Internet Gambling

A Senate committee on Thursday debated a controversial Justice Department opinion that some legal experts and gambling supporters say has opened the door for states to begin offering online gambling within their borders and could harm Indian gambling operations.

The Senate Indian Affairs Committee examined how any potential expansion of Internet gambling within states could affect Indian tribes that also offer gambling on their reservations.

The issue has come under more scrutiny in recent months following the release in December of a Justice Department opinion that reversed the department's opinion on the scope of the Wire Act, a federal law prohibiting some gambling activities. The department now says that the Wire Act only applies to sports betting. Some states are moving quickly to take advantage of the department's opinion and begin offering some online gaming within their states.

"The short answer to the DoJ opinion is that states are now free to do whatever they wish with respect to Internet gambling, except for, of course, sports betting," Patrick Fleming with the Poker Players Alliance told the committee. "This opens up an entire Pandora's box of possibilities."

Congress enacted legislation in 2006 aimed at barring online gambling in the United States by prohibiting financial institutions from processing payments for online bets. Critics of the law say it has not stopped Americans from gambling online using offshore sites. They argue that these players lack consumer protections and that the United States is losing out on potential tax revenues.

Witnesses told the committee Thursday that the Justice Department opinion puts more pressure on Congress to act on an issue that had already gained some steam in the last year. Bipartisan legislation was introduced in the House last summer that would legalize online poker. And in the Senate, Majority Leader Harry Reid, D-Nev., and Senate Minority Whip Jon Kyl, R-Ariz., are working on Internet gambling legislation that may involve legalizing online poker. Kyl authored the Senate version of the 2006 anti-gambling law. Kyl recently told National Journal that the Justice Department opinion may force Congress to clarify the law.

"Quite possibly something will be done. As a result of that, there is probably a need to tighten up the law to address all forms of Internet gambling and in that context things like Internet poker, so I am involved in it because I am the author of the original legislation," Kyl said. He added that "Reid has supporters in Nevada" who want to deal with online poker. "And obviously the two of us therefore are talking."

Legal experts and the head of a New York tribe said that without intervention by Congress, Indian tribes, particularly smaller tribes with little political influence, could be harmed by the spread of online gambling at the state level. They urged lawmakers to ensure tribes will have equal access to licenses that might be given out by state or federal regulators to offer online gambling.

The District of Columbia's city council voted Tuesday to repeal legislation that authorized Internet gambling in the nation's capital, according to The Washington Post.

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It looks like supporters of fully legalizing online poker may get a chance to make their case before Congress.

The House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade has scheduled a hearing for next Tuesday on Internet gambling. While the hearing is not specifically focused on online poker, the panel will likely discuss legislation introduced this summer by Reps. Joe Barton, R-Texas, and Barney Frank, D-Mass. The measure has been referred to the subcommittee.

Barton's bill would authorize online betting on poker and direct the Commerce Department to set up a licensing and consumer protection regime. While playing poker online is not illegal, it is unlawful to bet, according to Barton.

Supporters argue that millions of Americans already play poker online but often do so on offshore sites that offer few consumer protections. The American Gaming Association has pointed to the lawsuit the Justice Department filed last month against Full Tilt Poker, which was accused of cheating its members out of millions of dollars, as an example of why Congress should legalize and regulate online poker.

Congress enacted a law in 2006 banning payments for online gambling and requiring payment processors to block payments for online bets. The Financial Services Committee in the last Congress approved legislation offered by Frank, who was chairman of the panel at the time, that would have essentially unraveled that law.

A new coalition launched Tuesday with the goal of persuading lawmakers to set up a regulatory regime that would allow Americans to legally place bets on online poker games.

The FairPlayUSA coalition has attracted some high-profile advisers including former Homeland Security and ex-Pennsylvania Gov. Tom Ridge, R-Pa., to push Congress to fully legalize online poker and to clarify the nation's online gambling laws to more clearly define what is legal and what is not.

Congress enacted legislation in 2006 to crack down on internet gambling by barring U.S. payment processors such as credit card companies and PayPal from handling payments for online bets. However, critics argue that the law has done little to stop Americans from continuing to gamble online and say this denies the U.S. government of potential tax revenues. They also say it exposes U.S. participants to fraud and abuse since most Internet gaming sites are based offshore.

Rep. Joe Barton, R-Texas, has introduced an online poker bill that would authorize online betting on poker and direct the Commerce Department to set up a licensing and consumer-protection regime. The bill would authorize online poker only in states that allow it.

"Licensing and regulating online poker is the most effective and responsible way to ensure the safety of America's children and consumers," Internet safety expert Parry Aftab said in a statement. "Given the growing ... popularity of online poker, we cannot afford to miss this opportunity to protect America's children and consumers. We must take action now."

Aftab, Ridge and professional poker player Greg Raymer make up the coalition's initial advisers but coalition Executive Director Marisa McNee told Tech Daily Dose that the group hopes to add more. Caesars and MGM, which own several casinos, have provided initial funding for the coalition, she added.

McNee said the group has not taken a position on the Barton bill yet and is not lobbying Congress for any particular piece of legislation. The group only favors legalizing online poker and not other forms of online gaming.

McNee said the group is aiming to educate the public and lawmakers about its 10 principles, which include providing law enforcement with tools to crack down on illegal online gambling and "removing U.S. banks as the enforcers" of the 2006 Internet gambling law and also to establish a "strict" regulatory framework for licensing and enforcement of online poker.

"This is about educating the public and policymakers with a set of principles," McNee said.

Senate Commerce Chairman Jay Rockefeller, D-W.Va., has a long list of ideas for reducing the deficit and one of them calls for generating tax revenue by legalizing online gambling.

Last week, Rockefeller released 18 proposals that he said could generate $1.29 trillion over 10 years in deficit savings. The list includes a proposal for regulating and taxing online gambling, which he said could result in more than $41 billion in tax revenues over 10 years.

"Establishing online gambling regulations will protect consumers, state's rights and state sovereignty, and eliminate a huge illegal market that today benefits only countries and companies overseas," Rockefeller's office said in a statement.

Rockefeller is considering offering legislation to legalize online gambling, his spokesman said Wednesday. Either way, he said, Rockefeller believes the proposal should be on the table in deficit reduction talks.

While most online gambling websites are based outside of the United States, a 2006 U.S. law has tried to combat online gambling here by barring credit card companies, banks and others from processing payments from online gambling bets.

Rep. Joe Barton, R-Texas, introduced bipartisan legislation last month that would legalize online poker by authorizing online betting on poker and direct the Commerce Department to set up a licensing and consumer-protection regime.

House Financial Services Committee ranking member Barney Frank, D-Mass., has found a new partner in his quest to legalize Internet gambling and to reverse a 2006 law that outlawed it.

Rep. John Campbell, R-Calif., plans to introduce with Frank a similar version of legislation the Massachusetts Democrat helped push through the Financial Services Committee in the last Congress. Unlike in the last Congress when he was chairman of the committee, Frank said Campbell will be the lead sponsor of his bill this year.

The measure approved by Financial Services in the last Congress aimed to counter a 2006 law that prohibited most online gambling and barred banks, credit card companies and other payment processors from processing payments for online bets.

Frank's bill would have allowed for online gambling in states where it's permitted now and set up a regime to regulate it. A companion bill was introduced in the 111th Congress by Rep. Jim McDermott, D-Wash., that would have established a system for taxing online gaming, but that measure also died in the last Congress without any action beyond a hearing on the issue.

Supporters of legalizing, regulating and taxing Internet gambling argue the 2006 law has done little to deter the millions of Americans who already gamble online through sites based offshore. They say the bill would implement much needed consumer protections, while bringing in billions of dollars in tax revenues over the next decade.

"Clearly the prospect of new revenue has helped to draw attention to this opportunity," said Michael Waxman, who heads a group that backs legalized online gambling called the Safe and Secure Internet Gambling Initiative, in referring to the budget woes facing many states and the federal government. "I think it could help to get it over the finish line."

A spokesman for Campbell, who also sits on the Financial Services Committee and supported Frank's bill in the last Congress, said the lawmakers have not set a date for when the bill will be introduced because they are still hammering out some last details, such as what committee they want it to be referred to.

The current chairman of the Financial Services Committee, Spencer Bachus, R-Ala., staunchly opposed Frank's bill. Bachus and other critics argue that it would make it easier for children and addicts to gamble, driving up social costs that would far outweigh any of the tax benefits.

A law prohibiting Internet gambling is facing a serious challenge less than four years after it was enacted, with key House Democrats looking to build on support for a repeal when the Congress returns in September, National Journal.com reported.

Rep. Jim McDermott, D-Wash., is pushing for a Ways and Means markup the week of Sept. 20 on his bill that would establish a federal tax for Internet bets that could bring in an estimated $42 billion over the next decade. Ways and Means Chairman Sander Levin, D-Mich., has not made a decision yet on marking up the bill, his spokeswoman said.

McDermott said he is hopeful for a vote after a companion bill that would set up a licensing and registration system for Internet gambling cleared the House Financial Services Committee on July 28 by a 41-22 tally. That vote margin was surprising because seven out of the 29 GOP members on the panel voted for the legislation sponsored by Financial Services Chairman Barney Frank, D-Mass., which would allow states and tribes to opt out of the system and still continue a ban on sports gambling over the Web. Rep. Ron Paul, R-Texas, voted present.

"It reflects the reality that Republicans like Grover Norquist and FreedomWorks support it," Frank said. To read, more click here.

The House Financial Services Committee Wednesday backed legislation that would legalize Internet gambling and set up a regime to license and regulate it.

The bill was approved on a bipartisan 41-22 vote with one present vote from Rep. Ron Paul, R-Texas. It would counter a 2006 law that prohibits online gambling with some exceptions and bars banks and credit card companies from processing payments for online bets.

House Financial Services Chairman Barney Frank, D-Mass., said he is aiming to move the bill on a parallel track with a related measure offered by Rep. Jim McDermott, D-Wash. His bill, pending before the Ways and Means Committee, would set up a system for taxing legal online gambling activities, which are estimated to bring in as much as $42 billion over a 10-year period.

The committee rejected two amendments that critics said would essentially gut the bill. The first, offered by Rep. Joe Baca, D-Calif., and defeated on a 37-22 vote, would require states to opt-in to the bill's provision allowing online gambling. The bill as offered would provide states with an opportunity to opt out of allowing Internet gambling for their citizens. The committee adopted an amendment offered by Rep. Brad Sherman, D-Calif., that would give states one full general legislative session to opt-out instead of the 90 days included in the bill.

The panel also rejected, 43-22, an amendment from Bachus that would have deleted the bill's provisions and replaced it with language requiring the Treasury Department to develop and maintain an updated list of illegal online gambling sites that banks, credit card companies and other payment providers could use to block funding for online gambling transactions.

Those entities that block illegal online gambling transactions from sites on the list would be deemed in compliance with the 2006 law. To read more, see Thursday's CongressDaily AM edition. (Subscription required).

House Financial Services Chairman Barney Frank's drive to establish a licensing and regulation system for Internet gambling still faces resistance within segments of the industry after a tribal group and a brick-and-mortar casino signaled resistance during a Wednesday hearing, CongressDaily reported.

Representatives from the Mohegan Tribe of Connecticut and Los Angeles' Commerce Casino both testified that they had found flaws in Frank's bill, throwing cold water on the bill as currently drafted. Frank, D-Mass., conceded that legislation would have to be tweaked to assuage concerns, especially from politically connected tribal groups that fear they could be placed at a competitive disadvantage if the multibillion-dollar industry was made legal. The bill could be marked up next week. The Senate has shown no interest in the issue so far.

"We are prepared to make some of the changes that people have talked about," Frank said of his bill that would overturn a 2006 law that banned the industry. Frank's bill would allow states and tribes to opt out of the system, and would still continue a ban on sports gambling over the Web. A companion bill by Rep. Jim McDermott, D-Wash., would place taxes on such a system, estimated to bring in as much as $42 billion over a 10-year period. To read more, click here. (Subscription required)