in this space if we're expecting them to essentially do
the job of law enforcement that the Federal Government finds
difficult or impossible to do.
With that, Mr. Chairman, I yield back.
Chairman Gutierrez. The gentlewoman from California, Maxine
Waters, is recognized for 3 minutes.
Ms. Waters. Thank you so much, Mr. Chairman. I'm looking
forward to today's testimony on the proposed regulations to
implement a bill that was passed out of both the Financial
Services and Judiciary Committees last session, the Unlawful
Internet Gambling Enforcement Act. By addressing only Internet
gambling that was already unlawful, the legislation passed last
session was a bipartisan effort to enhance enforcement by
cutting off the flow of revenue to illegal enterprises. The
bill prohibited the receipt of checks, credit cards charges,
electronic funds transfers, or similar transactions by such
unlawful businesses.
I served on this committee and the Judiciary Committee and
I voted in each committee to report the bill to the House after
vigorous and passionate debate. When the measure was considered
on the Floor as a stand-alone bill, I voted for it. I also
voted for it after it was added to the Safe Ports Conference
Report, which was ultimately signed into law. Now some have
noted that the bill passed in the dead of night, and it's true
that it was very late at night, but the final vote was 409 in
favor, and only 2 votes against.
Today I'm not so sure how I would vote on this bill. I have
certainly been challenged by my friend, Barney Frank, and he
pushes a particular button with me when he talks about
legislating morals or vices without infringing on fundamental
rights. Supporters of the bill stressed that the compromise
language that emerged from the two committees was the product
of 10 years of hard work by a very unusual alliance of
organizations and competing interests, from religious
organizations like the United Methodist Church, to professional
sports organizations like the National Football League.
One of the reasons I am really reconsidering my vote on
this legislation is because some of those organizations that
are in such strong support of the bill are organizations that I
have reviewed very carefully, and I'm wondering about some of
their decisions in the way that they manage their own business,
and whether or not there are some questions of morality in the
way that they treat some of those in their organization.
So, again, I'm very seldom in a position where I change my
vote, but this may be one of those times. But let's see what
today's testimony will bring. I yield back the balance of my
time.
Chairman Gutierrez. I thank the gentlewoman. I recognize
Congressman King of New York for 1 minute.
Mr. King. Thank you, Mr. Chairman. Thank you for extending
the courtesy to me to sit here today, and I thank Ranking
Member Bachus for withdrawing his objection to my appearance.
Very seriously, like Chairman Frank, I am a co-sponsor of
H.R. 2046, because I believe it has protections built into it
which would address the concerns that Congressman Bachus has
raised, for the purpose of today's hearing is on the
regulations. My concern is the unintended consequences that can
and often do result when we ask financial regulators to in
effect interpret laws for Congress and enforce morality for
Congress.
I think if we're talking about sports gambling, that's one
thing. But to be asking regulators to define what is unlawful
conduct, what is unlawful gambling, to me really runs a severe
risk of going too far. And this is an issue I think which
brings people from all sides together. Just the other day I
received a letter--in fact, just today, from Grover Norquist,
president of Americans for Tax Reform, where he expresses
severe concerns about the implications of this rule in terms of
personal freedom, personal privacy, and regulatory burden on
the banking industry and international trade.
So I think going ahead with these regulations poses real
dangers. I don't know why we just don't confine it to sports
gambling and leave it at that for now. And I would ask, Mr.
Chairman, for unanimous consent to place in the hearing record
a statement for the hearing by one of our on-leave members of
the committee, Representative Sessions from Texas, with a
letter from Mr. Sessions and other members, the Secretary of
the Treasury and Chairman of the Federal Reserve.
Again, I thank you for allowing me to be here today. I'm a
member of the full committee but not the subcommittee. I look
forward to the testimony, and, again, I just want to express my
concern that these regulations, as they go forward, could
really have unintended consequences that all of us would rue in
the future, and I ask unanimous consent to insert the statement
in the record. I yield back.
Chairman Gutierrez. Without objection, it is so ordered.
Representative Davis of Kentucky for 1 minute.
Mr. Davis. I would like to thank you, Mr. Chairman, for
allowing me to participate briefly and also Ranking Member
Bachus. What I would like to do is ask unanimous consent to
place in the hearing record comments submitted by the National
Thoroughbred Racing Association, a critical part of the
Commonwealth of Kentucky's economy, for some perspective
related to the discussions that we are going to be having
today, and I yield back the balance of my time.
Thank you.
Chairman Gutierrez. We are pleased to have with us on the
first witness panel representatives from the Board of Governors
of the Federal Reserve System and the U.S. Treasury Department.
Testifying on behalf of the Federal Reserve Board is Louise L.
Roseman. Ms. Roseman is Director of the Board's Division of
Reserve Bank Operations and Payment Systems. Appearing on
behalf of the Treasury Department is Deputy Assistant Secretary
Valerie Abend. Ms. Abend is the Deputy Assistant Secretary for
Critical Infrastructure Protection and Compliance Policy.
Director Roseman, you may proceed.
STATEMENT OF LOUISE L. ROSEMAN, DIRECTOR, DIVISION OF RESERVE
BANK OPERATIONS AND PAYMENT SYSTEMS, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Ms. Roseman. Chairman Frank, Chairman Gutierrez, Ranking
Member Bachus, and members of the subcommittee, I am pleased to
appear before you today to discuss our efforts to implement the
Unlawful Internet Gambling Enforcement Act.
As you are aware, the Act requires designated payment
systems to establish reasonable policies and procedures to
prevent transactions to fund unlawful Internet gambling
activity. Congress recognized, however, that it may be
difficult for certain payment systems to prevent restricted
transactions and required the agencies to exempt payment
systems from the rule's requirements if it was not reasonably
practical for them to comply.
The commenters to the proposed rule highlighted a number of
the limitations in using the payment system to combat unlawful
Internet gambling activity. The most prominent concern, as was
discussed here this morning, was the lack of clarity as to what
forms of Internet gambling are unlawful, and therefore what
payments need to be blocked. The proposed rule, like the Act
itself, doesn't spell out which gambling activities are
unlawful, but rather relies on the underlying substantive
Federal and State laws. Unfortunately, the activities
permissible under these laws are not well settled, and they are
subject to varying interpretations.
Congress itself recognized this fact when it excluded from
the definition of unlawful Internet gambling activity allowed
under the Interstate Horse Racing Act, but included a sense of
Congress that the horse racing exclusion is not intended to
resolve any existing disagreements over how to interpret the
relationship between the Interstate Horse Racing Act and other
Federal statutes. Commenters stressed that uncertainty such as
this would make compliance with the rule very difficult. We are
considering modifications to the rule that would provide
greater certainty to payment system participants, but our
ability to provide complete certainty is limited given the
ambiguities of the underlying statutes.
The second challenge, as our proposed rule acknowledged, is
that most payment systems don't have the functional capability
to identify and block payments made for specific purposes or
initiated in specific ways, such as over the Internet. In our
view, the institution that has the customer relationship with
the Internet gambling business is in the best position to
determine the nature of that customer's business and whether
the customer is likely to receive restricted transactions for
credit to its account. Therefore, with respect to domestic
transactions, the proposed rule exempted all participants in
the check, ACH, and wire transfer systems except for the
participant that has that customer relationship.
Bank commenters generally indicated that they could perform
due diligence on their business accountholders at the time of
account opening, assuming they could readily determine which
forms of Internet gambling activity are unlawful. Large banks
in particular believed that it would be quite burdensome,
however, to determine which of their many existing business
customers engage in Internet gambling because they have not
retained records in a manner to enable them to identify
customers by line of business.
We recognize, however, that most Internet gambling
businesses are based outside the United States and generally
have offshore banking relationships. This poses additional
practical limitation on the ability of the U.S. payment system
to block restricted transactions, particularly if made by
check, ACH, or wire transfer. In such cases, we proposed
placing the compliance responsibility on the U.S. payment
system participants that send transactions to or receive
transactions from foreign institutions.
Commenters stated that measures U.S. banks could take to
prevent foreign banks from sending restricted transactions
would likely be unworkable. Foreign banks generally have legal
obligations in their own countries to prevent financial crimes
such as money laundering or terrorist financing. However,
foreign banks have little incentive to identify or prevent
Internet gambling activity, which is generally permissible
outside the United States. There may be few options for dealing
with restricted transactions through international banking
relationships without significantly disrupting cross-border
payment flows.
In closing, I would like to note that funding unlawful
Internet gambling activity through the U.S. payment system has
become more difficult in recent years, due in large part to
steps card issuers and money transmitters have already taken on
their own initiative to prevent these transactions. The extent
to which the final rule can substantially further restrict the
use of the U.S. payment system for unlawful Internet gambling
is uncertain.
Together with the Treasury, we are carefully considering
all comments received and assessing what changes we should make
to the rule to implement the Act as effectively as possible
without having a substantial adverse effect on the Nation's
payment system.
I would welcome any questions you may have.
Thank you.
[The prepared statement of Ms. Roseman can be found on page
95 of the appendix.]
Chairman Gutierrez. I thank you very much.
Ms. Abend, please.
STATEMENT OF VALERIE ABEND, DEPUTY ASSISTANT SECRETARY FOR
CRITICAL INFRASTRUCTURE PROTECTION AND COMPLIANCE POLICY, U.S.
DEPARTMENT OF THE TREASURY
Ms. Abend. Chairman Frank, Chairman Gutierrez, Ranking
Member Bachus, and members of the subcommittee, it is my
privilege to appear before you today to discuss the Unlawful
Internet Gambling Enforcement Act of 2006.
The Act was fashioned to require payment systems to
interdict the flow of funds from gamblers to businesses
providing unlawful Internet gambling services. To accomplish
this, the Act requires the Treasury Department and the Federal
Reserve Board, in consultation with the Justice Department, to
jointly prescribe regulations requiring participants in
designated payment systems to establish policies and procedures
that are reasonably designed to prevent or prohibit such
funding flows. It also requires that payment systems or
portions of payment systems be exempted in situations in which
it would not be reasonably practical for payment systems to
prevent or prohibit unlawful Internet gambling transactions.
On October 4, 2007, the Treasury Department and the Federal
Reserve Board, after consultation with the Justice Department,
published a Notice of Proposed Rulemaking seeking public
comment. Our goal when writing this proposed rule was to
faithfully adhere to the mandate set forth by Congress in the
Act. The comment period closed December 12, 2007.
We received more than 200 comments from a diverse group of
interests, including entities potentially subject to the
proposed regulations, individuals and groups supportive of
Internet gambling, individuals and groups opposed to Internet
gambling, and others.
We are currently reviewing each comment closely, and
analyzing the issues presented. Many comments present more than
a single issue, and certain issues require additional research.
Some of the comments address the meaning of statutory
definitions provided by Congress, the applicability
requirements to portions of designated payment systems, and the
impacts this proposed regulation could have in the event it
were to be finalized as proposed.
Crafting such a joint rulemaking requires extensive
coordination. We have been impressed with the quality of the
comments provided and with the effort and expertise employed in
the development of many of those comments.
An overarching goal for our efforts has been to closely
adhere to the statutory instructions provided to us by
Congress. The Act requires designation of payment systems that
could be used in connection with unlawful Internet gambling.
Such a designation makes the payment system and financial
providers participating in the system subject to the
requirements of the regulations. The proposed rule designated
the following five payment systems:
(1) Automated Clearing House Systems;
(2) Card Systems;
(3) Check Collection Systems;
(4) Money Transmitting Businesses; and
(5) Wire transfer Systems.
The proposed rule partially exempts certain participants
within some of the designated payment systems from having to
establish reasonably designed policies and procedures. The
Treasury and the Federal Reserve Board determined that this was
the most appropriate way to implement the Act while retaining
fidelity to the intent of Congress.
Under the proposed rule, the gambling business's bank would
not be exempted because it could, through reasonable due
diligence, ascertain the nature of its customer's business and
ensure that the customer relationship is not used to receive
unlawful Internet gambling transactions. The proposed
exemptions generally extend to the gambler's bank.
The Act further requires providing nonexclusive examples of
policies and procedures which would be deemed reasonably
designed to prevent or prohibit unlawful Internet gambling
transactions. As a result, this proposed rule contains a safe
harbor provision as mandated by the Act that includes for each
designated payment system nonexclusive examples of reasonably
designed policies and procedures.
The Treasury, working closely and collaboratively with our
colleagues at the Federal Reserve Board, is making progress in
reaching our statutory mandate to promulgate a final rule that
strictly adheres to the Act. No final decisions have been made
regarding any aspect of the final rule or the comments
provided, and we are still considering all aspects of the
proposed rule. When we publish a final rule, we will of course
provide analysis of the comments received and the reasons for
any decisions. We are committed to giving fair consideration to
all relevant comments as we are working toward promulgation of
a final rule. We have benefitted from the knowledge and the
efforts of our colleagues at the Federal Reserve Board and the
Justice Department as we have proceeded in our consideration
and analysis.
Thank you, and I would be happy to answer any of your
questions.
[The prepared statement of Ms. Abend can be found on page
43 of the appendix.]
Chairman Gutierrez. Thank you, Ms. Abend. I would like to
ask unanimous consent that the following items be inserted into
the record: the statement from Professor H.H. Weiler, NYU Law
School; a letter from Jim Tozzi, Center for Regulatory
Effectiveness; a statement from Marsha Sullivan, Consumer
Bankers Association; a letter from Chamber of Commerce; a
letter from Americans for Tax Reform; a Comment Letter, Office
of Advocacy, Small Business Administration; a statement from
Rick Smith, the UC Group; the NAFCU letter; and the Bank of
America statement of Gregory Baer.
Without objection, it is so ordered.
I thank the witnesses. First, I would like to ask the
Federal Reserve Board, the proposed regulations refer to
various actions that must be taken when a covered payment
system ``becomes aware'' that a customer is engaging in
restricted transactions.
Numerous commenters raised concerns with this standard, and
how difficult it would be to apply. What exactly does the term
``becomes aware'' in the proposed regulations mean?
Ms. Roseman. Well, that is something, as you mentioned,
that we did get a number of comments on. Commenters said that
it would be clearer if the regulation had a standard such as
having actual knowledge rather than ``becomes aware,'' because
of the ambiguity on how to apply that other standard. It is
something that we are looking at as we develop the final
regulation.
You had indicated that if an institution ``becomes aware''
there are certain required actions they must take. The proposed
regulation provided examples of different actions that could be
taken, but we said explicitly that these are examples of
reasonable policies and procedures, but payment system
participants would be able to develop alternate policies and
procedures that may also be deemed reasonable.
Chairman Gutierrez. Let me ask Ms. Abend, the proposed
regulations require that when the payment system, again,
becomes aware that the customers receive restricted
transactions, it must take certain actions which may include
closing the customer's account or severing the relationship
with the customer. There is no further guidance on how many
transactions it would take for such drastic action to occur.
But as drafted, it appears that it could be as little as two.
Are there size or volume thresholds for severing a relationship
with a customer? If an account is closed, must it remained
closed? How will disputes be resolved if there is a question as
to the legality of the transaction or the action of the agency?
Ms. Abend. Well, Mr. Chairman, I would echo what my
colleague from the Federal Board has said, which is, first and
foremost, we did receive these comments about what does
``become aware'' mean and how should we develop a standard, if
any, that would apply to ``becomes aware.'' We're still
considering what to do with respect to that comment.
We have not come to any sort of final determination of
whether that is a volume-driven type of transaction or if
someone were to come and notify them if that would by law
enforcement or a Federal financial regulator. And so I think
we're still taking it under consideration about how we would
answer that comment.
Chairman Gutierrez. Well, it just appears to me that since
several months have passed and each of you and the group--I
mean, both the Federal Reserve and Treasury, have excellent
people working there, that we would tread carefully as we
pursue these issues, because many people made the comment, as
both of you responded. And it seems to me to be a valid area.
Just what is it you are going to do, and the degree of
certainty with which you act and which banks and financial
institutions act are going to be critical to not somehow
violating the rights of others as we try to police gambling in
America.
I have actually not an underlying problem with trying to do
it, although it is always difficult when you buy lottery
tickets, and since I am getting to be 54 years old, I get all
these prospectus all the time and they all tell me, be
cautious. You have a lot of risk. So I'm getting these
prospectus all the time from mutual funds and for stocks and
bonds. And I think they're asking me to gamble each and every
time, because they're certainly--because of the Federal
Government and regulations we have taken, there are many
warnings. And so if because of those warnings, I don't do it. I
don't know if we can do the same thing with a lotto ticket or
somebody betting on their favorite college team.
So, I would just say we look forward to having you back as
the regulations become more finalized and formalized, because I
think it's going to be very, very critical that we make sure
that we do it in a very careful minded way.
Before I go to Mr. Bachus, I'm going to ask unanimous
consent that Mr. Davis, who has already participated, be
allowed to ask questions. And now I have the list from the
minority, beginning with Mr. Bachus. You are recognized for 5
minutes.
Mr. Bachus. Thank you. I appreciate our witnesses
testifying. I would like to hand you at this time a letter from
the NFL, Major League Baseball, the NBA, the National Hockey
League, and the NCAA. And this letter, I think you have had for
about 9 months. Have you gone over this letter pretty
carefully?
Ms. Roseman. Yes. We have been looking at all the comments
we have received. They have raised issues on many aspects of
the regulation. The payment system, frankly, isn't well
designed to be able to identify unlawful Internet gambling
activity. And that is posing a number of challenges to us,
along with the uncertainty with respect to what forms of
Internet gambling should be proscribed by the regulation.
Mr. Bachus. You know, they point out some interesting
things; they are telling us that, for instance, you all say you
can assemble a list of bad actors, and that is impractical. Is
that--
Ms. Roseman. In the proposed regulation, we didn't
explicitly propose a list, but in the supplementary information
accompanying the proposed rule, we did discuss the pros and
cons of having such a list, talking about the challenges of
developing a list, and we asked commenters a number of
questions with respect to the desirability of having such a
list in the final rule.
Mr. Bachus. You know, all of these lists would be of
illegal gambling operations, many of them offshore. What struck
me is that our staff did just a cursory study where in at least
5, but I think as many as 17 cases, you have done that. I guess
the more recent are the cross-border flow of monetary
instruments, legislation on that. You didn't have a problem
with that. The currency transaction reporting requirements, you
assembled it for that. The Bank Secrecy Act, you do it under
that. Anti-money laundering statutes, you do it under that. You
do it under the terrorist financing, and there is not a problem
there.
Also, you said that it is not practical for ACH, wire
transfer, and check system participants to block restricted
transactions except for those by entities that either have a
direct relationship with the Internet gambling site or certain
international payments. But in fact, in all these statutes, and
in about 12 others, you do that. Do you see what I'm saying?
So, I mean, I'm somewhat mystified as to why--do you understand
what I'm saying? I'm just saying that you all do it. There are
so many cases where you require an institution to do it. They
do it. They said they--in fact, and another thing,
Representative Paul Gillmor is dead now, but he pointed out
that the small banks said they could do this but some of our
largest, most sophisticated financial institutions said they
couldn't. That strikes me as incredibly odd. I'm sorry.
Ms. Roseman. In looking at the list idea, many commenters
used as analogy the OFAC list. I think the one thing that
really distinguishes the list here from the OFAC list is that
OFAC lists particular entities with whom you shouldn't have
transactions. In this case--
Mr. Bachus. And the NCAA has identified 900 of those.
Ms. Roseman. Yes. But in this case, it is restricted
activity, not restricted parties. So even gambling operations
may have a combination of payment transactions that would be
restricted under this law and others that would not be.
Mr. Bachus. All right. Let me dispute that. We are talking
about illegal Internet gambling enterprises that are not
licensed to do business in the United States. Now how could
they possibly--they are illegal. They are criminal enterprises.
They are not authorized to do business in the United States or
transact business.
Ms. Roseman. The companies that have these businesses may
also have other commercial transactions that they conduct that
would be totally unrelated to gambling.
Mr. Bachus. Well, I understand that, but--
Chairman Gutierrez. The gentleman's time has expired.
Mr. Bachus. But if they are doing an illegal enterprise,
you--and other enterprises if they are doing something illegal,
they may do something legal, but you block them in all these
other statutes, because--in fact, you block them because they
do that.
Chairman Gutierrez. Ms. Roseman, please answer the
gentleman's question, and then we will proceed.
Ms. Roseman. Bottom line, we did get a lot of comments
about the list. It is something that we are looking at as we
develop the final rule. As Ms. Abend mentioned, we haven't come
to any final decisions, but we certainly understand the
interests of both the financial industry and of the
professional sports leagues, to have certainty with respect to
what is lawful and what is unlawful.
Mr. Bachus. Yes. And I--
Ms. Roseman. But we understand the objective.
Mr. Bachus. I guess my point is, saying that you can't do
something you're doing in 17 other statutes is sort of unusual.
Chairman Gutierrez. The gentleman's time has expired.
Chairman Frank.
The Chairman. Well, to begin, we are prepared in the
language to exempt the sports leagues. We already allow them
to. But as I understand it, what they are apparently telling
you is that they, as I read their letter, that the gentleman--
they want these regulations as proposed adopted, and what they
are saying is, because there might be some problem with their
business, even though they could be exempted, they are
insisting that regulations be adopted that all of those on whom
they would fall would find very burdensome. Their total lack of
concern for the payment system, for the legitimate arguments
raised by the others, is troubling.
But I'm particularly intrigued by the question of horse
racing. And I admit that I am not a Biblical scholar, and I
often am unable to follow some of the distinctions that
Biblical scholars make. The one I have been struggling with is
in all of the moral teachings about gambling--you know, I have
this problem with regard, for instance, to conservative
economics, free market, free enterprise--I have not yet found
the footnote that says except agriculture, that many of my
conservative colleagues believe deeply.
Similarly, I can't find the exemption for horse racing in
all of the anti-gambling morality, or in the statistics on
people being addicted. But as I understand it, we did get a
letter from the gentleman from Kentucky urging that you make
clear that we are exempting horse racing, and I thought betting
on a horse was gambling. Apparently, betting on a horse is not
gambling. Perhaps it is animal husbandry, I don't know.
But let me ask you, because one of the problems we have is
uncertainty. And there is really a rather extraordinary
provision in this law that says nothing in this bill--this is
the underlying law the gentleman from Alabama sponsored--there
is a provision that says nothing in this law will resolve the
uncertainty as to whether or not it covers horse racing.
Really, a rather bizarre piece of legislation. Congress says
Congress cannot make up its mind about the conflict. But let me
ask you, with regard to people who gamble through the Internet
on horse racing, in States where that is not legal, is that
banned or not banned, according to the regulation? Let me ask
each of you.
Ms. Roseman. Well, in our consultations with the Department
of Justice, their belief is that it is illegal in all States
irrespective of whether the individual State has banned it or
not.
The Chairman. But does the regulation say that?
Ms. Roseman. The proposed regulation did not say that
because we did not go down the road of trying to resolve the--
The Chairman. Well, say I'm a bank, and I get this
processing request for someone who made a bet on a horse race.
Do I accept it or do I reject it? According to the regulation.
Ms. Roseman. That was the biggest comment we received.
The Chairman. Well, I understand that, but I didn't ask you
how many comments you received. What do I do? I'm a nice little
bank here, and I don't want to, you know, I say, well, look,
I--you know, who am I to counteract the great morality of that
wonderful Congress that tells everybody how to live a good
life? And how do I interfere? So now somebody wants to make a
bet on a horse. Do I allow that bet to be paid, or do I not?
You have made the regulations.
Mr. Bachus. I would allow you to do it.
The Chairman. Well, I didn't yield.
Mr. Bachus. I would let you bet.
The Chairman. I didn't yield to the gentleman, and if the
gentleman wants to make a clarification, he ought to do it in
the law, this law that he helped to pass, that says we don't
know. I guess they're against gambling except that the bank has
to gamble. But I do want to ask the question. Under the
regulations as proposed--they may be amended--I am a financial
institution. Do I or do I not process that payment for a bet on
a horse?
Ms. Roseman. I would assume that most institutions would
not process--
The Chairman. No, no. I'm not asking you to assume what
they would do. You're the regulator. And I understand you
didn't write this silly business, and don't take it personally,
but you have this responsibility. When the lawyer calls you and
says, okay, counsel to the Fed, counsel to the Treasury, I have
a very law-abiding client here. What should she do? Should she
process this payment? Or if she processes the payment, is she
violating the law? What is the answer?
Ms. Roseman. Unfortunately, the proposed regulation was
silent on that issue, and I think that is something we are
going to need to look at for the final regulation.
The Chairman. So the answer is to gamble on it?
Ms. Roseman. That is essentially what--
The Chairman. And our friends at the NFL and the AFL, etc.,
have said--no, the NFL and the major leagues--you go ahead and
do it. So we are telling the entire payments--the entire
financial structure of America that whether or not--and I would
guess that betting on horses is a substantial part of
gambling--I think that is the greatest abdication of
responsibility that I can think of for Congress to foist that
set of choices and ambiguities on the system.
Thank you, Mr. Chairman.
Chairman Gutierrez. Thank you. Mr. Marchant is recognized
for 5 minutes.
Mr. Marchant. Thank you, Mr. Chairman. Ms. Roseman, I have
heard you say that these are not the final rules and that all
of the comments will be taken into consideration. Will the
final rule define unlawful Internet gambling?
Ms. Roseman. I can't say at this point exactly what is
going to be in the final rule. The challenge we have is
interpreting something--particularly Federal laws where
Congress itself isn't sure what they mean, and then trying to
figure out ourselves how to interpret them. That is something
we are really struggling with at the moment.
Mr. Marchant. Is it your feeling that Federal law is clear
on what unlawful Internet gambling is?
Ms. Roseman. No, I don't think it is. I think that there
are different Federal laws that interact with each other, and
that is creating the challenge.
Mr. Marchant. But there are--States are more clear on their
laws as far as what--
Ms. Roseman. States with respect to truly intrastate
activity. What we're talking about with the horse racing would
be interstate.
Mr. Marchant. If the regulators cannot, and it doesn't
sound like they're optimistic that they can define what
unlawful Internet gambling is, how will my bank in my hometown
know what it is when they see that transaction?
Ms. Roseman. I suspect that they would take a conservative
approach and assume that all Internet gambling is unlawful.
Mr. Marchant. What if the transaction is wrapped in the
appearance of another type of transaction? What if you are
placing your bet at Joe's T-Shirt Shop in the invoice and all
the transaction reflects is a purchase and a transaction with
Joe's T-Shirt Shop?
Ms. Roseman. In that case, payment system participants
would have no way of knowing that the transaction actually
related to unlawful Internet gambling and would likely process
the transaction.
Mr. Marchant. And there would be no penalty in that
instance for that financial institution?
Ms. Roseman. I would think not. They would have no way to
have flagged that transaction as having been unlawful.
Mr. Marchant. So isn't it likely that in response to--and I
would like for you to contemplate this in the final rules--
isn't it likely that as nimble as the Internet is, and as
resourceful as the Internet gambling industry is, that they
will adopt a mechanism to make no transaction appear to look
like an Internet gambling transaction?
Ms. Roseman. I think there is this risk, depending on how
the rule works. In the proposed rule, there was some
responsibility placed on the bank that held that company's
banking relationship. So if the bank that had the business
relationship with Joe's T-Shirt Shop started seeing a pattern
of transactions that seem unusual for that business, it may
want to probe further about what is happening. Or if a bank
that signed that business up accepts credit cards, and it used
a regular retailer merchant category code rather than the
gambling merchant category code, if the bank was aware of what
the true activity was, it would have a responsibility to do
something about it.
Mr. Marchant. Yes. I just, a month or so ago, had my credit
card number used, and I discovered within about 30 days that
there are hundreds of different mechanisms and false companies
and companies that sell no products, companies that have
nothing--no purpose whatsoever except to process stolen credit
card numbers through, and of course my credit card company was
very good about being able to recognize that after the fact.
But it was from me prompting them and calling them and saying,
you know, I don't buy--I really didn't buy anything at Bloomin'
Candles in Minnesota. But if you don't have the proactivity on
the part of the customer and you are solely dealing with the
Internet provider, of the Internet, then I would like for you
to contemplate this part of it in your final rules.
Chairman Gutierrez. The gentleman's time has expired. Mr.
Clay is recognized for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman. Let me start with Ms.
Abend. The Administration and some of my colleagues have been
adamant that we cannot overburden the banking sector with laws
and regulations governing community lending, governing
unscrupulous lending practices and other policies designed to
help and protect people. Does it not seem incongruous that
against the backdrop of the subprime crisis and all of the
other challenges faced by the banking industry that we would
impose this additional burden on the banks?
Ms. Abend. Well, Congressman, you know, certainly the
current market conditions are the number one priority facing
the Secretary and certainly is where our attention is being
spent, but with regard to this particular proposed rule, we are
carrying forth, as we are required by statute, to implement
proposed regulations and ultimately a final regulation adhering
very closely to the statute that was provided to us. So we're
just following what we had to do as required by mandate.
Mr. Clay. Well, let me ask you, how realistic is it that
authorities can actually police Internet gambling, that they
can actually enforce this law, that they could stop the scourge
of Internet gambling? How realistic that we are going to be
effective in that process of stopping Internet gambling?
Ms. Abend. Well, I think we certainly proposed a rule that
we thought very much adhered to what the sense and the intent
of Congress was to try and stop the illegal activity and the
illegal transactions. I'm sure that there's no regulation today
on anything that is 100 percent possible at blocking all of the
illegal activity, but it is, we hope, our final rule will be a
strong deterrent.
Mr. Clay. Well, but I can see us getting into a lot of
discretionary decisions, a lot of judgment calls on the part of
the regulators and the banks, especially when you look at this
confusing chapter in the law about horse racing. I'm not even
sure does it exempt horse racing, does it not?
And then we have requests from the major sports leagues who
also want to be exempted, but they didn't include the fact that
they are already conducting gambling over the Internet through
Sportsbooks, through Las Vegas casinos and others. Sportsbooks
take bets on all kinds of professional games, and college
games. So how do we--how will we separate this and actually
enforce it?
Ms. Abend. Well, Congressman, I think as you have heard
from my colleague from the Federal Reserve Board, this issue of
clarity, which we received so many comments about on all sides
of the issue, some proposing that we clarify what is legal or
illegal gambling, others proposing if we produced a list, that
is something that we, as my colleague, Louise, has said, from
the Federal Reserve Board, are struggling with and trying to
figure out what if anything we can do.
I certainly would also mention that in our consideration,
we are, as required by the statute, consulting with the
Department of Justice, who truly are, from a Federal
standpoint, more of the experts when it comes to the statutory
Federal definitions of legal and illegal gambling.
Mr. Clay. Okay. Ms. Roseman, any comments on how we can
effectively enforce the statute?
Ms. Roseman. I think it is going to be very difficult to
enforce. The implementing regulations will not be ironclad. It
will be very difficult to totally shut off the payment system
for use in unlawful Internet gambling. As was mentioned
earlier, companies could disguise the purpose of the
transaction. In many payment systems, the purpose isn't even
included in the payment that flows through the financial
industry to begin with.
Mr. Clay. So the law doesn't have teeth to begin with. It's
just a statement, more of a statement from this body than
anything else?
Ms. Roseman. I think the law is relying on the payment
system--
Mr. Clay. I'm going to stop you there and yield the rest of
my time--
The Chairman. Let me just ask, on the--if I could briefly,
on the question of confusing. I have been informed that the 5th
Circuit in 2002 ruled that horse race gambling was legal. So in
the interpretation, would it make any difference if I were a
bank in the 5th Circuit or elsewhere? Now I know the Justice
Department doesn't agree with the Fifth Circuit.
Mr. Bachus. Point of order.
Chairman Gutierrez. The gentleman will state his point of
order.
Mr. Bachus. I have no problem with the chairman asking this
question, but I would also ask for equal time.
The Chairman. Well, that wouldn't be a point of order, I
guess. The gentleman didn't object to my asking the question as
long as he didn't think it was a tough question, so I'll
withdraw it and ask it later.
Chairman Gutierrez. Mr. King, you are recognized for 5
minutes.
Mr. King. Thank you, Mr. Chairman. Thirty years ago I was
general counsel to a government-run off-track betting
corporation in New York, and we were going through a number of
similar legal issues. That was 30 years ago. I don't know how
much progress we have made since then as to what can be done
and not done, but let me just follow up on what Congressman
Clay said. And I'm not trying to really be trivial in saying
this, but with everything facing Chairman Bernanke and
Secretary Paulson and revamping the regulatory structure in a
way that it hasn't been done in over 70 years, to be putting
this much effort into something which even the greatest minds
in Congress cannot define when it comes to illegal gambling, I
wish you well on that.
But very seriously, I think your testimony, and I really
appreciate your testimony, and I appreciate your honesty on it,
and the questions that are coming show to me either the
impossibility of coming up with adequate regulations or
meaningful regulations based on the legislation, or coming up
with regulations which could have the most dire unintended
consequences with severe impact on the financial services
industry.
I would just propose, and I'm probably not going to use all
my 5 minutes, but since there does seem to be a consensus,
including from sports itself, would it make sense to go ahead
with regulations dealing with sports and then either put the
other aside or allow an administrative law judge to look at it,
but at least go ahead with the regulations as it applies to
professional and intercollegiate sports?
Ms. Roseman. The challenge is many Internet gambling Web
sites, I believe, have a combination of sports gambling and
other types of gambling done by the same company. So, again, by
the time the transaction gets into the payment system, it would
be very difficult for the financial industry to know what type
of gambling the payment related to.
Mr. King. Okay. I don't have the same ability as the
chairman of the committee to express outraged hyperbole, but if
even on something which everyone agrees is illegal and everyone
agrees should be controlled, and if that can't be done, doesn't
that just show almost the impossibility of coming up with
regulations that would cover an area which no one has been able
to fully define?
Ms. Roseman. It does point out that problem. If Congress
were to say that any transaction involving a company that had
sports betting would be prohibited, that would be somewhat
different than prohibiting just the sports betting itself,
because the financial industry wouldn't be able to determine
the purpose of variuos transactions involving that company.
Mr. King. I see. Ms. Abend, do you have any comments?
Ms. Abend. I just concur with what my colleague from the
Federal Reserve Board has said, that it is difficult to
separate out the differences between, you know, whether it is a
sports transaction or some other type of transaction. And,
obviously, we have to adhere to what Congress gave to us. So
we're just following exactly what we were provided, and there
is no provision there really to do with that.
Mr. King. Okay. Thank you. I yield back.
The Chairman. Will the gentleman yield to me for one--just
briefly?
Mr. King. If it's appropriate, I would yield.
The Chairman. Yes. I just--let me say, I had one question
based on the line of questioning from my colleague from Texas,
Mr. Marchant. You mentioned that there might be a disguise,
they might say Joe's T-Shirt Shop, etc. There are penalties for
the financial institutions here. Under the regulations, would a
financial institution be under any affirmative obligation to
uncover a pattern that might suggest fraud?
Ms. Roseman. Under the proposed regulations, we said that
the banks that had the customer relationships with the business
customers would have to do due diligence to ensure that those
customers were not conducting restricted transactions through
their bank. If the pattern of transactions was something that
would not look anomalous to their cover activity, I'm not sure
if that is something that the bank would necessarily find.
The Chairman. Okay. But it's important for you not to
simply be not sure. We need to know.
Mr. Bachus. Mr. Chairman, could I respond?
Chairman Gutierrez. Excuse me. The gentleman--
Mr. King. If I have any time left, I yield it to the
gentleman from Alabama.
Chairman Gutierrez. The gentleman, Mr. King, yields to the
gentleman from Alabama.
Mr. Bachus. Thank you. I think a lot of the questions that
have been posed would be better answered by the Justice
Department. In fact, Ms. Abend, you said I think on two
responses that the Justice Department would be better able to
answer those questions. And for the record, before we adjourn
this panel, I would like to point out that a number of the
questions could have been answered by the Justice Department
and they would have been the appropriate party. And for that
reason, I, on at least three different occasions, strongly
urged and requested the committee to invite the Justice
Department, but that request was not honored.
Chairman Gutierrez. The recommendation of the gentleman
will be seriously considered after today's hearing. I assure
him of that.
Mr. Bachus. Thank you.
Chairman Gutierrez. Mr. Wexler is recognized for 5 minutes.
Mr. Wexler. Thank you, Mr. Chairman. I want to follow
Chairman Frank's line of questioning and Mr. Clay's line of
questioning. Unfortunately--you're right. You didn't pass this
awful law, but you're assigned the responsibility of preparing
the regulations. The only appropriate response in my view to
what we're hearing this morning is to undo the Unlawful
Internet Gambling Enforcement Act in its entirety, and if there
are industries that wish to be regulated, whether it's sport
industries or whatever, then engage in a consensus. But the
idea that we are now taking this law that violates our privacy,
invades our freedom, and now applying on top of that a set of
regulations that are inconsistent at best and then ask banks to
enforce this inconsistency, just exacerbates the situation.
But let me follow what Chairman Frank was beginning to get
at, because one of my concerns is the idea that law abiding
adults who compete against each other in games based on
individual skill such as poker, why wouldn't they be--or I
would presume they, too, should be exempt from these
regulations. Isn't that correct?
Ms. Roseman. We got a lot of comments from poker players
who made exactly that argument. The Act's definition of what is
a ``bet or wager'' includes a game subject to chance. There are
a number of games, such as poker, that involve a great deal of
skill but probably are also subject to chance. The Act's scope
includes games subject to chance. The Act doesn't require a
predominant element of change, but just that the game be
subject to chance.
Mr. Wexler. Well, let's say we are in New Hampshire. If I
understand the New Hampshire statute, it describes gambling as
a game of chance where the player cannot affect the outcome.
Clearly that would not describe poker, as you just described
it, and I agree with you. If you take the 5th Circuit's
interpretation of the Wire Act, then wagering on poker in New
Hampshire is clearly legal. So let's say we are playing poker
in New Hampshire, we should be exempt, right?
Ms. Roseman. The Federal Reserve Board is not an expert on
gambling law. We have in our consultation with the Department
of Justice asked them this question. They believe poker is
unlawful under this law. I think that is all I can say.
Mr. Wexler. Sure. If I understand it correctly with respect
to the regulations, is it correct to say that each bank would
have to establish its own policy on what transactions to block
in compliance and what to permit? And if they got it wrong,
they would be liable?
Ms. Roseman. They could either adopt their own policies, or
they can rely on the policies of a designated payment system
that they participate in. So, for example, if you are a credit
card issuer and you rely on the policies of Visa or Mastercard
to ensure that the transactions coming through will have a
merchant category code that flags this as gambling and will
have a code to say that the card was not present when the
transaction took place, and then you took actions based on the
card system's policies and procedures, you wouldn't then need
to go through and develop a--
Mr. Wexler. But it certainly--
Ms. Roseman. --on your own.
Mr. Wexler. It is certainly conceivable that different
banks or different card systems would have entirely different
rules for the same transactions?
Ms. Roseman. In card systems, probably unlikely but
certainly conceivable.
Mr. Wexler. Well, Mr. Chairman, if nothing else, I would
suggest that this hearing illuminates the fact that what the
underlying bill has established is a totally inconsistent
system of regulation of law-abiding adults wishing to play
games such as poker or mahjong or chess.
If I could ask one other question. In my district, bridge
is a big game, along with mahjong, along with poker. If a group
of 78-year-old men and women get together and want to play
bridge and they pay an entrance fee of $20 and they register
online and they have to use their credit card, is that
something that now is going to wind up being a prohibited
activity?
Ms. Roseman. I would just be speculating at this point, but
I'm not sure if the gambling itself would be online. It would
just be the entrance fee, but I had not considered that
particular--
Mr. Wexler. Right. So the majority--the former majority
should understand what they did when they passed the Unlawful
Internet Gaming Enforcement Act is that they made criminals out
of law-abiding Americans who play poker, who play chess, who
play bridge, or who play mahjong. And this is all in the
context of a mortgage crisis and a banking crisis in America.
Thank you very much, Mr. Chairman.
Chairman Gutierrez. And next we have a member of the
subcommittee, Mr. McHenry.
Mr. McHenry. Thank you. I thank the chairman for yielding
time. You know, looking at the law and listening to your
testimony, both from my office and then here this morning, I do
have just a broader question for both of you. Is it the
construct of the legislation that is the issue on issuing
regulations and enforcement? Or is it the intent of the
legislation? Are you saying in terms of your regulatory
capabilities that even the intent of this bill, which is to
root out, you know, unlawful forms of gambling, is that
possible, in your regulatory view? Or is it simply the
construct of this legislation?
Ms. Roseman. I think the challenge is a combination of both
things that you mention. Part of it is the construct of the
legislation itself that leaves this ambiguity as to what forms
of Internet gambling are lawful and which are unlawful. Part of
it, though, is the overall intent by having the payment system
be the mechanism to combat this unlawful Internet gambling. And
as I mentioned earlier, the payment system isn't well designed
for this task, and that's really what we're struggling with.
Ms. Abend. I would agree with my colleague from the Federal
Reserve Board that these are incredibly complex issues, and so
the statute definition which we took whole into our proposed
regulation creates this problem where we--there is this
ambiguity that we have seen reflected in the comments that we
were provided. And, far be it for me to speculate on the intent
of Members of Congress.
Mr. McHenry. Okay. All right. Fair enough. That was a very
simple answer. I think, Ms. Roseman, back to your comment, you
said that the regulations won't be ironclad. I think that was
the terminology you used.
Ms. Roseman. Yes. I meant that I don't think it is
practical to be able to preclude the payment system from
processing any unlawful Internet gambling transactions. There
is going to be a proportion that will go through irrespective
of our regulation. The question is, how large a proportion.
Mr. McHenry. Any estimates? Any ideas?
Ms. Roseman. No. I don't have any estimates on that.
Mr. McHenry. So is it safe to say that the construct of the
legislation is such that you are both going to have a very
difficult time enforcing the legislation we passed? Or is that
an understatement?
Ms. Roseman. No. I think it is very difficult without
having more of a bright line on what is intended to be included
as unlawful Internet gambling. That's the first challenge. I
think the second challenge is to figure out how to use the
payment system to achieve the objective of cutting off the
unlawful Internet gambling activity.
Mr. McHenry. Now in terms of your discussions with State
attorneys general, have they been extensive? Has there been any
discussion on enforcement of this?
Ms. Roseman. No. Our discussions have been with the
Department of Justice, but I do not believe we have talked to
the State attorneys general.
Mr. McHenry. Thank you, Ms. Roseman. Ms. Abend?
Ms. Abend. I am not aware of any conversations that we have
had with them.
Mr. McHenry. Okay. Well, thank you for your testimony.
Thank you, Ms. Roseman.
The Chairman. Mr. Chairman?
Mr. McHenry. I would be happy to yield to my colleague.
The Chairman. Thank you. I just wanted to clarify, when the
gentleman from Alabama raised the question of the Justice
Department, as chairman of the committee, it has generally been
our policy to have before us as witnesses representatives from
those agencies that come under our jurisdiction. I can't
remember a time either recently or in prior years when we had
the head of a different agency before us; it becomes a
jurisdictional issue. So I understand the concern here, but I
can't remember an attorney general or a representative of the
Justice Department ever testifying before us. It is generally
the case that the committees deal with representatives of the
agencies that are under their jurisdiction.
Mr. McHenry. What about the FTC, Mr. Chairman?
The Chairman. We have partial jurisdiction over the FTC
statutes. The FTC statutes, for instance, when we did the
Privacy Act, we gave some duties to the FTC, among others. So
we, whereas as Members--let me be clear--whenever a question of
increasing the penalties, for instance, comes up, we don't deal
with that. We send it to the Judiciary Committee. So we have a
shared jurisdiction over the FTC.
Mr. McHenry. I yield back. Thank you.
Chairman Gutierrez. I thank the gentleman from
Massachusetts, the chairman, for that clarification. Indeed,
this bill did go for hearings both before this committee and
the Judiciary Committee because of the concerns with the
Department of Justice, and we expect to call them at Judiciary
to take up the issues with the Department of Justice.
Again, Federal Reserve and Treasury clearly are under the
jurisdiction of this committee, and that's why they were called
forward, as they are bringing all of the comments forward from
the public.
I would like unanimous consent to include in the record
comments from the American Greyhound Track Operators
Association.
Without objection, it is so ordered.
Would the gentlemen present care for a second round of
questions?
The Chariman. We have some members who weren't here for the
first round.
Chairman Gutierrez. Oh, I'm sorry. Dr. Paul, you are
recognized for 5 minutes. I am so happy to see you.
Dr. Paul. Thank you, Mr. Chairman, and I'm sorry I am late.
I had another hearing. But let me just make a very brief
statement, and I don't have any particular questions here. But
I did want to be on record in opposition to the regulations as
well as the legislation that stands dealing with Internet
gambling.
I have always taken the position that though I do not
endorse gambling per se, people should make their own
decisions. It's a personal choice. And I have always been
concerned that this type of legislation and regulation is is
likely to open the door, as I believe it already has, to the
control and invasion of the Internet itself. And I think the
Internet has to be protected.
But I think that there are decisions that individuals make,
and they can make mistakes, but I believe those decisions,
whether it has to do with how they spend their money or what
they put in their mouths or what they smoke, they do it at
their own risk. But I also extend that belief to a personal
belief that in economics, people ought to be allowed to do
that, too, and spend--and have economic transactions at their
own risk, and government shouldn't be there to promote virtue
or ethical standards, and they shouldn't--the government
shouldn't be there to promote what they see as a fair economy.
So it's sticking to those principles that government
interference in this manner usually is not beneficial. I have a
written statement, Mr. Chairman, that I would ask unanimous
consent to submit for the record, and I would like to yield
back.
Chairman Gutierrez. Without objection, it is so ordered.
Mr. Sherman is recognized for 5 minutes.
Mr. Sherman. Thank you. I know the gentleman from Texas is
dedicated not only to individual liberty but also States'
rights, and gambling has traditionally been regulated by the
States. It is not a decision of Congress but technology that
has undermined that regulation and it is the attempt of the law
that we are dealing with here today to restore what has been a
traditional province of the States. I'm sure the gentleman from
Texas would agree more with the decision of the State
legislature in Carson City than perhaps the State legislature
of his own State with regard to whether gambling should be
allowed.
The credit card system has been using a coding system to
block restricted payments for Internet gambling. I wonder if
the witnesses could respond to why this same system wouldn't
work for other payment systems.
Ms. Roseman. The card systems have a very different design
than other payment systems. The card systems have been designed
to include a code going along with the authorization request
that indicates what type of merchant the transaction took place
at, such as a restaurant, a gaming organization, or an airline.
If you look at, for example, the check system, there is no
such code and given the design of the check system, no
practical way to include such a code. And so I think it would
be very difficult to extend the concept that is in the credit
card system to systems such as check system or wire transfer.
Mr. Sherman. That is a concise and good answer. I thank
you. One of the serious concerns related to Internet gambling
is money laundering. Why wouldn't the same procedures used to
combat money laundering and terrorist financing work to address
illegal Internet gambling?
Ms. Roseman. Money laundering is a global concern. Banks
around the world focus on this issue. Many Internet gambling
businesses are not in the United States; they are offshore in
countries where this is activity is permissible. So the banks
in those countries have no incentive to flag those particular
transactions because they are legitimate commercial
transactions--
Mr. Sherman. So we would be in the position of either
allowing Internet gambling or cutting our financial ties to
those small Caribbean countries if we thought it was more
important?
Ms. Roseman. And I think it goes beyond just small
Caribbean countries. There could be Internet gambling activity
going through major correspondent banks in other countries
where it would be impractical for U.S. correspondents to cut
off those relationships, which have substantial international
payment flows.
Mr. Sherman. What is the largest country economically that
allows Internet gambling and that demands that U.S. citizens be
allowed to gamble over the Internet if the site is located in
their country?
Ms. Roseman. That I do not know off the top of my head. I'm
sorry.
Mr. Sherman. I yield back.
Chairman Gutierrez. The gentleman yields back. Are there
any further members?
Dr. Paul? Any further questions?
[No response]
The Chairman. If I could just get an answer to the question
about whether or not it makes a difference if you're in the 5th
Circuit, because the 5th Circuit did in 2002 give a ruling on
the legality of some horse race betting. I know Justice doesn't
agree. Under the regulations, would it make any difference if I
were a financial institution in the 5th Circuit or if the
activity happened in the 5th Circuit?
Ms. Roseman. If you're talking about horse racing--
The Chairman. Yes.
Ms. Roseman. In our regulation, we did explicitly exclude
horse racing permitted under the Interstate Horse Racing Act,
as did the Act itself. We just did not define--
The Chairman. Well, I understand that. But the Justice
Department is saying one thing. The 5th Circuit has had a
ruling. Does it make any difference? Do I get any protection
from the fact that the 5th Circuit has ruled that it is
permitted?
Ms. Roseman. I would assume if you were in the 5th
District, you would have that protection--
The Chairman. In the 5th Circuit?
Ms. Roseman. --from that court's rulings.
The Chairman. One last question. You said those contests,
you could bet on those contests which were a combination of
skill and chance. Would it be legal to bet on elections under
this?
[Laughter]
Ms. Roseman. You know, we posed that question recently to
the Justice Department because there are predictive markets Web
sites where you could bet on the outcome of a presidential
election and a number of other things. Justice considered that
subject to chance. That was their interpretation.
The Chairman. So that is illegal?
Ms. Roseman. That is their interpretation.
The Chairman. Betting on an election. Thank you.
Chairman Gutierrez. I believe Dr. Paul has some documents
to submit.
Dr. Paul. Right. Mr. Chairman, I ask unanimous consent to
submit two letters on behalf of Congressman Bachus.
Chairman Gutierrez. Without objection, it is so ordered.
The Chairman. Let me just say, because my colleague from
Florida raised New Hampshire, at this point I am prepared to
say that the New Hampshire primary is pretty much a game of
chance.
[Laughter]
Chairman Gutierrez. Let me thank the witnesses. I will tell
both Ms. Abend and Roseman that I have chaired about half a
dozen of these hearings, and I have never had this kind of
participation and activity, which says be careful about where
you go with these regulations. I mean, there is a lot of
interest. Obviously, there is a lot of interest on the part of
the members of this committee and the Members of the House of
Representatives, at least if the participation today is any
indication, and I think it is an indication.
So we will work with you as we move forward. I just think
you have one heck of a complicated job when, you know, you have
major broadcasters saying the Kentucky Derby, everybody knows
the gentlemen are betting. And for those of you who--I mean,
there is so much betting going on in America that this is going
to be a very difficult challenge for you. I hope you can outlaw
the foursome in front of me on the golf course on those spots
stopping those bets, so that I can get through the day a lot
quicker.
[Laughter]
Chairman Gutierrez. Thank you so much. We will--
The Chairman. And Mr. Chairman, I think there are only
three votes, so we should be back fairly quickly.
Chairman Gutierrez. We will adjourn to vote and come right
back. Thank you so much.
[Recess]
The Chairman. [presiding] Thank you. The first panel was a
lengthy one, but I don't think to the disappointment of any of
those who are here with us. Chairman Gutierrez has Judiciary
Committee business, and they are voting, so I will start this
off.
We have our second panel of people from the financial
service industry in particular, and we will begin with Harriet
May who is the president and chief executive officer of GECU of
El Paso, and she is speaking on behalf of the Credit Union
National Association. Please tell our former colleague, Mr.
Mica, our good friend, not to worry about the proposal to
abolish the credit unions. We would never do that. So we will
just ignore that part of the Paulson plan. Don't worry about
anything. You can go ahead.
STATEMENT OF HARRIET MAY, PRESIDENT AND CEO, GECU OF EL PASO,
TEXAS, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
(CUNA)
Ms. May. That is a very nice welcome, Mr. Chairman, and
thank you for allowing me to testify before this subcommittee.
The issue of the Unlawful Internet Gambling Enforcement Act of
2006 is disconterting, and it is my privilege to testify on
behalf of the Credit Union National Association.
I am, as you said, Harriet May, president and CEO of GECU
in El Paso, Texas. I am a member of the CUNA Board of Directors
and serve as CUNA's board secretary. CUNA is the largest trade
association for credit unions, representing 90 percent of the
Nation's 8,400 State and Federal chartered credit unions, which
in turn serve over 90 million members.
GECU, formerly known as Government Employees Credit Union,
has served the families of El Paso since 1932, and we're the
largest locally owned financial institution in the area, with
just over $1.4 billion in assets and serving over 277,000
members.
When I received the invitation to appear today, I must say
I relished the opportunity to talk with you about the range of
serious and practical concerns that CUNA believes will make
compliance under the Act extremely difficult, if not
impossible, for financial institutions.
One of our most fundamental concerns with the
implementation of this law is that credit unions and other
financial institutions are in business to provide financial
services to communities, and we are already burdened with heavy
policing responsibilities. For example, our compliance duties
under the Bank Secrecy Act and Office of Foreign Assets Control
rules are extraordinary. We do not think that the Internet
gambling law could possibly be implemented without creating a
list similar to that published by OFAC.
We are equally concerned that while institutions would be
required to identify and block transactions that fund illegal
gambling activities, the proposed rules provide no mechanism to
verify when a payment transaction is intended for illegal
Internet gambling.
H.R. 2046, the Internet Gambling Regulation Enforcement
Act, introduced by House Financial Services Committee Chairman
Barney Frank, would require Internet gaming businesses to be
licensed and pay user fees to the Financial Crimes Enforcement
Network. The bill could be the vehicle for the Department of
Justice to take the lead in not only monitoring the entities
that are complying with registration but also developing a list
of those businesses or individuals involved in illegal Internet
gambling activities. Such an approach would promote compliance
for institutions by providing them a greater level of certainty
as to whether a transaction for a particular entity should be
prevented. Exemptions and safe harbor provisions would help
provide a regulatory framework that might actually work.
Under the Act, institutions must establish and implement
policies and procedures to identify and block restricted
transactions or rely on those established by the payment
systems. We are concerned that the scope of these requirements
is not realistic. To illustrate, the proposal calls for
participants, including card issuers, to monitor certain Web
sites to detect the unauthorized use of a covered payment
system, and to monitor and analyze payment patterns. Such
activities would be time consuming and detract from an
institution's own business purposes.
Also, the proposal directs covered entities to address due
diligence without defining or explaining what is meant by that
term. In addition, the Act states that institutions that
reasonably believe a transaction is restricted will not incur
liability for incorrectly blocking the transaction. We
appreciate the safe harbor but need clear guidance on what is
necessary for institutions to show that their belief was
reasonable. The Federal financial regulators will be
responsible for enforcing the rule. However, it is not clear
how this enforcement would occur.
And lastly, the Act does not include an effective date.
While we do not believe this proposed regulation should be
promulgated, if the agencies are required to proceed,
institutions should have at least 18 months if not longer to
determine how to meet the new requirements.
And in summary, Mr. Chairman, CUNA certainly appreciates
your leadership in reviewing this matter. We don't condone
illegal Internet gambling or want to see it continue or grow.
However, the current statute and implementing proposal contain
several components of great concern. We respectfully urge that
the proposal not be finalized and that Congress take action to
address hardships that would otherwise arise.
Thank you, Mr. Chairman.
[The prepared statement of Ms. May can be found on page 91
of the appendix.]
The Chairman. Ms. May, thank you both for the cogency and
for being the first witness I have ever seen in 28 years hit 5
minutes exactly.
[Laughter]
The Chairman. May your tribe increase.
Ms. May. Thank you.
The Chairman. I thought your testimony was also
substantively very welcome.
Next we have a familiar face for us, Wayne Abernathy, who
is testifying on behalf of the American Bankers Association.
Mr. Abernathy.
STATEMENT OF WAYNE A. ABERNATHY, EXECUTIVE VICE PRESIDENT,
FINANCIAL INSTITUTIONS POLICY AND REGULATORY AFFAIRS, AMERICAN
BANKERS ASSOCIATION (ABA)
Mr. Abernathy. Thank you, Chairman Frank. We appreciate
this opportunity to comment on the Unlawful Internet Gambling
Enforcement Act of 2006 and the proposed rule implementing the
Act. ABA members have a strong record in the fight against
financial crime. We have invested enormous resources in
fulfilling our obligation to report criminal or otherwise
suspicious activity under the anti-money laundering laws.
The Unlawful Internet Gambling Enforcement Act takes banks
beyond the role of reporting potentially or allegedly
illegitimate financial activity, and makes financial
institutions the police, prosecutors, and judges in place of
real law enforcement officers when it comes to the practice of
unlawful Internet gambling.
Banks are saddled with this exceptional burden, using the
words of the Act, ``Because traditional law enforcement
mechanisms are often inadequate for enforcing gambling
prohibitions or regulations on the Internet.'' That is to say,
all the sophistication of the FBI, Secret Service, and other
police investigation methods is inadequate to apprehend the
unlawful gambling business or confiscate its revenues.
ABA believes that punting this obligation to the banking
industry is an unprecedented delegation of governmental
responsibility, with no prospect of practical success.
The modern payment system is constructed to facilitate
fast, reliable payments at low cost. It is no exaggeration to
say that nearly all other economic activity in the Nation, in
one way or another, relies upon the payment system. Hundreds of
millions of payments are processed each day, about 100 billion
each year. The burdens placed upon financial institutions by
the Act would compromise the efficiency of the payment system
and yet would not curtail Internet gambling.
At the core of the problem is the lack of a usable
definition of ``unlawful Internet gambling,'' a definition that
neither the statute nor the regulations provide. Banks would be
required to institute policies and procedures to block unlawful
transactions without being sure which parties or transactions
to block and when. This is not a reasonable undertaking.
It is one thing for banks to report suspicious activity
based upon their judgment of the possibility of illegal
conduct. It is quite another to require a bank to act on its
own judgment about legality and impose sanctions for such
determinations. ABA believes that the flaws in the definition
of ``unlawful Internet gambling'' are fatal to this effort as a
legal policy and a practical matter.
Even if a good definition could be devised, identifying
commercial customers engaged in unlawful Internet gambling is
very difficult. All commercial customers would be subjected to
screens, filters and other processes that might be developed in
the effort to enforce the law. These screens and other
processes would almost entirely depend on information obtained
from the customers. Since neither illegal Internet gambling
enterprises nor their customers are likely to be up-front about
their activities, monitoring transactions will fail to catch
most illegal gambling payments.
The cross-border provisions of the act and the proposed
rule further complicate the situation. They require financial
institutions in the United States to rely on foreign
correspondent banks to interpret and enforce the Act, a
responsibility that is not supported by international law.
In conclusion, there are realistic limits to how the
payment system can be used effectively to solve the problems
raised by illegal Internet gambling. The Act and the proposed
rule do not provide a rational path towards halting unlawful
Internet gambling. Rather, the path leads to increased cost and
administrative burden for banks, and erosion in the performance
of the payment system, without stopping illegal Internet
gambling transactions.
Thank you very much, and I'm happy to take any questions.
[The prepared statement of Mr. Abernathy can be found on
page 45 of the appendix.]
The Chairman. Thank you, Mr. Abernathy.
And next we have, testifying on behalf of the Financial
Services Roundtable, Mr. Leigh Williams.
STATEMENT OF LEIGH WILLIAMS, BITS PRESIDENT, THE FINANCIAL
SERVICES ROUNDTABLE
Mr. Williams. Thank you, Chairman Frank, for the
opportunity to testify on the proposed rules arising from the
Unlawful Internet Gambling Enforcement Act, and on H.R. 2046,
the Internet Gambling Regulation and Enforcement Act, which
contemplates the creation of a regulatory framework for
permissible online gambling.
My name is Leigh Williams, and I am the president of BITS,
the operations and technology division of The Financial
Services Roundtable. My members, 100 of the largest U.S.
financial institutions, have carefully reviewed the proposed
rules, and I would like to share three impressions from that
review with you this afternoon. Our full analysis is available
in a comment letter which we filed with the Federal Reserve and
the Treasury and which was submitted with my written testimony.
To provide context, let me say first that as a former chief
risk officer and as BITS president, I share the concern of the
subcommittee and the agencies about potential abuse of the
financial payment system for illegal purposes. My members
devote substantial resources to knowing their customers and
identifying suspicious transactions. Fraud prevention has
become an industry core competency, in fact, and individual
firms have literally hundreds of people dedicated to anti-money
laundering programs, OFAC blocking, and suspicious activity
reporting.
I am, however, concerned that this policing activity may be
reaching a point of diminishing returns, where its cost in risk
management resources and customer disruption may be greater
than its benefit in enforcement. I have three concerns in
particular about facets of the proposed rules that elevate the
compliance burden without commensurate benefit.
First, the agencies have chosen not to fully define
``unlawful Internet gambling,'' as we have heard this morning,
but they presume that institutions could assemble and interpret
definitions themselves based on pronouncements from the Justice
Department and others. The very complexity that deterred the
agencies from issuing a definition will be multiplied a
thousand fold if thousands of institutions are required to
establish their own working definitions.
We urge the subcommittee and the agencies to work toward
more specificity on the scope of ``unlawful Internet
gambling.''
Second, the rules require that institutions block the use
of the payment system by known unlawful gambling businesses or
for funding known unlawful gambling transactions, but they do
not specify whether this knowledge should come from existing
monitoring activities or if additional policing is expected.
Requiring institutions to act on knowledge arising from current
surveillance is a more reasonable expectation than requiring an
entirely new layer of surveillance.
We urge the subcommittee and the agencies to moderate the
operational burden of the rules by leveraging rather than
supplementing our current policing efforts.
Finally, my members are concerned about the legal exposure
associated with both false positives and false negatives. In
spite of our best efforts, we are likely to block some
legitimate business, and we may well miss some well-concealed
illegal activity. If institutions are to be given police
powers, and in fact policing obligations, some limited form of
the liability shield granted to public servants should also be
granted to institutions applying their policies and procedures
in good faith and in the public interest.
Before I close, I'd like to comment briefly on H.R. 2046,
the Internet Gambling Regulation and Enforcement Act. I will
leave it to the judgment of the Congress whether to allow or
prohibit online gambling, but I will offer my thoughts on the
extent to which the bill might moderate my three stated
concerns about the proposed rules:
First, creating a distinct category of permissible
regulated gambling will reduce and may nearly eliminate the
unlawful Internet gambling that we otherwise may be required to
define. The scope of prohibited activity will be narrower, and
with FINCEN's proposed involvement, it should also be clearer.
Second, the licensing of legitimate operators will simplify
our institutions' surveillance activities by identifying a
population of customers that we know are subject to specific
requirements. However, the question remains of our
institutions' duty to identify covert gambling operations and
concealed gambling transactions.
Finally, by creating a class of regulated gambling entities
and then requiring that FINCEN actively police them, the bill
may relieve some of the burden and legal exposure associated
with our institutions serving in this role.
While these concerns and others noted in our comment letter
may not be entirely resolved by H.R. 2046, in my judgment the
compliance burden to financial institutions would be
substantially moderated.
In closing, let me express my confidence that financial
institutions will do everything that the final rules require of
them, and many will do more. I urge only that the subcommittee
and the agencies do everything in their power to be as clear
and judicious as possible about what is expected.
Thank you for your time. I would be happy to answer any
questions.
[The prepared statement of Mr. Williams can be found on
page 105 of the appendix.]
The Chairman. This is a good day. You were also right on
time. I am very grateful, because you have all put a lot of
very substantive stuff in here. And finally, we have Mr. Ted
Teruo Kitada, the senior company counsel of the Legal Group at
Wells Fargo.
STATEMENT OF TED TERUO KITADA, SENIOR COMPANY COUNSEL, LEGAL
GROUP, WELLS FARGO & COMPANY
Mr. Kitada. Thank you, Chairman Frank, for this opportunity
to testify today regarding the Unlawful Internet Gambling
Enforcement Act of 2006 and proposed regulations under this
Act.
In reviewing the proposed regulations and the Act, Wells
Fargo has identified certain key issues. We would like to
briefly highlight two of them for the committee:
The definition of ``unlawful Internet gambling'' and the
possible application of the final regulations to existing
customers.
First on the definition of unlawful Internet gambling,
while the term is a core definition under the Act, ``unlawful
Internet gambling'' is not clearly defined in the regulations.
This term is defined as placing, receiving, or transmitting a
bet or wager by means that involves the use of the Internet
``where such bet or wager is unlawful under any applicable
Federal or State law.''
By referencing the State or Federal laws, the banking
industry is burdened with the responsibility of identifying,
interpreting, and applying those laws. We handle at Wells Fargo
a significant number of transactions daily, and just to have
some sense of the volume, I have set forth the numbers with
regard to ACH, check, and wire systems transactions.
For the ACH system, we originate in excess of approximately
3.1 million debit transactions daily. As a receiving depository
financial institution, we receive daily approximately 1.2
million credit transactions. In the check collection system, we
handle daily about 11 million checks. In the wire transfer
system, where as a beneficiary's bank, we have responsibility
to identify restricted transactions, we handle approximately
25,000 to 30,000 wire transfer transactions daily.
As an originator's or intermediary's bank, with regard to
wire transfers directly to foreign banks, we handle about 5,000
to 6,000 thousand transactions daily.
As you can see by just the sheer volume of transactions
that we handle, having the responsibility to identify and block
restricted transactions would be a significant undertaking for
us.
Next on the applicability of the proposed regulations to
existing customers, we are concerned that when the final
regulations are issued, those regulations will apply to our
existing customers. We have presently about 24 million consumer
customers and about 1.8 million business customers, and we are
concerned that the final rules will apply to that population.
Under the USA Patriot Act, we have been complying with the
due diligence requirements under the regulations issued under
the Act since October 1, 2003, but there is a significant
number of customers about which we may know less because those
customers have not been subject to the robust due diligence
requirements under the USA Patriot Act.
There are further requirements under the proposed
regulations to implement policies and procedures with regard to
the existing customers. As a merchant customer provider, Wells
Fargo has approximately 140,000 merchant customer
relationships. We would be required under the best practices
advanced under the proposal to adopt amendments to those
merchant agreements to provide that those merchants were not
introduce restricted transactions to the card system. We are
concerned about that requirement.
As the originator's bank and intermediary bank on foreign
wire transfers going directly to foreign banks, we are required
to block and perhaps even close those relationships where we
have identified restricted transactions.
We are concerned that in connection with those rights,
amendments to existing foreign banking relationship agreements
would be necessary and that we will have to provide for such
amendments with over 200 correspondent foreign banking
relationships.
These observations conclude my remarks, and I will be
pleased to field any questions the committee may have. Thank
you.
[The prepared statement of Mr. Kitada can be found on page
59 of the appendix.]
Chairman Gutierrez. I recognize the subcommittee ranking
member first, so, Dr. Paul, you are recognized for 5 minutes.
Dr. Paul. Thank you, Mr. Chairman.
Chairman Gutierrez. Thank you.
Dr. Paul. I have a couple of brief questions for the panel.
Anybody who feels like answering them can. They are general,
and you may have touched on this in your testimony, but I
wanted you to emphasize it if you have not.
First, I want to talk about the potential cost that might
be put on you for doing this. There always has to be a dollar
cost when we write regulations, nobody really knows about it,
but I'm sure you have anticipated it. Is there any way you can
quantify that figure? ``Well, this is going to cost me so
much.'' I was in the medical field and they would come in with
regulations and we would have managed care. All of a sudden,
you might have to hire three new people for your office.
I'm wondering whether there's a cost, do you have to have
more people involved and looking after regulations like this
and the hours that might be involved?
The other concern I have is the amount of records that we
keep. There has been financial regulation for a long time,
since the 1970's when it really got busy and required a lot of
financial regulations, and even before 9/11, there was a
tremendous amount of financial regulation sitting out there.
And it gets to the point where the regulations and the
information that is accumulated loses its effect because there
is too much.
So there is a lot of information on innocent people, and
then the people who figure, well, we're going to do this
illegally, maybe they will have a trick, and it really doesn't
achieve what you are supposed to be achieving. I'm just
wondering whether you see that as a complication where, yes,
you can do your best and accumulate a lot of records, but there
will be so many records that nobody gets to sort these out. In
spite of all the technology we have here, government sometimes
tend to be inept and they have too much information, so they
can't make good use of it.
And the other point that I want to ask about is, do you
feel like there's a burden placed on you unfairly where you
might have to make a judgment and a decision on what is legal
and what is illegal? Is that burden ever placed on you where it
seems like that is one of the proper roles of government,
deciding what is legal and illegal rather than putting the
burden on the business person or financial institution to
decide, oh, it's my judgment, you know, to decide what is
illegal and what we should report?
Those are the general concerns I have. Does anybody want to
make any comments on those issues?
Mr. Abernathy. Yes, if I may, Congressman Paul, can I take
them in reverse order?
Dr. Paul. Fine.
Mr. Abernathy. Because I think that is the way that really
sets up the questions. The first problem really is, what makes
this requirement different from, for example, the Bank Secrecy
Act, Anti-Money Laundering, is that under this piece of
legislation and the regulations that will back it up, we're
required not only to identify whatever might be unlawful, but
we're actually required to impose a sentence. We're told to
deny financial services to someone whom we determine is engaged
in unlawful activity, unlawful Internet gambling.
So the first problem is, this goes beyond reporting, which
is what we do under BSA. Under the Bank Secrecy Act, Anti-Money
Laundering, we see something that we think is improper, and we
report that. And the law enforcement folks then take their
responsibility and they do what they feel is appropriate to do
with that. We are now told, look at it. If you determine it's
wrong, you impose the sentence. And we think that's a step too
far in devolving governmental responsibility.
That leads to the second point, which I think requires a
comparability in terms of cost. It's very difficult really to
put a cost on something that isn't in place yet, and
particularly if it's something that could go in any number of
different ways in terms of how the enforcement burden is
defined. But I would give as an analogy the costs that are
imposed under the Bank Secrecy Act, even though taking into
account how that's different from what I said.
A typical $100 million bank, a bank with $100 million in
assets--that is about the size of the average ABA member,
although we have banks of all sizes in our membership--tells us
that they have two to three employees who do nothing but
compliance efforts with Bank Secrecy Act/Anti-Money Laundering.
They don't do anything to serve a customer. They don't provide
loans. They don't provide any service other than meeting the
paperwork burden. And as you correctly point out, nearly all of
that burden is gathering data on law-abiding people conducting
legal transactions. That is how this could eventually evolve.
And then the last point that I would make, what defies
really predicting the cost of all of this is we don't know what
is unlawful, what is illegal, and as long as that burden is
upon us, estimate it is going to be pretty close to impossible.
Dr. Paul. Thank you. Any--
Mr. Williams. Mr. Paul, if I might offer a couple of
comments regarding cost. One is that I would echo what Mr.
Abernathy has said about the regulatory uncertainty ironically
making it very difficult for us to estimate what the ultimate
cost of compliance might be.
Chairman Gutierrez. The gentleman's time has expired.
Chairman Frank is recognized for 5 minutes.
The Chairman. Mr. Kitada, I'm told in your comment letter
and elsewhere you have also noted that we can't be sure what
entities are covered, that ``financial institution,'' as the
statute defines it, may sweep more widely than people would
ordinarily think. Could you comment on that?
Mr. Kitada. With regard to the definition of financial
institutions--
The Chairman. The transmitters of money.
Mr. Kitada. Oh, money transmitters? Yes. Under the Act,
there's a reference to the definition of money transmitters,
and in contrast, there's also under the regulations issued by
the Treasury under a definition for money service business, and
with regard to the money service business, there is a exclusion
or safe harbor for check cashers that cash items regularly for
under $1,000. And there's no such exclusion under the Act. And
so consequently, with regard to money transmitters, that
population of check cashers who heretofore may have enjoyed a
safe harbor under the Bank Secrecy Act, will now become subject
to this Act and to the requirements for developing policies and
procedures. And it also raises some challenging questions for
the industry in terms of policing the behavior of money
transmitters.
The Chairman. Well, that is very important. That is what I
wanted to get to. And, again, I want to stress, we can divide
this. Congress of course has the right, I believe, to ban
gambling. I don't agree with it. I share the views of my
colleague from Texas and others that it ought to be a matter of
personal liberty.
But there is a second question, if we decide to do it, as
to how to do it. And in effect, what this does, this law, is to
draft the financial service industry, in effect deputize the
financial service industry and turn them into the enforcers of
the law. It seems to me we can go at this at the two levels.
But here is part of the problem. You have due diligence
requirements, etc. You have all these customers. What troubles
me is, and there is a letter from Grover Norquist on behalf of
a coalition of organizations raising questions about privacy.
What I am afraid of is that there is a conflict between the
obligation imposed on you by the Act to do due diligence and to
see whether or not people are trying to get around this, and
the privacy expectations of your customers.
Mr. Abernathy, is that an accurate description of the
dilemma?
Mr. Abernathy. I think that's very accurate. A bank is
really in the position of having to make one decision: cut off
all transactions that look in any way like they might be
heading toward illegal Internet gambling, or become very
intrusive in the kinds of questions we ask, so that we can make
the decision the Act forces us to make.
The Chairman. And one of the things it will do, as I said,
is to draft you to be the law enforcement people. We have seen
this in other cases. What you can envision is a tremendous
increase in complaints about the financial institutions to the
consumer protection agencies because the Federal Government has
made you do it.
And a lot of customers who are going to find themselves
having their transactions cut off or blocked aren't going to
realize that this is something imposed on you by the Federal
Government. I think the recipe for problems here is just
enormous, because you are being put in this position where you
have to do this.
Let me go back to the horse racing question. If I am a
bank, do I have to block someone who has made a bet on a horse
race in a State where horse racing: (a) was legal; (b) wasn't
legal; (c) wasn't legal, but it is in the 5th Circuit; or (d)
all of the above?
Mr. Abernathy. I think one of the problems is, even though
you might know where the race took place, you don't know where
the bet is coming from, if you're talking about the Internet.
The Chairman. And that's the determinant, not where the
race took place--so in other words--okay.
Mr. Abernathy. You have two or more places you have to be
worried about--where did the transaction take place, where did
the event take place, where did the person who was doing the
activity, where were they when--
The Chairman. I don't have to meet both. And of course, it
would never--well, presumably it would never be legal to bet on
the--or we don't know that. I mean, what do you advise your
client then?
Mr. Abernathy. We would advise them--I mean, we frankly, as
a trade association, can't give them specific advice, but what
I suspect they would do is they would just block the
transaction, and that gets back to Mr. Paul's point. We would
block a lot more legal transactions in the effort to avoid
being tagged for failure to block the illegal one.
The Chairman. One of the issues that has been occupying us
is the competitive aspect. We have been told that we have to be
careful, whether it is Section 404 of Sarbanes-Oxley or other
things, about driving financial business out of America. If we
were to adopt tomorrow as the major league sports--as the major
sports league want, if we were promptly to adopt the pending
regulations, would that have any effect on the competitive
position of American financial institutions in the world?
Mr. Abernathy. I think the biggest impact would be that it
begins to--well, more than begins--it continues to compromise
the quality of the payment system. It's not just the banks
themselves, but you're now putting a new burden on what is one
of the fundamental purposes of the banking system, and that is
to make sure payments can be made between parties as quickly,
as efficiently, and at as low a cost as possible. We have now
compromised that.
The Chairman. Any others?
Mr. Williams. I think there are three ways, Mr. Chairman,
that we might undermine competitiveness. One is we might be
required to increase compliance costs to the point where they
would become a threat. We might disrupt customer service,
particularly in this overblocking to the point where that would
become a real issue, or we might divert resources from other
more critical risk management activities. And that also could
put the industry and customers at risk.
The Chairman. I am going to close by saying, as the
chairman of this committee, that we have some responsibility to
try and facilitate the functioning of the financial system. You
know, just as you are being drafted by the bill, I think our
committee was drafted, although by its own leadership, to do
this. If our colleagues want to go on an anti-gambling crusade,
well, I can't stop them necessarily, but I would hope we could
stop them from burdening this committee and our jurisdiction,
the financial services institutions, from getting entangled in
it.
Thank you, Mr. Chairman.
Chairman Gutierrez. Are there any further questions from
members of the subcommittee?
[No response]
Chairman Gutierrez. I want to thank the panel for having
come together, because I think we have had a rather rich
discussion where Dr. Paul and Chairman Frank really don't want
us involved in the regulatory matters at all in terms of
legislating the morality of gambling and betting.
I might be convinced that there might be some use to doing
that here in Congress, but what I'm not convinced is that
financial institutions should be the sheriff, should be the
people making the decisions. Because I think that you have a
relationship with the public in general which is much more
important than this one, and I just don't know how we do it.
And so we're going to be very careful with Treasury and the
Federal Reserve Board as they come up with the regulations,
because if you have never gotten your credit card statement and
made a call to your credit card company about a particular
billing amount because you didn't recognize the store, you
didn't recognize the amount, maybe you're not being as careful
as I and others are when they get their credit card statements,
because I have certainly on many occasions had to call my
credit card company so they could explain to me the company and
the nature, because there are so many companies that when you
charge something, have a totally different name when it comes
up on your credit card. Now when they tell you the address and
what they do, you're okay, I remember, I did that. That was a
charge.
So we all do that day in and day out, checking our credit
card statement. I would hate to think about what banks and
other financial institutions and credit card companies would
have to do in order to do that. And I'm no great friend of the
credit card institutions and financial institutions and feeling
sorry about their processing of forms, because many times when
I call, I find out that $2 overdraft on that Starbucks coffee
which they said we just couldn't avoid is all of a sudden $120.
And I know all of you know that happens every day in
America. You get a debit card, give it to your kid, you figure
they can't use--now, interesting, they can't get the $2 in
cash, but they can get the overdraft of $2 on that Starbucks
coffee on that day. And it will take them a week, and it's $10
a day and it's $20.
So, I'm not here as a standard bearer for the credit card
companies and the kinds--but I would think having an honest
discussion about those overdraft statements and how much
companies can charge is a much better function of the Financial
Services Committee and regulating our economy and our
relationship between your institutions and the public in
general than doing the gambling thing. And how we do
remittances and payday lending, and the extraordinary amounts
of interest to the American public. I just think that those are
much more important issues that I would like to engage all of
you in.
I appreciate your comments. I thank you for the comments
that you made during the open period. I will tell you that I
take them very, very seriously, as I know all of the members of
this committee so, and without any further questions, I thank
the members of this panel. I thank the previous panel, and I
thank all of those who have come to participate in this hearing
on gambling.
Thank you so much.
[Whereupon, at 12:52 p.m., the hearing was adjourned.]
A P P E N D I X
April 2, 2008
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