[Congressional Record (Bound Edition), Volume 153 (2007), Part 7]
[Senate]
[Pages 10501-10502]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           INTERNET GAMBLING

  Mr. KYL. Mr. President, I rise to express concern that serious 
violations of the law appear to be occurring and should be aggressively 
pursued by the IRS and, in turn, prosecuted by the Department of 
Justice.
  Specifically, numerous Internet gambling websites may be violating 
statutes such as 26 U.S.C. 4401 et seq. Section 4401 requires an excise 
tax equal to 2 percent of the amount of unauthorized wagers. Section 
4404 makes clear that the tax applies to wagers ``placed by a person 
who is in the United States with a person who is a citizen or resident 
of the United States.''
  I applaud the indictment in United States v. BETonSPORTS.COM and the 
inclusion of tax evasion charges in counts 14, 15, and 16.
  These counts charge that the defendants attempted to ``evade and 
defeat the . . . wagering excise tax'' in three ways: (1) by failing to 
make any wagering excise tax returns on or before the last day of the 
month following the month the wagers were accepted, as required by law, 
to any proper officer of the Internal Revenue Service, (2) by failing 
to pay to the Internal Revenue Service said wagering excise tax, and 
(3) by directing that the wagering funds be sent outside the United 
States--all in violation of Title 26, United States Code, Section 7201, 
and Title 18, United States Code, Section 2.
  I firmly support the decision of the Department of Justice to enforce 
the wagering excise tax and pursue any persons in violation.
  Additionally, it is important to note that extremely large sums of 
money are at issue: count 14 charges that from January 29, 2001 to on 
or about February 3, 2002, the sum of approximately $1,094,669,000.00 
in taxable wagers were had and received; count 15 charges that from 
February 4, 2002 to on or about February 2, 2003, the sum of 
approximately $1,228,874,000.00 in taxable wagers were had and 
received; and count 16 charges that from February 3, 2003 to on or 
about February 1, 2004, the sum of approximately $1,235,374,000.00 in 
taxable wagers were had and received. That is over $3.5 billion in 
three years, and Internet betting has increased significantly in the 
last two years.
  I would like to point out that significant income taxes and excise 
taxes appear to be owed by numerous persons. Collecting these amounts 
would be an important component of the Administration's efforts to 
address the ``tax gap.''
  Further, with such large sums at issue, the IRS and the Department of 
Justice should see if money laundering is involved.
  The State Department has expressed strong concern that Internet 
gambling operations could be used not only for tax evasion, but also 
for other criminal activities such as money laundering and terrorist 
financing:


[[Page 10502]]

       Internet gambling is particularly well-suited for the 
     laying and integration stages of money laundering, in which 
     launderers attempt to disguise the nature or ownership of the 
     proceeds by concealing or blending transactions within the 
     mass of apparently legitimate transactions. Due in large 
     measure to the volume and speed of transactions, as well as 
     the virtual anonymity offered by the Internet, offshore 
     gambling websites are an area of considerable money 
     laundering concern. The Internet gambling operations are, in 
     essence, the functional equivalent of wholly unregulated 
     offshore banks with the bettor accounts serving as bank 
     accounts for account holders who are, in the virtual world, 
     virtually anonymous. For these reasons, Internet gambling 
     operations are vulnerable to be used, not only for money 
     laundering, but also for criminal activities ranging from 
     terrorist financing to tax evasion. (State Department, 
     International Narcotics Control Strategy Report, released 
     March 2004.)

  The Department of Justice has echoed these concerns. At a hearing 
before the Senate Banking Committee, John G. Malcolm, Deputy Assistant 
Attorney General, Criminal Division, testified:

       Another major concern that the Department of Justice has 
     about on-line gambling is that Internet gambling businesses 
     provide criminals with an easy and excellent vehicle for 
     money laundering, due in large part to the volume, speed, and 
     international reach of Internet transactions and the offshore 
     locations of most Internet gambling sites, as well as the 
     fact that the industry itself is already cash-intensive.
       It is a fact that money launderers have to go to financial 
     institutions either to conceal their illegal funds or recycle 
     those funds back into the economy for their use. Because 
     criminals are aware that banks have been subjected to greater 
     scrutiny and regulation, they have--not surprisingly--turned 
     to other non-bank financial institutions, such as casinos, to 
     launder their money. On-line casinos are a particularly 
     inviting target because, in addition to using the gambling 
     that casinos offer as a way to hide or transfer money, 
     casinos offer a broad array of financial services to their 
     customers, such as providing credit accounts, fund 
     transmittal services, check cashing services, and currency 
     exchange services.
       Individuals wanting to launder ill-gotten gains through an 
     on-line casino can do so in a variety of ways. For example, a 
     customer could establish an account with a casino using 
     illegally-derived proceeds, conduct a minimal amount of 
     betting or engage in offsetting bets with an overseas 
     confederate, and then request repayment from the casino, 
     thereby providing a new ``source'' of the funds. If a gambler 
     wants to transfer money to an inside source in the casino, 
     who may be located in another country, he can just play until 
     he loses the requisite amount. Similarly, if an insider wants 
     to transfer money to the gambler, perhaps as payment for some 
     illicit activity, he can rig the game so the bettor wins.
       The anonymous nature of the Internet and the use of 
     encryption make it difficult to trace the transactions. The 
     gambling business may also not maintain the transaction 
     records, in which case tracing may be impossible. While 
     regulators in the United States can visit physical casinos, 
     observe their operations, and examine their books and records 
     to ensure compliance with regulations, this is far more 
     difficult, if not impossible, with virtual casinos. (John G. 
     Malcolm, Deputy Assistant Attorney General, Criminal 
     Division, Department of Justice, March 18, 2003.)

  Again, there should be strong enforcement efforts to ensure that 
Internet gambling entities are not violating the law.

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