[House Report 108-133]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-133

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



 
           UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION ACT

                                _______
                                

  June 2, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2143]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 2143) to prevent the use of certain bank instruments 
for unlawful Internet gambling, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     4
Background and Need for Legislation..............................     4
Hearings.........................................................     7
Committee Consideration..........................................     7
Committee Votes..................................................     7
Committee Oversight Findings.....................................     8
Performance Goals and Objectives.................................     8
New Budget Authority, Entitlement Authority, and Tax Expenditures     8
Committee Cost Estimate..........................................     8
Congressional Budget Office Cost Estimate........................     8
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Constitutional Authority Statement...............................    10
Applicability to Legislative Branch..............................    11
Section-by-Section Analysis......................................    11
Changes to Existing Law Made by the Bill, as Reported............    12

  The amendment is as follows:
  Strike all after the enacting clause and insert 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. POLICIES AND PROCEDURES REQUIRED TO PREVENT PAYMENTS FOR 
                    UNLAWFUL INTERNET GAMBLING.

  (a) Regulations.--Before the end of the 6-month period beginning on 
the date of the enactment of this Act, the Federal functional 
regulators shall prescribe regulations requiring any designated payment 
system to establish policies and procedures reasonably designed to 
identify and prevent restricted transactions in any of the following 
ways:
          (1) The establishment of policies and procedures that--
                  (A) allow the payment system and any person involved 
                in the payment system to identify restricted 
                transactions by means of codes in authorization 
                messages or by other means; and
                  (B) block restricted transactions identified as a 
                result of the policies and procedures developed 
                pursuant to subparagraph (A).
          (2) The establishment of policies and procedures that prevent 
        the acceptance of the products or services of the payment 
        system in connection with a restricted transaction.
  (b) Requirements For Policies and Procedures.--In prescribing 
regulations pursuant to subsection (a), the Federal functional 
regulators shall--
          (1) identify types of policies and procedures, including 
        nonexclusive examples, which would be deemed to be ``reasonably 
        designed to identify'' and ``reasonably designed to block'' or 
        to ``prevent the acceptance of the products or services'' with 
        respect to each type of transaction, such as, should credit 
        card transactions be so designated, identifying transactions by 
        a code or codes in the authorization message and denying 
        authorization of a credit card transaction in response to an 
        authorization message;
          (2) to the extent practical, permit any participant in a 
        payment system to choose among alternative means of identifying 
        and blocking, or otherwise preventing the acceptance of the 
        products or services of the payment system or participant in 
        connection with, restricted transactions; and
          (3) consider exempting restricted transactions from any 
        requirement under subsection (a) if the Federal functional 
        regulators find that it is not reasonably practical to identify 
        and block, or otherwise prevent, such transactions.
  (c) Compliance With Payment System Policies and Procedures.--A 
creditor, credit card issuer, financial institution, operator of a 
terminal at which an electronic fund transfer may be initiated, money 
transmitting business, or international, national, regional, or local 
network utilized to effect a credit transaction, electronic fund 
transfer, or money transmitting service, or a participant in such 
network, meets the requirement of subsection (a) if--
          (1) such person relies on and complies with the policies and 
        procedures of a designated payment system of which it is a 
        member or participant to--
                  (A) identify and block restricted transactions; or
                  (B) otherwise prevent the acceptance of the products 
                or services of the payment system, member, or 
                participant in connection with restricted transactions; 
                and
          (2) such policies and procedures of the designated payment 
        system comply with the requirements of regulations prescribed 
        under subsection (a).
  (d) Enforcement.--
          (1) In general.--This section shall be enforced by the 
        Federal functional regulators and the Federal Trade Commission 
        under applicable law in the manner provided in section 505(a) 
        of the Gramm-Leach-Bliley Act.
          (2) Factors to be considered.--In considering any enforcement 
        action under this subsection against any payment system, or any 
        participant in a payment system that is a creditor, credit card 
        issuer, financial institution, operator of a terminal at which 
        an electronic fund transfer may be initiated, money 
        transmitting business, or international, national, regional, or 
        local network utilized to effect a credit transaction, 
        electronic fund transfer, or money transmitting service, or a 
        participant in such network, the Federal functional regulators 
        and the Federal Trade Commission shall consider the following 
        factors:
                  (A) The extent to which such person is extending 
                credit or transmitting funds knowing the transaction is 
                in connection with unlawful Internet gambling.
                  (B) The history of such person in extending credit or 
                transmitting funds knowing the transaction is in 
                connection with unlawful Internet gambling.
                  (C) The extent to which such person has established 
                and is maintaining policies and procedures in 
                compliance with regulations prescribed under this 
                subsection.
                  (D) The feasibility that any specific remedy 
                prescribed can be implemented by such person without 
                substantial deviation from normal business practice.
                  (E) The costs and burdens the specific remedy will 
                have on such person.

SEC. 4. DEFINITIONS.

  For purposes of this Act, the following definitions shall apply:
          (1) Restricted transaction.--The term ``restricted 
        transaction'' means any transaction or transmittal to any 
        person engaged in the business of betting or wagering, in 
        connection with the participation of another person in unlawful 
        Internet gambling, of--
                  (A) 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);
                  (B) 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;
                  (C) 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
                  (D) the proceeds of any other form of financial 
                transaction as the Federal functional regulators 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.
          (2) 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 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, United States Code;
                  (D) includes any instructions or information 
                pertaining to the establishment or movement of funds in 
                an account by the bettor or customer with the business 
                of betting or wagering; and
                  (E) does not include--
                          (i) any activity 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 of securities 
                        (as that term is defined in section 3(a)(10) of 
                        such Act);
                          (ii) any transaction conducted on or subject 
                        to the rules of a registered entity or exempt 
                        board of trade pursuant to the Commodity 
                        Exchange Act;
                          (iii) any over-the-counter derivative 
                        instrument;
                          (iv) any other transaction that--
                                  (I) is excluded or exempt from 
                                regulation under the Commodity Exchange 
                                Act; or
                                  (II) is exempt from State gaming or 
                                bucket shop laws under section 12(e) of 
                                the Commodity Exchange Act or section 
                                28(a) of the Securities Exchange Act of 
                                1934;
                          (v) any contract of indemnity or guarantee;
                          (vi) any contract for insurance;
                          (vii) any deposit or other transaction with a 
                        depository institution (as defined in section 
                        3(c) of the Federal Deposit Insurance Act);
                          (viii) 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; and
                          (ix) any lawful transaction with a business 
                        licensed or authorized by a State.
          (3) Designated payment system defined.--The term ``designated 
        payment system'' means any system utilized by any creditor, 
        credit card issuer, financial institution, operator of a 
        terminal at which an electronic fund transfer may be initiated, 
        money transmitting business, or international, national, 
        regional, or local network utilized to effect a credit 
        transaction, electronic fund transfer, or money transmitting 
        service, or any participant in such network, that the Federal 
        functional regulators determine, by regulation or order, could 
        be utilized in connection with, or to facilitate, any 
        restricted transaction.
          (4) Federal functional regulator.--The term ``Federal 
        functional regulator'' has the same meaning as in section 
        509(2) of the Gramm-Leach-Bliley Act.
          (5) Internet.--The term ``Internet'' means the international 
        computer network of interoperable packet switched data 
        networks.
          (6) Unlawful internet gambling.--The term ``unlawful Internet 
        gambling'' means to place, receive, or otherwise transmit 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.
          (7) 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 4A of the Uniform Commercial Code, as 
                        in effect in any State.
                  (C) Financial institution.--The term ``financial 
                institution''--
                          (i) has the meaning given such term in 
                        section 903 of the Electronic Fund Transfer 
                        Act; and
                          (ii) includes any financial institution, as 
                        defined in section 509(3) of the Gramm-Leach-
                        Bliley 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.

                          Purpose and Summary

    H.R. 2143, the Unlawful Internet Gambling Funding 
Prohibition Act, directs the Federal functional regulators to 
prescribe regulations limiting the acceptance of any bank 
instrument for unlawful Internet gambling. It defines certain 
terms for purposes of the Act and establishes regulatory 
enforcement authorities. Its primary purpose is to give the 
Federal functional regulators a new, more effective tool for 
combating offshore Internet gambling sites that illegally 
extend their services to U.S. residents via the Internet.

                  Background and Need for Legislation

    The Committee has established a comprehensive hearing and 
markup record on Internet gambling, most particularly in the 
107th Congress. In addition to the extensive debate at the 
Committee's October 11, 2001 markup of H.R. 3004, the Financial 
Anti-Terrorism Act of 2001, Internet gambling was addressed at 
the Committee's October 3, 2001 hearing on terrorism and money 
laundering. At that hearing, the Federal Bureau of 
Investigation (FBI), the Department of Justice, and a money 
laundering expert testified that Internet gambling serves as a 
vehicle for money laundering and can be exploited by terrorists 
for that purpose. The FBI also testified about pending 
litigation linking organized crime to money laundering and 
Internet gambling.
    At two hearings held in July 2001 by the Subcommittee on 
Oversight and Investigations and the Subcommittee on Financial 
Institutions and Consumer Credit, witnesses discussed the legal 
status of Internet gambling, the social and financial 
challenges it poses, and legislative options for addressing 
those challenges.
    Conventional forms of gambling activities, such as casino 
wagering, State lotteries, slot machines and horseracing, legal 
in many jurisdictions, are regulated by the individual States. 
However, these activities are subject to intense scrutiny and a 
myriad of licensing and other operational requirements. 
Virtually all States prohibit the operation of gambling 
businesses not expressly permitted by their respective 
constitutions or special legislation. Internet gambling 
currently constitutes illegal gambling activity in all 50 
States. Although in June of 2001 the Nevada legislature 
authorized the Nevada Gaming Commission to legalize on-line, 
Internet gambling operations if and when such operations can be 
conducted in compliance with Federal law, the Gaming Commission 
believes that such compliance cannot be ensured at present.
    Because Internet gambling is generally held to be illegal 
under Federal and State law, most of the estimated 2,000 
Internet gambling sites today operate from offshore locations 
in the Caribbean and elsewhere. As such, they operate 
effectively beyond the reach of U.S. regulators and law 
enforcement, as well as the statutory anti-money laundering 
regimes that apply to U.S.-based casinos. These ``virtual 
casinos'' advertise the ease of opening betting accounts mainly 
through the use of credit cards and alternative payment 
systems. Internet gambling sites are not only vulnerable to 
criminal exploitation by money launderers; they also can easily 
abuse a customer's credit card information or manipulate the 
odds of a particular wager to the casino's advantage.
    At the Oversight Subcommittee's hearing on July 12, 2001, 
the American Gaming Association--representing commercial 
casinos and their supporters in the United States--addressed 
some of the practical problems associated with Internet 
gambling, including the difficulty of subjecting Internet 
operations to the kinds of regulation currently applied to 
U.S.-based casinos. According to the AGA, its major concern is 
that offshore Internet gambling sites ``frustrate important 
State policies, including restrictions on the availability of 
gaming within each State.'' The AGA went on to say: ``* * * 
unregulated Internet gambling that exists today allows an 
unlicensed, untaxed, unsupervised operator to engage in 
wagering that is otherwise subject to stringent Federal and 
State regulatory controls. These controls are vital to 
preserving the honesty, integrity and fairness that those in 
the gaming industry today have worked so hard for so long to 
bring about.'' The AGA further reported that it does not 
believe the technology for exercising such controls with 
respect to Internet gambling is yet available.
    Testifying from a State perspective, the New Jersey 
Director of Gaming Enforcement also noted that offshore 
Internet gambling operations provide no tax revenue or jobs to 
States, unlike State-regulated casinos.
    In addition to the legal and economic challenges cited 
above, problem gambling--including problem Internet gambling--
can lead to personal and family hardships, such as lost 
savings, excessive debt, bankruptcy, foreclosed mortgages, and 
divorce. In particular, Internet gambling is proving to be a 
serious problem for many college students. At the July, 2001 
hearings, the National Collegiate Athletic Association (NCAA) 
underscored the vulnerability of young people to losing large 
sums through Internet gambling. Accordingto a Nellie Mae survey 
cited by the NCAA, 78 percent of college students have credit cards, 
nearly a third have four or more credit cards, and one in ten will 
graduate with balances over $7,000. One student reportedly lost $10,000 
on Internet sports gambling over a three-month period. And, in another 
case, a student reportedly lost $5,000 on a single Internet wager on 
the Super Bowl and was forced to drop out of school. Further, recent 
events show that professional athletes are not immune to the lure of 
Internet gambling, as the sports pages have detailed the roughly 
$500,000 owed by Washington Capitals hockey star Jaromir Jagr to a 
Caribbean Internet betting site. The New Jersey Director of Gaming 
Enforcement testified that the State of New Jersey had filed a suit 
against certain offshore casinos found to be taking online bets from 
minors in that State. Witnesses from the National Council on Problem 
Gambling and the Compulsive Gambling Center testified about the 
problems associated with compulsive or pathological gambling, and the 
Christian Coalition, in a letter to a Member of the Committee, echoed 
concerns about the impact of gambling on families and society and, in 
particular, the impact of Internet gambling on the poor, youth, and 
those who are already compulsive gamblers.
    Because of the pervasive legal, economic and social 
challenges posed by the rapid growth of Internet gambling, the 
National Gambling Impact Study Commission unanimously 
recommended in its 1999 final report that the Federal 
government prohibit, with no new exemptions, all Internet 
gambling not already authorized by law. The Commission also 
recommended that legislation be adopted to prohibit wire 
transfers to Internet gambling sites or to the banks which 
represent them, and called on the government to develop 
enforcement strategies that include credit card providers and 
money transfer agencies that facilitate Internet gambling.
    H.R. 2143, the Unlawful Internet Gambling Funding 
Prohibition Act, builds on the recommendations of the National 
Gambling Impact Study Commission by directing the Federal 
functional regulators to prescribe regulations reasonably 
designed to identify and prevent unlawful Internet gambling 
transactions, and provides that an entity covered by the Act is 
in compliance with the Act's requirements if it relies on 
procedures established by a payment system pursuant to such 
regulations, and such procedures comply with the regulations. 
H.R. 2143 is intended to provide regulatory flexibility so that 
compliance may be achieved through coding of transactions or--
for those financial instruments for which coding is not 
viable--through alternative methods consistent with the bill's 
goals. The bill contains the regulatory enforcement provisions 
of H.R. 556, which passed the House of Representatives by voice 
vote in the 107th Congress, and H.R. 21, reported favorably by 
the Financial Services Committee on March 13, 2003 (H. Rept. 
108-51, Part 1). Its provisions are similar to those 
incorporated in the 107th Congress in the Committee-reported 
version of H.R. 3004, the Financial Anti-Terrorism Act of 2001, 
as well as to legislation adopted by the House Banking 
Committee in the 106th Congress (H.R. 4419).
    H.R. 2143 is not intended to spell out which activities are 
legal and which are illegal with regard to Internet gambling; 
rather, it relies on the substantive laws in effect at the time 
a case is brought under the legislation, and law enforcement's 
interpretation of the underlying law. It would not alter, 
supersede or otherwise affect the application of the Indian 
Gaming Regulatory Act, nor would it permit a State that 
prohibits gambling to allow an out-of-State lottery to operate 
in that State. H.R. 2143 would not in general apply to a 
computer or video game that does not involve the staking or 
risking of something of value, nor to a game of skill played, 
created or distributed over the Internet. In short, any 
activity which is illegal on the day before the enactment of 
this legislation will still be illegal on the day after 
enactment.
    H.R. 2143 is not intended to impose new burdens on 
financial institutions to identify which offshore gambling 
sites may be engaged in unlawful activities. Rather, the 
legislation contemplates a mechanism whereby banks and other 
financial service providers can identify, block or prevent 
payment to unlawful Internet gambling sites. The bill 
recognizes that many credit card companies and credit card 
banks are taking steps to identify, block or prevent Internet 
gambling transactions, and provides for enforcement of this 
bill by the Federal functional regulators and the Federal Trade 
Commission under applicable law in the manner provided in 
section 505(a) of the Gramm-Leach-Bliley Act.

                                Hearings

    No hearings were held on this legislation in the 108th 
Congress.

                        Committee Consideration

    The Committee met in open session on May 21, 2003 and 
ordered H.R. 2143, the Unlawful Internet Gambling Funding and 
Prohibition Act, reported to the House with a favorable 
recommendation by a voice vote, without amendment.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken in conjunction with the consideration 
of this legislation. A motion by Mr. Oxley to report the bill 
to the House with a favorable recommendation was agreed to by a 
voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee made findings that are 
reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    Using authority granted by this legislation, the Federal 
functional regulators and the Federal Trade Commission under 
applicable law (section 505(a) of the Gramm-Leach-Bliley Act), 
will reduce the availability of illegal offshore Internet 
gambling in the United States.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of budget authority, entitlement authority, or 
tax expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 22, 2003.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2143, the Unlawful 
Internet Gambling Funding Prohibition Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs) and Cecil McPherson (for the impact on the 
private sector).
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 2143--Unlawful Internet Gambling Funding Prohibition Act

    Summary: H.R. 2143 would require financial institutions to 
take steps to identify and block gambling-related transactions 
that are transmitted through their payment systems. 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. 2143 as they apply to 
financial institutions.
    CBO estimates that implementing this legislation would 
result in no significant cost to the federal government. By 
increasing the costs of the FDIC and the Federal Reserve, the 
bill could affect direct spending and revenues, but CBO 
estimates that any such impacts would not be significant.
    H.R. 2143 would create no new intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
impose no costs on state, local, or tribal governments.
    The bill would impose a private-sector mandate, but CBO 
estimates that the direct costs of the mandate would fall well 
below the annual threshold established in UMRA ($117 million in 
2003, adjusted annually for inflation) in any of the next five 
years.
    Estimated cost to the Federal Government: Based on 
information from the affected agencies, CBO estimates that the 
cost of implementing H.R. 2143 would be small, and thus, that 
the bill would have no significant net effect on the federal 
budget. The NCUA, the OTS, and the OCC charge fees to cover all 
their administrative costs; therefore, any additional spending 
by those agencies toimplement the bill would have no net 
budgetary effect. The FDIC uses deposit insurance premiums paid by 
banks to cover the expenses it incurs to supervise state-chartered 
institutions. Under current law, CBO estimates that the vast majority 
of thrift institutions insured by the FDIC would not pay any premiums 
for most of the 2004-2013 period, and we expect that a small increase 
in FDIC spending would not trigger a significant change in its premium 
income over this period. In total, CBO estimates that H.R. 2143 would 
increase direct spending and offsetting receipts of the NCUA, OTS, OCC, 
and FDIC by less than $500,000 a year over the 2004-2013 period.
    The bill also would affect spending by the Federal Reserve. 
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. 2143 would reduce such revenues by less than 
$500,000 a year.
    Estimated impact of state and local governments: H.R. 2143 
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 as defined in UMRA. Under current 
federal and state law, gambling businesses are generally 
prohibited from accepting bets or wagers over the Internet. 
Thus, H.R. 2143 does not contain a new mandate relative to 
current law and would impose no costs on state, local, or 
tribal governments.
    Estimated impact on the private sector: H.R. 2143 would 
impose a new federal mandate on the private sector. The bill 
would require designated payment systems to establish policies 
and procedures designed to identify and prevent transactions in 
connection with unlawful Internet gambling. Designated payment 
systems are defined in the bill to include any system utilized 
by businesses such as creditor, credit card issuers, or 
financial institutions to effect a credit transaction, an 
electronic fund transfer, or other transfer of funds. 
Information provided by representatives of the financial 
services industry indicates that such transactions can 
currently be identified through the use of codes. Most 
financial institutions are currently able to identify and block 
restricted transactions by using the coding system. Thus, CBO 
estimates that the private sector's cost to comply with the 
mandate would be small. CBO estimates that the total direct 
costs for the private-sector mandate in this bill would fall 
well below the annual threshold established in UMRA ($117 
million in 2003, adjusted annually for inflation).
    Previous CBO estimates: On May 15, 2003, CBO transmitted a 
cost estimate for H.R. 21, the Unlawful Internet Gambling 
Funding Prohibition Act, as ordered reported by the House 
Committee on Financial Services on March 27, 2003. On May 16, 
2003, CBO transmitted a cost estimate for H.R. 21 as ordered 
reported by the House Committee on the Judiciary on May 14, 
2003. The two versions of H.R. 21 are similar to H.R. 2143, and 
the cost estimates of those provisions that affect the FDIC and 
the Federal Board are indentical.
    The private-sector mandate in H.R. 2143 is also continued 
in both versions of H.R. 21. Our estimate that the total direct 
costs of this mandate would fall well below the annual 
threshold for private-sector mandates established in UMRA is 
unchanged.
    Estimate prepared by: Federal spending: Mark Hadley; 
federal revenues: Mark Booth; impact on state, local, and 
tribal governments: Victoria Heid Hall; impact on the private 
sector: Cecil McPherson.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

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

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
defense and general welfare of the United States), and clause 3 
(relating to the power to regulate foreign and interstate 
commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section provides the short title of the bill, the 
``Unlawful Internet Gambling Funding Prohibition Act.''

Section 2. Findings

    This section provides certain Congressional findings. In 
particular, Congress finds that: (1) Internet gambling is 
primarily funded through the use of personal banking 
instruments and plays a large role in the creation of 
ultimately uncollectible personal debt; and (2) Internet 
gambling is susceptible to abuse by money launderers.

Section 3. Policies and procedures required to prevent payments for 
        unlawful Internet gambling

    Subsection (a) requires the Federal functional regulators 
to prescribe regulations within six months requiring any 
designated payment system to establish policies and procedures 
reasonably designed to identify and prevent restricted 
transactions.
    Subsection (b) requires the Federal functional regulators, 
in prescribing regulations, to identify types of policies and 
procedures which would be reasonably designed to identify, 
block or prevent a restricted transaction; to the extent 
practical permit any participant in a payment system to choose 
among alternative means of compliance; and consider exempting 
restricted transactions where it is not reasonably practical to 
identify and block, or otherwise prevent, such transactions.
    Subsection (c) provides that a creditor, credit card 
issuer, financial institution, operator of a terminal at which 
an electronic fund transfer may be initiated, money 
transmitting business, or international, national, regional, or 
local network utilized to effect a credit transaction, 
electronic fund transfer, or money transmitting service, or a 
participant in such network, is in compliance with subsection 
(a) if such person operates in reliance on procedures 
established by the payment system pursuant to subsection (a).
    Subsection (d) requires that this section be enforced by 
the Federal functional regulators and the Federal Trade 
Commission, and sets out factors to be considered in any 
enforcement action against any payment system, or any 
participant in a payment system that is a creditor, credit card 
issuer, financial institution, operator of a terminal at which 
an electronic fund transfer may be initiated, money 
transmitting business, or international, national, regional, or 
local network utilized to effect a credit transaction, 
electronic fund transfer, or money transmitting service, or a 
participant in such network.

Section 4. Definitions

    Section 4 defines the terms ``restricted transaction'', 
``designated payment system'', ``Federal functional 
regulator'', ``Internet'', ``unlawful Internet gambling'', 
``credit'', ``creditor'' and ``credit card'', ``electronic fund 
transfer'', ``financial institution'', and ``money transmitting 
business'' and ``money transmitting service.'' Paragraph (2) 
defines the term ``bets or wagers'' as 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 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 Commodity 
Exchange Act; an over-the-counter derivative instrument and any 
other transaction exempt from State gaming or bucket shop laws 
pursuant to the Commodity Exchange Act or Securities Exchange 
Act; a contract of indemnity or guarantee; a contract for life, 
health, or accident insurance; a deposit with a depository 
institution; certain participation in a simulation sports game 
or education game; or a lawful transaction with a business 
licensed or authorized by a State.

         Changes to Existing Law Made by the Bill, as Reported

    This legislation does not amend existing law.

                                
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