[House Report 106-771]
[From the U.S. Government Publishing Office]



106th Congress                                            Rept. 106-771
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

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



 
           UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION ACT

                                _______
                                

                 July 20, 2000.--Ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4419]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Banking and Financial Services, to whom was 
referred the bill (H.R. 4419) to prevent the use of certain 
bank instruments for Internet gambling, and for other purposes, 
having considered the same, report favorably thereon with 
amendments and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Unlawful Internet Gambling Funding 
Prohibition Act''.

SEC. 2. FINDINGS.

  The Congress finds as follows:
          (1) Internet gambling is primarily funded through personal 
        use of bank instruments, including credit cards and wire 
        transfers.
          (2) The National Gambling Impact Study Commission in 1999 
        recommended the passage of legislation to prohibit wire 
        transfers to Internet gambling sites or the banks which 
        represent them.
          (3) Internet gambling is a major cause of debt collection 
        problems for insured depository institutions and the consumer 
        credit industry.
          (4) Internet gambling conducted through offshore 
        jurisdictions has been identified by United States law 
        enforcement officials as a significant money laundering 
        vulnerability.

SEC. 3. PROHIBITION ON ACCEPTANCE OF ANY BANK INSTRUMENT FOR UNLAWFUL 
                    INTERNET GAMBLING.

  (a) In General.--No person engaged in a gambling business may 
knowingly accept, in connection with the participation of another 
person in unlawful Internet gambling--
          (1) credit, or the proceeds of credit, extended to or on 
        behalf of such other person (including credit extended through 
        the use of a credit card);
          (2) an electronic fund transfer or funds transmitted by or 
        through a money transmitting business, or the proceeds of an 
        electronic fund transfer or money transmitting service, from or 
        on behalf of the other person;
          (3) any check, draft, or similar instrument which is drawn by 
        or on behalf of the other person and is drawn on or payable at 
        or through any financial institution; or
          (4) the proceeds of any other form of financial transaction 
        as the Secretary may prescribe by regulation which involves a 
        financial institution as a payor or financial intermediary on 
        behalf of or for the benefit of the other person.
  (b) Definitions.--For purposes of this Act, the following definitions 
shall apply:
          (1) Bets or wagers.--The term ``bets or wagers''--
                  (A) means the staking or risking by any person of 
                something of value upon the outcome of a contest of 
                others, a sporting event, or a game predominantly 
                subject to chance, upon an agreement or understanding 
                that the person or another person will receive 
                something of greater value than the amount staked or 
                risked in the event of a certain outcome;
                  (B) includes the purchase of a chance or opportunity 
                to win a lottery or other prize (which opportunity to 
                win is predominantly subject to chance);
                  (C) includes any scheme of a type described in 
                section 3702 of title 28; and
                  (D) does not include--
                          (i) any bona fide business transaction 
                        governed by the securities laws (as that term 
                        is defined in section 3(a)(47) of the 
                        Securities Exchange Act of 1934) for the 
                        purchase or sale at a future date of securities 
                        (as that term is defined in section 3(a)(10) of 
                        such Act);
                          (ii) any transaction on or subject to the 
                        rules of a contract market designated pursuant 
                        to section 5 of the Commodity Exchange Act;
                          (iii) any over-the-counter derivative 
                        instrument;
                          (iv) any contract of indemnity or guarantee;
                          (v) any contract for life, health, or 
                        accident insurance; or
                          (vi) any participation in a simulation sports 
                        game or an educational game or contest that--
                                  (I) is not dependent solely on the 
                                outcome of any single sporting event or 
                                nonparticipant's singular individual 
                                performance in any single sporting 
                                event;
                                  (II) has an outcome that reflects the 
                                relative knowledge and skill of the 
                                participants with such outcome 
                                determined predominantly by accumulated 
                                statistical results of sporting events; 
                                and
                                  (III) offers a prize or award to a 
                                participant that is established in 
                                advance of the game or contest and is 
                                not determined by the number of 
                                participants or the amount of any fees 
                                paid by those participants.
          (2) Gambling business.--The term ``gambling business'' 
        means--
                  (A) a business that is conducted at a gambling 
                establishment;
                  (B) a business that--
                          (i) involves--
                                  (I) the placing, receiving, or 
                                otherwise making of bets or wagers; or
                                  (II) the offering to engage in the 
                                placing, receiving, or otherwise making 
                                of bets or wagers;
                          (ii) involves 1 or more persons who conduct, 
                        finance, manage, supervise, direct, or own all 
                        or part of such business; and
                          (iii) has been or remains in substantially 
                        continuous operation for a period in excess of 
                        10 days or has a gross revenue of $2,000 or 
                        more from such business during any 24-hour 
                        period; and
                  (C) any agent who knowingly solicits for a business 
                described in subparagraph (A) or (B).
          (3) Internet.--The term ``Internet'' means the international 
        computer network of interoperable packet switched data 
        networks.
          (4) Unlawful internet gambling.--The term ``unlawful Internet 
        gambling'' means to place, receive, or otherwise make a bet or 
        wager by any means which involves the use, at least in part, of 
        the Internet where such bet or wager is unlawful under any 
        applicable Federal or State law in the State in which the bet 
        or wager is initiated, received, or otherwise made.
          (5) Other terms.--
                  (A) Credit; creditor; and credit card.--The terms 
                ``credit'', ``creditor'', and ``credit card'' have the 
                meanings given such terms in section 103 of the Truth 
                in Lending Act.
                  (B) Electronic fund transfer.--The term ``electronic 
                fund transfer''--
                          (i) has the meaning given such term in 
                        section 903 of the Electronic Fund Transfer 
                        Act; and
                          (ii) includes any fund transfer covered by 
                        Article 4 of the Uniform Commercial Code, as in 
                        effect in any State.
                  (C) Financial institution.--The term ``financial 
                institution'' has the meaning given such term in 
                section 903 of the Electronic Fund Transfer Act.
                  (D) Money transmitting business and money 
                transmitting service.--The terms ``money transmitting 
                business'' and ``money transmitting service'' have the 
                meanings given such terms in section 5330(d) of title 
                31, United States Code.
                  (E) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury.
  (c) Civil Remedies.--
          (1) Jurisdiction.--The district courts of the United States 
        shall have original and exclusive jurisdiction to prevent and 
        restrain violations of this section by issuing appropriate 
        orders in accordance with this section, regardless of whether a 
        prosecution has been initiated under this section.
          (2) Proceedings.--
                  (A) Institution by federal government.--
                          (i) In general.--The United States, acting 
                        through the Attorney General, may institute 
                        proceedings under this subsection to prevent or 
                        restrain a violation of this section.
                          (ii) Relief.--Upon application of the United 
                        States under this subparagraph, the district 
                        court may enter a preliminary injunction or an 
                        injunction against any person to prevent or 
                        restrain a violation of this section, in 
                        accordance with Rule 65 of the Federal Rules of 
                        Civil Procedure.
                  (B) Institution by state attorney general.--
                          (i) In general.--The attorney general of a 
                        State (or other appropriate State official) in 
                        which a violation of this section allegedly has 
                        occurred or will occur may institute 
                        proceedings under this subsection to prevent or 
                        restrain the violation.
                          (ii) Relief.--Upon application of the 
                        attorney general (or other appropriate State 
                        official) of an affected State under this 
                        subparagraph, the district court may enter a 
                        preliminary injunction or an injunction against 
                        any person to prevent or restrain a violation 
                        of this section, in accordance with Rule 65 of 
                        the Federal Rules of Civil Procedure.
                  (C) Indian lands.--Notwithstanding subparagraphs (A) 
                and (B), for a violation that is alleged to have 
                occurred, or may occur, on Indian lands (as that term 
                is defined in section 4 of the Indian Gaming Regulatory 
                Act)--
                          (i) the United States shall have the 
                        enforcement authority provided under 
                        subparagraph (A); and
                          (ii) the enforcement authorities specified in 
                        an applicable Tribal-State compact negotiated 
                        under section 11 of the Indian Gaming 
                        Regulatory Act shall be carried out in 
                        accordance with that compact.
          (3) Expedited proceedings.--
                  (A) In general.--In addition to any proceeding under 
                paragraph (2), a district court may, in exigent 
                circumstances, enter a temporary restraining order 
                against a person alleged to be in violation of this 
                section upon application of the United States under 
                paragraph (2)(A), or the attorney general (or other 
                appropriate State official) of an affected State under 
                paragraph (2)(B), in accordance with Rule 65(b) of the 
                Federal Rules of Civil Procedure.
  (d) Criminal Penalty.--
          (1) In general.--Whoever violates this section shall be fined 
        under title 18, United States Code, or imprisoned for not more 
        than 5 years, or both.
          (2) Permanent injunction.--Upon conviction of a person under 
        this subsection, the court may enter a permanent injunction 
        enjoining such person from placing, receiving, or otherwise 
        making bets or wagers or sending, receiving, or inviting 
        information assisting in the placing of bets or wagers.
  (e) Safe Harbor for Financial Intermediaries.--
          (1) In general.--No creditor, credit card issuer, financial 
        institution, operator of a terminal at which an electronic fund 
        transfer may be initiated, money transmitting business, or 
        national, regional, or local network utilized to effect a 
        credit transaction, electronic fund transfer, or money 
        transmitting service shall be liable under this section for the 
        involvement of such person, or the use of the facilities of 
        such person--
                  (A) in any credit transaction, electronic fund 
                transfer, or money transmitting service described in 
                subsection (a); or
                  (B) in drawing, paying, transferring, or collecting 
                any check, draft, or other instrument described in 
                subsection (a) or in any regulation prescribed under 
                such subsection.
          (2) Exception for knowing participation in a gambling 
        business.--Paragraph (1) shall not apply with respect to any 
        person referred to in such paragraph which is a gambling 
        business or which knowingly participates in any activity 
        referred to in subparagraph (A) or (B) of such paragraph as an 
        agent or representative of a gambling business.

SEC. 4. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.

  (a) In General.--In deliberations between the United States 
Government and any other country on money laundering, corruption, and 
crime issues, the United States Government should--
          (1) encourage cooperation by foreign governments and relevant 
        international fora in identifying whether Internet gambling 
        operations are being used for money laundering, corruption, or 
        other crimes;
          (2) advance policies that promote the cooperation of foreign 
        governments, through information sharing or other measures, in 
        the enforcement of this Act; and
          (3) encourage the Financial Action Task Force on Money 
        Laundering, in its annual report on money laundering 
        typologies, to study the extent to which Internet gambling 
        operations are being used for money laundering.
  (b) Report Required.--The Secretary of the Treasury shall submit an 
annual report to the Congress on the deliberations between the United 
States and other countries on issues relating to Internet gambling.

SEC. 5. ENFORCEMENT ACTIONS.

  Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) is 
amended by adding at the end the following new subsection:
  ``(x) Depository Institution Involvement in Internet Gambling.--
Notwithstanding section 3(e) of the Unlawful Internet Gambling Funding 
Prohibition Act, if any appropriate Federal banking agency determines 
that any insured depository institution is engaged in any of the 
following activities, the agency may issue an order to such institution 
prohibiting such institution from continuing to engage in any of the 
following activities:
          ``(1) Extending credit, or facilitating an extension of 
        credit, electronic fund transfer, or money transmitting service 
        with the actual knowledge that any person is violating section 
        3(a) of the Unlawful Internet Gambling Funding Prohibition Act 
        in connection with such extension of credit, electronic fund 
        transfer, or money transmitting service.
          ``(2) Paying, transferring, or collecting on any check, 
        draft, or other instrument drawn on any depository institution 
        with the actual knowledge that any person is violating section 
        3(a) of the Unlawful Internet Gambling Funding Prohibition Act 
        in connection with such check, draft, or other instrument.''.

  Amend the title so as to read:

    A bill to prevent the use of certain bank instruments for 
unlawful Internet gambling.

                  Background and Need for Legislation

    In recent years, gambling activities have proliferated over 
the Internet. Over 850 sites of offer real-time live gambling 
over the Internet, and it is estimated that in 1999, Internet 
gambling revenue reached $1.2 billion. In testimony before the 
Committee, the Department of Justice reported that the Internet 
and other new technologies have made possible types of gambling 
that were not feasible a few years ago. For example, a U.S. 
citizen can now log on from his living room and participate in 
an interactive Internet poker game operated from a computer 
located in Antigua.
    The Internet manifests new challenges to designing balanced 
public policy for gambling activities. Broad public policy 
concerns with respect to Internet gambling include the absence 
of regulation, accessibility by minors, and susceptibility to 
criminal activity.

                         Absence of Regulation

    State law has largely shaped legalized gambling in this 
country. However, there is no regulatory infrastructure for 
Internet gambling as there is for traditional gambling 
activities. The nature of the Internet allows gambling sites to 
escape protections imposed by State gaming commissions on 
gambling business such as registration and licensing of gaming 
operations, inspection of gaming equipment, and strict 
accounting standards.
    In this regard, the National Gambling Impact Study 
Commission (the ``Commission'') Report, released in June 1999, 
stated that because Internet gambling crosses state lines, it 
is difficult for states to adequately monitor and regulate such 
gambling. The Commission examined the possibility of regulating 
on-line gambling activities using today's casino regulation as 
a model. However, the Commission rejected this approach due to 
technical and legal questions. Thus, the Commission recommended 
that the federal government prohibit, without new or expanded 
exemptions, Internet gambling and develop appropriate gambling 
enforcement strategies.
    Similarly, in testimony before the Committee, the National 
Association of Attorneys General (``NAAG'') stated that 
Internet gambling is one of the few instances where the states 
have actively promoted and supported the adoption of Federal 
law to combat such an issue. NAAG stated that ``the somewhat 
unique nature of our support reflects the importance of federal 
legislation to aid the states' general efforts to control 
gambling activity that occurs within our borders.''

                        Accessibility by Minors

    Protections under state gambling laws encompass the goal of 
providing gambling in a controlled environment, which among 
other things prevents gambling by minors. In discord with this 
goal, the Internet defies time and place restrictions by 
offering gambling at home at any hour, with little insurance 
against accessibility by minors. The Commission reports that 
most sites rely on the registrant to disclose his or her 
correct age and makes little or no effort to verify the 
accuracy of the information.
    The National Collegiate Athletic Association's testimony 
before the Committee stated that the emergence of Internet 
gambling enables students to wager behind closed doors in 
virtual anonymity, which provides a multitude of new 
opportunities for young people to gamble on college sports. 
NCAA institutions note that the growing consensus of research 
that reveals rates of pathological and problem gambling among 
college students that are three times higher than the adult 
population.

                  Susceptibility to Criminal Activity

    The dual protection of anonymity and encryption provided by 
the Internet raises a host of issues regarding criminal 
activities. The National Gambling Impact Study Commission 
Report states that problems associated with Internet gambling 
include: 1) the potential for abuse by gambling operators who 
can alter, move, or entirely remove sites within minutes; 2) 
the ability of computer hackers or gambling operators to tamper 
with gambling software to manipulate games to their benefit; 
and 3) the provision of an additional means for individuals to 
launder money.

                          Purpose and Summary

    The purpose of this legislation is to make it unlawful for 
a gambling business to accept a bank instrument in connection 
with unlawful Internet gambling. In addition, H.R. 4419 
provides that, in deliberations between the U.S. and any other 
country on money laundering, corruption, and crime issues, the 
U.S. should advance policies that promote the cooperation of 
foreign governments in the enforcement of this legislation.

                                Hearings

    On June 20, 2000, the full Committee held a hearing to hear 
testimony on the legislation. Testifying at the hearing were: 
The Honorable Ernest L. Fletcher; Gregory A. Baer, Assistant 
Secretary for Financial Institutions, Department of the 
Treasury; Kevin V. Di Gregory, Deputy Assistant Attorney 
General, Crime Division, Department of Justice; Alan Kesner, 
Assistant Attorney General, Wisconsin Department of Justice, on 
behalf of the National Association of Attorneys General; 
Richard Leone, President, The Century Foundation, and former 
Commissioner on the National Gambling Impact Study Commission; 
Daniel Nestel, Assistant Director of Federal Relations, The 
National Collegiate Athletic Association; Alexander Ingle, 
Chief Financial Officer, New York Racing Association, Inc.

                   Committee Consideration and Votes


                      (Rule XI, Clause 2(l)(2)(B))

    On June 28, 2000, the Committee met in open session to mark 
up H.R. 4419, the ``Internet Gambling Funding Prohibition 
Act.'' During the markup, the Committee approved, by voice 
vote, two amendments to H.R. 4419. With a quorum being present, 
a motion to adopt and favorably report H.R. 4419, as amended, 
to the House was approved by voice vote.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    As provided for in clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, no oversight findings have 
been submitted to the Committee by the Committee on Government 
Reform.

                        Constitutional Authority

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, the Constitutional Authority 
of Congress to enact this legislation is derived from Article 
I, section 8, clause 1 (relating to the general welfare of the 
United States): Article I, section 8, clause 3 (relating to 
Congressional power to regulate commerce); Article I, section 
8, clause 5 (relating to the power ``to coin money'' and 
``regulate the value thereof''); and Article I, section 8, 
clause 18 (relating to making all laws necessary and proper for 
carrying into execution powers vested by the Constitution in 
the government of the United States).

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

    Congressional Budget Office Cost Estimate and Unfunded Mandates 
                                Analysis

    The cost estimate pursuant to clause 3(c)(3) of rule XIII 
of the Rules of the House of Representatives and section 402 of 
the Congressional Budget Act of 1974 is attached herewith:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 17, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4419, the Internet 
Gambling Funding Prohibition Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark Hadley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

H.R. 4419--Internet Gambling Funding Prohibition Act

    Summary: H.R. 4419 would prohibit gambling businesses from 
accepting credit cards and other bank instruments from gamblers 
who illegally bet over the Internet. The bill also would 
authorize the agencies that regulate insured depository 
institutions to issue cease-and-desist orders against 
institutions that knowingly facilitate Internet gambling. The 
Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation (FDIC), the Office of Thrift Supervision 
(OTS), and the National Credit Union Administration (NCUA) 
would enforce the provisions of H.R. 4419 as they apply to 
financial institutions.
    CBO estimates that implementing this legislation would 
result in no significant cost to the federal government. 
Because enactment of H.R. 4419 could affect spending and 
receipts, pay-as-you-go procedures would apply to the bill. 
However, CBO estimates that any impact on direct spending and 
receipts would not be significant.
    Although H.R. 4419 would prohibit gambling businesses from 
accepting credit card payments and other bank instruments from 
gamblers who bet illegally over the Internet, the bill would 
not create a new intergovernmental or private-sector mandate. 
Under current federal and state law, gambling businesses are 
generally prohibited from accepting bets or wagers over the 
Internet. Thus, H.R. 4419 does not contain a new mandate 
relative to current law.
    Estimated cost to the Federal Government: CBO estimates 
that the government would incur no significant costs to 
implement H.R. 4419.

Basis of estimate

    CBO estimates that implementing H.R. 4419 would increase 
administrative costs of the Department of Justice and the NCUA, 
but any such costs would be negligible. The bill also would 
have a small effect on the operating costs of the FDIC and the 
Federal Reserve System. Finally, the bill would have a 
negligible effect on the collection and spending of criminal 
penalties.
            Spending subject to appropriation
    Because H.R. 4419 would establish a new federal crime 
relating to Internet gambling, the federal government would be 
able to pursue cases that it otherwise would not be able to 
prosecute. CBO expects, however, that most cases would be 
pursued under state law. Therefore, we estimate that any 
increase in federal costs for law enforcement, court 
proceedings, or prison operations would not be significant. Any 
such additional costs would be subject to the availability of 
appropriated funds.
    H.R. 4419 would require the Department of Justice to submit 
an annual report on deliberations with other countries on 
issues related to Internet gambling. CBO estimates that 
preparing and completing the report would cost less than 
$100,000 a year, subject to the availability of appropriated 
funds.
    Because we expect few cease-and-desist orders would be 
issued. CBO estimates that implementing H.R. 4419 would 
increase the costs of the NCUA by less than $200,000 a year 
over the 2001-2005 period.
            Direct spending and revenues
    Both the OTS and the OCC charge fees to cover all their 
administrative costs; therefore, any additional spending by 
these agencies to implement the bill would have no net 
budgetary effect. That is not the case with the FEC, however, 
which uses deposit insurance premiums paid by all banks to 
cover the expenses it incurs to supervise state-chartered 
banks.
    The bill would cause a small increase in FDIC spending, but 
would not affect its premium income. In total, CBO estimates 
that H.R. 4419 would increase direct spending and offsetting 
receipts of the OTS, OCC, and FCC by less than $500,000 a year 
over the 2001-2005 period. Budgetary effects on the Federal 
Reserve are recorded as changes in revenues (governmental 
receipts). Based on information from the Federal Reserve, CBO 
estimates that enacting H.R. 4419 would reduce such revenues by 
less than $500,000 a year over the 2001-2005 period.
    Because those prosecuted and convicted under the bill could 
be subject to criminal fines, the federal government might 
collect additional fines if the bill is enacted. Collections of 
such fines are recorded in the budget as government receipts 
(i.e., revenues), which are deposited in the Crime Victims Fund 
and spent in subsequent years. Any additional collections are 
likely to be negligible because of the small number of cases 
involved. Because any increase in direct spending would equal 
the amount of fines collected (with a lag of one year or more), 
the additional direct spending also would be negligible.
    Pay-as-you-go considerations: The Balance Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. Enacting 
H.R. 4419 could affect both direct spending and receipts, but 
CBO estimates that any such effects would be negligible.
    Intergovernmental and private-sector impact: Although H.R. 
4419 would prohibit gambling businesses from accepting credit 
card payments and other bank instruments from gamblers who bet 
illegally over the Internet, the bill would not create a new 
intergovernmental mandate. Under current federal and state law, 
gambling businesses are generally prohibited from accepting 
bets or wagers over the Internet. Thus, H.R. 4419 does not 
contain a new mandate relative to current law.
    H.R. 4419 would authorize federal banking regulators to 
require depository institutions that have knowingly 
participated in transactions with unlawful Internet gambling 
businesses to cease doing so. This provision would not create a 
new private-sector mandate for depository institutions because 
federal banking regulators already have such powers under 
current law.
    Previous CBO estimate: CBO estimated the costs of two other 
bills related to Internet gambling. On May 1, 2000, CBO 
transmitted a cost estimate for H.R. 3125, the Internet 
Gambling Prohibition Act of 2000, as ordered reported by the 
House Committee on the Judiciary on April 6, 2000. On July 15, 
1999, CBO transmitted a cost estimate for S. 692, the Internet 
Gambling Prohibition Act of 1999, as reported by the Senate 
Committee on the Judiciary on June 17, 1999. Both bills would 
prohibit gambling conducted over the Internet, and neither bill 
would result in any significant cost to the federal government.
    Estimate prepared by: Federal costs: Mark Hadley; revenues: 
Carolyn Lynch; impact on State, local, and tribal governments: 
Shelley Finlayson; and impact on the private sector: John 
Harris.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                      Section-by-Section Analysis


Section 1. Short title

    This Act may be cited as the ``Unlawful Internet Gambling 
Funding Prohibition Act.''

Section 2. Findings

    Congressional findings include: (1) the role that Internet 
gambling funded through the use of bank instruments plays in 
the creation of ultimately uncollectible personal debt, and (2) 
the susceptibility of Internet gambling to abuse by money 
launderers.

Section 3. Prohibition on acceptance of any bank instrument for 
        Internet gambling

    This section prohibits a gambling business from accepting 
bank instruments in connection with unlawful Internet gambling. 
Covered instruments include credit cards, electronic fund 
transfers, and checks.
    Subsection (b) defines the term ``bets or wagers'' a the 
staking or risking by any person of something of value upon the 
outcome of a contest of others, a sporting event, or a game 
predominantly subject to chance with the agreement that the 
winner will receive something of greater value than the amount 
staked or risked. This subsection clarifies that ``bets or 
wagers'' does not include a bona fide business transaction 
governed by the securities laws; a transaction subject to the 
Commodities Exchange Act; an over-the- counter derivatives 
instrument; a contract of indemnity or guarantee; an contract 
for life, health, or accident insurance; or certain 
participation in a simulation sports game of education game.
    Subsection(b) also defines the terms ``gambling business, 
'' ``Internet, '' and ``unlawful Internet gambling.''
    Subsection (c) authorizes civil remedies, including a 
preliminary injunction or injunction against any person to 
prevent or restrain a violation of this Act.
    Subsection (d) authorizes criminal penalties, including 
fines or imprisonment for not more than five years or both.
    Subsection (e) provides that a financial 
intermediary(creditor, credit card issues, financial 
institution, operator of a terminal a which an electronic fund 
transfer may be initiated, money transmitting business, or 
national, regional, or local network) shall not be liable for 
the involvement of a financial intermediary or the use of the 
facilities of the financial intermediary in connection with a 
transaction under this Act. However, the subsection specifies 
that the safe harbor does not apply to a financial intermediary 
that engaged in a transaction as an agent of a gamble business 
knowing that the transaction is in violation of this Act.
    The purpose of subsection (e) is to ensure that a financial 
intermediary is not held liable for a violation of this Act 
solely based on the unknowing and unintentional involvement of 
the intermediary through the use of the facilities of such 
intermediary in an unlawful Internet gamble transaction, unless 
the intermediary acted as an agent of a gambling business and 
had: (1) actual knowledge that the specific transaction is an 
unlawful Internet gambling transaction; and (2) the intent to 
engage in the business of submitting into the payment system 
Internet Gambling transactions prohibited by this Act.

Section 4. Internet gambling in or through foreign jurisdictions

    Section 4 provides that, in deliberations between the U.S. 
Government any other country on money laundering, corruption, 
and crime issues, the U.S. Government should encourage 
cooperation by foreign governments in identifying whether 
Internet gambling operations are being used for money 
laundering, corruption, or other crimes, advance policies that 
promote the cooperation by foreign governments in the 
enforcement of this Act; and encourage the Financial Action 
Task Force on Money Laundering to study the extent to which 
Internet gambling operations are being used for money 
laundering.

Section 5. Enforcement actions

    This section provides that a Federal banking agency may 
take appropriate enforcement action against an institution that 
knowingly permitted its payment or credit facilities to be used 
in connection with Internet gambling activity that violates 
this Act.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

             SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT

  Sec. 8. (a) * * *

           *       *       *       *       *       *       *

  (x) Depository Institution Involvement in Internet 
Gambling.--Notwithstanding section 3(e) of the Unlawful 
Internet Gambling Funding Prohibition Act, if any appropriate 
Federal banking agency determines that any insured depository 
institution is engaged in any of the following activities, the 
agency may issue an order to such institution prohibiting such 
institution from continuing to engage in any of the following 
activities:
          (1) Extending credit, or facilitating an extension of 
        credit, electronic fund transfer, or money transmitting 
        service with the actual knowledge that any person is 
        violating section 3(a) of the Unlawful Internet 
        Gambling Funding Prohibition Act in connection with 
        such extension of credit, electronic fund transfer, or 
        money transmitting service.
          (2) Paying, transferring, or collecting on any check, 
        draft, or other instrument drawn on any depository 
        institution with the actual knowledge that any person 
        is violating section 3(a) of the Unlawful Internet 
        Gambling Funding Prohibition Act in connection with 
        such check, draft, or other instrument.