[House Report 109-412]
[From the U.S. Government Publishing Office]
109th Congress Rept. 109-412
HOUSE OF REPRESENTATIVES
2d Session Part 1
======================================================================
UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT OF 2006
_______
April 6, 2006.--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
together with
DISSENTING VIEWS
[To accompany H.R. 4411]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4411) to prevent the use of certain payment
instruments, credit cards, and fund transfers 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
Amendment........................................................ 2
Purpose and Summary.............................................. 8
Background and Need for Legislation.............................. 8
Hearings......................................................... 11
Committee Consideration.......................................... 11
Committee Votes.................................................. 11
Committee Oversight Findings..................................... 12
Performance Goals and Objectives................................. 12
New Budget Authority, Entitlement Authority, and Tax Expenditures 12
Committee Cost Estimate.......................................... 12
Congressional Budget Office Estimate............................. 12
Federal Mandates Statement....................................... 15
Advisory Committee Statement..................................... 15
Constitutional Authority Statement............................... 16
Applicability to Legislative Branch.............................. 16
Section-by-Section Analysis of the Legislation................... 16
Changes in Existing Law Made by the Bill, as Reported............ 18
Dissenting Views................................................. 28
Amendment
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 Enforcement
Act of 2006''.
SEC. 2. PROHIBITION ON ACCEPTANCE OF ANY PAYMENT INSTRUMENT FOR
UNLAWFUL INTERNET GAMBLING.
(a) In General.--Chapter 53 of title 31, United States Code, is
amended by adding at the end the following new subchapter:
``SUBCHAPTER IV--PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
``Sec. 5361. Congressional findings and purpose
``(a) Findings.--The Congress finds the following:
``(1) Internet gambling is primarily funded through personal
use of payment system instruments, 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 such sites.
``(3) Internet gambling is a growing cause of debt collection
problems for insured depository institutions and the consumer
credit industry.
``(4) New mechanisms for enforcing gambling laws on the
Internet are necessary because traditional law enforcement
mechanisms are often inadequate for enforcing gambling
prohibitions or regulations on the Internet, especially where
such gambling crosses State or national borders.
``(b) Rule of Construction.--No provision of this subchapter shall be
construed as altering, limiting, or extending any Federal or State law
or Tribal-State compact prohibiting, permitting, or regulating gambling
within the United States.
``Sec. 5362. Definitions
``For purposes of this subchapter, the following definitions shall
apply:
``(1) Bet or wager.--The term `bet or wager'--
``(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 value 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;
``(D) includes any instructions or information
pertaining to the establishment or movement of funds by
the bettor or customer in, to, or from an account 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 that
Act);
``(ii) any transaction conducted on or
subject to the rules of a registered entity or
exempt board of trade under 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
an insured depository institution; or
``(viii) any participation in a fantasy or
simulation sports game, an educational game, or
a 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 of the
participants, or their skill at
physical reaction or physical
manipulation (but not chance), and, in
the case of a fantasy or simulation
sports game, has an outcome that is
determined predominantly by accumulated
statistical results of sporting events,
including any nonparticipant's
individual performances in such
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) Business of betting or wagering.--The term `business of
betting or wagering' does not include the activities of a
financial transaction provider, or any interactive computer
service or telecommunications service.
``(3) Designated payment system.--The term `designated
payment system' means any system utilized by a financial
transaction provider that the Secretary and the Board of
Governors of the Federal Reserve System, in consultation with
the Attorney General, jointly determine, by regulation or
order, could be utilized in connection with, or to facilitate,
any restricted transaction.
``(4) Financial transaction provider.--The term `financial
transaction provider' means 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
payment network utilized to effect a credit transaction,
electronic fund transfer, stored value product transaction, or
money transmitting service, or a participant in such network,
or other participant in a designated payment system.
``(5) Internet.--The term `Internet' means the international
computer network of interoperable packet switched data
networks.
``(6) Interactive computer service.--The term `interactive
computer service' has the same meaning as in section 230(f) of
the Communications Act of 1934.
``(7) Restricted transaction.--The term `restricted
transaction' means any transaction or transmittal involving any
credit, funds, instrument, or proceeds described in any
paragraph of section 5363 which the recipient is prohibited
from accepting under section 5363.
``(8) Secretary.--The term `Secretary' means the Secretary of
the Treasury.
``(9) State.--The term `State' means any State of the United
States, the District of Columbia, or any commonwealth,
territory, or other possession of the United States.
``(10) Unlawful internet gambling.--
``(A) In general.--The term `unlawful Internet
gambling' means to place, receive, or otherwise
knowingly 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 or Tribal
lands in which the bet or wager is initiated, received,
or otherwise made.
``(B) Intrastate transactions.--The term `unlawful
Internet gambling' shall not include placing,
receiving, or otherwise transmitting a bet or wager
where--
``(i) the bet or wager is initiated and
received or otherwise made exclusively within a
single State;
``(ii) the bet or wager and the method by
which the bet or wager is initiated and
received or otherwise made is expressly
authorized by and placed in accordance with the
laws of such State, and the State law or
regulations include--
``(I) age and location verification
requirements reasonably designed to
block access to minors and persons
located out of such State; and
``(II) appropriate data security
standards to prevent unauthorized
access by any person whose age and
current location has not been verified
in accordance with such State's law or
regulations; and
``(iii) the bet or wager does not violate any
provision of the--
``(I) Interstate Horseracing Act;
``(II) Professional and Amateur
Sports Protection Act;
``(III) Gambling Devices
Transportation Act; or
``(IV) Indian Gaming Regulatory Act.
``(C) Intratribal transactions.--The term `unlawful
Internet gambling' shall not include placing,
receiving, or otherwise transmitting a bet or wager
where--
``(i) the bet or wager is initiated and
received or otherwise made exclusively--
``(I) within the Indian lands of a
single Indian tribe (as those terms are
defined by the Indian Gaming Regulatory
Act); or
``(II) between the Indian lands of 2
or more Indian tribes to the extent
that intertribal gaming is authorized
by the Indian Gaming Regulatory Act;
``(ii) the bet or wager and the method by
which the bet or wager is initiated and
received or otherwise made is expressly
authorized by and complies with the
requirements of--
``(I) the applicable tribal ordinance
or resolution approved by the Chairman
of the National Indian Gaming
Commission; and
``(II) with respect to class III
gaming, the applicable Tribal-State
Compact;
``(iii) the applicable tribal ordinance or
resolution or Tribal-State compact includes--
``(I) age and location verification
requirements reasonably designed to
block access to minors and persons
located out of the applicable Tribal
lands; and
``(II) appropriate data security
standards to prevent unauthorized
access by any person whose age and
current location has not been verified
in accordance with the applicable
tribal ordinance or resolution or
Tribal-State Compact; and
``(iv) the bet or wager does not violate any
provision of the--
``(I) Interstate Horseracing Act;
``(II) the Professional and Amateur
Sports Protection Act;
``(III) the Gambling Devices
Transportation Act; or
``(IV) the Indian Gaming Regulatory
Act.
``(D) Interstate horseracing.--The term `unlawful
Internet gambling' shall not include placing,
receiving, or otherwise transmitting a bet or wager
that is governed by and complies with the Interstate
Horseracing Act of 1978.
``(E) Intermediate routing.--The intermediate routing
of electronic data shall not determine the location or
locations in which a bet or wager is initiated,
received, or otherwise made.
``(11) Other terms.--
``(A) Credit; creditor; credit card; and card
issuer.--The terms `credit', `creditor', `credit card',
and `card issuer' have the same meanings as in section
103 of the Truth in Lending Act.
``(B) Electronic fund transfer.--The term `electronic
fund transfer'--
``(i) has the same meaning as in section 903
of the Electronic Fund Transfer Act, except
that such term includes transfers that would
otherwise be excluded under section 903(6)(E)
of that 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' has the same meaning as in section 903 of
the Electronic Fund Transfer Act, except that such term
does not include a casino, sports book, or other
business at or through which bets or wagers may be
placed or received.
``(D) Insured depository institution.--The term
`insured depository institution'--
``(i) has the same meaning as in section 3 of
the Federal Deposit Insurance Act; and
``(ii) includes an insured credit union (as
defined in section 101 of the Federal Credit
Union Act).
``(E) Money transmitting business and money
transmitting service.--The terms `money transmitting
business' and `money transmitting service' have the
same meanings as in section 5330(d) (determined without
regard to any regulations prescribed by the Secretary
thereunder).
``Sec. 5363. Prohibition on acceptance of any financial instrument for
unlawful Internet gambling
``No person engaged in the business of betting or wagering 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 such other person;
``(3) any check, draft, or similar instrument which is drawn
by or on behalf of such 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 and the Board of Governors of the
Federal Reserve System may jointly prescribe by regulation,
which involves a financial institution as a payor or financial
intermediary on behalf of or for the benefit of such other
person.
``Sec. 5364. Policies and procedures to identify and prevent restricted
transactions
``(a) Regulations.--Before the end of the 270-day period beginning on
the date of the enactment of this subchapter, the Secretary and the
Board of Governors of the Federal Reserve System, in consultation with
the Attorney General, shall prescribe regulations (which the Secretary
and the Board jointly determine to be appropriate) requiring each
designated payment system, and all participants therein, to identify
and block or otherwise prevent or prohibit restricted transactions
through the establishment of policies and procedures reasonably
designed to identify and block or otherwise prevent or prohibit the
acceptance of 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 or prohibit 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 under subsection (a), the Secretary and the Board of
Governors of the Federal Reserve System shall--
``(1) identify types of policies and procedures, including
nonexclusive examples, which would be deemed, as applicable, to
be reasonably designed to identify and block or otherwise
prevent or prohibit the acceptance of the products or services
with respect to each type of restricted transaction;
``(2) to the extent practical, permit any participant in a
payment system to choose among alternative means of identifying
and blocking, or otherwise preventing or prohibiting the
acceptance of the products or services of the payment system or
participant in connection with, restricted transactions; and
``(3) consider exempting certain restricted transactions or
designated payment systems from any requirement imposed under
such regulations, if the Secretary and the Board jointly find
that it is not reasonably practical to identify and block, or
otherwise prevent or prohibit the acceptance of, such
transactions.
``(c) Compliance With Payment System Policies and Procedures.--A
financial transaction provider shall be considered to be in compliance
with the regulations prescribed under 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 or prohibit 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) No Liability for Blocking or Refusing to Honor Restricted
Transactions.--A person that identifies and blocks a transaction,
prevents or prohibits the acceptance of its products or services in
connection with a transaction, or otherwise refuses to honor a
transaction--
``(1) that is a restricted transaction;
``(2) that such person reasonably believes to be a restricted
transaction; or
``(3) as a designated payment system or a member of a
designated payment system in reliance on the policies and
procedures of the payment system, in an effort to comply with
regulations prescribed under subsection (a),
shall not be liable to any party for such action.
``(e) Regulatory Enforcement.--The requirements of this section shall
be enforced exclusively by--
``(1) the Federal functional regulators, with respect to the
designated payment systems and financial transaction providers
subject to the respective jurisdiction of such regulators under
section 505(a) of the Gramm-Leach-Bliley Act and section 5g of
the Commodities Exchange Act; and
``(2) the Federal Trade Commission, with respect to
designated payment systems and financial transaction providers
not otherwise subject to the jurisdiction of any Federal
functional regulators (including the Commission) as described
in paragraph (1).
``Sec. 5365. Civil remedies
``(a) Jurisdiction.--The district courts of the United States shall
have original and exclusive jurisdiction to prevent and restrain
restricted transactions by issuing appropriate orders in accordance
with this section, regardless of whether a prosecution has been
initiated under this subchapter.
``(b) Proceedings.--
``(1) Institution by federal government.--
``(A) In general.--The United States, acting through
the Attorney General, may institute proceedings under
this section to prevent or restrain a restricted
transaction.
``(B) Relief.--Upon application of the United States
under this paragraph, the district court may enter a
temporary restraining order, a preliminary injunction,
or an injunction against any person to prevent or
restrain a restricted transaction, in accordance with
rule 65 of the Federal Rules of Civil Procedure.
``(2) Institution by state attorney general.--
``(A) In general.--The attorney general (or other
appropriate State official) of a State in which a
restricted transaction allegedly has been or will be
initiated, received, or otherwise made may institute
proceedings under this section to prevent or restrain
the violation or threatened violation.
``(B) Relief.--Upon application of the attorney
general (or other appropriate State official) of an
affected State under this paragraph, the district court
may enter a temporary restraining order, a preliminary
injunction, or an injunction against any person to
prevent or restrain a restricted transaction, in
accordance with rule 65 of the Federal Rules of Civil
Procedure.
``(3) Indian lands.--
``(A) In general.--Notwithstanding paragraphs (1) and
(2), for a restricted transaction that allegedly has
been or will be initiated, received, or otherwise made
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 paragraph
(1); and
``(ii) the enforcement authorities specified
in an applicable Tribal-State compact
negotiated under section 11 of the Indian
Gaming Regulatory Act (25 U.S.C. 2710) shall be
carried out in accordance with that compact.
``(B) Rule of construction.--No provision of this
section shall be construed as altering, superseding, or
otherwise affecting the application of the Indian
Gaming Regulatory Act.
``(c) Limitation Relating to Interactive Computer Services.--
``(1) In general.--Relief granted under this section against
an interactive computer service shall--
``(A) be limited to the removal of, or disabling of
access to, an online site violating section 5363, or a
hypertext link to an online site violating such
section, that resides on a computer server that such
service controls or operates, except that the
limitation in this subparagraph shall not apply if the
service is subject to liability under this section
under section 5367;
``(B) be available only after notice to the
interactive computer service and an opportunity for the
service to appear are provided;
``(C) not impose any obligation on an interactive
computer service to monitor its service or to
affirmatively seek facts indicating activity violating
this subchapter;
``(D) specify the interactive computer service to
which it applies; and
``(E) specifically identify the location of the
online site or hypertext link to be removed or access
to which is to be disabled.
``(2) Coordination with other law.--An interactive computer
service that does not violate this subchapter shall not be
liable under section 1084(d) of title 18, except that the
limitation in this paragraph shall not apply if an interactive
computer service has actual knowledge and control of bets and
wagers and--
``(A) operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may
be placed, received, or otherwise made or at which
unlawful bets or wagers are offered to be placed,
received, or otherwise made; or
``(B) owns or controls, or is owned or controlled by,
any person who operates, manages, supervises, or
directs an Internet website at which unlawful bets or
wagers may be placed, received, or otherwise made, or
at which unlawful bets or wagers are offered to be
placed, received, or otherwise made.
``(d) Limitation on Injunctions Against Regulated Persons.--
Notwithstanding any other provision of this section, and subject to
section 5367, no provision of this subchapter shall be construed as
authorizing the Attorney General of the United States, or the attorney
general (or other appropriate State official) of any State to institute
proceedings to prevent or restrain a restricted transaction against any
financial transaction provider, to the extent that the person is acting
as a financial transaction provider.
``Sec. 5366. Criminal penalties
``(a) In General.--Whoever violates section 5363 shall be fined under
title 18, or imprisoned for not more than 5 years, or both.
``(b) Permanent Injunction.--Upon conviction of a person under this
section, 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.
``Sec. 5367. Circumventions prohibited
``Notwithstanding section 5362(2), a financial transaction provider,
or any interactive computer service or telecommunications service, may
be liable under this subchapter if such person has actual knowledge and
control of bets and wagers, and--
``(1) operates, manages, supervises, or directs an Internet
website at which unlawful bets or wagers may be placed,
received, or otherwise made, or at which unlawful bets or
wagers are offered to be placed, received, or otherwise made;
or
``(2) owns or controls, or is owned or controlled by, any
person who operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may be
placed, received, or otherwise made, or at which unlawful bets
or wagers are offered to be placed, received, or otherwise
made.''.
(b) Technical and Conforming Amendment.--The table of sections for
chapter 53 of title 31, United States Code, is amended by adding at the
end the following:
``Subchapter IV--Prohibition on funding of unlawful internet gambling
``5361. Congressional findings and purpose.
``5362. Definitions.
``5363. Prohibition on acceptance of any financial instrument for
unlawful Internet gambling.
``5364. Policies and procedures to identify and prevent restricted
transactions.
``5365. Civil remedies.
``5366. Criminal penalties.
``5367. Circumventions prohibited.''.
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 purposes.
(b) Report Required.--The Secretary of the Treasury shall submit an
annual report to the Congress on any deliberations between the United
States and other countries on issues relating to Internet gambling.
Purpose and Summary
The Unlawful Internet Gambling Enforcement Act of 2006,
H.R. 4411, prohibits the acceptance of any bank instrument for
unlawful Internet gambling. It defines certain terms for
purposes of the Act; establishes civil remedies, criminal
penalties, and regulatory enforcement authorities; encourages
cooperation by foreign governments in the enforcement of the
Act; and requires the Secretary of the Treasury to report
annually to Congress on deliberations between the United States
and other countries on issues relating to Internet gambling.
Its primary purpose is to give U.S. law enforcement new, more
effective tools 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 on Financial Services 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.
Many legal experts, including officials from the Department
of Justice, State attorneys general, and others involved in law
enforcement hold the view that Internet gambling is generally
prohibited under various Federal statutes. Among them, the
Federal Wire Act (18 U.S.C. 1084 et seq.) criminalizes the
knowing use of a wire communication facility by a gambling
establishment for the transmission of bets and wagers in
interstate or foreign commerce.
Conventional forms of gambling activities, such as casino
wagering, State lotteries, slot machines and horse racing,
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 (AGA), 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 gamblingoperations 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. The National
Collegiate Athletic Association (NCAA) at the July 2001
hearings underscored the vulnerability of young people to
losing large sums through Internet gambling. A 2003 study by
the NCAA showed that almost 35 percent of male student-athletes
engaged in some type of sports wagering behavior in the past
year, and 10 percent of female student-athletes. One student
reportedly lost $10,000 on Internet sports gambling over a
three-month period. 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, current events show that
not just student athletes, but professional athletes can be
caught by 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. 4411, the Unlawful Internet Gambling Enforcement Act
of 2006, builds on the recommendations of the National Gambling
Impact Study Commission by prohibiting gambling businesses from
accepting credit cards or other bank instruments in connection
with unlawful Internet gambling. The bill requires the
Secretary of the Treasury and the Federal Reserve Board, in
conjunction with the U.S. Attorney General, to prescribe
regulations requiring any payment system to establish policies
and procedures reasonably designed to identify and block
restricted transactions, or otherwise prevent restricted
transactions from entering its system and provides that a
payment system is not liable for blocking or refusing a
restricted transaction in an attempt to comply with the bill's
enforcement. It 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 is similar to H.R. 21, reported
by the House Financial Services Committee by voice vote in the
108th Congress, and H.R. 556, which passed the House of
Representatives by voice vote in the 107th Congress. It is
similar to provisions incorporated in the 108th Congress in the
Committee-reported H.R. 10 and 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. 4411 does not spell out which activities are legal and
which are illegal under the bill; 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 clarifies that ``bet or wager'' does not
include bona fide business transactions such as securities
trading or buying or selling insurance contracts, or
participation in a simulation sports game or educational game.
H.R. 4411 does not change the legality of any gambling-
related activity in the United States. For instance, if use of
the Internet in connection with dog racing is approved by state
regulatory agencies and does not violate any Federal law, then
it is allowed under the new section 5362(10)(A) of title 31.
H.R. 4411 does not interfere with intrastate laws. New
section 5362(10)(B) creates a safe harbor from the term
``unlawful internet gambling'' for authorized intrastate
transactions. The safe harbor would leave intact the current
interstate gambling prohibitions such as the Wire Act, federal
prohibitions on lotteries, and the Gambling Ship Act so that
casino and lottery games could not be placed on websites and
individuals could not access these games from their homes or
businesses. The safe harbor is intended to recognize current
law which allows states jurisdiction over wholly intrastate
activity, where bets or wagers, or information assisting bets
or wagers, do not cross state lines. This would, for example,
allow retail lottery terminals to interact with a processing
center within a state, and linking of terminals between
separate casinos within a state if authorized by the state.
H.R. 4411 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 will be provided with the identity
of specific Internet gambling bank accounts to which payments
are to be prohibited. The obligation of financial institutions
under H.R. 4411 would be similar in effect to their obligations
under certain other U.S. laws, such as those administered by
the Office of Foreign Assets Control (OFAC) barring financial
transactions with terrorists and drug kingpins. The bill
recognizes that manycredit card companies and issuing banks are
taking steps to identify, block or prevent Internet gambling
transactions, and builds on the experience gained through these
voluntary efforts.
It is the view of the Committee that the definition of
``bets or wagers'' does not include information exchanged via
private network if the information is used only to monitor
gaming device play, display prize amounts, provide security
information, and provide other accounting information.
Furthermore, it is the view of the Committee that information
exchanged via a linked progressive game accounting system that
does not accept bets or wagers and that does not affect game
outcome is not included in the definition of the term ``bets or
wagers.''
Hearings
No hearings were held on this legislation in the 109th
Congress.
Committee Consideration
The Committee on Financial Services met in open session on
March 15, 2006, and ordered H.R. 4411, the Unlawful Internet
Gambling Enforcement Act of 2006, reported to the House as
amended by a voice vote.
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
as amended to the House with a favorable recommendation was
agreed to by a voice vote.
The Committee considered the following amendment:
An amendment in the nature of a substitute by Mr.
Leach, No.1, making various substantive and technical
changes in the bill, 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 has held hearings and
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:
By prohibiting the acceptance of any payment instruments
for unlawful internet gambling, the availability of illegal
offshore Internet gambling in the United States will be
reduced.
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 new 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:
March 30, 2006.
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. 4411, the Unlawful
Internet Gambling Enforcement Act of 2006.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Kathleen
Gramp.
Sincerely,
Donald B. Marron,
Acting Director.
Enclosure.
H.R. 4411--Unlawful Internet Gambling Enforcement Act of 2006
Summary: H.R. 4411 would prohibit businesses from accepting
credit cards, checks, or other bank instruments from gamblers
who illegally bet over the Internet. It also would direct the
Department of the Treasury and the Board of Governors of the
Federal Reserve System (the Federal Reserve) to issue
regulations outlining policies and procedures that could be
used by financial institutions to identify and block gambling-
related transactions that are transmitted through their payment
systems. Compliance with those prohibitions and regulations
would be enforced by various federal agencies as well as state
governments, and violations would be subject to new civil
remedies and criminal penalties. Finally, the bill would
require the Secretary of the Treasury to report annually to the
Congress on any international deliberations regarding Internet
gambling.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing H.R. 4411 would cost about $2
million over the 2007-2011 period. Enacting the bill would
affect direct spending and revenues, but CBO estimates that the
net impact on direct spending and revenues would not be
significant in any year.
H.R. 4411 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments.
H.R. 4411 would impose mandates, as defined in UMRA, on
financial institutions and other financial transaction
providers. Because the cost of the mandates would depend on
regulations to be prescribed under the bill, CBO cannot
determine whether the direct cost to comply with those mandates
would exceed the annual threshold established by UMRA for
private-sector mandates ($128 million in 2006, adjusted
annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 4411 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------
2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level...................................... 1 * * * *
Estimated Outlays.................................................. 1 * * * *
----------------------------------------------------------------------------------------------------------------
Note.--* = Less than $500,000.
Basis of estimate: For this estimate, CBO assumes that H.R.
4411 will be enacted near the end of fiscal year 2006 and that
funds will be appropriated for the activities authorized by the
bill.
Spending subject to appropriation
Based on information from the Department of the Treasury
and other affected agencies, CBO estimates that implementing
this bill would cost about $2 million over the 2007-2011
period, assuming appropriation of the necessary amounts. That
estimate primarily reflects the cost of developing regulations
to identify and block financial transactions related to illegal
Internet gambling. The cost of preparing annual reports to the
Congress on international deliberations on this issue would not
be significant. Spending by the Department of Justice and the
Federal Trade Commission to enforce certain provisions in the
bill would likely be negligible in any given year, CBO
estimates.
Direct spending and revenues
Enacting H.R. 4411 would affect direct spending and
revenues because of provisions affecting financial regulatory
agencies and criminal penalties. CBO estimates that such
effects would not be significant.
H.R. 4411 would direct financial regulatory agencies to
enforce the regulations on illegal Internet gambling as they
apply to financial institutions, including Office of the
Comptroller of the Currency (OCC), Federal Deposit Insurance
Corporation (FDIC), the Federal Reserve, the National Credit
Union Administration (NCUA), and the Office of Thrift
Supervision (OTS). Any additional direct spending by NCUA, OCC,
and OTS to implement the bill would have no net budgetary
impact because those agencies charge annual fees to cover all
of their administrative expenses. In contrast, the FDIC's
sources of income--primarily intragovernmental interest
earnings and deposit insurance premiums--do not change in
tandem with in its annual expenditures; as a result, any added
costs would increase direct spending unless and until the FDIC
raised deposit insurance premiums to offset those expenses.
Budgetary effects on the Federal Reserve are recorded as
changes in revenues.
According to financial regulatory agency officials,
enacting H.R. 4411 would not have a significant effect on their
workload or budgets. For this estimate, CBO assumes that the
FDIC would not assess additional premiums to cover the small
costs associated with implementing this bill. Thus, CBO
estimates that enacting this bill would increase direct
spending and offsetting receipts of the NCUA, OCC, OTS, and
FDIC by less than $500,000 a year. Based on information from
the Federal Reserve, CBO estimates that the rulemaking and
enforcement activities required by H.R. 4411 would reduce
revenues by less than $500,000 a year.
Because those prosecuted and convicted under the bill could
be subject to criminal penalties, the federal government might
collect additional fines if the bill is enacted. Collections of
such fines are recorded in the budget as 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 insignificant.
Estimated impact on state, local, and tribal governments:
Although H.R. 4411 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. 4411 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. 4411 would
impose mandates, as defined in UMRA, on financial institutions
and other financial transaction providers. Because the cost of
the mandates would depend on regulations to be prescribed under
the bill, CBO cannot determine whether the direct cost to
comply with those mandates would exceed the annual threshold
established by UMRA for private-sector mandates ($128 million
in 2006, adjusted annually for inflation).
The bill would require the Secretary of the Treasury and
the Board of Governors of the Federal Reserve System, in
consultation with the Attorney General, to prescribe
regulations that would require financial transaction providers
to identify and block restricted transactions in connection
with unlawful Internet gambling through the establishment of
reasonable policies and procedures. Such requirements would
impose private-sector mandates on certain financial entities.
Under the bill, the term ``financial transaction providers''
means creditors, credit card issuers, financial institutions,
or other payment networks that utilize a designated payment
system. Such systems would be determined by regulation.
The cost for financial transaction providers to comply with
those mandates would depend on the regulations to be
prescribed. Information from representatives of the financial
services industry indicates that electronic transactions can
currently be identified and blocked through the use of a coding
system. If the regulations apply only to those transactions,
based on information from industry and government sources, CBO
expects that the cost of the mandates would fall below UMRA's
annual threshold. However, if the regulations also include the
requirement for banks to identify and block checks or similar
paper instruments used in a restricted transaction, the direct
cost to comply with the mandates could increase significantly
and CBO has no basis to estimate whether those costs would be
above or below the annual threshold.
Although section 2 would prohibit gambling businesses from
accepting credit card payments and other bank instruments from
gamblers who bet illegally over the Internet, those provisions
would not create a new private-sector 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, those provisions do not contain a new mandate
relative to current law.
Estimate prepared by: Federal Spending: Kathleen Gramp and
Melissa Petersen. Federal Revenues: Barbara Edwards. Impact on
State, Local, and Tribal Governments: Sarah Puro. Impact on the
Private Sector: Page Piper/Bach.
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
general welfare of the United States) and clause 3 (relating to
the power to regulate 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 Act may be cited as the ``Unlawful Internet Gambling
Enforcement Act of 2006.''
Section 2. Prohibition on acceptance of any payment instrument for
unlawful Internet gambling
Subsection (a) adds a new ``Subchapter IV-Prohibition on
Funding of Unlawful Internet Gambling'' to Chapter 53 of Title
31 (Monetary Transactions). The new subchapter will come
immediately after subchapter III, covering Money Laundering and
Related Financial Crimes.
Section 5361. Congressional findings and purpose
(a) Findings. The Congressional findings note that: (1)
Internet gambling is primarily funded through the personal use
of payment system instruments, 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 such sites; (3) Internet gambling is a growing cause
of debt collection problems for insured depository institutions
and the consumer credit industry; and (4) new mechanisms for
enforcing gambling laws on the Internet are necessary because
traditional law enforcement mechanisms are often inadequate for
enforcing gambling prohibitions on the Internet, especially
where such gambling crosses State or national borders.
(b) Rule of Construction. No provision is to be construed
as altering, limiting, or extending any Federal or State law or
Tribal-State compact prohibiting, permitting or regulating
gambling within the United States. This is intended to
alleviate fears that this bill could have the effect of
changing the legality of any gambling-related activity in the
United States.
Section 5362. Definitions
This defines the term ``bet or wager'' 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 value in the event of a certain outcome. This
subsection clarifies that ``bet or wager'' does not include
bona fide business transactions such as securities trading or
buying or selling insurance contracts, or participation in a
simulation sports game or educational game.
Defines the term ``unlawful Internet gambling'' as placing,
receiving, or transmitting a bet or wager by any means which
involves the use of the Internet, where such bet or wager
isunlawful under any applicable Federal or State law in the State or
Tribal lands in which the bet or wager is initiated, received, or
otherwise made. Clarifies that purely intrastate transactions conducted
in accordance with state laws with appropriate security controls will
not be considered unlawful internet gambling. Likewise, transactions
solely within Tribal lands complying with similar security requirements
and the Indian Gaming Regulatory Act will not be considered unlawful.
Section 5362 (10)(D) addresses transactions complying with Interstate
Horseracing Act (IHA) which will not be considered unlawful, because
the IHA only regulates legal transactions that are lawful in each of
the states involved. Also clarifies that intermediate routing of data
packets does not determine the location in which bets or wagers are
made.
Section 5362 also defines the terms ``business of betting
or wagering,'' ``designated payment system,'' ``Internet,'' and
``restricted transaction.'' Several additional terms are
defined by reference to other sections of the U.S. Code.
Section 5363. Prohibition on acceptance of any financial instrument for
unlawful Internet gambling
Prohibits persons engaged in the business of betting or
wagering from knowingly accepting credit, funds, bank
instruments, or proceeds of any other form of financial
transaction in connection with the participation of another
person in unlawful Internet gambling. This is called a
``restricted transaction'' according to the definitions
section.
Section 5364. Policies and procedures to identify and prevent
restricted transactions
(a) Regulations and (b) Requirements for Policies and
procedures. Requires the Secretary of the Treasury and the
Federal Reserve Board, in conjunction with the U.S. Attorney
General, to prescribe regulations within nine months requiring
any payment system to establish policies and procedures
reasonably designed to identify and block restricted
transactions, or otherwise prevent restricted transactions from
entering its system.
(c) Compliance and (d) Liability. Provides persons
operating financial systems with immunity from civil liability
for blocking transactions that they reasonably believe are
restricted transactions, or in reliance on the regulations
promulgated by the Treasury Department and Federal Reserve.
Though a financial institution may block additional
transactions based on reasonable belief, it has no duty to do
so, and may rely solely on the regulations to fully discharge
its obligations.
(e) Enforcement. The Federal functional regulators and the
Federal Trade Commission are given the exclusive authority to
enforce this section.
Section 5365. Civil remedies
Authorizes the U.S. Attorney General and State Attorneys
General to pursue civil remedies, including a preliminary
injunction or injunction against any person to prevent or
restrain a violation of this legislation. It clarifies that the
bill does not alter, supersede or otherwise affect the Indian
Gaming Regulatory Act; generally limits responsibility of an
interactive computer service to the removal or disabling of
access to an online site violating this section, upon proper
notice; restricts the ability to bring injunctive cases against
financial transaction provider activities.
Section 5366. Criminal penalties
Authorizes criminal penalties for violating section 5363,
including fines or imprisonment for not more than five years or
both. Also authorizes permanently enjoining a person convicted
under this section from engaging in gambling activities.
Section 5367. Circumventions prohibited
Provides that, notwithstanding the safe harbor provided in
section 5362(2), a financial intermediary or interactive
computer service or telecommunications service that has actual
knowledge and control of bets and wagers, and operates or is
controlled by an entity that operates, an unlawful Internet
gambling site can be held criminally liable under this
subchapter.
Section 3. Internet gambling in or through foreign jurisdictions
Section 4(a) provides that, in deliberations between the
U.S. Government and 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. It also requires the Secretary of the Treasury to
submit an annual report to Congress on the deliberations
between the United States and other countries on issues
relating to Internet gambling.
Subsection (b) requires the Secretary of the Treasury to
submit an annual report to Congress on any deliberations
between the United States and other countries on tissues
relating to Internet Gambling.
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):
TITLE 31, UNITED STATES CODE
* * * * * * *
SUBTITLE IV--MONEY
* * * * * * *
CHAPTER 53--MONETARY TRANSACTIONS
SUBCHAPTER I--CREDIT AND MONETARY EXPANSION
Sec.
5301. Buying obligations of the United States Government.
* * * * * * *
Subchapter IV--Prohibition on funding of unlawful internet gambling
5361. Congressional findings and purpose.
5362. Definitions.
5363. Prohibition on acceptance of any financial instrument for unlawful
Internet gambling.
5364. Policies and procedures to identify and prevent restricted
transactions.
5365. Civil remedies.
5366. Criminal penalties.
5367. Circumventions prohibited.
* * * * * * *
SUBCHAPTER IV--PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
Sec. 5361. Congressional findings and purpose
(a) Findings.--The Congress finds the following:
(1) Internet gambling is primarily funded through
personal use of payment system instruments, 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 such sites.
(3) Internet gambling is a growing cause of debt
collection problems for insured depository institutions
and the consumer credit industry.
(4) New mechanisms for enforcing gambling laws on the
Internet are necessary because traditional law
enforcement mechanisms are often inadequate for
enforcing gambling prohibitions or regulations on the
Internet, especially where such gambling crosses State
or national borders.
(b) Rule of Construction.--No provision of this subchapter
shall be construed as altering, limiting, or extending any
Federal or State law or Tribal-State compact prohibiting,
permitting, or regulating gambling within the United States.
Sec. 5362. Definitions
For purposes of this subchapter, the following definitions
shall apply:
(1) Bet or wager.--The term ``bet or wager''--
(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 value 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;
(D) includes any instructions or information
pertaining to the establishment or movement of
funds by the bettor or customer in, to, or from
an account 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
that Act);
(ii) any transaction conducted on or
subject to the rules of a registered
entity or exempt board of trade under
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 an insured depository
institution; or
(viii) any participation in a fantasy
or simulation sports game, an
educational game, or a 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
of the participants, or their
skill at physical reaction or
physical manipulation (but not
chance), and, in the case of a
fantasy or simulation sports
game, has an outcome that is
determined predominantly by
accumulated statistical results
of sporting events, including
any nonparticipant's individual
performances in such 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) Business of betting or wagering.--The term
``business of betting or wagering'' does not include
the activities of a financial transaction provider, or
any interactive computer service or telecommunications
service.
(3) Designated payment system.--The term ``designated
payment system'' means any system utilized by a
financial transaction provider that the Secretary and
the Board of Governors of the Federal Reserve System,
in consultation with the Attorney General, jointly
determine, by regulation or order, could be utilized in
connection with, or to facilitate, any restricted
transaction.
(4) Financial transaction provider.--The term
``financial transaction provider'' means 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 payment
network utilized to effect a credit transaction,
electronic fund transfer, stored value product
transaction, or money transmitting service, or a
participant in such network, or other participant in a
designated payment system.
(5) Internet.--The term ``Internet'' means the
international computer network of interoperable packet
switched data networks.
(6) Interactive computer service.--The term
``interactive computer service'' has the same meaning
as in section 230(f) of the Communications Act of 1934.
(7) Restricted transaction.--The term ``restricted
transaction'' means any transaction or transmittal
involving any credit, funds, instrument, or proceeds
described in any paragraph of section 5363 which the
recipient is prohibited from accepting under section
5363.
(8) Secretary.--The term ``Secretary'' means the
Secretary of the Treasury.
(9) State.--The term ``State'' means any State of the
United States, the District of Columbia, or any
commonwealth, territory, or other possession of the
United States.
(10) Unlawful internet gambling.--
(A) In general.--The term ``unlawful Internet
gambling'' means to place, receive, or
otherwise knowingly 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 or Tribal lands in which
the bet or wager is initiated, received, or
otherwise made.
(B) Intrastate transactions.--The term
``unlawful Internet gambling'' shall not
include placing, receiving, or otherwise
transmitting a bet or wager where--
(i) the bet or wager is initiated and
received or otherwise made exclusively
within a single State;
(ii) the bet or wager and the method
by which the bet or wager is initiated
and received or otherwise made is
expressly authorized by and placed in
accordance with the laws of such State,
and the State law or regulations
include--
(I) age and location
verification requirements
reasonably designed to block
access to minors and persons
located out of such State; and
(II) appropriate data
security standards to prevent
unauthorized access by any
person whose age and current
location has not been verified
in accordance with such State's
law or regulations; and
(iii) the bet or wager does not
violate any provision of the--
(I) Interstate Horseracing
Act;
(II) Professional and Amateur
Sports Protection Act;
(III) Gambling Devices
Transportation Act; or
(IV) Indian Gaming Regulatory
Act.
(C) Intratribal transactions.--The term
``unlawful Internet gambling'' shall not
include placing, receiving, or otherwise
transmitting a bet or wager where--
(i) the bet or wager is initiated and
received or otherwise made
exclusively--
(I) within the Indian lands
of a single Indian tribe (as
those terms are defined by the
Indian Gaming Regulatory Act);
or
(II) between the Indian lands
of 2 or more Indian tribes to
the extent that intertribal
gaming is authorized by the
Indian Gaming Regulatory Act;
(ii) the bet or wager and the method
by which the bet or wager is initiated
and received or otherwise made is
expressly authorized by and complies
with the requirements of--
(I) the applicable tribal
ordinance or resolution
approved by the Chairman of the
National Indian Gaming
Commission; and
(II) with respect to class
III gaming, the applicable
Tribal-State Compact;
(iii) the applicable tribal ordinance
or resolution or Tribal-State compact
includes--
(I) age and location
verification requirements
reasonably designed to block
access to minors and persons
located out of the applicable
Tribal lands; and
(II) appropriate data
security standards to prevent
unauthorized access by any
person whose age and current
location has not been verified
in accordance with the
applicable tribal ordinance or
resolution or Tribal-State
Compact; and
(iv) the bet or wager does not
violate any provision of the--
(I) Interstate Horseracing
Act;
(II) the Professional and
Amateur Sports Protection Act;
(III) the Gambling Devices
Transportation Act; or
(IV) the Indian Gaming
Regulatory Act.
(D) Interstate horseracing.--The term
``unlawful Internet gambling'' shall not
include placing, receiving, or otherwise
transmitting a bet or wager that is governed by
and complies with the Interstate Horseracing
Act of 1978.
(E) Intermediate routing.--The intermediate
routing of electronic data shall not determine
the location or locations in which a bet or
wager is initiated, received, or otherwise
made.
(11) Other terms.--
(A) Credit; creditor; credit card; and card
issuer.--The terms ``credit'', ``creditor'',
``credit card'', and ``card issuer'' have the
same meanings as in section 103 of the Truth in
Lending Act.
(B) Electronic fund transfer.--The term
``electronic fund transfer''--
(i) has the same meaning as in
section 903 of the Electronic Fund
Transfer Act, except that such term
includes transfers that would otherwise
be excluded under section 903(6)(E) of
that 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'' has the same meaning
as in section 903 of the Electronic Fund
Transfer Act, except that such term does not
include a casino, sports book, or other
business at or through which bets or wagers may
be placed or received.
(D) Insured depository institution.--The term
``insured depository institution''--
(i) has the same meaning as in
section 3 of the Federal Deposit
Insurance Act; and
(ii) includes an insured credit union
(as defined in section 101 of the
Federal Credit Union Act).
(E) Money transmitting business and money
transmitting service.--The terms ``money
transmitting business'' and ``money
transmitting service'' have the same meanings
as in section 5330(d) (determined without
regard to any regulations prescribed by the
Secretary thereunder).
Sec. 5363. Prohibition on acceptance of any financial instrument for
unlawful Internet gambling
No person engaged in the business of betting or wagering 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 such other
person;
(3) any check, draft, or similar instrument which is
drawn by or on behalf of such 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 and the Board of
Governors of the Federal Reserve System may jointly
prescribe by regulation, which involves a financial
institution as a payor or financial intermediary on
behalf of or for the benefit of such other person.
Sec. 5364. Policies and procedures to identify and prevent restricted
transactions
(a) Regulations.--Before the end of the 270-day period
beginning on the date of the enactment of this subchapter, the
Secretary and the Board of Governors of the Federal Reserve
System, in consultation with the Attorney General, shall
prescribe regulations (which the Secretary and the Board
jointly determine to be appropriate) requiring each designated
payment system, and all participants therein, to identify and
block or otherwise prevent or prohibit restricted transactions
through the establishment of policies and procedures reasonably
designed to identify and block or otherwise prevent or prohibit
the acceptance of 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 or prohibit 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 under subsection (a), the Secretary and the Board
of Governors of the Federal Reserve System shall--
(1) identify types of policies and procedures,
including nonexclusive examples, which would be deemed,
as applicable, to be reasonably designed to identify
and block or otherwise prevent or prohibit the
acceptance of the products or services with respect to
each type of restricted transaction;
(2) to the extent practical, permit any participant
in a payment system to choose among alternative means
of identifying and blocking, or otherwise preventing or
prohibiting the acceptance of the products or services
of the payment system or participant in connection
with, restricted transactions; and
(3) consider exempting certain restricted
transactions or designated payment systems from any
requirement imposed under such regulations, if the
Secretary and the Board jointly find that it is not
reasonably practical to identify and block, or
otherwise prevent or prohibit the acceptance of, such
transactions.
(c) Compliance With Payment System Policies and Procedures.--
A financial transaction provider shall be considered to be in
compliance with the regulations prescribed under 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 or prohibit 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) No Liability for Blocking or Refusing to Honor Restricted
Transactions.--A person that identifies and blocks a
transaction, prevents or prohibits the acceptance of its
products or services in connection with a transaction, or
otherwise refuses to honor a transaction--
(1) that is a restricted transaction;
(2) that such person reasonably believes to be a
restricted transaction; or
(3) as a designated payment system or a member of a
designated payment system in reliance on the policies
and procedures of the payment system, in an effort to
comply with regulations prescribed under subsection
(a),
shall not be liable to any party for such action.
(e) Regulatory Enforcement.--The requirements of this section
shall be enforced exclusively by--
(1) the Federal functional regulators, with respect
to the designated payment systems and financial
transaction providers subject to the respective
jurisdiction of such regulators under section 505(a) of
the Gramm-Leach-Bliley Act and section 5g of the
Commodities Exchange Act; and
(2) the Federal Trade Commission, with respect to
designated payment systems and financial transaction
providers not otherwise subject to the jurisdiction of
any Federal functional regulators (including the
Commission) as described in paragraph (1).
Sec. 5365. Civil remedies
(a) Jurisdiction.--The district courts of the United States
shall have original and exclusive jurisdiction to prevent and
restrain restricted transactions by issuing appropriate orders
in accordance with this section, regardless of whether a
prosecution has been initiated under this subchapter.
(b) Proceedings.--
(1) Institution by federal government.--
(A) In general.--The United States, acting
through the Attorney General, may institute
proceedings under this section to prevent or
restrain a restricted transaction.
(B) Relief.--Upon application of the United
States under this paragraph, the district court
may enter a temporary restraining order, a
preliminary injunction, or an injunction
against any person to prevent or restrain a
restricted transaction, in accordance with rule
65 of the Federal Rules of Civil Procedure.
(2) Institution by state attorney general.--
(A) In general.--The attorney general (or
other appropriate State official) of a State in
which a restricted transaction allegedly has
been or will be initiated, received, or
otherwise made may institute proceedings under
this section to prevent or restrain the
violation or threatened violation.
(B) Relief.--Upon application of the attorney
general (or other appropriate State official)
of an affected State under this paragraph, the
district court may enter a temporary
restraining order, a preliminary injunction, or
an injunction against any person to prevent or
restrain a restricted transaction, in
accordance with rule 65 of the Federal Rules of
Civil Procedure.
(3) Indian lands.--
(A) In general.--Notwithstanding paragraphs
(1) and (2), for a restricted transaction that
allegedly has been or will be initiated,
received, or otherwise made 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
paragraph (1); and
(ii) the enforcement authorities
specified in an applicable Tribal-State
compact negotiated under section 11 of
the Indian Gaming Regulatory Act (25
U.S.C. 2710) shall be carried out in
accordance with that compact.
(B) Rule of construction.--No provision of
this section shall be construed as altering,
superseding, or otherwise affecting the
application of the Indian Gaming Regulatory
Act.
(c) Limitation Relating to Interactive Computer Services.--
(1) In general.--Relief granted under this section
against an interactive computer service shall--
(A) be limited to the removal of, or
disabling of access to, an online site
violating section 5363, or a hypertext link to
an online site violating such section, that
resides on a computer server that such service
controls or operates, except that the
limitation in this subparagraph shall not apply
if the service is subject to liability under
this section under section 5367;
(B) be available only after notice to the
interactive computer service and an opportunity
for the service to appear are provided;
(C) not impose any obligation on an
interactive computer service to monitor its
service or to affirmatively seek facts
indicating activity violating this subchapter;
(D) specify the interactive computer service
to which it applies; and
(E) specifically identify the location of the
online site or hypertext link to be removed or
access to which is to be disabled.
(2) Coordination with other law.--An interactive
computer service that does not violate this subchapter
shall not be liable under section 1084(d) of title 18,
except that the limitation in this paragraph shall not
apply if an interactive computer service has actual
knowledge and control of bets and wagers and--
(A) operates, manages, supervises, or directs
an Internet website at which unlawful bets or
wagers may be placed, received, or otherwise
made or at which unlawful bets or wagers are
offered to be placed, received, or otherwise
made; or
(B) owns or controls, or is owned or
controlled by, any person who operates,
manages, supervises, or directs an Internet
website at which unlawful bets or wagers may be
placed, received, or otherwise made, or at
which unlawful bets or wagers are offered to be
placed, received, or otherwise made.
(d) Limitation on Injunctions Against Regulated Persons.--
Notwithstanding any other provision of this section, and
subject to section 5367, no provision of this subchapter shall
be construed as authorizing the Attorney General of the United
States, or the attorney general (or other appropriate State
official) of any State to institute proceedings to prevent or
restrain a restricted transaction against any financial
transaction provider, to the extent that the person is acting
as a financial transaction provider.
Sec. 5366. Criminal penalties
(a) In General.--Whoever violates section 5363 shall be fined
under title 18, or imprisoned for not more than 5 years, or
both.
(b) Permanent Injunction.--Upon conviction of a person under
this section, 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.
Sec. 5367. Circumventions prohibited
Notwithstanding section 5362(2), a financial transaction
provider, or any interactive computer service or
telecommunications service, may be liable under this subchapter
if such person has actual knowledge and control of bets and
wagers, and--
(1) operates, manages, supervises, or directs an
Internet website at which unlawful bets or wagers may
be placed, received, or otherwise made, or at which
unlawful bets or wagers are offered to be placed,
received, or otherwise made; or
(2) owns or controls, or is owned or controlled by,
any person who operates, manages, supervises, or
directs an Internet website at which unlawful bets or
wagers may be placed, received, or otherwise made, or
at which unlawful bets or wagers are offered to be
placed, received, or otherwise made.
* * * * * * *
DISSENTING VIEWS
H.R. 4411 limits the ability of individual citizens to use
bank instruments, including credit cards or checks, to finance
Internet gambling. This legislation should be rejected by
Congress since the federal government has no constitutional
authority to ban or even discourage any form of gambling.
In addition to being unconstitutional, H.R. 4411 is likely
to prove ineffective at ending Internet gambling. Instead, this
bill will ensure that gambling is controlled by organized
crime. History, from the failed experiment of prohibition to
today's futile ``war on drugs,'' shows that the government
cannot eliminate demand for something like Internet gambling
simply by passing a law. Instead, H.R. 4411 will force those
who wish to gamble over the Internet to patronize suppliers
willing to flaunt the ban. In many cases, providers of services
banned by the government will be members of criminal
organizations. Even if organized crime does not operate
Internet gambling enterprises, their competitors are likely to
be controlled by organized crime. After all, since the owners
and patrons of Internet gambling cannot rely on the police and
courts to enforce contracts and resolve other disputes, they
will be forced to rely on members of organized crime to perform
those functions. Thus, the profits of Internet gambling will
flow into organized crime. Furthermore, outlawing an activity
will raise the price vendors are able to charge consumers, thus
increasing the profits flowing to organized crime from Internet
gambling. It is bitterly ironic that a bill masquerading as an
attack on crime will actually increase organized crime's
ability to control and profit from Internet gambling.
In conclusion, H.R. 4411 violates the constitutional limits
on federal power. Furthermore, laws such as H.R. 4411 are
ineffective in eliminating the demand for vices such as
Internet gambling; instead, they ensure that these enterprises
will be controlled by organized crime. Therefore I urge my
colleagues to reject H.R. 4411, the Unlawful Internet Gambling
Funding Prohibition Act.
Ron Paul.