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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

               INTERNET GAMBLING PROHIBITION ACT OF 1999

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 15, 2000

                               __________

                           Serial No. 106-150

                               __________

            Printed for the use of the Committee on Commerce

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
65-902                     WASHINGTON : 2000

                    ------------------------------  

                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

   Subcommittee on Telecommunications, Trade, and Consumer Protection

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bowman, Michael, Vice President, Government Relations, Family 
      Research Council...........................................    40
    Dean, Lisa, Vice President, Technology Policy, Free Congress 
      Foundation.................................................    38
    Di Gregory, Kevin V., Deputy Assistant Attorney General, 
      Criminal Division, Department of Justice...................    34
    Goodlatte, Hon. Bob, a Representative in Congress from the 
      State of Virginia..........................................    12
    Nestel, Daniel, Assistant Director of Federal Relations, the 
      National Collegiate Athletic Association...................    50
    Poulson, Anne, President, Virginia Thoroughbred Association..    43
    Sheldon, Reverend Louis, Traditional Values Coalition........    52
    Waldron, Gerard J., Partner, Covington & Burling.............    56
    Williams, Richard, Chairman, Lac Vieux Desert Band, Lake 
      Superior Chippewa Indian Tribe.............................    59
    Ziemak, Gregory, Executive Director, Kansas Lottery..........    31

                                 (iii)

  

 
               INTERNET GAMBLING PROHIBITION ACT OF 1999

                              ----------                              

                        THURSDAY, JUNE 15, 2000

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                            Trade, and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members present: Representatives Tauzin, Oxley, Stearns, 
Gillmor, Cox, Largent, Cubin, Shimkus, Fossella, Ehrlich, 
Markey, Gordon, Rush, Eshoo, Luther, Green, and McCarthy.
    Staff present: Justin Lilley, majority counsel; Cliff 
Riccio, legislative assistant; Andrew W. Levin, minority 
counsel; Brendan Kelsay, minority investigation; and Chris G. 
Ernst, minority staff.
    Mr. Tauzin. The subcommittee will please come to order. We 
will ask our guests to take seats and catch the doors so we 
have some quiet in the hearing room. Thank you.
    This morning we will consider legislation that the Speaker 
referred to this committee because of our historical experience 
in dealing with matters that affect interstate and foreign 
communications. In particular, we are here today to consider 
H.R. 3125, the Internet Gambling Prohibition Act, which is 
sponsored by Mr. Goodlatte, who will be testifying on the 
matter.
    The Congress has spent much of its time harrowing the 
promise of the Internet. Just yesterday, the House provided 
overwhelming support that an initiative sponsored by Mr. Bliley 
will help to establish a key foundation in the digital economy, 
namely, electronic signatures, and Mr. Dingell and Mr. Markey 
and Mr. Oxley were key components of the effort to work that 
bill through the House/Senate conference and through the floor 
vote yesterday, for which I want to thank my friends and 
colleagues.
    They also provided strong support for the idea that the 
Internet should remain tax free, or at least until State and 
localities dramatically simplify their patchwork of sales and 
use tax structures. The promise of the Internet is indeed real. 
What we all know is, promise always bring with it some risk 
and, in some cases, real and identifiable problems, such as 
spam, which the committee addressed yesterday through 
legislation, to protect consumers against this nuisance and 
sometimes very troubling and inefficient aspect of the 
Internet.
    Also, on-line pharmacies have come up for some discussion 
because we have learned that on-line pharmacies have the 
potential of preying on senior citizens.
    In addition to the prevalence of obscenity and pornography, 
the Internet's darkest side, rears the issue of Internet 
gambling. There is no mistaking the threat that Internet 
gambling poses to society, children in particular. We will hear 
firsthand evidence today. We will also hear evidence of how 
strong Internet gambling's future is unless Congress decides to 
act.
    As complicated as the problem is, the solution is no less 
complex. We will hear testimony today from numerous experts in 
the area of the law and policy, some in support of this bill 
and some in strong opposition. I note in particular that some 
resist the idea that a bill that is indeed intended to prohibit 
Internet gambling creates exemptions, which could have the 
effect of promoting some forms of gambling on the Internet. But 
we all know sports-related and casino-style gambling account 
for most of the gambling on the Internet. The bill that would 
allow State lottery will clearly bar such gambling in the 
future.
    I want to commend the work of Mr. Goodlatte and his 
colleagues at the Judiciary Committee. They have worked long 
and hard to try to craft a bipartisan solution. We have to 
begin the process so this important legislation can be refined 
further. We look forward to the testimony of this morning's 
witnesses, and I yield to my friend and colleague, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. I want to commend you 
for calling this hearing on legislation that proposes certain 
new regulations on the Internet, in this case, dealing with the 
subject of gambling.
    The legislation broadly proposes making gambling over the 
Internet illegal, providing criminal penalties for violations, 
authorizing civil enforcement proceedings by State and Federal 
authorities, as well as establishing regulations on how 
Internet service providers will terminate and block access to 
material or activity, which violates the gambling prohibition.
    On the other hand, the legislation contains provisions 
which might have made the late great Claude Rains blush. A 
number of exceptions to the general prohibitions on Internet 
gambling that permit, under certain circumstances, fantasy 
sports leagues, gambling on horse races, gambling on jai alai, 
and gambling on greyhound racing. The legislation also permits 
intrastate purchase of lottery tickets, but only if they are 
made in a public facility, which presumably means that you 
can't buy a lottery ticket from home over the Internet. This 
``on the one hand, on the other hand'' approach to Internet 
gambling reminds me of the story of Father Murphy, who goes up 
into the pulpit on Sunday morning and says on Wednesday night 
in the church hall, Father Murphy lectures on the evils of 
gambling. Thursday night in the church hall, bingo.
    Ladies and gentlemen, there is no question that our society 
has a schizophrenic attitude toward this issue. Gambling can be 
very additive, a compulsion that many citizens struggle with 
gambling daily. It can poison professional and amateur 
athletics. It is opposed by many religious organizations. On 
the other hand, many otherwise pious people hop on flights 
every year to visit the modern day gambling mecca of Las Vegas 
or Atlantic City or to the Babylon on the Bayou, now that 
Louisiana has gambling.
    There are now casinos on Indian reservations and on river 
boats all over this country. And in the east, we have a button-
down version that we call Wall Street. But we don't call that 
gambling, we call that capital formation. We will prohibit 
wagers on the Web unless, of course, it is a bet on the biotech 
stocks where the bookie isn't in the local bar but on the big 
board or on-line at Ameritrade, where you can place your bets 
for only $8 and double your bet if you are willing to play 
chicken with the office coffee boy named Stuart.
    How do we choose which type of gambling to ban? Should we 
place them all on a spinning roulette wheel and see where it 
lands? I know that I strongly opposed organized gambling on 
college athletics, but on the other hand, March madness, how 
much does it cost to join that pool in your office? H.L. 
Mencken once said that the definition of a puritan was someone 
who had the haunting fear that somewhere, someone, somehow was 
having a good time. And much of what we are talking about here 
is how ordinary people gamble, not on Wall Street or some new 
Internet company that they are putting $100,000 on, but they 
have no idea what the company does because somebody whispered 
this tip. Did I grow up in a community with two minds on 
gambling, in a word, bingo? I think we all did. That is why 
this subject is so complex, and it is going to require a lot of 
thought on our part before we craft rules that are going to be 
binding for a good long time on the American public.
    Mr. Tauzin. Rock on, Mr. Markey.
    If the gentleman yields a second, a real story, I was 
calling bingo once at my church in New Orleans and I called the 
wrong number, and in the day when people were using corn to 
cover the number on their cards. I had to ask the audience to 
look under all of their corn and to remove that and put the 
corn on the right number. There was a lot of grumbling in the 
audience. I said I made a mistake, which everybody does, and 
that is why we had erasers on the back of pencils. And some guy 
in the back of the room yelled up yeah, Billy, that's why we 
have elections now and then, too.
    [The prepared statement of Hon. Edward J. Markey follows:]
   Prepared Statement of Hon. Edward J. Markey, a Representative in 
                Congress from the State of Massachusetts
    Good Morning. I want to commend Chairman Tauzin for calling this 
hearing today on legislation that proposes certain new regulations for 
the Internet, in this case dealing with the subject of gambling.
    The legislation broadly proposes making gambling over the Internet 
illegal, providing criminal penalties for violations, authorizing civil 
enforcement proceedings by Federal and State authorities, as well as 
establishing regulations on how Internet service providers will 
terminate and block access to material or activity that violates the 
gambling prohibition. On the other hand, the legislation contains 
provisions that might have made the late, great Claude Rains blush: a 
number of exceptions to the general prohibition on Internet gambling 
that permit under certain conditions, fantasy sports leagues, gambling 
on horse races, jai lai, and greyhound racing. The legislation also 
permits intra-state purchase of lottery tickets but only if such 
purchases are made in a public facility, which presumably means you 
can't buy a lottery ticket from home over the Net.
    This ``on the one hand, on the other hand'' approach to Internet 
gambling reminds me of the story of the Catholic priest, who at the end 
of the Mass, announces upcoming parish functions by saying to the 
parishioners, ``Please note that on Wednesday evening in the parish 
hall, Father Murphy will lecture on the evils of gambling. And don't 
forget: on Thursday in the parish hall, `Bingo.' ''
    There's no question that our society has a schizophrenic attitude 
toward this issue. Gambling can be a very addictive, debilitating 
compulsion that many citizens struggle with daily. It can poison 
professional and amateur athletics. It is strongly opposed by many 
religious organizations.
    On the other hand, many otherwise pious people hop on flights every 
year to visit the modern day gambling Mecca of Las Vegas--or they go to 
Atlantic City or to the ``Babylon of the Bayou'' now that Louisiana has 
gambling. There are now casinos on Indian reservations and on 
riverboats.
    And in the East, we have a buttoned-down version that we call 
``Wall Street''--but we also don't call that ``gambling'', we call it 
``capital formation.'' We will prohibit wagers on the Web. Unless, of 
course, it's a bet on biotech stocks where the bookie isn't in the 
local bar but on the Big Board, or online at Ameritrade where you can 
place your bets for only 8 dollars--(and double your bet if you're 
willing to play chicken with the office copy boy named ``Stuart.'')
    How do we choose which type of gambling to ban? Should we place 
them all on a spinning roulette wheel and see where it lands? I know 
that I strongly oppose organized gambling on college athletics--but on 
the other hand . . . March Madness, how much to join the pool?
    H.L. Mencken once said that the definition of a Puritan was a 
person who was fearful that someone, somewhere, somehow might be having 
a good time. I grew up in a socially conservative, blue collar 
community that the Puritans might have liked--but it was within two 
miles of the dogs at Wonderland and the ponies over at Suffolk Downs.
    Did I grow up in a community with two minds on gambling?
    In a word: ``Bingo.''
    I look forward to hearing the testimony from our witnesses.

    Mr. Tauzin. The Chair is pleased to recognize the gentleman 
from Oklahoma, Mr. Largent, next.
    Mr. Largent. Thank you, Mr. Chairman. I wanted to thank you 
for holding this hearing on H.R. 3125, the Internet Gambling 
Prohibition Act. There is no dispute that there has been an 
explosive growth of Internet gambling over the past few years. 
The National Gambling Impact Study reports that Internet 
gambling revenues have doubled every year for the past 3 years. 
One study indicates that on-line gambling revenues have grown 
from $300 million in 1998 to $651 million in 1999. It is 
expected that revenues will go to $2.3 billion by 2001. There 
is dispute, however, if this legislation is sufficient to 
address the problem of Internet gaming. We will hear testimony 
today from some of the witnesses who believe that H.R. 3125 
strikes the proper balance between curbing the growth of on-
line gaming, but allow otherwise lawful wagering on animal 
races, Indian gaming and jai alai.
    We will also hear from others who believe that H.R. 3125 is 
a special interest bonanza and if we are to prohibit on-line 
gaming, we need to prohibit all Internet gambling, and I look 
forward to hearing the pros and cons associated with H.R. 3125, 
and I yield back the balance of my time.
    Mr. Tauzin. I thank the gentleman.
    The gentleman from Texas, Mr. Green is recognized.
    Mr. Green. Thank you, Mr. Chairman.
    Like my colleagues, I am glad you called this hearing on 
the bill although I am confused by the legislative intent. Just 
recently, our subcommittee held a hearing on obscenity 
available over the Internet, and the tenor of that hearing was 
trying to prevent the spread of this destructive material to 
adults and children. I am quite surprised when I read H.R. 3125 
that we are going to legalize gambling over the Internet. It is 
just as addictive as drugs and alcohol, and the passage of this 
bill would allow residents of Texas to bet on horse and dog 
races in other States.
    Mr. Chairman, we already share our financial resources in 
Texas with the casinos in Louisiana, and we don't want to share 
anymore. That is one of the disturbing aspects of it. I can sit 
in my home and flush my family's financial security down the 
disk drive without anyone knowing about my actions until it is 
too late. The legislation would be a boon to compulsive 
gamblers, even if your State prohibits it. We should rename 
this legislation the ``Breakup the Family Act'' because I don't 
know what would happen if my wife came in at 10:30 at night and 
I said we lost our savings and our children's savings because I 
lost a horse race.
    Any bill dealing with gambling has the greed factor and 
this one is truly amazing. I didn't support gambling in the 
Texas legislature when I was there, and after I left, the 
citizens of Texas voted for a State lottery, and that lottery 
now provides over a billion dollars a year for our Texas public 
schools. I didn't vote for it during the referendum, and I 
would surely be concerned about allowing Internet gambling on 
horse racing and dog racing outside the State of Texas because 
the voters did not approve that type of gambling. It would have 
little benefit to the individual States.
    At least the lottery provides a billion dollars to the 
Texas public schools. My concern is States that have a lottery. 
We are supposed to support allowing horse and dog track owners 
in other parts of the country to have Internet gambling, and 
yet the lotteries would not be able to do that. I don't want to 
have to sell this vote back home in Texas. Texas has changed in 
the last few years. We now allow horse racing and dog racing 
gambling actually at our tracks on races around the country, 
but that still is to the benefit of the folks in Texas. 
Gambling, no matter what forms it comes in, needs to be decided 
on the State level, and I am sure that I am not the only member 
here today who feels that we are going to trample on the rights 
of our States by regulating gambling within their borders.
    I am interested to hear the panel discussion today, and 
particularly on improvements in the legislation. I have a 
suggestion. We could actually ban Internet gambling. Gambling 
in any form over the Internet should be illegal. For the sites 
that currently exist outside the borders of this country, 
hopefully the Justice Department could use its resources to 
shut them down. The subcommittee has spent a lot of time 
exploring the weaknesses of human behavior and how the 
telecommunications revolution affects it. Let's not pass 
legislation which would encourage something that would 
devastate people and their families, whether gambling or 
pornography.
    Mr. Tauzin. The gentlewoman, Mrs. Cubin, is recognized.
    Mrs. Cubin. Thank you, Mr. Chairman for holding this 
hearing on H.R. 3125, so that we can learn more about Internet-
based gambling, how it has grown and how it is regulated, or, 
in most cases, unregulated, and what role the Federal 
Government should take to ensure that certain abuses don't 
occur.
    I understand fully why some argue that Federal legislation 
is needed. The Internet is unique and, as such, gaming over the 
Internet is also unique. The fact that one State could allow 
Internet gambling when it is prohibited by its neighboring 
States demonstrates some need for a Federal role. However, I 
have always been a States' rights advocate. The State of 
Wyoming is not much of a gaming State compared with other 
States. The revenue brought to the State just last year from 
one horse racing track is over $6 million.
    More significant are the 232 full-time and part-time jobs 
that that racetrack supports. I believe it is important, as we 
continue this debate, that we take into account the States and 
their rights to allow or to prohibit gaming within their 
borders. Equally important is the enforcement of current laws 
that prohibit fraudulent activities over the Internet, such as 
credit card fraud and underage gambling. I took a particular 
interest in the Department of Justice's testimony and its 
concerns with the bill expanding gambling opportunities instead 
of prohibiting them. In a way, I agree with the Department of 
Justice's read of this legislation.
    If it is the intent of the bill's author to prohibit 
gambling over the Internet, why should we allow certain types 
of gambling and not allow others? Furthermore, I agree that 
permitting gambling in one medium and prohibiting it in that 
same form of gambling in another medium just doesn't make a lot 
of sense to me.
    Instead of prohibiting gambling in certain forms of 
Internet, which I stated, doesn't seem workable, it is as if 
this bill is bolstering an already established brick-and-mortar 
gambling industry. I want to become educated with this entire 
issue, and it is my hope that the witnesses we have here today 
will be able to shed some light on the points that I have made. 
The fact that a number of people have been prosecuted by the 
Department of Justice for on-line gaming shows me that maybe 
the laws are already on the books, that they just need to be 
enforced, and those that violate the laws should be sought more 
aggressively.
    Again, Mr. Chairman, I have brought many of my concerns 
forward and I hope by the time this hearing is over today, we 
will have a lot better understanding as to how we should 
proceed with this legislation. Thank you for allowing me to 
speak.
    Mr. Tauzin. I thank the gentlelady. The gentlelady from 
California, Ms. Eshoo, is recognized.
    And let me say again, we thank the gentlelady for her 
important work on the digital signature bill, an important bill 
that moved yesterday.
    Ms. Eshoo. Thank you, Mr. Chairman. As partners in a 
previous Congress, I think we brought a very important issue to 
our colleagues and it really matches where we are in the 
beginning of this century. I also appreciate, Mr. Chairman, and 
Full Committee Chairman, Mr. Bliley, for making sure that we 
have a hearing on this legislation. I think the bill has 
serious implications for e-commerce and the whole issue of 
regulation of the Internet, so I think it is important that we 
have a chance to review these issues.
    I want to compliment Mr. Goodlatte and our colleagues for 
their efforts to attempt to protect society from the dangers of 
gambling and the abuses that are sometimes associated with it. 
It can be a corrosive agent and it is frequently a 
manifestation of addictive behavior. But I do think that the 
bill is deeply flawed. I want to make some comments about where 
and how I think it is flawed.
    It prohibits some types of gambling, and it actually 
expands other kinds. It puts an inappropriate burden in my view 
on high technology companies, and it also interferes with civil 
liberties of the American people. I think the legislation is 
rife with loopholes, which appear to be the result of special 
interest lobbying. Betting on horses and dogs is okay, sports 
and casino style games are out. Jai alai is in, State lotteries 
are out. It is a patchwork of prohibitions and exemptions which 
seem to be based on the degree of power of a particular 
interest group rather than good public policy. After all, if 
gambling on the Internet is wrong, then gambling on the 
Internet is wrong, period. So I think that we have a long ways 
to go to fill these gaps.
    I am going to be a little harsh here, but I am still going 
to express my disappointment with the NCAA and the NFL on their 
strident views on this issue. I hear a lot of concern about the 
threat that Internet gambling would pose to the values of young 
athletes and the integrity that sports have, but it seems to me 
that there are other practices that are tolerated by collegiate 
and professional sports organizations that pose a far greater 
risk of failing to instill the kinds of values that we want to 
instill in young people.
    Today, big-time college athletes are given special dorms. 
They eat at training tables. They are allowed to preregister 
for courses, and they frequently enjoy relaxed academic 
standards, and some even fail to graduate.
    If we are going to broaden the lens here, we need to take 
all of it and really be honest about it as we approach it. I 
know that the NFL is here today to testify to the threat of 
Internet gambling for young people, but I think they need to 
look within their ranks and really take a good hard look at 
what they can do with some of their players.
    Finally, the bill seeks to put regulatory boundaries on the 
Internet, and I think we have to take a look at whether these 
views are shortsighted, and also take into consideration civil 
liberties. The notice and the take-down provisions, in my view, 
are overly broad. They are too burdensome for ISPs, and I think 
they give the government too much power. The blocking 
provisions in the legislation intrude on individual privacy. 
They attempt to put artificial boundaries on the Internet when 
the Internet is designed specifically to transcend boundaries.
    So Mr. Chairman, I think that we have got a lot of work to 
do. I think that we have some miles to go and some places to 
see. I think that the bill has a long ways to go, and I think 
that we have a lot of work to do.
    I welcome the witnesses and I look forward to hearing their 
testimony, and I thank you and the chairman of the full 
committee for making sure that we have a hearing on the bill. I 
yield back the balance of my time.
    Mr. Tauzin. Thank you.
    Mr. Largent. Will the gentlelady yield? First of all, 
professional athletes don't have special dormitories. Second of 
all, student athletes graduate as a percentage far greater.
    Ms. Eshoo. Are there special floors in dorms for athletes?
    Mr. Largent. No, there are not.
    Ms. Eshoo. Thank you.
    Mr. Tauzin. The gentlelady's time has expired. The 
gentleman from Illinois, Mr. Shimkus, is recognized.
    Mr. Shimkus. I am not going to wax philosophically, but I 
join my colleague, Mr. Markey, in claiming that I am 
schizophrenic on this issue of gambling, and that is the 
importance of the hearing. I do have a question for the 
chairman. It is a question on seniority of committee 
assignments. Is Bob Goodlatte senior to me? It seems that he 
attends these hearings even more than members of the committee.
    Mr. Tauzin. He has commerce envy.
    Mr. Shimkus. I am looking forward to a time when we have a 
hearing on a bill when he does not show. I want to welcome him, 
and I yield back the balance of my time.
    Mr. Tauzin. Mr. Stearns is recognized.
    Mr. Stearns. Mr. Chairman, thank you for holding this 
hearing on H.R. 3125, the Internet Gambling Prohibition Act. I 
would like to thank my colleague, Mr. Goodlatte, for being here 
again. The commercial event of the Internet affords a consumer 
household a flood of resources. A couple of keystrokes and 
mouse clicks, one can track local weather, listen to music as 
well as make on-line purchases. Previously, one would have to 
travel to Las Vegas or Atlanta City to partake in gambling and 
games of chance. Now it is a matter of a couple of clicks and 
the Web surfer can stroll through a virtual cyber casino. Every 
home with on-line access now is also a home with a casino.
    Mr. Chairman, I would like to read from the National 
Gambling Impact Study Commission. Internet gambling is ``the 
newest medium offering a game of chance.'' Furthermore, the 
report states that the ``previously small number of operations 
has grown into an industry practically overnight.'' Last year 
alone, the Commission came across more than 250 on-line 
casinos, 64 lotteries, 20 bingo games and 139 sports books 
providing gambling over the Internet. Additionally, the FBI 
reported growth in Internet gambling from $300 million in 1998 
to $651 million in 1999. And Bear Stearns estimates that 
Internet gambling Web sites generated more than $1.2 billion 
last year, and that number will grow to $3 billion within the 
next 2 years.
    Regulation of gambling has been traditionally left to the 
States. However, due to the nature of the Internet, no single 
State or collection of States can adequately address the 
growing problem of on-line gambling. While I am generally 
cautious about posing regulations, thereby possibly strangling 
the growth of the Internet, I believe this bill brings the law 
up to date with Internet technology by clarifying Federal law 
that operating an Internet gambling business is illegal, all 
the while recognizing States' leadership role in regulating 
gambling within their borders. Additionally, this legislation 
does not prohibit legitimate businesses, which rely on legal 
gambling, from going on-line.
    Horse racing, for example, is a legal activity that is 
closely regulated in my home State of Florida. They have a $2.2 
billion annual impact on Florida's economy and employs more 
than 27,000 people in Florida. This bill obviously is not a 
perfect bill, but it is a step in the right direction, and I 
look forward to the testimony today and thank you, Mr. 
Chairman.
    Mr. Tauzin. I thank the gentleman. Are there any further 
opening statements?
    [Additional statements submitted for the record follow:]
   Prepared Statement of Hon. Michael G. Oxley, a Representative in 
                    Congress from the State of Ohio
    Thank you, Mr. Chairman, for holding this timely hearing. I want to 
welcome our witnesses, including the gentleman from Virginia, who 
really ought to give up the pretense of being a member of the Judiciary 
Committee and formally come over to the Committee on Commerce.
    The issue before us is one we have confronted before and one we 
will undoubtedly encounter repeatedly in the coming years. That is the 
need to update federal law to apply it to the realities of the Internet 
society.
    In the case of gambling, you have a situation where state 
restrictions on gambling are being undermined by individuals operating 
outside of those jurisdictions, or even outside of the United States 
altogether. It is not unlike the effort against Internet pornographers, 
an effort to which I have devoted considerable effort.
    As with pornography, I reject the suggestion that we should throw 
up our hands in frustration at the scope of the problem, simply 
resigning ourselves to the negative impact on our children and on our 
society.
    I support the idea of a general prohibition on online gambling, and 
I commend Senator Kyl and Congressman Goodlatte for taking the issue 
on. Gambling is a habit forming obsession for many individuals, 
bankrupting and breaking up families. And easy access to on-line gaming 
by minors raises questions about the impact on young people during 
their formative years. I saw a quote from Senator Kyl recently, where 
he said that with online gambling kids could ``wager with Mom's credit 
card, click the mouse and bet the house.''
    As we all know, gambling has traditionally been regulated by the 
States, and this tradition has served us fairly well.
    At the same time, when you are dealing with a national and 
international medium--a medium that is subverting state prohibitions on 
casino-style gambling, for example--it does become a federal matter. 
And when you are addressing matters of interstate commerce and 
interstate communications networks, as we clearly are here, such 
matters fall under the jurisdiction of the Committee on Commerce and 
this Subcommittee.
    I wrote an individual letter to Speaker Hastert on May 3rd asking 
that the Commerce Committee be granted a sequential referral of this 
legislation making this very point. I am pleased that we have received 
that referral, although I was a little surprised at the abbreviated 
length of the referral.
    While I support the premise behind the legislation before us, I do 
have questions about the drafting. As I read it, under this measure an 
individual sitting at his home computer in Van Buren, Ohio could 
legally place a wager on a dog race in Pensacola, but he couldn't buy a 
ticket for the Ohio Lottery. Indeed, you have rather broad exemptions 
for parimutuel wagering and Indian gaming, but since the Judiciary 
Committee markup and the passage of the Pease amendment, rather 
restrictive provisions pertaining to State lotteries.
    I have to tell you, this seems backwards to me. 38 States have 
established lotteries, in many cases by ballot measure, and they draw 
revenue from a broad base of voluntary participants, with the proceeds 
dedicated to various public projects. Obviously, the citizens of these 
States have decided that lotteries are an innocuous form of gaming.
    My staff did a little research on the prevalence of lotteries in 
the States represented by Members of this Committee. Of the 53 Members 
of the Committee on Commerce, all but seven come from States with a 
legally authorized lottery. In most of our States, lottery proceeds are 
dedicated to educational purposes, although in a few they are used for 
seniors programs, transportation funds, conservation efforts, or 
general revenues. In Ohio, the beneficiaries are primary, secondary, 
vocational, and special education.
    While many States have parimutuel gambling and even off-track 
betting parlors, others don't, and several explicitly prohibit such 
activities. Obviously, those States have decided that there is 
something undesirable about parimutuel wagering, and while we are free 
to agree or disagree with that assessment, we do need to be respectful 
of the prerogative of the States.
    So, while I support the thrust of the gentleman's legislation, I'm 
troubled by the inconsistencies. Either we're respecting States' 
rights, or we're not. Either we're prohibiting Internet gambling, or 
we're not. I don't think we should try to have it both ways.
    With that, Mr. Chairman, I yield back.
                                 ______
                                 
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Mr. Chairman, thank you for holding this hearing on the Internet 
Gambling Prohibition Act.
    Because this legislation seeks to regulate Internet service 
providers and the interstate services they provide to subscribers, this 
legislation falls within the scope of this Committee's jurisdiction 
over interstate and foreign commerce.
    The Judiciary Committee lent its considerable experience in 
criminal law to this bill. Now this Committee will examine the 
implications of this bill on interstate and foreign communications, and 
in particular, the impact of this bill on the Internet.
    I share the goals that the sponsors of this bill have, including my 
friend and colleague, Mr. Goodlatte . . . who is with us once again 
today. Like him, I am troubled by the ills that gambling visits on our 
society. And I am especially troubled by the implications of Internet 
gambling . . . including its impact on children and those with 
compulsive gambling habits.
    Having said that, I come to this hearing with an open mind as to 
whether this bill, as reported by the Judiciary Committee, is the most 
effective means of addressing what we all agree is a serious problem. I 
am interested to learn more how the exemptions in this bill for horse 
racing and other forms of gambling can be explained as consistent with 
a bill designed to prohibit gambling.
    Moreover, I believe it is important that we hear from those who 
sought--but were ultimately denied--similar exemptions from the bill's 
prohibition . . . such as the state lotteries and charitable 
organizations.
    I am particularly curious to learn more about the bill's 
enforcement provisions. More to the point, I note that the bill would 
require any and all interactive computer services to essentially act as 
surrogates for federal and state prosecutors. I intend to explore 
further this issue of using the private sector as a means of 
implementing criminal law.
    Mr. Chairman, this is a distinguished panel of witnesses, and I 
look forward to learning more from them about this important issue, and 
this legislation.
    Thank you, and I yield back my time.
                                 ______
                                 
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri
    Thank you Mr. Chairman for holding this hearing on H.R. 3125, The 
Internet Gambling Prohibition Act of 1999. 1 look forward to the 
testimony of our witnesses, especially Greg Ziemark of the Kansas State 
Lottery Commission--it is always nice to see individuals from my area. 
I welcome all of you and look forward to the discussion that will 
follow.
    From the privacy of your home, you can instantly find more than 800 
casinos on the Web. One can find electronic slot or poker machine, 
blackjack, or a sports bookie who will take wagers 7 days a week, 24 
hours a day.
    Fueled by the explosion of the Internet and acceptance of casino 
gambling as mainstream entertainment worldwide, online egambling is 
growing at a rapid rate.
    One would never know by the discussion we are having here today 
that on-line gambling is already illegal. In Section 1084 of The Wire 
Act, enacted in 1961, betting or wagering via a wire communication 
facility in interstate or foreign commerce was made illegal. My fear is 
that the bill before us today, if enacted, would create two 
inconsistent gambling prohibitions. One prohibition that applies to 
gambling over the Internet and the other prohibition, already in 
effect, that applies to gambling over wire communication facilities, 
which already includes the Internet.
    My home state of Missouri currently prohibits all Internet gambling 
based on The Wire Act of 1961. However, if HR 3125 were to pass, 
Missouri would have to allow the certain types of gambling that are 
permitted in HR 3125, gambling such as horse and dog races and fantasy 
sports leagues. It is hard to believe that this bill, titled the 
Internet Gambling Prohibition Act of 1999 actually expands gambling in 
my home state. If we are going to prohibit on-line gambling we need to 
do it without exemptions and we need to do it in technological neutral 
terms.
    Laws that are technology specific can lead to overlapping and 
cumbersome legal standards . . . this brings me to my next point. How 
are we going to regulate this gambling prohibition once it is in 
effect? The Internet is global in nature and that's why it is often 
hard to wrap our hands around, but if we are going to make laws 
prohibiting certain activities over the Internet, we need to be 
prepared to actually carry out the law without violating state rights.
    I fear that the overlap in statues will complicate the role of law 
enforcement at both the state and Federal levels.
    It is my hope we could simply amend existing gambling laws instead 
of creating a new technology specific law.
    I want to once again thank our witnesses and I yield back the 
remainder of my time.
                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Thank you, Mr. Chairman, for recognizing me, and I commend you for 
holding this important hearing today. I must note at the outset, 
however, that I have a strong sense of deja vu as we begin this debate 
about Internet gambling.
    Over the past few years this Committee has held numerous hearings 
on the issue of Internet tax policy. The primary point of contention in 
those hearings was whether Internet sales should be taxed in the same 
way as traditional sales in the off line world. This was not an easy 
question to decide. Some groups argued for a consistent policy; others 
advocated for special Internet exceptions.
    In 1998, Congress wisely chose a cautious route, and created a 
blue-ribbon commission to investigate the matter and report back its 
recommendations. The commission itself had difficulty reaching a 
consensus, and just last month Congress once again deferred this 
question by extending the moratorium for an additional five years.
    Now we are faced with a similar policy dilemma: how should we treat 
online gambling? Should we maintain the same rules that apply in the 
offline world, or are special Internet exceptions the better answer? 
After all, some would argue, the Internet is a burgeoning new economy 
that should not be saddled with old world constraints.
    Unfortunately, the bill before us today is a fine example of the 
schizophrenia underlying Congressional attempts to formulate sound 
Internet policy. While the legislation is titled the ``Internet 
Gambling Prohibition Act,'' it could just as well be called the 
``Internet Gambling Enhancement Act.''
    The legislation starts out sensibly enough--true to its title--
making clear that the existing offline ban on interstate gambling 
should apply to the Internet. But from there, the bill is literally off 
to the races, making it perfectly legal to bet across state lines on 
everything from horses and dogs to jai alai and fantasy sports, so long 
as the wagering is transacted over the Internet.
    Fortune magazine may have chosen the most fitting title for its 
June 12th article on the subject of H.R. 3125. The headline read, and I 
quote, ``Wanna Bet This Bill Is Really Strange?'' The article continues 
by stating, and I quote again:
        ``If you need further proof that Congress works in weird ways, 
        here it is. Lawmakers are now considering a bill called the 
        Internet Gambling Prohibition Act. Common sense says that such 
        legislation would, well, prohibit gambling on the Internet. But 
        common sense is as fleeting in Washington as the cherry 
        blossoms. So while the bill would ban some forms of Web 
        gambling--mostly casino-style games of chance--it would 
        encourage others. Because of a little-noticed exception in the 
        fine print, the legislation would actually expand parimutuel 
        betting--wagers placed on the outcome of competitions like 
        horse and dog racing and jai alai.''
    Frankly, I must agree with this article that the intent of the 
legislation is baffling. Particularly since the 104th Congress passed a 
sensible bill, sponsored by Rep. Wolf of Virginia, that created the 
National Gambling Impact Study Commission. After performing an 
intensive two-year study, the Commission issued its report. It found 
that the number of Internet gamblers in the United States had more than 
doubled in just one year--to 14.5 million people in 1998--and that the 
annual revenues from Internet gambling would reach a staggering $2.3 
billion by 2001.
    The Gambling Commission issued a clear recommendation to the 
President and Congress that, and I quote, ``the federal government 
should prohibit, without allowing new exemptions . . . Internet 
gambling not already authorized within the United States . . .''
    Clearly, Internet gambling is a complex issue, and one that should 
be handled with extreme care by this Committee and the Congress. 
Statistics show that compulsive gambling is on the rise. Common sense 
suggests that increasing the ease of access to it, particularly through 
the Internet, will greatly exacerbate the problem.
    Mr. Chairman, I understand the Committee's referral on this 
legislation is short, but I hope these issues can be deliberated 
thoroughly and with great care. The stakes are simply too high to rush 
this bill in its current form through the Commerce Committee--we are 
literally gambling with our children's future, and I hope the majority 
will seek an extension if necessary to process this bill in a fully 
informed manner.
    Thank you, again, for holding this hearing.

    Mr. Tauzin. Then the Chair is pleased to welcome our 
colleague and friend from the Judiciary Committee, Mr. Bob 
Goodlatte of the great State of Virginia, the author of the 
legislation. We appreciate your testimony today.

 STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF VIRGINIA

    Mr. Goodlatte. Thank you very much, Mr. Chairman. It is 
indeed a pleasure to be back before the Commerce Committee. I 
would say to the gentleman from Illinois that I do introduce 
these bills in other committees--they all wind up visiting the 
Commerce Committee as well.
    Mr. Tauzin. You realize that doesn't help you before this 
committee.
    Mr. Goodlatte. Some of them I introduce here as well. But I 
do welcome the opportunity to speak about this legislation, 
which I believe is very important legislation. I do have a 
written statement that I would ask be made a part of the 
record.
    Mr. Tauzin. The written statements of all members as well 
as all of our witnesses will be introduced into the record. 
Without objection, so ordered. The gentleman may summarize his 
statement.
    Mr. Goodlatte. I would like to focus my remarks on 
statements made during the opening statements of the members of 
the committee. I am respectful of the issues raised and I want 
to take some time to address those. To the gentlewoman from 
California, I very much respect her interest in and love of the 
Internet. She serves with me on the Congressional Internet 
Caucus. She represents the heart of Silicon Valley and has a 
deep abiding interest in promoting the growth of the Internet. 
I think she knows, and I would say to her, I share that desire. 
We have worked together on many bills to promote the public's 
access to the use of the Internet through the use of encryption 
to protect their privacy on the Internet and a number of other 
things.
    The Internet, however, also has its seamier sides, just as 
society as a whole does. We have problems with child 
pornography on the Internet, and I think we have a serious 
problem with gambling on the Internet. It is something that 
different people will have different philosophical views on in 
general. I am opposed to gambling in general. Every State 
regulates it in different ways. But it is basically illegal 
unless regulated by the States and the Internet poses a very 
considerable challenge to that.
    For example, in my State of Virginia, we do not allow 
casino gambling, but virtually anybody in Virginia who is on-
line can have access to more than 700 cyber casinos in their 
family room, bedroom or whatever part of their home. These 
operations are not regulated. In fact, I can't see how it would 
be possible for individual States to regulate them the way 
casinos are regulated in Nevada or New Jersey, and so on.
    So to me, the solution here is a ban on gambling on the 
Internet. Now, if I could roll back everything that has taken 
place thus far, I would do so, but I don't believe that this 
legislation has the capability to do that. But a couple of 
years ago, the National Association of Attorneys General, the 
State organization, experienced increasing frustration with 
having to deal with various types of gambling coming into their 
States, came to Senator Kyl and myself and asked us to 
introduce legislation. This legislation has twice passed the 
Senate. This Congress it has passed unanimously in the Senate, 
and it recently passed through the Judiciary Committee, and is 
supported by a wide array of organizations.
    The gentleman from Oklahoma made reference to the National 
Collegiate Athletic Association and the NFL. Their concern 
stems from the large percentage of gambling taking place on the 
Internet that is coming from betting on sports, particularly 
the NFL and college sports, and they are very concerned about 
this.
    I think the committee will hear from witnesses later on 
this morning about the problem of people being able to bet on-
line, children, and so on, in a totally unsupervised 
atmosphere. We heard testimony in the Judiciary Committee about 
teenagers who lost thousands and thousands of dollars of their 
family's money betting on-line. In addition to the attorneys 
general and the sporting associations, the legislation is also 
supported by a number of organizations opposed to gambling, 
including the National Coalition Against Gambling Expansion, 
but also the Family Research Council, Focus on the Family, 
Christian Coalition, and once one be concerned this is only 
conservative religious organizations that are opposed to this, 
the National Council of Churches endorses this legislation as 
does the governing body of the Presbyterian Church.
    There are consumers groups which are supportive of this 
legislation, as is the National Gambling Impact Study 
Commission, a commission established by the Congress a couple 
of years ago under legislation introduced by Congressman Frank 
Wolf. So the effort here is to stop gambling. Now there have 
been some who have suggested that there are exceptions. I would 
suggest to you that we have stopped the advent of efforts to 
move into additional areas of gambling, but we are not 
expanding gambling on the Internet with this legislation. That 
charge seems to come from the provision in the bill that 
recognizes, under very limited State-regulated circumstances, 
you can have a closed-loop system for pari-mutuel betting on 
horses, dogs and jai alai.
    That is something that is already taking place on the 
Internet in a number of States and in recognition of that, we 
have stopped there. There are those who would like to have the 
legislation go further and authorize that for State lotteries. 
The fact of the matter is that there is not one State lottery 
in the country that is offering the sale of lottery tickets on-
line at this time, and it seems to me to be very appropriate, 
given the problems of unsupervised circumstances where children 
can go on-line and buy lottery tickets from their homes, that 
the current system is a far better one. This legislation, which 
would ban casino-type gambling and which would impose other 
limitations on gambling in the country, is the properly 
balanced legislation that is now before the Commerce Committee.
    We have worked very carefully on the remedies available in 
this legislation as well, and we have worked very carefully 
with Internet service providers, one of whom I spoke to just 
moments before the hearing, and they have been very much 
involved and are very much satisfied with the language in this 
legislation, which provides for a set of circumstances very 
similar to the Digital Millennium Act. Upon violation of the 
Act, the Internet service provider is called upon to assist in 
taking down a Web site or disabling access to a Web site.
    Mr. Chairman, I would be pleased to answer questions of the 
committee.
    [The prepared statement of Hon. Bob Goodlatte follows:]
Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                       from the State of Virginia
    Thank you, Mr. Chairman, for allowing me to testify at this 
hearing. I very much appreciate the opportunity to set the record 
straight on my bill, the Internet Gambling Prohibition Act, and to 
stress the importance of passing this very important legislation during 
this legislative session. It is obvious from the overwhelming interest 
in this legislation that the issue we discuss today is of profound 
importance to the American people and to American ideals: the growing 
need for legislation to address the problem of illegal Internet 
gambling.
    One of the main reasons that the Internet has not reached its true 
potential as a medium for commerce and communication is that many folks 
view it as a wild frontier, with no safeguards to protect children and 
very few legal protections to prevent online criminal activity. The 
ability of the World Wide Web to penetrate every home and community 
across the globe has both positive and negative implications--while it 
can be an invaluable source of information and means of communication, 
it can also override community values and standards, subjecting them to 
whatever may or may not be found online. In short, the Internet is a 
challenge to the sovereignty of civilized communities, States, and 
nations to decide what is appropriate and decent behavior.
    Gambling is an excellent example of this situation. It is currently 
illegal in the United States unless regulated by the States. With the 
development of the Internet, however, prohibitions and regulations 
governing gambling have been turned on their head. No longer do people 
have to leave the comfort of their homes and make the affirmative 
decision to travel to a casino--they can access the casino from their 
living rooms.
    The negative consequences of online gambling can be as detrimental 
to the families and communities of addictive gamblers as if a bricks 
and mortar casino was built right next door. Online gambling can result 
in addiction, bankruptcy, divorce, crime, and moral decline just as 
with traditional forms of gambling, the costs of which must ultimately 
be borne by society.
    Current law already prohibits gambling over telephone wires. 
However, because the Internet does not always travel over telephone 
wires, these laws, which were written before the invention of the World 
Wide Web, have become outdated. My legislation simply clarifies the 
state of the law by bringing the current prohibition against wireline 
interstate gambling up to speed with the development of new technology.
    H.R. 3125 is similar to legislation sponsored by Senator Kyl and 
passed by the Senate by Unanimous Consent last Fall. This legislation 
has been carefully drafted over several years to address the recent 
explosion of Internet gambling and to respect the existing realities of 
lawful industries. The goal of the legislation is to hold the line--by 
not rolling back any activity that is currently legal but also not 
expanding what is currently lawful. Internet gambling is an extremely 
lucrative business and there is a lot of money that stands to be lost 
if this legislation is enacted. Therefore, the opponents of H.R. 3125 
who would like to expand Internet gambling have attacked the 
legislation from both sides arguing at the same time that the bill does 
too far in curbing Internet Gambling and that the bill does not go far 
enough, a hypocritical position meant to confuse the intent of the 
bill.
    First, we have heard that the legislation has become a ``magnet of 
favors for the gambling industry'' in the form of ``exceptions.'' This 
is incorrect. The legislation prohibits gambling on the Internet; there 
are no exceptions from this blanket prohibition. Betting on horse and 
dog racing, and betting on jai alai and by Indian tribes, are permitted 
only to the extent that they are currently lawful and only on closed-
loop subscriber-based systems, not on the open Internet. H.R. 3125 does 
not expand the current scope of legally permissible activity.
    Second, we have heard that the bill would ``expand gambling 
opportunities'' for the parimutuel industry. It does not. Even a 
cursory reading of the bill reveals that it only permits what is 
``otherwise lawful.'' The Judiciary Committee Report on the bill 
reinforces this by explaining that the parimutuel provision ``does not 
expand the current scope of legally permissible parimutuel wagering 
activity, but simply makes clear that the bill does not restrict that 
which is already legal.''
    At the very same time we are hearing complaints that the bill would 
prevent the states from selling lottery tickets in the home over the 
Internet. The legislation maintains the status quo by limiting such 
sales to places open to the general public, such as convenience stores 
where lottery tickets are already sold. This limit advances the goals 
of avoiding participation in lotteries by children, reduces the dangers 
of compulsive gambling, and diminishes the potential for fraud.
    The bill also maintains a hands-off policy toward Internet Service 
Providers by granting them protection from liability and ensuring that 
they do not have to police their networks for illegal activity. It 
would protect those ISPs whose facilities are used by another person to 
engage in Internet gambling, provided that the material is transmitted 
by a person other than the provider and through an automatic process. 
In addition, the liability protection is contingent on the provider 
responding expeditiously to a notice from law enforcement that illegal 
gambling is occurring on their network by removing or disabling access 
to the site containing the illegal activity. This language is similar 
to the liability provisions for copyright violations included in the 
Digital Millennium Copyright Act enacted in 1998.
    This legislation reflects careful and thorough consideration of the 
views of every affected interest. The result is a strong bill that 
prohibits Internet gambling and grants no interests or advantages. As 
you know, an aggressive lobbying campaign has been mounted by pro-
gambling interests that want to defeat the bill. That is why action to 
prohibit Internet gambling may well be impossible if legislation is not 
enacted this year.
    Mr. Chairman, online gambling is currently a $600 million per year 
business, and could easily grow to $1 billion business in the next few 
years. There are more than 700 existing Internet gambling websites that 
could be taken down after the enactment of H.R. 3125. It is time to 
shine a bright light on Internet gambling in this country, and to put a 
stop to this situation before it gets any worse. The Internet Gambling 
Prohibition Act, which will keep children from borrowing the family 
credit card, logging on to the family computer, and losing thousands of 
dollars all before their parents get home from work, will do just that. 
I want to again thank you for holding this hearing and for allowing me 
to testify before the Subcommittee.

    Mr. Tauzin. I thank the gentleman.
    The Chair will first recognize himself and then the members 
in order.
    Mr. Goodlatte, I am trying to understand the way that the 
bill, as it comes from the Judiciary Committee, treats these 
closed loops or subscriber-based services or these Intranet 
activities in gambling.
    As it applies to horse track betting and I think jai alai 
and dog racing, the bill provides for closed-loop, subscriber-
based service betting, but does not require that those wagers 
be placed in a facility that is open to the general public; is 
that correct?
    Mr. Goodlatte. That's correct.
    Mr. Tauzin. So the criticism the bill is receiving from the 
administration and from others, that it would permit people to 
bet on those forms of gambling on the Internet in their homes 
is accurate?
    Mr. Goodlatte. I would say that the criticism is accurate, 
but the statement that it is a different treatment is correct, 
and the reason is because it is already taking place in some 
States.
    Mr. Tauzin. I want to make sure. I didn't mean to make 
judgment.
    Mr. Goodlatte. I understand.
    Mr. Tauzin. What I am asking, is the statement correct in 
the administration's criticism of this bill, that the bill 
permits gaming on these forms of gambling in a person's home on 
a computer that might exist in a children's bedroom; is that 
correct?
    Mr. Goodlatte. For pari-mutuel betting, it is my 
understanding that that is correct, but as I say, that is 
already taking place. And the point that I would make to you 
regarding that is simply we would love to roll back gambling as 
far as possible, but this is where we think that we can draw 
the line.
    Mr. Tauzin. But this provision would allow States that do 
not yet permit closed-loop, subscriber-based gambling to occur 
from home computers to do so, does it not? It allows the 
expansion of this form of gambling in States that currently 
don't allow it; is that correct?
    Mr. Goodlatte. No, it does not allow the expansion. It is 
already taking place under certain circumstances.
    Mr. Tauzin. Suppose it is not taking place in a State, 
under this provision, can a State allow it?
    Mr. Goodlatte. Under current law, the State can do that. 
When the Justice Department says we are expanding gambling by 
changing the law, we disagree with that.
    Mr. Tauzin. You say you are not changing the current law 
that permits that to occur, but the fact is that it doesn't yet 
occur in many jurisdictions. So by not changing the law, at 
least in a practical sense, that form of gambling may expand in 
those jurisdictions, but it could so under the current law?
    Mr. Goodlatte. That's correct. In some States that have 
State-regulated horse racing, that takes place, and in other 
States it does not. This brings clarity to the law.
    Mr. Tauzin. When it comes to lotteries, on the other hand, 
there was a big carveout for lotteries in the original draft. 
The Judiciary Committee changed that provision. As I now read 
it, it now permits purchasing lottery tickets in a wholly 
intrastate situation, where there could be a closed-loop 
interactive computer service, subscriber-based service form of 
purchasing, but you impose on lotteries the condition that 
those bets, those purchases must be made at a facility that is 
open to the general public.
    So if I understand this correctly, the bill treats horse 
racing, jai alai and dog racing in a way that would permit the 
placing of bets on home computers. But when it comes to 
lotteries, I would say that you have to go to a public place to 
access the computer closed loop or Intranet system; is that 
correct?
    Mr. Goodlatte. That is accurate, and the reason for that is 
the States do not at this point, not one of them, have a 
service that offers the sale of lottery tickets in homes.
    Mr. Tauzin. Could you give us information as to which 
States currently allow these closed-loop systems to be used on 
home computers to gamble on horse racing, jai alai and dog 
racing?
    Mr. Goodlatte. Mr. Chairman, my understanding is that there 
are seven such States. I don't have them here.
    Mr. Tauzin. If you would please submit that for the record.
    The Chairman's time has expired. The gentleman from 
Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    As has been noted over and over again, the bill allows for 
betting on horse racing and dog racing and jai alai, but not on 
lotteries on-line. The policy judgment on the horses and the 
dogs is essentially that it is regulated, it is by the closed-
loop restricted system, and it is already in place, although in 
a small number of States.
    Lottery tickets, however, are not going to be given the 
same option, although you could set up closed loop for lottery 
ticket purchases, so you can protect against children betting.
    Mr. Goodlatte. You can try. I would say that there are 
going to be problems. If it were a situation where you could 
enact legislation that perfectly reflected my point of view, I 
would have none of this. But that is not the political reality 
that we are faced with.
    Mr. Markey. If the primary goal is to protect children and 
the closed loop does not work with dogs and horses, we need to 
legislate inside this bill on what we are going to require 
every racetrack to provide as an additional protection? If it 
does work, then we should not say that it cannot work for the 
lottery as well. We have a problem one way or the other. We 
have to tighten up legally what the requirements are.
    Mr. Goodlatte. If I might respond, my effort is to halt 
gambling on the Internet as much as possible. Horse racing is a 
very small percentage of the overall amount of gambling that 
takes place in the United States today. So we are saying that 
this halts 95 percent of the gambling on the Internet.
    Mr. Markey. But it is the only thing that is permitted so 
it is bound to grow. You are carving out an exception on 
something that is still in a limited number of States, but it 
is bound to grow if gambling is going to be the phenomenon.
    I guess the problem that I have is that the money from 
horse racing, dog racing, jai alai, it goes into the pockets of 
racetrack owners, jockeys, trainers. The money for lotteries 
goes for schools and police and fire. If you can justify 
gambling, you know, and limit its reach, then I think honestly, 
I would be more inclined to look at horse racing and dog 
racing. But at the end of the day we need a standard. You need 
to give to us a standard. What is the test that we are using to 
determine which gambling is appropriate and which gambling is 
inappropriate?
    Mr. Goodlatte. The test that we have is to hold the line 
where we have it right now. There is no State that has said 
``Wouldn't it be great if you could buy lottery tickets at 
home?'' This is the time and place to stop that from happening. 
That has not taken place in the other area, and therefore, we 
regard this to be consistent with the current state of the law.
    And I would also add, Mr. Markey, that the dog tracks in or 
near your district in Massachusetts pay a lot of taxes to the 
State of Massachusetts. They exist under the supervision of the 
State because the State derives a lot of revenues from those 
facilities as well as it does from the sale of lottery tickets.
    Mr. Markey. Well, the bulk goes to the owners of the 
racetrack, which is fine. That is the private sector.
    Mr. Goodlatte. But there are carrying costs.
    Mr. Markey. But there is a pure opportunity for the 
government to collect revenues out of the lottery and it goes 
directly into those earmarked pockets, mostly for local 
communities across the country.
    It seems to me that we are going to be making these 
distinctions based upon categories, the bases of which are our 
favorite domestic indicated animals, and those will be 
permitted. This we seem to have a closed loop over here that 
works for them, but we can't set up something over here that 
has a closed loop over here for lottery, for money as raised is 
going to be directed toward societal needs.
    I think we need a uniform way of dealing with this, others, 
those that are grandfathered, even though they are new to this, 
and we are catching up with this, but I don't think that 
Congress should catch up with new technologies by saying those 
that figured out how to exploit it before anybody else, we are 
going to grandfather them. I think we need a uniform set of 
guidelines that we are all going to use right down the line 
with an articulated philosophy that we are applying, otherwise 
we wind up with a discriminatory system.
    It is one thing for baseball in 1920 to ban the spitball 
and grandfather everyone in that was throwing it up until then, 
so they could throw it until the end of their careers because 
you knew that was going to end in 6 or 8 or 10 years. Here we 
are going to say one whole group of people can do it in 
perpetuity. At the end of the day we are going to have a 
standard that we can explain to everyone, or we are not going 
to have a standard at all. It is a nonstandard standard which 
this legislation now has at its core, and I don't think that is 
going to be acceptable.
    Mr. Tauzin. The gentleman's time has expired. The gentleman 
from Oklahoma, Mr. Largent.
    Mr. Largent. Thank you, Mr. Chairman.
    I have been reading the dissenting view of the bill. In the 
first paragraph it says, H.R. 3125 not only expands gambling 
over the Internet, it arbitrarily favors certain forms of 
gambling over others. First of all, how can the dissenters of 
this bill from the Judiciary Committee claim that this bill 
would expand gambling over the Internet?
    Mr. Goodlatte. Thank you, Mr. Largent.
    The fact of the matter is that if you take action now 
against more than 700 cyber casinos doing more than a billion 
dollars in gambling on the Internet, if you take action to 
restrict new forms of gambling on the Internet, like the sale 
of lottery tickets, if you address probably the largest problem 
of all, sports betting on the Internet, this is going to be a 
substantial halt to a very, very rapidly and dramatically 
growing problem.
    You can just see it in what has taken place in a very short 
period of time growing from when I introduced this legislation, 
about 20 or 30 cyber casinos, to now more than 700, and the 
amounts being in the tens of millions of dollars instead of in 
the billions of dollars, how urgent it is, and we are talking 
about gambling, we are definitely talking about money here, and 
what is happening is that those people who are hoping to profit 
from this, to sell these services to State lotteries, for 
example, or to continue to expand this are going to grow larger 
and larger, and their reach greater and greater. Unless we take 
action on this legislation in this Congress, it is going to be 
difficult to continue to pursue it.
    So no, this legislation is a very strong effort to stop the 
growth of gambling on the Internet. It is not responsible for 
any expansion of gambling on the Internet. It does recognize 
one existing form of gambling and permits that regulated by the 
States in a closed-loop system where they can use the Internet 
to share information to exist. But that is not the same thing 
at all as in any way expanding the Internet.
    Mr. Largent. When we talk about a closed-loop system, when 
we say that pari-mutuel betting is legal over the Internet, 
aren't we expanding that closed loop?
    Mr. Goodlatte. No, because--well, obviously it depends upon 
the legal niceties of that issue, but those who have examined 
this closely, including myself, believe that that is already 
legal, and it is simply the one small thing that we have not 
made illegal by this act.
    Mr. Largent. How many States are like the State of Oklahoma 
where we don't have anything beyond class 2 gaming in the State 
of Oklahoma? We don't have a lottery. There are no casinos. We 
do have bingo that is legalized on--our Native Americans have 
bingo parlors. How many States are like that?
    Mr. Goodlatte. I don't have the number for you. I would be 
happy to get that.
    Mr. Largent. In Oklahoma, you said all gambling is illegal 
unless regulated by the States.
    Mr. Goodlatte. Right.
    Mr. Largent. So in the State of Oklahoma, there is nothing 
beyond class 2 gambling, bingo, but yet over the Internet, you 
essentially can do everything in Oklahoma that you can do in 
Las Vegas?
    Mr. Goodlatte. That's right. The sovereignty of the State 
of Oklahoma and its citizens is being impinged by the fact that 
the Internet is a massive way around that.
    Mr. Largent. So is it illegal in Oklahoma? Class 3 gaming 
is illegal in Oklahoma, and yet it is coming in through the 
Internet. Is that illegal?
    Mr. Goodlatte. Some State attorneys general--Mr. Chairman, 
if I might, I would ask to be made a part of the record a 
letter from the National Association of Attorneys General and a 
statement by the attorney general of the State of Wisconsin. 
They were not able to get a witness to the committee in time 
for the hearing.
    Mr. Tauzin. Without objection, so ordered.
    [The information referred to follows:]

                                 State of Wisconsin
                                      Department of Justice
                                                      June 15, 2000
The Honorable Bob Goodlatte
United States House of Representatives
2240 Rayburn House Office Building
Washington, D.C. 20515

H.R. 3125--The Internet Gambling Prohibition Act

    Dear Representative Goodlatte: I write both to express appreciation 
for your ongoing efforts to ensure enactment of the Internet Gambling 
Prohibition Act and to underscore the ongoing support of the state 
Attorneys General for this legislation. State Attorneys General have 
been working on the serious law enforcement issues posed by Internet 
gambling since 1995.
    Gambling has traditionally been a state issue, and the individual 
states' laws reflect the diversity of the states and the key policy 
decisions made by and for their residents. The Internet threatens to 
disrupt each state's carefully crafted choice on gambling policy. Its 
ability to cross boundaries and make technological advances available 
to everybody has provided great benefits, but it has also led to the 
development of some of the problems addressed by the proposed Internet 
Gambling Prohibition Act. Without attempting to reach out and tackle 
these issues, individual state laws will have an uneven and minimal 
effect on the growth of this industry as a whole.
    Senator Jon Kyl has worked closely with my office and the National 
Association of Attorneys General for several years on this issue. After 
working closely with all of the parties affected by this legislation, 
he has been able to craft a bill which generally prohibits at-home 
gambling, while allowing existing licensed and regulated gambling 
enterprises to utilize technology to continue operating their own 
ongoing businesses. The strength of this legislation is that it allows 
states to continue to make their own decisions on what is legal and 
acceptable within their own borders, honoring their state laws and 
regulatory structures, while providing a complete prohibition on at-
home gambling via the Internet. This is something that no individual 
state's law could assure.
    Federal legislation can help combat this activity. In spite of its 
continued illegality, the vast majority of the world's Internet 
gambling players are right here in the United States. The reach of the 
federal courts goes well beyond each state's borders. The tools for 
injunctive relief provide much-needed preventative measures. The 
clarification of the criminal measures provides real penalties for the 
businesses taking advantage of the perceived vacuum in the current wire 
act--a vacuum created by new technologies and their ability to allow 
new forms of gambling to occur over the wires.
    Once this legislation is enacted, we look forward to working with 
the Internet service providers to ensure that it is appropriately 
implemented. Over the years, we have developed a productive 
relationship with the wire communications carriers in implementation of 
the Interstate Wire Act, 18 U.S.C. Sec. 1084. In using that law, we 
have worked with the carriers, not against them. Likewise, it is not 
our intent to target the Internet service providers. Rather, we look 
forward to working jointly with them to ensure that the laws are 
respected and utilized with the least burden placed upon them.
    All of the amazing benefits of the Internet could be lost if we do 
not make serious efforts, like those reflected in this bill, to prevent 
illegal activities such as online gambling from running roughshod over 
state laws. The wire act is just not doing the job in preventing the 
wide variety of gambling activities available on the Internet. This is 
one of those unique situations where a federal prohibition will 
actually assure the continuation of states' abilities to control what 
occurs within their own borders.
            Sincerely,
                                             James E. Doyle
                                                   Attorney General
cc: Senator Jon Kyl

    Mr. Goodlatte. That is in support of the legislation.
    To respond to the gentleman from Oklahoma, the attorneys 
general have experienced frustration in attempting to operate 
under existing State laws and the existing Wire Act in terms of 
enforcement, and that is why they have sought this essentially 
modernization of Federal laws, and it is important, Mr. 
Chairman, for the committee, I think, to be aware that this is 
not new for the Congress to step in and regulate in this area.
    Congress has passed legislation prohibiting the use of the 
U.S. mails for the sale of lottery tickets. In the 1960's we 
passed the Wire Act, and now because the Wire Act deals with 
copper wires and we are communicating in a whole host of new 
ways, this legislation modernizes the Federal Government's 
prohibition against gambling and gives the States new tools to 
fight it if they do not want it in their State.
    Mr. Largent. I yield back the balance of my time, Mr. 
Chairman.
    Mr. Tauzin. I thank the gentleman. The Chair recognizes Ms. 
Eshoo, the gentlelady from California.
    Ms. Eshoo. Thank you, Mr. Chairman.
    I would like to explore the whole area of the closed loop, 
because as I read through parts of the bill, there is a heavy 
emphasis indeed somewhat of a promise of what the closed loop 
system will do and who it will protect. First, tell me what the 
purpose of the closed-loop system is relative to the bill?
    Mr. Goodlatte. The purpose of the closed-loop system is to 
recognize the fact that such States are using such a system now 
and for the purpose of allowing the State to regulate these 
industries that they have traditionally regulated, horse 
racing, dog racing and jai alai.
    Ms. Eshoo. How would it work? Walk us through--I can't help 
of--I think of AOL as an example. It doesn't differ from that 
in terms of the disk. How would an adult or anyone else make 
use of this closed-loop system?
    Mr. Goodlatte. Well, I think they would become a subscriber 
to the system and then----
    Ms. Eshoo. They would request of whom a subscription?
    Mr. Goodlatte. They must subscribe with the State.
    Ms. Eshoo. With the State. So they request of the State. Do 
they make application to the State for essentially a disk?
    Mr. Goodlatte. They would have to have a way to access the 
closed loop, that's correct.
    Ms. Eshoo. How is the State going to verify age, 
eligibility, et cetera?
    Mr. Goodlatte. I cannot speak for the ones that are 
operating now, but there would be ways that you can do that, 
and obviously you would do things like issue a PIN number or 
rely on some type of access code to enable it.
    Ms. Eshoo. I think these provisions are placed in the bill 
to protect minors, but I think there is a huge loophole in the 
closed-loop system, most frankly. Are we going to send them to 
individual's homes to verify? Are you going to do fingerprints? 
Are you going to have driver's licenses? I don't know how you 
are going to enforce this relative to verification. I mean, I 
agree with you about protecting minors relative to gambling. I 
hate gambling. The closest I have ever come to it is to buy the 
scratches for my mother. She likes the $2 tickets instead of 
the dollar tickets. She wins. I pay, she wins. I am the one who 
loses the 2 bucks, so it is quite a system.
    What I question is how this actually works. I applaud your 
efforts and what you are trying to do. I think it falls short. 
I don't know how you can guarantee that people are going to, 
with this closed-loop system, how it is going to work, how you 
enforce it.
    Mr. Goodlatte. To answer your first two questions, the 
definition of the closed-loop, subscriber-based service is on 
page 37 of the bill, and it leaves to the State the means by 
which it conducts that verification.
    Ms. Eshoo. Where does the bill require the consumer to 
apply to the State for the disk to subscribe to the gambling 
operation?
    Mr. Goodlatte. Again, it is subject to the regulations that 
the State would provide.
    Ms. Eshoo. Do all States have regulations on this?
    Mr. Goodlatte. No, only the States that have this system in 
place.
    Ms. Eshoo. You imagine or you know?
    Mr. Goodlatte. I can get you the details. Some may work 
better than others.
    Ms. Eshoo. Would they apply to the racetrack for the disk?
    Mr. Goodlatte. Again, it is up to the State government to 
determine how that works. As to the ones that are working now, 
I would be happy to get you some information about that.
    Ms. Eshoo. If it is already working in the States, what are 
we doing here, if they have a closed-loop system and they apply 
to the State? The States enforce, the States verify in the 
cases where this----
    Mr. Goodlatte. Ms. Eshoo, we are not here because of the 
one section, but because of the 700 cyber casinos, the sports 
betting, the effort----
    Ms. Eshoo. But they are not legal in a closed-loop system 
in the bill.
    Mr. Goodlatte. They would not be legal at all if this bill 
were passed into law, but they are now, and that is the 
problem.
    Mr. Tauzin. The gentlelady's time has expired.
    Ms. Eshoo. I would just conclude that I don't think it is 
workable. I think the goal is a good one, but I think you can 
drive a Peterbilt truck through this. I don't know how many 
kids in my district or other places in the country could just 
get this disk. They are the smartest--and is it an unfunded 
mandate?
    Thank you, Mr. Chairman.
    Mr. Tauzin. Let me suggest that Mr. Goodlatte has a small 
problem with a foot injury. We are going to take a 15 minute 
recess to allow Mr. Goodlatte to go vote.
    [Brief recess.]
    Mr. Tauzin. The subcommittee will please come back to 
order.
    Let me ask our guests to take seats.
    The Chair now recognizes the gentlelady from Wyoming, Mrs. 
Cubin, for a round of questions.
    Mrs. Cubin. Thank you, Mr. Chairman.
    Mr. Goodlatte, part of the written testimony that we had 
received, and then some of the discussions today have indicated 
that maybe we don't need this legislation because there are 
Federal laws already in place that take care of the issue, and 
in my opening statement, I cited some prosecutions which have 
taken place under the Wire Act, Racketeer Influenced and 
Corrupt Organization Act, RICO. There are many others.
    In this day of technology, you can get the Internet over 
the air, wireless, and you can get the Internet through cable 
television. Would it be your opinion that those are areas where 
there is not current Federal law to prevent gambling?
    Mr. Goodlatte. That's correct, Mrs. Cubin.
    The initial push for this legislation came from the 
attorneys general of the States who were frustrated dealing 
with existing laws. The Wire Act was written in the 1960's. 
Communications have changed very dramatically since that time, 
and they felt that this legislation was needed as an update to 
those circumstances. That is why we have pushed forward. We are 
simply trying to deal with how we have attempted to regulate, 
and frankly on the Federal level, make illegal gambling in a 
new era.
    Mrs. Cubin. And with technology changing, who knows what 
might come next. I think that there is a place for this 
legislation. In Wyoming, we don't allow gambling for the most 
part, and I would like to keep it that way.
    Will this bill do anything to prevent this from happening 
to prevent, you know, gambling coming into the homes really? 
How are we going to enforce it?
    Mr. Goodlatte. There are a number of provisions. First of 
all, there are criminal penalties, fines and penalties in the 
legislation for the violation of the law. So if someone in 
Wyoming, or more likely because it is indeed the Internet, 
somewhere elsewhere in the United States or somewhere outside 
the United States, violates the law, they become subject to 
this Federal law. If they are then entering the United States, 
and a great many of these offshore cyber casinos are actually 
owned by U.S. citizens who will presumably want to come and go 
from the United States, they can be apprehended and prosecuted.
    In addition, the legislation provides for a notice and 
take-down procedure where the attorney general for the State of 
Wyoming or Federal prosecutors can work with Internet service 
providers to either take down the site or to work with them, so 
that people in your State or wherever the action is taken from, 
cannot get access to the violator of the law.
    Obviously, if they are outside the United States, we don't 
have the ability to prohibit them from doing business. If they 
want to offer gambling in France and they are outside the 
jurisdiction of the United States, that is outside the purview 
of our law.
    In addition, I would note that Congressman Leach, the 
chairman of the Banking Committee, is going to hold hearings on 
a critical component here, and that is the only way that you 
can gamble on-line is to extend your financial credit to that 
other location, and eliminating the ability to use credit cards 
and other means of transferring funds would be a major part of 
this as well. Many States make it an unenforceable debt to have 
a gambling obligation, and so some of the credit card companies 
are already backing away from cooperating with some of these 
sites. His bill is designed to enhance that, and I think that 
is a major tool in making sure that people cannot operate from 
anywhere in the world and have a gambling site in your home in 
Cheyenne, Wyoming.
    Mrs. Cubin. Thank you. I yield back the balance of my time.
    Mr. Goodlatte. One of the questions raised by Ms. Eshoo 
related to the procedures that would be followed by the States 
in terms of the verification of the closed-loop system.
    I have a statement from the Oregon Racing Commission, 
Stephen Walters, who is, I believe, the chairman, and it is 
five pages long. It goes into minute detail how the State of 
Oregon handles this very set of circumstances right now, and I 
ask that it be made a part of the record.
    Mr. Tauzin. Without objection, so ordered.
    [The information referred to follows:]
                                   Oregon Racing Commission
                                                      April 3, 2000
Honorable Bill McCollum
Chairman, Crime Subcommittee
House Committee on Justice
U.S. House of Representatives
Washington, D.C. 20515

Re: H.R. 3125

    Dear Chairman McCollum: This letter is submitted to support the 
exceptions for pari-mutuel racing set forth in the Internet Gambling 
Prohibition Act (H.R. 3125). In particular, I write to support the 
distinction the bill makes between the Internet and the ``closed-loop, 
subscriber-based system'' required in the exceptions for pari-mutuel 
racing.
    I am the Chairman of the Oregon Racing Commission, the only state 
regulatory body that has authority and actively regulates the operation 
of two closed-loop, subscriber-based pari-mutuel wagering systems and 
multi jurisdictional wagering totalizator hubs. In Oregon, wagering by 
electronic means via a closed-loop, subscriber based system is 
currently legal and has been ongoing since September 1999.
    It is common knowledge that, when the general public thinks of the 
Internet, they are referring to the World Wide Web and specifically to 
the ability to insert a URL address code via a browser and connect to a 
specified website or to browse randomly via a search engine and select 
content from millions of available sites. This is characteristic of the 
open nature of the World Wide Web environment that the closed-loop, 
subscriber-based system is designed to prevent.
    There are important distinctions between a wide-open and readily 
available gambling site on the World Wide Web, which Oregon opposes, 
and the subscriber-based system required by the Internet Gambling 
Prohibition Act, which is consistent with Oregon law. The World Wide 
Web is a quintessentially open environment that allows anyone with a 
server to pay a modest amount to purchase a domain name and go into any 
business, including the gambling business. Conversely, a closed-loop 
subscriber-based system, by definition, precludes businesses or 
entities not licensed and regulated by state governments from operating 
under the Internet Gambling Prohibition Act.
    In Oregon, for example, the Commission has broad statutory 
discretion over the licensing and operation of a closed-loop 
subscriber-based system. A pari-mutuel wagering operator must file an 
application for a license with the Oregon Racing Commission that 
includes, among other things, proof of corporate financial ability and 
the posting of a surety bond, background checks on all corporate 
officers and wagering hub personnel, a detailed plan of operation that 
includes very specific details about the operating systems and the 
required certification of any electronic wagering technology by the 
Commission to ensure compliance with state mandates. The operator also 
must maintain a proactive program to ensure responsible wagering by 
adults over the age of 21. Even after issuing a license, the Commission 
maintains an onsite office at each facility and conducts ongoing 
quality assurance and audit procedures with state government personnel. 
Through comprehensive state regulation and enforcement, we are 
confident that wagering operators in Oregon adhere to the letter of 
state law, the spirit of the current language of the Internet Gambling 
Prohibition Act, and the Interstate Horseracing Act.
    Operationally, someone casually surfing the Web or using an online 
search engine has no access to regulated pari-mutuel wagering 
opportunities on a state licensed closed-loop subscriber-based system. 
Access is controlled by an electronic account sign-up process with age 
and residency verification and limited to subscribers of a state-
sanctioned pari-mutuel system through account and personal 
identification authorization procedures. To become a subscriber of such 
a system, a person must supply verifiable proof of identity, age and 
residency--thereby limiting the possibility that a minor or a resident 
of a state where wagering is prohibited can use the online service. A 
non-subscriber to the service would have no access to the site or would 
not be able to proceed past a secure login page requiring account 
number and PIN security information. This process is consistent with 
advanced procedures in the financial industry for online trading and 
banking as well as ATM operation.
    There are other devices available to ensure the security of a 
closed-loop subscriber based system. Secure Sockets Layered Internet 
Security Technology--identical to technology used by financial 
institutions, service providers and brokerages (all state and/or 
federally regulated) to conduct e-commerce--further restricts access to 
pari-mutuel wagering via the Internet. Also, currently available 
Internet filter technologies such as Cyber-patrol and others can be 
employed to completely block access to state-regulated pari-mutuel 
wagering systems.
    This regulatory framework is effective in controlling access to 
wagering services operating in the state based on age, residency and 
the geographic location of a user. With on-site state personnel audit 
procedures in place, authorities have the ability to validate the age 
and residency of every accountholder with a licensed Oregon-based firm. 
The Internet Gambling Prohibition Act (H.R. 3125) imposes regulatory 
requirements on the states similar to those already enacted in Oregon. 
It provides that a ``closed-loop, subscriber-based system'' must:

 Be expressly authorized and operated in accordance with the 
        laws of the state for placing, receiving or otherwise making a 
        bet or wager;
 Include an effective customer and age verification system, 
        operated in accordance with the laws of the state to ensure 
        that all federal and state regulatory requirements for lawful 
        gambling are met;
 Include appropriate data security standards to prevent 
        unauthorized access by any person who has not subscribed or who 
        is underage; and
 Require the account holder to take the affirmative steps to 
        subscribe, to be registered by name, address, billing 
        information and to be physically located in the state.
    In addition to these requirements, account wagering operators 
licensed in Oregon impose additional proactive standards designed to 
ensure that only adults of legal age have access to personal wagering 
accounts and wager responsibly at all times. These include:

 Age Verification Procedure--A comprehensive identity and age 
        verification process at the time the account is set up. If a 
        potential subscriber's age is not verified, the subscriber is 
        required to submit a photocopy of his/her driver's license or 
        another official form of photo-identification. An account will 
        not be activated until verification of age is received in a 
        notarized writing. This verification system ensures that only 
        adults are able to open a personal wagering account.
 Blind Confirmation Letter--An account confirmation letter is 
        sent in a nondescript envelope to each new subscriber. The 
        letter ensures that each has authorized his/her name and 
        address to be used to open a wagering account. In the event 
        that an individual has not given their authorization, the 
        account will be immediately disabled.
 Account Number and Pin Authorization Procedures--A thorough 
        identification system involving an account number and a 
        confidential Personal Identification Number (PIN) is used to 
        ensure that only the subscriber of record can access his or her 
        account.
 The ``Sleep-On-It'' Policy--Next-day-deposit availability is 
        designed to help each subscriber manage his or her account in a 
        responsible manner. When funds are deposited into a wagering 
        account, the money will not be available for wagering purposes 
        until the next day.
 Credit Card Policy--A one-time credit card deposit from a 
        customer in the initial subscription phase is permitted in 
        order to establish an account over the telephone is accepted. 
        Beyond this initial deposit, credit card deposits from 
        subscribers are not accepted.
    The Internet Gambling Prohibition Act, in its enforcement 
provisions, also contains the ultimate safeguard. If any state 
regulated pari-mutuel operator does not comply with federal or state 
mandates, the government can protect the public and enforce the law 
through the termination of access to the site by interactive service 
providers. The closed-loop subscriber-based system maintains the 
government's ability to enforce this law. Private networks, or 
``Intranet'' wagering systems, however, do not require interactive 
service providers, circumventing the scope of proposed federal 
enforcement procedures.
    As written, the requirements in H.R. 3125, in addition to those 
that will be imposed by a state pursuant to the mandate in the 
legislation, are sufficient to ensure the safety and integrity of the 
system and to permit the continued offering of such personal wagering 
accounts by state-regulated and licensed domestic pari-mutuel 
operators.
    In sum, we must not forget that it is the authority of the states, 
consistent with the intent of the proposed federal legislation, to 
impose and enforce any mandates and requirements on the system in use 
that is the controlling and overriding factor in this discussion. 
Similar to the justification for the Federal Wire Act of 1961, the 
Internet Gambling Prohibition Act is intended to assist states in 
enforcing their own gaming laws. The bill, in its current form 
accomplishes the goal of enhancing the states' longstanding and 
successful regulation of legal, state sanctioned gaming such as 
domestic pari-mutuel wagering.
    If you have any questions, please contact me.
            Very truly yours,
                                         Stephen S. Walters
                                 Chairman, Oregon Racing Commission

    Mr. Tauzin. But with the gentleman's consent, I would also 
like to make a part of the record Web site documents for 
capital--RTB Racing 2000, it looks like. It contains 
information on Off Track Betting information requirements in 
New York, which is quite different from Oregon. We ought to see 
both of those. Without objection, that will be made a part of 
the record.
    The gentleman from Texas, Mr. Green, is recognized.
    Mr. Green. Thank you, Mr. Chairman.
    I wasn't here for part of your testimony where you talked 
about, under certain circumstances, you can have a closed loop. 
For example, in Texas we have horse racing, and off track, but 
you have to be at a local site, so I guess we get part of the 
revenue. Is it legal for me to have a closed loop to bet 
whether it be horse races or dog races?
    Mr. Goodlatte. If the State of Texas were to permit that 
under those circumstances, the answer would be yes. If they did 
not, the answer would be no. Different States have different 
laws relating to this, and that is the reason why we have the 
provision in the bill that makes recognition of the States' 
rights to have these kinds of systems where you are dealing 
with a closed-loop system, which is defined in the bill and 
which requires verification of who it is that you are dealing 
with.
    Mr. Green. And that is up to the States?
    Mr. Goodlatte. It is totally up to the States. The State of 
New York has a different system than the State of Oregon, and 
so on.
    Mr. Green. Could a State under current law do that now?
    Mr. Goodlatte. To my knowledge, yes. That is why we don't 
feel that we are doing anything that enhances gambling on the 
Internet which is one of the attacks of some of our critics. We 
believe that we are rolling back 95 percent of all gambling on 
the Internet, and we are leaving in place this State-regulated 
area.
    Mr. Green. Could a State now allow interstate and not just 
intrastate?
    Mr. Goodlatte. That is one of the things that we made clear 
in the law, that you cannot do that unless the other State 
agrees to that. If the State of Texas had a system and they 
wanted to extend that loop into Virginia and Virginia did not 
agree with that, did not make it lawful statutorily, they could 
not do this under this legislation. If they did, they could.
    Mr. Green. Without this legislation that we are discussing 
here today, could the State of Texas allow for interstate 
gambling from Texas citizens to Louisiana under current Federal 
law?
    Mr. Goodlatte. If it is totally lawful in both States.
    Mr. Green. If it is lawful in both States?
    Mr. Goodlatte. Right.
    Mr. Green. Mr. Chairman, obviously you would want us from 
Texas to drive over to Louisiana----
    Mr. Tauzin. Not necessarily, it would depend who you are.
    Mr. Green. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Mr. Tauzin. I want to follow up. In the New York case, the 
only thing required to bet on-line, the on-line information you 
need to post is your name and your e-mail address. They have 
forms where you can put an address and theoretically you can 
put any address. It requires a check on the document that I am 
18 years old. What is to stop me just listing an address in 
Texas or just putting an e-mail address?
    Do you follow what I am saying? In other words, you are 
saying that the bill says that only if the two States agree. 
But if the citizens of Texas, which may not agree to gamble on-
line in Louisiana, if they can get on-line and claim a 
Louisiana address or no address at all and put an e-mail 
address, is it enforceable?
    Mr. Goodlatte. I believe it is because I believe there are 
a number of ways that you can verify where you are doing 
business from. Not being familiar with the details of the 
current New York system, this bill would actually enhance that. 
This would require greater steps be taken in order for them to 
continue that system because it does require more verification 
than what you described under the current system in New York.
    Mr. Tauzin. The gentleman's time has expired. The gentleman 
from Illinois, Mr. Shimkus, is recognized.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Bob, is there any way to technologically prohibit someone 
within the continental United States from using a casino Web 
site in Barbados or--and prohibiting that access in that 
gambling venue?
    Mr. Goodlatte. Yes. There are several things. We talked 
about the enforcement provisions of the bill, but obviously 
they are directed at the offeror of the service. If they are in 
the jurisdiction of the United States or extradited to the 
United States, they can be prosecuted under law. But in terms 
of technologically being connected, yes. The provisions in this 
bill that relate to keeping people from doing business where 
they shouldn't be doing business, where they are prohibited 
from doing business are based upon the provisions in the 
Digital Millennium Copyright Act that Congress passed related 
to copyright violations where someone has a Web site up 
somewhere and they are giving away free copyrighted material 
that is in violation of the law.
    And that bill and this bill have a provision called a 
notice and take-down provision where in that case the owner of 
the copyright, in this case the law enforcement agency--the 
attorney general of the State, can notify the Internet service 
providers through which access is gained to these different 
sites around the world that this site is in violation of U.S. 
law and that the site either can be taken down or access to the 
U.S. be restricted.
    Second, I mentioned just a few moments ago to Mrs. Cubin 
that there is legislation in the Congress introduced by 
Congressman Leach, the chairman of the Banking Committee, to 
increase dramatically the difficulty with which you could use 
credit. It is not like going into a casino, you take cash out 
of your pocket and put it on the table. If you have to transfer 
funds in order to gamble, measures can be taken, not in this 
legislation but hopefully in legislation to follow, that would 
make that more difficult.
    Mr. Shimkus. Just to follow up, suppose I have my Internet 
access here with our server here at the Capitol and then I go 
and get on AOL and then I use AOL to get Microsoft and I use--
and you can go from Internet provider to Internet provider to 
the gambling site. Who is held accountable?
    Mr. Tauzin. Which Microsoft did you use?
    Mr. Shimkus. I am not sure which one yet. That is coming 
later on.
    Mr. Goodlatte. The court could issue an injunction under 
the circumstances requiring that those sites act accordingly. 
If a State is attempting to take action against a site, they 
are going to contact all of the leading Internet service 
providers. Could somebody find some way going through a lot of 
loopholes to do it, I am sure that there is going to be a 
technological escalation of warfare on that issue.
    Mr. Shimkus. Actually, I would predict some conniving, 
entrepreneurial gambler to make it easy to not only go through 
the Internet providers here, but then to go offshore and then 
go back in.
    Mr. Goodlatte. Even if the server is outside of the United 
States, the backbone of the Internet into the United States can 
be utilized to block these.
    Mr. Shimkus. Thank you, and I yield back the balance of my 
time.
    Mr. Tauzin. Thank you. The gentleman from Tennessee, Mr. 
Gordon.
    Mr. Gordon. Thank you, Mr. Chairman. I think these 
questions demonstrate why we have this hearing. We have to try 
to make room for this next panel. They have been waiting for a 
long time. So I am just going to say that I have learned more 
about this closed loop. I came in late. If Billy's scenario of 
what goes on in New York is part of that closed loop, then 
clearly I would suggest to you, Bob, that you need to be 
looking for some type of an addendum to this legislation. I 
don't think that we can leave it to the States. There will need 
to be some kind of uniform security that closed with this 
closed loop or it looks like there is no security.
    Mr. Goodlatte. Except that I would add that the legislation 
itself is stronger than what is provided for in New York. By 
passing this legislation, you would require States, and I don't 
want to speak for New York, but if they have a lax system, they 
would be required--and I will read just briefly--what it 
requires is well beyond that--``a device or combination of 
devices expressly authorized and operated in accordance with 
the laws of the States exclusively for placing, receiving or 
otherwise making a bet or wager described in subsection 
(F)(1)(b) by which a person located within any State must 
subscribe and be registered with the provider of the wagering 
service by name, address and appropriate billing information, 
be authorized to place, receive or otherwise make a bet or 
wager and must be physically located within that State in order 
to be authorized to do so and be an effective customer 
verification and age verification system expressly authorized 
and operated in accordance with the laws of the State in which 
it is located to insure that all applicable Federal and State 
legal and regulatory requirements for lawful gambling are met 
and appropriate data security standards to prevent unauthorized 
access by any person who has not subscribed or who is a 
minor.''
    Mr. Gordon. Is there an enforcement vehicle or penalty that 
goes with that?
    Mr. Goodlatte. Basically the answer is they meet the 
requirement or they do not qualify under the law for being 
allowed to offer a closed loop system.
    Mr. Gordon. I think there needs to be a penalty for 
falsification or against the States for not abiding by it.
    Mr. Tauzin. Would the gentleman yield? The problem that the 
gentleman points out is if you leave it up to the States to 
define what is legally required under the standard, and second 
to enforce that standard, it may not provide protections for 
the citizens of other States who have made different decisions. 
The concern that the gentleman makes in regard to that is 
perhaps that needs to get some attention.
    Mr. Gordon. The fundamental problem is any kind of 
electronic transaction in terms of establishing venue, 
establishing age, whether it is pin numbers and somebody steals 
it, you are a part of the problem that this whole new era of 
electronic commerce has brought to us, but we have to be 
looking for, I think, whatever continuity we can provide as 
well as looking for technology to try to help it.
    Mr. Tauzin. The gentleman's time has expired. We have a 
member who has to catch a plane. I want to ask you on one 
criticism that the Justice Department has made of your bill, 
that it is not technologically neutral. If, for example, the 
bill only applies to Internet gambling and therefore sets up 
new restrictions or laws or conditions upon gambling on the 
Internet, but does not change and leaves in place current law 
on gambling of a wire communications facilities, so if I make a 
bet on a telephone, I am covered by one kind of law. If I make 
a telephone call on the Internet, under this bill I would be 
affected by a different set of laws. So that the Justice 
Department is saying in effect, you are writing a bill that is 
designed for a particular technology when it may create 
inconsistent legal treatment, depending on whether you use the 
phone or you used Internet telephony to make the same bet. What 
is the answer?
    Mr. Goodlatte. Mr. Chairman, that is exactly what the Wire 
Act was in the first place. It created a separate form of 
treatment for the telephone. This technology is different than 
the telephone. We have had this philosophical debate.
    Mr. Tauzin. So it does treat them differently?
    Mr. Goodlatte. It is a procedural difference. I think the 
end result is very similar, if not the same, in terms of the 
substantive result. And I would point out, for example----
    Mr. Tauzin. If I can, if you can do something on a phone 
that you can't do on the Internet, isn't that a substantive 
difference? Isn't somebody subject to a different perhaps 
criminal violation depending on whether you used the phone or 
the Internet and do you really want to do that, particularly 
when the Internet is going to have voice communications on it 
more and more? Internet telephony is upon us.
    Mr. Goodlatte. Mr. Chairman, I am not sure that I am aware 
of any substantive difference. The Wire Act makes illegal these 
types of bets in interstate----
    Mr. Tauzin. The Justice Department thinks so.
    Mr. Goodlatte. The Justice Department has had a different 
approach. They want us to take a current section of the Wire 
Act and amend that instead of creating a separate section. We 
feel that the technology is so different----
    Mr. Tauzin. Can I bet on jai alai right now on the phone?
    Mr. Goodlatte. I don't know about jai alai, but my 
understanding is that you can for----
    Mr. Tauzin. Can I bet on dogs and horses on the phone?
    Mr. Goodlatte. Horses you can.
    Mr. Tauzin. Under your bill, I can't on the regular phone?
    Mr. Goodlatte. If you can pick up the phone and place a bet 
on horses, you can under a State regulated closed loop system.
    Mr. Tauzin. I think you are right. I think you can make a 
phone call and place a bet on a horse. In many States, at least 
seven and perhaps with loopholes many States you can make a bet 
on the Internet on a horse.
    Can you pick up the phone and make a bet on a dog race or 
jai alai today? I think the answer is, no. I think the answer 
is, no.
    Mr. Goodlatte. Very similar to what the bill says. If you 
are in the State and participating in a closed loop, pin number 
type system, yes, you can do that. That is why we think that 
our bill is compatible with current law and consistent and it 
is not an expansion.
    Mr. Tauzin. But your closed loop system for jai alai 
betting on the Internet is interstate. It need not be 
intrastate.
    Let me try to summarize. If I read it right, you are saying 
with a closed loop system, people can use the Internet to bet 
interstate on jai alai and dogs?
    Mr. Goodlatte. Only if the other State participates in the 
closed loop system.
    Mr. Tauzin. But you can bet interstate on the Internet on 
jai alai and dogs in your bill. The current law does not allow 
you under the Wire Communications Act to bet on dogs and jai 
alai interstate on the phone, and the Justice Department is 
questioning whether or not that creates a real problem when I 
pick up the telephone on the Internet, telephone telephony, and 
I can do something that is not permitted on the telephone. Is 
that a real criticism or not?
    Mr. Goodlatte. No, it is not. Right now on the telephone, 
interstate bets of the nature we described are taking place.
    Mr. Tauzin. On dogs and jai alai?
    Mr. Goodlatte. Dogs, horses, jai alai.
    Mr. Tauzin. I think there is some dispute about that.
    Bob, thanks so much. You have given us a lot of your time. 
Thank you.
    We will introduce the next panel and let me make a request 
that we take one of the witnesses out of order who has a 
problem with time, Mr. Ziemak, Executive Director of the Kansas 
Lottery. Let me bring the second panel up, which includes Kevin 
Di Gregory, Deputy Assistant Attorney General, Criminal 
Division, DOJ; Ms. Lisa Dean, Free Congress Foundation; Mr. 
Michael Bowman, Family Research Council; Ms. Anne Poulson, 
Virginia Thoroughbred Association; Daniel Nestel, NCAA; 
Reverend Louis Sheldon, Traditional Values Coalition; Greg 
Ziemak; Gerard Waldron of Covington & Burling; and Richard 
Williams, Chairman, Lac Vieux Desert Band, Lake Superior 
Chippewa Indian Tribe. Welcome.
    We want to welcome you all and we will start, with the 
permission of all of the other witnesses, with Mr. Ziemak of 
the Kansas lottery in Topeka, Kansas. Please don't read your 
testimony to us. Think about the highlights.

   STATEMENTS OF GREGORY ZIEMAK, EXECUTIVE DIRECTOR, KANSAS 
    LOTTERY; KEVIN V. DI GREGORY, DEPUTY ASSISTANT ATTORNEY 
 GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE; LISA DEAN, 
 VICE PRESIDENT, TECHNOLOGY POLICY, FREE CONGRESS FOUNDATION; 
 MICHAEL BOWMAN, VICE PRESIDENT, GOVERNMENT RELATIONS, FAMILY 
      RESEARCH COUNCIL; ANNE POULSON, PRESIDENT, VIRGINIA 
THOROUGHBRED ASSOCIATION; DANIEL NESTEL, ASSISTANT DIRECTOR OF 
      FEDERAL RELATIONS, THE NATIONAL COLLEGIATE ATHLETIC 
    ASSOCIATION; REVEREND LOUIS SHELDON, TRADITIONAL VALUES 
COALITION; GERARD J. WALDRON, PARTNER, COVINGTON & BURLING; AND 
    RICHARD WILLIAMS, CHAIRMAN, LAC VIEUX DESERT BAND, LAKE 
                 SUPERIOR CHIPPEWA INDIAN TRIBE

    Mr. Ziemak. Good afternoon. My name is Greg Ziemak. I am 
the President of the North American Association of State and 
Provincial Lotteries. NASPL are a nonprofit, professional 
organization to which every sanctioned U.S. lottery and 
Canadian lottery belong in addition to Puerto Rico, the Virgin 
Island and Jamaica. I am also the Executive Director of the 
Kansas Lottery. I have been professionally involved in the U.S. 
Lottery industry for over 25 years, and I appreciate the 
opportunity to testify before you regarding H.R. 3125, Internet 
Gambling Prohibition Act.
    For as long as Congress has been in existence, never has it 
attempted to regulate the methods on which States govern gaming 
within their borders. NASPL and its members oppose passage of 
H.R. 3125 on the grounds that it violates the right of the 
Nation's Governors and State legislators to authorize gaming 
within their borders. We urge you to reject this language 
unless there are provisions admitted back into the bill which 
protect the State's right to govern its own lottery. In the 
current form, H.R. 3125 allow for limited benefit gaming, those 
forms of gaming whose profits benefit only a limited group of 
individuals, horse racing, greyhound racing and jai alai, to be 
played from a public or private venue. Under this legislation, 
limited benefit gaming operators will be required to operate 
their on-line system using what is known as a closed loop 
subscriber based service, which we have been discussing 
already, and verify the eligibility of the individual placing 
the wager to engage in such activity. For public benefit 
gaming, defined as State lotteries, whose profit benefits 
programs such as primary and secondary education, programs for 
the elderly, the environment, property tax relief, the 
situation is quite different. Under the provisions of the 
current bill, State Governors and legislatures would only be 
allowed to authorize Internet State lottery games that could be 
played from a public venue using a private network, in reality 
providing Federal regulation of State obligations.
    In its original form, H.R. 3125 offered language that would 
at a minimum protect the State's right to offer Internet games 
on a level playing field with private benefit gaming through 
the use of a closed loop subscriber based service. As you know, 
this language was removed in the Judiciary Committee after 
strong protest from anti-lottery groups. The opponents of State 
lotteries said it would be dangerous to children to allow State 
lottery games to be played on the Internet because the 
technical security would not be sufficient to protect minors. 
They stated that lottery games would be an expansion of gaming. 
I would be doing a disservice to the Americans who benefit from 
lottery programs if I did not discuss the truth on these 
issues.
    First of all, it is interesting to point out that the 
closed loop subscriber based service that would be used by 
State lotteries is the same type of system used for limit 
benefit gaming interest. So if the technology is not secure 
enough for State lotteries, why is it secure for select benefit 
gaming interests where the wagers are much greater? It is a 
fact that security standards for State lottery games have been 
proven to be some of the most stringent in the world, and it is 
in our best interest to keep it that way if we are to maintain 
the level of public trust we have gained from our players and 
taxpayers of our lottery jurisdictions.
    Second, I would like to point out that you can purchase 
lottery tickets over the telephone and in fact in some States 
retailers are developing systems that allow you to purchase 
lottery tickets when they buy their groceries on-line. It is my 
understanding that has not been implemented yet, but there are 
some out in the West that are looking at that. It is assumed 
that by allowing Governors and State legislatures the right to 
continue controlling the way their State lotteries operate 
means that all State lotteries will begin to offer Internet 
products, and this is simply not true. There are several 
members of our organization, and our organization includes all 
sanctioned lotteries in the United States, 38 lotteries, 37 
States plus the District of Columbia, and there are some 
members in our organization that feel strongly about this and 
would oppose any attempt by their State legislature to 
authorize such games. But there are States that feel that there 
may come a time when their governments feel it is appropriate 
to offer these games.
    I make this point to urge--even though the members of NASPL 
may not agree on the value of Internet lottery games, and there 
is some disagreement, we are united in the belief that the 
Federal Government has no place in determining the way in which 
State lotteries operate or the games they offer--I would urge 
the committee to amend H.R. 3125 to include the strongest 
language possible to protect the State's right to control 
gaming within its borders.
    Before concluding, there is a second issue that, while not 
as fundamental as the States rights argument, is still worth 
mentioning. Because the language of H.R. 3125 would mandate 
that public benefit gaming would be limited to public arenas 
only, State lotteries would be put at a competitive 
disadvantage to other participants in the industry.
    Here is a little scenario I would like to give the 
committee. Saturday afternoon, it is raining. You have a 
choice, walk or drive to the local convenience store to 
purchase a lottery ticket or remain in the comfort of your own 
home and wager a larger sum of money on horse, greyhound race 
or jai alai game from a personal computer. The potential 
revenue lost to State lotteries and the programs they fund 
could potentially be staggering.
    Mr. Chairman, I have attached to my statement a detailed 
State by State list of where lottery profits are used in each 
State, and I ask you to allow this information to be entered 
into the record along with my statement. I would like to ask 
the committee to take a strong stand in support of States 
rights by either amending the original lottery provisions back 
into the bill or removing the special privileges for special 
benefit gaming interests.
    [The prepared statement of Gregory Ziemak follows:]
     Prepared Statement of Greg Ziemak, President, North American 
  Association of State & Provincial Lotteries, Director, Kansas State 
                                Lottery
    Good morning Mr. Chairman, my name is Greg Ziemak and I am the 
President of NASPL--North American Association of State & Provincial 
Lotteries as well as Director of the Kansas State Lottery. I have been 
professionally involved in the US lottery industry for over twenty-five 
years and I appreciate the opportunity to testify before you this 
morning regarding your work on H.R. 3125--The Internet Gaming 
Prohibition Act. For as long as the Congress has been in existence 
never has it attempted to regulate the method in which states govern 
gaining within their borders. NASPL and it's members oppose passage of 
H.R. 3125 on the grounds that it violates the right of the nation's 
governors and state legislators to authorize gaming within their 
borders. We urge you to reject this language unless there are 
provisions amended back into the bill that would protect a state 
government's right to govern its own lottery.
    In its current form H.R. 3125 would allow for ``limited benefit 
gaming''--those forms of gaming whose profits benefit only a limited 
group of individuals--horse racing, greyhound racing and Jai Alia--to 
be played either from a public or private venue. Under this 
legislation, limited benefit gaining operators would be required to 
operate their online systems using what is known as a closed-loop 
subscriber based service that would verify the eligibility of the 
individual placing the wager to engage in such activity.
    For ``public benefit gaming''--whose profits benefit programs such 
as primary and secondary education, programs for the elderly, the 
environment and property tax relief--state lotteries--the situation 
would be quite different. Under the provisions of the current bill, 
state governors and legislatures would only be allowed to authorize 
Internet state lottery games that could be played from a public venue 
using a private network. In reality providing Federal regulation of 
state obligations.
    In its original form, H.R. 3125 offered language that would, at 
minimum protect a state's right to offer Internet games on a level 
playing field with private benefit gaming through the use of the same 
closed-loop subscriber based service. This language was removed in the 
Judiciary committee after strong protests from anti-lottery forces. The 
opponents of state lotteries said that it would be dangerous to 
children to allow state lottery games to be played on the Internet 
because the technical security would not be sufficient to protect 
minors. In addition, opponents of state lotteries stated that Internet 
lottery games would be an expansion of gaming. I would be doing a 
disservice to the millions of Americans who benefit from lottery funded 
programs if I did not set down the truth on these issues.
    It is interesting to point out that the closed-loop subscriber 
based service that would be used by state lotteries is the same type of 
system that would be used for limited benefit gaming interests. If the 
technology isn't secure enough for state lotteries, why is it secure 
for select benefit gaming interests--where the wagers and payoffs are 
much greater? It is a fact that security standards for state lottery 
games have been proven to be some of the most stringent in the world 
and it is in our best interest to keep it that way if we are to 
maintain the high level of public trust we have gained from the 
taxpayers of our states.
    Second, it is important to point out that under current law, you 
can purchase lottery tickets over the telephone and, in fact, in some 
states retailers are developing systems that would allow residents to 
purchase lottery tickets when they by their groceries online.
    It is assumed that by allowing Governors and state legislatures the 
right to continue to control the way their state lotteries operate, it 
is means that all state lotteries will begin to offer Internet 
products. This is simply not true.
    In fact, there are several members of NASPL who are opposed to 
offering state lottery games online. They feel strongly about this and 
would oppose any attempt by their state legislature to authorize such 
games. But there are states who feel that there may come a time when 
their governments feel it is appropriate to offer such games. I make 
this point Mr. Chairman to illustrate that even though the members of 
NASPL may not all agree on the value of Internet lottery games, we are 
united in the belief that the Federal government has no place in 
determining the way in which state lotteries operate or the games they 
offer.
    Mr. Chairman, I would, again, urge the committee to amend H.R. 3125 
to include the strongest language possible to protect a states right to 
control gaming within its borders.
    Before concluding, there is a second issue that, while not as 
fundamental as the states rights argument, still is worth mentioning. 
Because the language of H. R. 3125 would mandate that public benefit 
gaming would be limited to public arenas only, state lotteries would be 
put at a competitive disadvantage to other participants in the 
industry. Let me paint this picture for you. It's Saturday afternoon 
and it is raining. You have a choice, put on your coat and walk/drive 
in the rain to a local convenience store to purchase a lottery ticket, 
or remain in the comfort of your own home and wager a larger sum of 
money on a horse or greyhound race or a Jai Alai game from your lap 
top. The potential revenue loss to state lotteries and the programs 
they fund could, potentially, be staggering. Mr. Chairman, I have 
attached to my statement a detailed state-by-state list of where 
lottery profits are used in each state and I ask that you allow this 
information to be entered into the record along with my statement.
    Mr. Chairman, I ask that the committee take a strong stand in 
support of states rights by either amending the original lottery 
provisions back into the bill or removing the special privileges for 
special benefit gaming interests.
    Thank you.

    Mr. Tauzin. Thank you.
    We will start with Mr. Di Gregory. Again, we thank you for 
your attendance.

                STATEMENT OF KEVIN V. DI GREGORY

    Mr. Di Gregory. Thank you, Mr. Chairman. It is indeed a 
pleasure to be before your committee. And Mr. Chairman, members 
of the committee, it has been discussed already and I will make 
the point very briefly that of course proliferation of Internet 
gambling opportunities is well documented and the proliferation 
of these opportunities concerns the Department of Justice, most 
particularly those in the Department of Justice who are 
concerned with enforcing current Federal law, the Criminal 
Division of the Department and the United States attorneys 
around the country, and we are troubled for three reasons.
    We are troubled because of the potential for fraud by 
Internet gambling operators. The potential is far greater than 
for traditional gambling because the Internet of course is 
instantaneous and anonymous, which means that we would have 
difficulty as prosecutors, as enforcers of the law, in tracking 
those perhaps responsible for perpetrating fraud through 
Internet gambling.
    Second, we are concerned about opportunity and 
availability. Anyone who has access to the Internet can at any 
place and at any time, this includes compulsive gamblers, place 
a bet and wreak financial devastation possibly upon themselves 
and their families.
    Third, we are concerned about anonymity and availability, 
and we are concerned that anonymity and availability may equal 
an inability to ensure that minors will not gamble. We do not 
think that there currently exists a technological way to grant 
any of us any such assurances, but we welcome any industry 
representatives to come in and talk with us at the Department 
of Justice and tell us how it is that they can technologically 
assure us that minors will not have access to Internet 
gambling.
    Despite these problems, Mr. Chairman and members of the 
subcommittee, we have made enforcement inroads and some 
references were made to those this morning. I would 
specifically note in the Southern District of New York an 
offshore sports betting operation run by Jay Cohen, which used 
both the telephone and the Internet, was prosecuted recently 
and Mr. Cohen was found guilty after a trial of violating 
current Federal law, 18 United States Code 1084.
    18 United States Code 1084, which I have a copy with me 
today, prohibits the interstate transmission of bets or wagers 
over a wire communication facility. It also prohibits the 
transmission of information assisting bets or wagers interstate 
over wire communications facilities with a single exemption of 
allowing such transmission of information assisting bets or 
wagers between two States where such betting or wagering is 
legal. It prohibits gambling businesses from transmitting that 
information, Mr. Chairman.
    Now, to talk about H.R. 3125, first and foremost, we 
believe at the Department of Justice that H.R. 3125 does indeed 
expand gambling opportunities. Pari-mutuel wagering is 
exempted. It allows not only the horse racing industry but dog 
tracks and jai alai frontons to do over the Internet what 
Federal law prohibits them from doing on the phone.
    Not only is H.R. 3125 inconsistent with current Federal 
law, its inconsistency exposes another what we believe to be a 
significant weakness. It is not technologically neutral. It 
would apply specific and different rules to the Internet. We 
would encourage Members of this body, Members of Congress, to 
legislate based on conduct and not on the medium used to 
perpetrate that conduct.
    In considering whether the operation of interstate gambling 
businesses should be prohibited, we recommend amending existing 
law, most specifically 18 United States Code 1084, and I 
mentioned what it prohibits. Currently it prohibits the 
transmission of bets or wagers on sporting events or contests 
over wire communications facilities interstate. It also 
prohibits the transmission of information assisting in the 
placing of bets or wagers on sporting events or contests 
interstate over wire communications facilities.
    We urge you to consider a proposal that we have made, and I 
will highlight what that proposal would do.
    It would clarify that 18 United States Code 1084 applies to 
all betting and not just betting on sporting events or 
contests. Our proposal would update 18 United States Code 1084 
so that it applies to the use of any, not just wire 
communications facilities. Our proposal would also ensure that 
existing protection from liability given common carriers who 
deny services to gambling businesses upon notice by law 
enforcement, it ensures that protection would be provided to 
any person, including Internet service providers, who are 
required by that notice to terminate a customer service.
    Our proposed amendment, Mr. Chairman and members of the 
committee, would not prohibit any gambling currently permitted 
nor would our proposal permit anything that is currently 
prohibited.
    I believe that our draft proposal has been attached to my 
written statement. I thank you for allowing my written 
statement to be added to the record and later on I will try to 
answer any questions that you may have.
    [The prepared statement of Kevin V. Di Gregory follows:]
 Prepared Statement of Kevin V. Di Gregory, Deputy Assistant Attorney 
    General, Criminal Division, United States Department of Justice
    Thank you, Mr. Chairman and Members of the Subcommittee, for 
providing me this opportunity to provide the Subcommittee with the 
Department of Justice's views on Internet gambling and H.R. 3125, the 
``Internet Gambling Prohibition Act of 2000.''
    The growing availability of emerging technologies has had a 
prolific effect on gambling. The Internet and other new technologies 
have made possible types of gambling that were not feasible a few years 
ago. For example, a U.S. citizen can now log on from his living room 
and participate in an interactive Internet poker game operated from a 
computer located in Antigua. Not only have the Internet and other new 
technologies brought gambling into the home, they have made it 
anonymous and readily available to virtually anyone at any time and at 
any place where there is an Internet hookup. As a result, the number of 
Internet gambling sites operating illegal betting and wagering 
businesses online has increased at an alarmingly rapid rate. The 
Department is deeply troubled by this proliferation of gambling on the 
Internet for three reasons.
    First, since the Internet allows virtually instantaneous and 
anonymous communication that is difficult to trace to a particular 
individual or organization, the potential for operators of Internet 
gambling sites to successfully defraud their customers is significantly 
greater than with traditional casino-style gambling. Fraudulent 
activities can range from credit card fraud to the manipulation of 
gambling odds. Of course--and as the Deputy Attorney General noted 
before the Subcommittee on Crime of the House Committee on the 
Judiciary on February 29, 2000--we recognize that there are legitimate 
reasons to allow anonymity in communications networks. A whistleblower 
or a member of a battered woman's support group, for example, may 
understandably wish to use the Internet and other new technologies to 
communicate with others without revealing his or her identity. 
Nonetheless, such admittedly legitimate uses for anonymity on the 
Internet involve legal activities and are inapplicable in connection 
with gambling on the Internet, which is illegal.
    Second, because the Internet provides people with virtually 
unfettered access to the opportunity to gamble at any time and from any 
place, Internet gaming presents a greater danger for compulsive 
gamblers and can cause severe financial consequences for an 
unsuccessful player.
    Last, because the Internet is both anonymous and widely available, 
it is much more difficult to prevent minors from gambling. Currently, 
Internet gambling businesses have no reliable way of confirming that 
gamblers are not minors who have gained access to a credit card and are 
gambling on their web sites.
    Despite the proliferation of Internet gambling, the Department is 
optimistic about its ability to combat this form of illegal gambling. 
On February 28, 2000, a jury in federal district court in New York 
found Jay Cohen, the owner of an Internet gambling site in Antigua, 
guilty of violating 18 U.S.C. Sec. 1084, a statute that makes it 
illegal for a betting or wagering business to use a wire communication 
facility to transmit bets or wagers in interstate or foreign commerce. 
Several of the counts for which Mr. Cohen was found guilty solely 
involved his Internet operations. That is not to say that section 1084, 
as written, will apply in every case. As I will explain later in my 
testimony, the Department believes that the statute may need to be 
amended to assist us in our efforts against gambling and organized 
crime.
    Before I discuss that, however, let me say that the Department has 
reviewed H.R. 3125 in great detail and is very concerned about how it 
proposes to deal with Internet gambling. The Department is most 
concerned about the following three issues.
    First, the Department is concerned that the bill does not really 
prohibit Internet gambling, but rather facilitates certain types of 
gambling from the home and, therefore, arguably expands gambling 
opportunities. Specifically, the Department recognizes that H.R. 3125 
exempts parimutuel wagering from the prohibition against Internet 
gambling. The result is that people will be able to bet on horse 
racing, dog racing, and jai alai from their living rooms. While the 
bill provides that such gambling must be done on a ``closed loop 
subscriber based service,'' the definition of that term is extremely 
broad. I could receive a free disk in the mail, load it on my computer, 
connect through my regular Internet service provider, and start betting 
on horse racing from my living room. Additionally, if my children have 
access to that same computer, they may also be able to get online and 
bet and wager on parimutuel activities.
    Simply stated, the Department does not understand why the 
parimutuel wagering industry should be allowed to accept bets from 
people in their homes, when other forms of gambling have rightly been 
prohibited from doing so. The same concerns that we have expressed 
about children and compulsive gamblers having unfettered access to 
gambling via the Internet is true whether the betting is on horse races 
or on casino games.
    Related to this point is the Department's second concern that the 
passing of H.R. 3125 will allow gambling online that currently is not 
allowed in the physical world. For example, currently a gambling 
business that accepts bets on horse races cannot accept interstate bets 
on the races over the telephone. Yet, H.R. 3125 would allow them to 
place the same such bets over the Internet. It is hard for the 
Department to understand why conduct previously deemed unacceptable in 
the physical world and over the telephone should now be legal when 
carried out in cyberspace.
    Third, H.R. 3125 is not technology-neutral, but applies only to 
Internet gambling while leaving the existing prohibition on gambling 
over ``wire communication facilities'' in general unchanged. While the 
Department is generally concerned about legislation designed for 
particular technologies such as the Internet, it is specifically 
troubled here by the creation of two inconsistent gambling prohibitions 
- one expressly for the Internet and a different one for the use of 
wire communication facilities (which includes the Internet).
    Indeed, any effort to distinguish Internet transmission from other 
methods of communication is likely to create artificial and unworkable 
distinctions. For example, we expect digital Internet telephony to grow 
in popularity over the next few years. How would we deal with gambling 
that occurred over this technology, which would use the Internet or 
other packet-switched networks for pure voice communications? Would it 
be under the proposed section 1085, which is designed specifically for 
the Internet, or under section 1084, which deals with wire 
communications in general (but also includes the Internet)? This is 
especially problematic, as section 1084 and the new section 1085 
proposed by H.R. 3125 would have different standards and punishments.
    The Department urges Congress to identify the conduct that it is 
trying to prohibit and then to prohibit that conduct in technology-
neutral terms. The fact that gambling has gone high-tech and can now be 
done through the Internet, is no reason to pass new laws that 
specifically target the Internet for regulation. Passing laws that are 
technology-specific can create overlapping and conflicting laws 
prohibiting the same activity, but with different legal standards and 
punishments. This will be the result if H.R. 3125 is enacted in its 
current form. We will have both section 1084, which we've used to 
prosecute Internet gambling, and a new section 1085 which would 
prohibit some, but not all, types of Internet gambling. This overlap in 
the statutes can only complicate law enforcement's efforts on the 
Internet gambling front.
    The Department encourages Congress, especially as it encounters 
more traditional crimes online, to ensure that existing laws are 
sufficient and technology-neutral in their approach and do not single 
out the Internet for regulation. If existing laws are deemed 
insufficient, please consider legislation, whether prohibitive or 
permissive, which focuses on specific conduct and not on the specific 
medium employed to perpetrate that conduct.
     Moreover, the Department believes that any Internet gambling 
legislation should not repeal or amend the rights or privileges secured 
tribes under IGRA. Of course, to the extent that Indian Tribes seek to 
offer gaming to citizens of various states, where such gaming does not 
take place solely on Indian lands and is not otherwise authorized by 
law, there is no compelling reason to exempt Indian Tribes from the 
otherwise generally applicable provisions of the legislation for such 
off-reservation gambling.
    For all of the reasons I've discussed, the Department urges 
Congress to amend existing gambling laws, rather than create a new 
technology-specific statutory scheme.
    As I noted earlier, section 1084 criminalizes those betting and 
wagering businesses that transmit bets or wagers on sporting events or 
contests over the Internet. The Department recognizes, however, that 
section 1084, which was enacted almost forty years ago, may need to be 
amended to bring it into the 21st Century. The Department believes that 
this can be done through the following actions:
(1) Amending section 1084 so that it clearly applies to all betting or 
        wagering and includes the transmission of bets or wagers over 
        any communications facilities. Such an amendment would 
        eliminate any doubt about whether section 1084 only applies to 
        bets or wagers on sporting events and contests. It would also 
        ensure that future technologies that are not wire-based 
        communication facilities are covered by section 1084.
(2) Adding several definitions to 18 U.S.C. Sec. 1081. For example, we 
        would recommend adding the following definitions for 
        ``transmission,'' ``bets or wagers,'' and ``information 
        assisting in the placing of bets or wagers.''
(3) Amending section 1084 to specifically cover those individuals in 
        the betting and wagering business who are located outside the 
        territorial jurisdiction of the United States, when those 
        individuals knowingly facilitate or aid in unlawful betting and 
        wagering by transmitting a bet or wager to or from an 
        individual located within the United States. While the current 
        statute includes those transmissions involving interstate and 
        foreign commerce, it is unclear whether the statute would cover 
        someone on a boat in the middle of the Atlantic Ocean who is 
        using a cellular phone to take bets or wagers from a U.S. 
        citizen located in Miami.
(4) Requiring any person, not just a common carrier, that provides a 
        facility to an individual in the business of betting and 
        wagering to disconnect service when served with proper lawful 
        process by law enforcement agencies. We would also extend the 
        same protections against liability contained in the existing 
        statute for common carriers to these persons.
(5) Clarifying that section 1084 does not repeal or amend the rights or 
        privileges secured tribes under IGRA.
(6) Clarifying that section 1084 does not prohibit how states are 
        currently legally using communication facilities in the 
        operation of multi-state lotteries.
    The Department of Justice believes that if section 1084 were to be 
amended in these ways, many of our concerns, as well as the concerns 
that led to the introduction of Internet gambling bills, would be 
addressed. We would be happy to work with Congress towards this goal. 
We have prepared a draft bill that incorporates our recommendations. A 
copy of our draft bill is attached for the Subcommittee's convenience.
     I want to thank the Subcommittee again for asking me to present 
the Department's views on Internet gambling. I would now be pleased to 
answer any questions you may have.

    Mr. Tauzin. Mr. Di Gregory, thank you very much.
    Ms. Lisa Dean, the Vice President of the Free Congress 
Foundation here in Washington, DC, is recognized for your 
statement.

                     STATEMENT OF LISA DEAN

    Ms. Dean. Thank you very much, Mr. Chairman, and thank you 
for hearing my testimony today. The Free Congress Foundation is 
a nonprofit, conservative based think-tank, and we do not 
endorse gambling or encourage gambling in any way. However, we 
have problems with H.R. 3125.
    One of the problems is of course mentioned--was mentioned 
earlier, States rights, and we believe that H.R. 3125 takes the 
power away from the States to regulate their own lotteries as a 
usurpation by the Federal Government to usurp one of the most 
fundamental rights of States, the right to self-governance.
    Also, this legislation is inconsistent. It says that 
Internet gambling should be prohibited except in cases where 
gambling takes places on horse racing and dog racing and 
similar activity.
    Third is the issue of government regulation, and that is 
where our strongest opposition lies. It has been discussed 
earlier, the issue of enforcement, how will this bill be 
enforced if passed into law. Will the Federal Government 
propose to enforce nearly unenforceable legislation, which is 
what H.R. 3125 is? Will they begin to monitor everyone's e-
mail, and will they create a list of banded sites that Internet 
service providers must block? Will it stage dead of night raids 
to seize the hard drives of unsuspecting individuals? Frankly, 
we hope not. But it is difficult to see how, short of using 
tactics like these, that this legislation could be enforced and 
effective in shutting down an industry which is legal in 
countries all over the world.
    Also, by suggesting who can and cannot place bets on-line, 
it divides the Internet up by geography, which is exactly what 
those who would tax the Internet need. As such, we believe it 
is not inconceivable that passage of this legislation could be 
the first nail in the coffin of a tax-free Internet.
    The taxation is only one potential problem. When we use the 
term ``gambling,'' we are referring to casinos, horse racing, 
lotteries and other games of chance. The definition is rather 
narrow, but for those seeking the opportunity to regulate the 
Internet, they would likely use this legislation to expand the 
definition of gambling to include perhaps on-line auction or 
even day trading, and from there it is not much of a stretch to 
include other industries as well which Washington may not like.
    I realize that this is not the intent of the sponsors of 
H.R. 3125, but rather the intent of those who seek to control 
an industry that is young and inexperienced in the world of 
Washington politics. Nevertheless, it is a stark reality, and 
this legislation would give the green light to those who wish 
to regulate this new medium and marketplace and for those 
reasons the Free Congress Foundation opposes H.R. 3125.
    I thank you for allowing me to speak today.
    [The prepared statement of Lisa Dean follows:]
Prepared Statement of Lisa Dean, Vice President for Technology Policy, 
                        Free Congress Foundation
    Mr. Chairman, members of the Committee, thank you for allowing me 
the opportunity to present testimony on H.R. 3125, the Internet 
Gambling Prohibition Act. My name is Lisa Dean. I am the Vice President 
for Technology Policy at the Free Congress Foundation, a Washington, DC 
based think-tank focusing on the culture of American conservatism and 
our Constitutional liberties.
    The Free Congress Foundation strongly opposes H.R. 3125 because we 
believe it flies in the face of conservative principles of federalism, 
individual responsibility, and limited government.
    As you may know, we are deeply concerned about the speed with which 
gambling has spread from Las Vegas across the country and into American 
living rooms. However, of much greater concern to us is the speed with 
which the long arm of the federal government has spread from 
Washington, DC, into American living rooms.
    When balancing the possible benefits of this legislation with its 
certain costs, the ledger ends up in the red. H.R. 3125 represents a 
major step backward in the fight against the creeping assault on 
individual liberty.
    There are some who would stop the spread of gambling at any cost. 
We are not among them. In this case, in fact, we believe the costs are 
much too high.
    H.R. 3125 puts several critical components of American democracy at 
risk.
    First, this legislation makes a mockery of States' rights and the 
Tenth Amendment to the United States Constitution. Throughout the 
history of this country, gambling has wisely been dealt with as a state 
issue. Community standards differ from state to state, and from region 
to region. Imposing a one-size-fits-all policy from on high in 
Washington, DC, is at best, misguided, and at worst, dangerous. We 
strongly believe that gambling in cyberspace, like gambling in the real 
world, should be dealt with at the state level, not at the federal 
level.
    In addition, this legislation represents a blatant disregard for 
the principles of federalism on which this country was founded. Nowhere 
is that disregard more evident than in the way the bill deals with 
gambling on State lotteries. Taking the power away from states to 
regulate their own lotteries is an arrogant usurpation by the federal 
government of one of the most fundamental rights of states--the right 
to self-governance.
    Second, this legislation represents the worst kind of government-
enforced industrial policy. The bill essentially says that all Internet 
gambling should be prohibited--except gambling on horse racing, dog 
racing, and similar activity. While some might suggest that the broad 
carve-outs contained in this legislation exist to preserve states' 
rights, why is there no carve out for state lotteries? Or for state-run 
blackjack games? Or for state-run video poker?
    We believe that allowing some gambling over the Internet while 
outlawing others is nothing more than the federal government picking 
winners and losers in the marketplace, and question where the federal 
government gets the moral or legal authority to say that a bet on the 
Kentucky Derby is acceptable, but a bet on the Superbowl should be 
outlawed.
    Third, and perhaps most important, is the issue of government 
regulation of the Internet. How does the federal government propose to 
enforce this nearly unenforceable legislation? Will it begin to monitor 
everyone's email? Will it create a list of federal-government-banned 
sites that Internet Service Providers must block? Will it stage dead-of 
night raids to seize the hard drives of unsuspecting individuals? 
Frankly, we hope not. However, it is difficult to see how, short of 
tactics like these, that the government could be at all effective in 
shutting down an industry that is legal in countries all over the 
world.
    We believe that the issue of Internet gambling is very much like 
the issue of smoking. While many of us abhor smoking, would never do 
it, and teach our children to stay away from cigarettes at all costs, 
we do not want the government to step in and tell us whether or not we 
are allowed to smoke. Because if the federal government can tell us 
whether we can smoke, or whether we can gamble, eventually it is going 
to try to tell us what we can read and where we can worship.
    We also believe that this legislation represents the first major 
threat by the federal government to impose a wide-ranging regulatory 
scheme on the Internet. This regulatory scheme is a true slippery 
slope. By suggesting who can and cannot place bets online, it divides 
the Internet up by geography--which is exactly what those who would tax 
the Internet need. As such, we believe it is not inconceivable that 
passage of this legislation could be the first nail in the coffin of a 
tax-free Internet.
    But taxation is only one potential problem. When we use the term 
``gambling'', we are referring to casinos, horse racing, lotteries and 
other games of chance. The definition is a rather narrow one but for 
those who are seeking the opportunity to regulate the Internet, they 
would likely use this legislation to expand the definition of gambling 
to include online auctions or even day trading. From there, it is not 
much of a stretch to include other industries as well which Washington 
doesn't like.
    I realize that this is not the intent of the sponsors of H.R. 3125 
but rather the intent of those who seek to control an industry that is 
young and inexperienced in the world of Washington politics, 
nevertheless, it is a stark reality and this legislation would give the 
green light to those who wish to regulate this new medium and 
marketplace.
    This bill is also one of those pieces of legislation that separates 
those who are willing to have the federal government step in no matter 
what from those who truly believe in a limited federal government, and 
are leery of Washington stepping in to try to achieve goals that are 
best accomplished by the states or the private sector.
    For these reasons, we strongly urge the Committee to reject the 
approach taken by H.R. 3125.
    Thank you for allowing me to testify. I would be happy to answer 
any questions you may have.

    Mr. Tauzin. Thank you, Ms. Dean.
    Next we hear from Mr. Michael Bowman, of Family Research 
Council here in Washington, DC.

                   STATEMENT OF MICHAEL BOWMAN

    Mr. Bowman. I am Michael Bowman, Vice President of the 
Family Research Council. This has been a tough bill for us. Let 
me just say, we sympathize with you working through this, and 
there are some strange alliances here today on both sides.
    Mr. Tauzin. That is the understatement of the day.
    Mr. Bowman. Let me just say that we, like you, think that 
the Internet is an amazing technology for a lot of good, but we 
also know that there is a lot of amazing things that are not so 
good, such as child obscenity, slave trade, drug trafficking, 
things that clearly undermine State and Federal sovereignty. We 
are talking about an international technology crashing on the 
boundaries of our laws.
    We are strongly in support of the bill, knowing that it is 
slightly what we call flawed. We would like to see some of 
the--we don't support any form of gambling, but when you look 
at the amount of gambling today that is going on, we believe 
that this bill takes the heart out of an industry that is just 
about ready to flourish. We have seen such quotes from the Las 
Vegas Sun that the casino industry will launch next year on the 
Internet. Right now they are not on-line.
    How are we to come next year before this committee with the 
full force of the casino industry, the pari-mutuel industry, 
the lotteries who have States like Ohio which are planning to 
go on-line. Let me make clear that the lottery is not just 
tickets. There is nothing--they are talking about in South 
Dakota blackjack and video poker. They are talking about all 
games of chance, and that is nationalism and we are going to 
have the States run the business, and if we do that, we might 
as well do cigarette companies and HMOs and gun manufacturers 
because those are also controversial issues.
    So when you look at this, we need a place to start and we 
see this as an incremental purist approach with some 
understandings of some existing realities that are already 
happening.
    I have submitted a more lengthy testimony, but this gets to 
the heart of the issue. Let me just say this. This would 
prohibit and give the way for the attorneys general, and we 
have not been satisfied with the Department of U.S. Justice in 
its prosecution of gambling sites. One site out of 750, that to 
us is not a glowing record. We can give you sites just doing a 
Yahoo search and find how many sites you can put up with a $2 
bet.
    So H.R. 3125 gives a take-down measure for the State 
attorneys general to be able to enforce the law if the 
Presidential level does not. This bill also prohibits all 
lotteries from being on-line. Let me just say Family Research 
Council does believe there are worst forms of gambling and 
lotteries in our judgment, as in the judgment of the Gambling 
Commission, but electronic type convenience gambling is far the 
worse. It is accessible at the home. Forcing someone to go to a 
destination and casino, not that we support that, is far 
different than going into your bedroom and having the 
availability to go on-line.
    Finally, this bill also prohibits sports betting, which is 
clearly the largest type of betting that is going on-line. We 
are talking about NCAA fixing in colleges. We have worked 
aggressively with the NCAA as well. We are trying to prohibit 
gambling through in and throughout.
    Finally, the attorneys general at the State level will now 
be able to have a mechanism to enforce the law if the Federal 
Government will not. Thank you.
    [The prepared statement of Michael Bowman follows:]
  Prepared Statement of Michael Bowman, Vice President of Government 
                   Relations, Family Research Council
    Mr. Chairman and Honorable Members of the Subcommittee on 
Telecommunications, Trade and Consumer Protection. My name is Michael 
Bowman and I serve as the Vice President for Government Relations at 
Family Research Council. I thank you for the opportunity to discuss our 
support for HR 3125, the Internet Gambling Prohibition Act, sponsored 
by Bob Goodlatte.
    Family Research Council believes the Internet should remain a forum 
of lawful ideas, a medium of information, entertainment, and commerce. 
The Internet is clearly a remarkable technology that allows tremendous 
access to information never before dreamed of. The Internet and 
telephone, for example, can be used for unlimited good. As we have 
learned with child molesting, obscenity, and drug trafficking, however, 
both the telephone and Internet can also be used for illegal gains. FRC 
does not believe the Internet should be able to undermine state or 
federal laws that are designed to protect the safety and general 
welfare of its citizens.
    FRC is concerned about the prolific growth and expansion of the 
gambling industry in America. This bill does not solve all the 
problems; it does however, provide a powerful framework to prevent 
gambling from illegally entering millions of homes in America via the 
Internet. Let me reiterate we are opposed to the expansion of all forms 
of gambling, and are especially concerned about the easy accessibility 
of gambling of state lotteries, and other forms of convenience 
gambling, such as video poker and keno, and above all, the Internet. 
Much of our future focus on the gambling issue will be at the state 
level. We will continue our fight but Congress will enable the states 
to make these decisions with credibility if this legislation becomes 
law.
    Are some forms of gambling worse than others? The answer is clearly 
yes. Family Research Council strongly opposes state-sponsored gambling. 
The National Gambling Impact Study Commission states, ``The Commission 
recommends to state governments and the federal government that states 
are best equipped to regulate gambling within their own borders with 
two exceptions--tribal and Internet gambling.'' The federal government 
is involved in this issue because of the ability of the Internet to 
transcend state boundaries. No single state can adequately address this 
problem, so the federal government must intervene and strengthen 
federal law in this area.
    According to Tim Kelly, former executive director of the National 
Gambling Impact Study Commission, ``states spend more than $400 million 
annually promoting their lotteries with often misleading and deceptive 
advertising.'' Currently, state lotteries are exempt from the Federal 
Trade Commission truth-in-advertising standards. It is clear that 
themes such as, ``Answers to your dreams'', are at best misleading if 
not outright lies. The most common theme in advertisements is enticing 
people with the size of the jackpot, yet never posting, educating or 
alerting people to the actual odds of winning. In contrast, private 
companies must post odds for simple sweepstakes. What is even worse is 
the message gambling sends to children: ``luck'' is the ticket to 
success, not hard work. These types of ads also target those who can 
little afford to purchase tickets.
    Family Research Council is greatly concerned about the lack of 
consumer protection from an industry that has created 7.5 million adult 
problem or pathological gamblers. The 1997 National Gambling Commission 
study also estimated there are 7.9 million adolescents who are problem 
or pathological gamblers and all evidence shows that these numbers are 
continuing to rise. The National Academies of Science found that, 
``pathological gamblers engage in destructive behaviors: they commit 
crimes, they run up large debts, they damage relationships with family 
and friends, and they kill themselves.'' People have lost their entire 
life savings in a single night due to gambling addictions. In fact, one 
16-year-old boy attempted suicide after losing $6,000 on lottery 
tickets!
    Additionally, the provisions in the bill that allow the pari-mutuel 
industry to continue its activities on the Internet is unfortunate but 
does nothing to expand existing realities. This bill provides a strong 
incremental approach to banning all forms of gambling on the Internet. 
Many groups support H.R. 3125, including: Focus on the Family, 
Christian Coalition, the FBI, the National Association of Attorneys 
General, the National Football League, the National Collegiate Athletic 
Association, the National Council of Churches, Jerry Falwell 
Ministries, and the Presbyterian Church (USA). Please be aware, 
however, that FRC will oppose the bill if any additional exceptions are 
listed, including any provision that would allow for state lotteries to 
sell tickets or any type of lottery game over the Internet.
    We applaud Congress for taking a serious look at how Internet 
gambling has crept into our homes and lured many, even children, to 
become desperate addicts. With the stroke of a pen, it should be 
banned, just as fast as it now can be accessed with a click of a mouse.
    Finally, I would like to close with a quote from the Gambling 
Commission report. The report stated, ``The central issue is whether 
the net increases in income and well-being are worth the acknowledged 
social costs of gambling.'' Members of the Committee, the social costs 
are simply too high. I urge you to pass H.R. 3125 and help protect 
American families.

    Mr. Tauzin. Thank you.
    We will next hear from Anne Poulson.

                    STATEMENT OF ANNE POULSON

    Ms. Poulson. Thank you, I appreciate this opportunity to 
present the views of the horse industry on H.R. 3125. I am 
testifying today in my capacity as President of the Virginia 
Thoroughbred Association. In addition to my oral testimony here 
today, I would like to include the more detailed written 
testimony submitted to the committee yesterday for the record.
    We strongly support the legislation which would prohibit 
gambling on the Internet or through interactive computer 
service. Without this legislation, our industry is threatened 
by a proliferation of unregulated offshore gambling activities 
conducted on the Internet. There are provisions that 
grandfather activities now being offered by legitimate, 
licensed and regulated gaming operators, including pari-mutuel 
horse racing and dog racing. With regard to horse racing the 
bill permits interstate simulcast wagering and account wagering 
on live pari-mutuel horse racing on a closed loop system, 
already discussed, under strict requirements, including the 
Interstate Horse Racing Act of 1978. The racing provisions 
ensure that the legislation does not have the unintended effect 
of prohibiting pari-mutuel activities that have been conducted 
for many years by allowing State licensed racing facilities to 
continue to operate on an interstate basis pursuant to the 
restrictions and limitations set out in the bill.
    Importantly, the bill does not expand pari-mutuel wagering 
on horse racing but instead preserves the existing rights of 
individual States to determine what types of wagering occur 
within their borders. Nothing in this bill legalizes any 
wagering that is illegal today. Horse racing is a sport that 
can be legally wagered on in the U.S. Pari-mutuel racing is the 
only wagering activity for which a Federal law, the Interstate 
Horse Racing Act of 1978, was passed to ensure its interstate 
activities were encouraged and regulated and, further, which 
requires industry and State regulatory approvals. This protect 
the States, the industry and the public and ensures that all 
revenue involved in these activities is shared with each, as 
required by State law or contractual obligations.
    The racing industry has been offering interstate simulcast 
wagering since 1968, and interstate merging of wagering pools; 
that is, combined money wagered at each location into one pool, 
for a decade under the Interstate Horse Racing Act, State 
licensing and regulation. Indeed, interstate simulcast wagering 
pools is now commonplace and represents over 80 percent of the 
amount wagered on horse racing in the U.S. Racing has a long 
record of interstate account wagering which has been offered 
and successfully regulated in Connecticut, Kentucky and 
Pennsylvania for 20 years and in New York through a State-owned 
off-track betting system for nearly 30 years.
    The Internet Gambling Prohibition Act respects State laws 
in this area and does not override any State requirements or 
prohibitions. Without the current racing provisions, this 
legislation would prohibit what racing has been doing legally 
on an interstate basis for many years. The result would be 
catastrophic for the $34 billion racing and breeding industry, 
the 40-plus States that rely on it for significant tax revenue, 
and the 500,000 jobs it supports.
    In my home State of Virginia, for example, the horse 
industry supports 25,000 full-time jobs and has an annual 
economic impact of $1 billion on the State's economy, making it 
the fifth largest agribusiness in the State. While the legal 
and commercial issues being debated in this bill are of great 
importance to Congress, State legislators and law enforcement 
officials, the racing and breeding industry I am a part of has 
an additional perspective. People in my home State have been 
breeding horses to race for more than 300 years. There are 
hundreds of farms in Virginia today ranging from multi-million 
dollar show places to the more numerous mom and pop operations 
where people go out each day at the crack of dawn to care for 
their horses and prepare them for their careers in the racing 
world. To them, to me this is a sport, a business and a way of 
life.
    Horse racing is built upon a foundation that includes those 
farmers and their employees and many thousands of owners, 
trainers, jockeys, track employers and yes, customers who come 
to the track or use off-track facilities to legally bet on 
their favorite sport, thus providing the revenue strain to 
support this great infrastructure.
    As you heard me state earlier, racing has been able to 
utilize the advances in telecommunications to facilitate 
customer transactions and was a highly competitive 
entertainment and gaming marketplace. Ultimately, the 
industry's purpose in taking these steps has been to protect 
and enhance its product, that of live horse racing, which, in 
turn, supports the economy for those thousands of people whose 
livelihood and way of life are centered around the horse.
    What House bill H.R. 3125 does is to let our industry 
continue to do what it does best, blending agriculture and 
entertainment for millions of industry participants and racing 
fans, and perpetuating a tradition that is deeply rooted in my 
home State and in most of the States which you represent.
    Let me close by saying that the raising provisions in the 
bill are carefully crafted to ensure that what racing has been 
offering for decades with respect to interstate simulcast 
wagering, merging pools and account wagering is maintained. It 
is not an expansion of those activities. Rather, it is a 
congressional recognition that with respect to those 
activities, that a State approves and regulates particularly in 
the area of gambling that has traditionally been licensed and 
regulated by States, the Federal Government should continue to 
not interfere.
    We urge the members of this committee to support the bill 
as reported by the House Judiciary Committee. Thank you so much 
for your time.
    [The prepared statement of Anne Poulson follows:]
 Prepared Statement of Anne Poulson, President, Virginia Thoroughbred 
                              Association
    I appreciate this opportunity to present the views of the horse 
industry on H.R. 3125, the ``Internet Gambling Prohibition Act.''
    I am testifying today in my capacity as President of the Virginia 
Thoroughbred Association, which represents the owners and breeders of 
Thoroughbred horses in the State of Virginia. In my home state of 
Virginia, the horse industry supports 25,000 full-time jobs and has an 
annual economic impact of over $1 billion on the State's economy.
              the pari-mutuel racing and breeding industry
    Pari-mutuel horse racing, including off-track and inter-track 
wagering is legal in 43 states and involves the racing of 
Thoroughbreds, Standardbreds, Quarter Horses, Arabians, Appaloosas and 
Paints. There are over 175 racetracks in the U.S. Racing and racehorse 
breeding is a widespread and diverse industry that includes gambling, 
sport, recreation and entertainment, and is built upon an agricultural 
base that involves the breeding and training of the horses.
Economic Impact
    According to the study of the Economic Impact of the Horse Industry 
in the United States done by Barents Group, LLC, the economic and 
fiscal consulting unit of KPMG Peat Marwick LLP, for the American Horse 
Council Foundation, racing and racehorse breeding have a total economic 
impact in the U.S. of $34 billion and generate 472,800 total full-time-
equivalent jobs. There are 941,000 people and 725,000 horses involved 
in the racing industry,
    Wagering on horse racing is permitted in 43 states and there is an 
active horse breeding and training business in all 50 states. In many, 
the economic contribution of the racing and breeding industry to state 
and local economies is substantial and the industry ranks among the 
state's most significant economic entities. For example, in Florida, it 
involves 37,000 horses, has a $2.1 billion economic impact and 
generates 27,300 full-time equivalent jobs; in California it involves 
69,000 horses, has a $4.1 billion economic impact and generates 52,000 
FTE jobs; in Illinois, it involves 52,000 horses, has a $2 billion 
economic impact and generates 30,700 FTE jobs; in Ohio, it involves 
40,000 horses, has a $1.3 billion economic impact and generates 17,000 
FTE jobs; and in Texas, it involves 74,000 horses, has a $1.8 billion 
economic impact and generates 27,900 jobs.
    Pari-mutuel racing generates over $500 million annually in direct 
state and local revenue from pari-mutuel taxes, track licenses, 
occupational licenses, admission taxes and miscellaneous fees.
Racing as a Sport
    Racing is an activity that attracts many fans who appreciate it and 
follow it as a sport and who enjoy the excitement of the race and the 
athletic ability of the horses. The Triple Crown races are considered 
among the most important sporting events conducted in the United States 
each year and are widely reported in the sports media. Over 130 
additional hours of top Thoroughbred races are broadcast on national 
television each year, including the Breeders' Cup and the NTRA 
Champions on Fox Series. The national championships of Standardbred and 
Quarter Horse racing are also televised nationally and widely covered 
by the media. In addition, most major U.S. newspapers cover racing and 
print the results of the races at their local tracks on a daily basis, 
much like they print the box scores of other sports.
The Pari-Mutuel System
    While horseracing is a sport on which one can gamble, it would be 
erroneous to assume that pari-mutuel wagering is the same as other 
forms of gambling. Unlike most other forms of gambling, horseracing 
uses the pari-mutuel system in which bettors wager against one another 
instead of against the ``house.'' Of the total amount wagered on a 
particular race, approximately 80% is returned to winning bettors. The 
other 20%, called the ``takeout,'' is shared between the state 
government, the racetrack and the horsemen who race at the track. 
Takeout rates, which vary from state to state, are published in track 
programs, which are available at race tracks and at simulcast wagering 
sites away from the track, so that fans know the rates and how they 
might affect their wagering.
    Wagering computations are accomplished by a totalisator machine, a 
computer, which adds bets over and over again during the course of 
betting. Every 30 to 60 seconds the ``tote'' flashes new betting totals 
and odds for each horse. The machines contain a number of features 
designed to minimize the potential for pari-mutuel fraud or machine 
malfunction. These features include coded ticket paper and duplication 
of all critical functions by two computers working independently of one 
another.
    I point this out because the pari-mutuel system and the published 
information available ensures that the public has easy access to data 
regarding their true chances of winning. There is little chance of 
manipulating the odds and therefore the payouts. The use of the tote 
machine allows bettors to determine their chances of winning every 30 
to 60 seconds. In addition, the race upon which the wager is made, and 
paid, is a public event, watched by fans at the track or off-track 
facility, often viewed by others on television or cable, and always 
overseen by the stewards at the track itself and the state racing 
commission to ensure the integrity of the race.
    In 1998, over 30 million people attended the races and wagered over 
$14 billion, approximately 80% of which was returned to the winning 
players.
                 federal and state policies on gambling
    Gambling, including that conducted on horseracing, has always been 
of concern to the federal and state governments. Throughout American 
history, the prohibition or legalization and regulation of gambling has 
primarily been a function of the states. The only time that the federal 
government has become involved has been when one or more states could 
not solve a problem without federal intervention. But even in these 
instances, for the reasons discussed above and others, pari-mutuel 
racing has often been either treated differently or specifically 
considered under federal gambling laws. The racing industry has 
developed to its current status under a regulatory framework of state 
law and regulation and the Interstate Horseracing Act of 1978 
(discussed below). If racing and breeding hopes to continue to compete 
in today's economy, it must be able to continue to do so under these 
same statutes.
State Regulation--A Long History
    Pari-mutuel racing has been conducted in the United States under 
state authority and regulation for over 75 years. In every state that 
has allowed legalized wagering on horseracing, strict state oversight 
and regulation has accompanied its introduction and growth. In each 
state the pari-mutuel industry is regulated by an agency most commonly 
known as the state racing commission. Among commission prerogatives are 
the licensing of track and horse owners, trainers, jockeys, drivers and 
all others involved in the pari-mutuel sport, and the promulgation and 
enforcement of the specific regulations under which the industry must 
operate. All matters pertaining to the operation of pari-mutuel racing, 
including wagering, are regulated by these agencies on behalf of the 
governors and state legislatures.
    Over the years the states have consistently acted on the perceived 
need to closely regulate legal wagering and protect the public's 
interest in pari-mutuel sports. The actions of state legislatures and 
the racing commissions which carry out their policies have been 
predicated on the desire to: (1) maintain the integrity of the events 
on which the public is allowed to wager; (2) oversee the state's tax-
related and economic interest in that wagering; (3) ensure that 
licensees meet specific standards of qualification; and (4) control any 
unsavory elements which may attempt to associate with the wagering 
aspects of the sport.
The Interstate Horseracing Act of 1978
    In 1978, Congress enacted a federal statute that specifically deals 
with interstate gambling on horseracing. The Interstate Horseracing Act 
of 1978 (``IHA'') made clear that a racetrack controlled wagering on 
its races in interstate and international commerce and provided for 
industry and regulatory approvals before betting was permitted between 
Jurisdictions where the wagering was legal.
    In the findings to the IHA, Congress said that states have the 
primary responsibility for determining what forms of gambling may take 
place within their borders, but that the Federal government should 
prevent interference by one state with the gambling policies of 
another. In the IHA Congress provided that with respect to the limited 
area of interstate off-track wagering on horse racing:
        There is a need for Federal action to ensure that States will 
        continue to cooperate with one another in the acceptance of 
        legal interstate wagers.
    Importantly, in passing the IHA, Congress specifically recognized 
that ``pari-mutuel horseracing is a significant industry which provides 
substantial revenue to the States'' and that ``properly regulated and 
properly conducted interstate off-track betting may contribute 
substantial benefits to the States and the horseracing industry.''
    Consistent with these findings, Congress stated as a matter of 
congressional findings and policy that:
        It is the policy of Congress in this chapter to regulate 
        interstate commerce with respect to wagering on horseracing, in 
        order to further the horse racing and legal off-track betting 
        industries in the United States.
    The combination of state statutes and regulations and the IHA have 
provided the racing industry with a workable regulatory framework for 
over two decades that has allowed the industry to develop its current 
activities within clear parameters and guidelines.
                      current activities of racing
    The dissemination of information about racing, simulcasting, off-
track and intertrack wagering, common pool wagering and account 
wagering have been initiated, operated and expanded under the IHA and 
state approval, licensing and regulation.
Information
    Communication today is very complicated in the highly complex and 
ever-changing technological world. In this environment new industries 
have sprung up virtually overnight forcing existing industries to adapt 
and change practices in order to compete for the public's support. This 
is particularly true in the areas of wagering and entertainment.
    Like others, the horseracing industry has had to adapt and change 
dramatically in the face of exploding competition and new technology. 
An example of that is that many racetracks, horsemen's associations and 
private businesses are now advertising and offering information on the 
sport through various media, both traditional and more technological 
state-of-the-art, including the Internet.
    The process of betting on horse racing and selecting the winner is 
called ``handicapping.'' It is a cerebral process for serious bettors 
who spend a great deal of time at the track, and elsewhere, pouring 
over information that will help them select the winners of races. For 
students of the sport this is not a random selection. The 
``handicapping'' information used in this process has been available in 
written forms since racing began and is similar to the statistical 
information available for other sports.
    The racing industry is presently offering a great deal of this type 
of ``handicapping'' information in publications, on-the-wire, over 
toll-free numbers and over the Internet in the form of advertisements 
for state-licensed and regulated race tracks, information and ``how-
to'' sites, ``tout'' sheets, past performance information, betting 
lines and similar information, that will market the racing product to 
new fans and allows existing patrons to participate more successfully.
    This continued flow of this information is critical to the racing 
business and we submit should not be affected by any changes to current 
law.
Simulcasting and Common Pool Wagering
    Prior to 1970, legal pari-mutuel wagering on racing was limited to 
those at the track where the race was run. In 1970, the New York 
legislature approved off-track wagering. As an aside, at that time the 
computerized system operated by New York OTB (Off-Track-Betting) was 
one of the first real-time, on-line computer systems in the U.S. Since 
then, many states, and the federal government under the Interstate 
Horseracing Act, have authorized racetracks to simulcast or transmit 
signals of their races off-track into other states and jurisdictions 
under applicable law.
    With the continued development of technology, by the early 1980s 
racing was able to make its product better for its patrons again. 
Additional technological changes allowed the linking of pari-mutuel 
wagering pools among tracks in separate jurisdictions, called 14 
commingled pools,'' so that payouts could better reflect the size and 
wagering behavior of the entire betting public.
    The racing industry's continuing utilization of state-of-the-art 
technology has resulted in the ability of the industry to survive and 
offer its patrons a better product. In fact, today over eighty percent 
of the money wagered on racing is bet at facilities or locations other 
than where the race itself is run. Again, all with the approval and 
regulation of the states involved.
Account Wagering
    Another process for pari-mutuel wagering on racing that has 
expanded over the two last decades is account wagering, primarily 
telephone betting. Currently, nine states, including Connecticut, 
Kentucky, Louisiana, Maryland, Nevada, Ohio, Oregon, Pennsylvania and 
New York, have enacted legislation specifically authorizing the 
acceptance of account wagers by licensed facilities within those States 
and a number of others are considering similar legislation. For 
example, California is currently considering legislation that would 
allocate the proceeds from account wagering by California residents 
among the California pari-mutuel industry.
    Account wagering is not a new activity in the United States. 
Telephone account betting has been offered in New York for over 25 
years by New York City Off Track Betting and upstate New York Off Track 
Betting entities--all state agencies. These entities have accepted 
wagers from residents of New York and other states who had established 
accounts in New York.
    In order to keep pace with modem technological advances, the 
horseracing industry needs to be able to continue these activities, 
provided that such activities are conducted in accordance the IHA and 
applicable state laws or regulations.
    In summary, the IHA and individual state statutes and regulations, 
under the supervision of state racing commissions. combine to form a 
very capable regulatory system for pari-mutuel racing.
        the internet gambling prohibition act of 1999--h.r. 3125
    The Internet Gambling Prohibition Act of 1999, H.R. 3125, is a 
natural response to the current changes in technology. The regulated 
and licensed pari-mutuel horse racing industry agrees with the intent 
of this legislation, as characterized by Congressman Bob Goodlatte when 
he introduced a previous version of H.R. 3125 in 1997:
        . . . this legislation does not preempt any state laws, does 
        not cover online news reporting about gambling, and does not 
        apply to transactions that are legal in both the State in which 
        they originate and the state in which they are received.
    The regulation of gambling is essential to protect state policies 
and revenues, the racing industry's ability to control its own product 
and the integrity of racing. Our industry is opposed to any unregulated 
or unauthorized gambling, particularly on racing.
    As you know, this legislation, as reported out of the Judiciary 
Committee would prohibit gambling on the Internet or through an 
interactive computer service.
    There are provisions in the bill that grandfather in activities now 
being offered by legitimate, licensed and regulated American gaming 
operators, including pari-mutuel horse racing, dog racing, lotteries, 
casinos and fantasy sports leagues.
    With regard to horseracing, the bill permits interstate simulcast 
wagering and merging wagering pools. It also permits interstate 
wagering on live pari-mutuel horseracing provided it is (1) expressly 
authorized and licensed or regulated by the state in which the wager is 
received, (2) placed on a closed-loop, subscriber-based service, (3) 
initiated from and received in a state in which wagering on horse 
racing is lawful, (4) made in accordance with the requirements of the 
state in which the bet originates, and (5) made in accordance with all 
the requirements of the Interstate Horse Racing of 1978. The closed-
loop system must include an effective customer and age verification 
process to ensure that all federal and state requirements for lawful 
gambling are met and appropriate data security standards to prevent 
unauthorized use by a minor or nonsubscriber. (Attached is an April 3, 
2000 letter from Stephen Walters, Chairman of the Oregon Racing 
Commission, further describing the racing provisions and clarifying the 
distinctions between the Internet and the closed-loop system required 
under the current bill.)
    The racing provisions ensure that the legislation does not have the 
unintended effect of prohibiting pari-mutuel activities that have been 
conducted for many years by allowing state-licensed racing facilities 
to continue to operate on an interstate basis pursuant to the 
restrictions and limitations set out in the bill.
    This legislation involves very complicated legal and technical 
issues. We believe the provisions in the current legislation that allow 
horseracing to continue to conduct its existing activities are fair and 
consistent with existing law and practice under which horseracing has 
operated for decades. We are concerned, however, about any changes to 
the current legislation that may adversely impact what racing is doing 
now under state regulation and the IHA with respect to the 
dissemination of information, common pooling and account wagering.
    The worst possible result for all concerned would be to enact 
legislation that would restrict licensed and regulated entities from 
conducting their current business using modem technology with the 
result being that many of those who wish to wager on horseracing will 
be forced to deal with unlicensed and unregulated vendors, either off-
shore or operating illegally within the United States. This would open 
the door to consumer fraud and result in significant decreases in 
revenues for the licensed operators, purses (which are directly derived 
from licensed wagering revenues) and tax revenues for the Federal and 
State governments.
    It is critical to the future of the racing industry, the 
agribusiness it supports, the state revenue and employment it 
generates, the sporting and the entertainment benefits it provides to 
countless fans, that all distribution mechanisms of racing information 
and its product be available, so long as they continue to meet 
regulatory criteria established by state governments and comply with 
the IHA. It is also critical that the racing industry have the 
opportunity to take advantage of any and all technological advancements 
in the future distribution of its information and products in order to 
successfully compete against other forms of gambling, sport and 
entertainment.
    Because of the unique status of pari-mutuel racing and the present 
regulatory structure applicable to it, we believe that the purposes of 
this legislation and the particular needs of racing have been 
accommodated by this legislation without infringing on federal or state 
public policies, abrogating strict regulation or lessening the current 
protections of the public.
Justice Department Comments
    In the context of the above remarks, we would also like to address 
the comments submitted by the Justice Department to the House Judiciary 
Subcommittee on Crime in March during its consideration of the Senate 
version of the Interstate Gambling Prohibition Act and similar comments 
recently submitted to the New York State Racing and Wagering Board.
    These comments can be summarized as questioning the legality under 
the Wire Act (18 U.S.C. 1084) of the current practices of interstate 
simulcasting, commingling of pools and account wagering and opposing 
exemptions to the Internet Gambling Prohibition Act that would allow 
racing to continue to conduct these activities using modem technology. 
We believe this is an extreme and incorrect interpretation of the Wire 
Act that disregards the specific purpose behind the Wire Act of 
combating organized crime, the passage by Congress of the Interstate 
Horseracing Act of 1978, and the reality that State sanctioned and 
licensed businesses have been conducting these activities in compliance 
with existing State and federal laws for over twenty years.
    The Wire Act is undeniably directed at illegal gambling and 
bookmaking conducted by organized crime. It was enacted 1961 as part of 
a package of bills directed against organized crime and racketeering. 
See The Attorney General's Program to Curb Organized Crime and 
Racketeering, Hearings before Committee on the Judiciary, U.S. Senate, 
87th Cong., 1st Sess. (1961).
    In its report accompanying the Wire Act, the House Committee on the 
Judiciary wrote that:
        ``The purpose of the bill is to assist the various States and 
        the District of Columbia in the enforcement of their laws 
        pertaining to gambling, bookmaking and like offenses and to aid 
        in the suppression of organized gambling activities . . .''
    Any fair reading of the Wire Act and the Congressional record 
accompanying the Act makes clear that the Wire Act is not directed at 
nor intended to make illegal licensed state regulated activities.
    The Wire Act was enacted in 1961. Seventeen years later, Congress 
enacted the Interstate Horseracing Act of 1978 for the express purposes 
of ensuring proper regulation of ``Interstate off-track betting'' and 
``furthering the horseracing and legal off-track betting industries in 
the United States.'' The interpretation of the Wire Act currently 
propounded by the Justice Department would appear to disregard 
Congress' enactment of the IHA and the supporting Congressional record.
    Lastly, although the Wire Act was enacted almost 40 years ago and 
interstate simulcasting and account wagering have been conducted in 
this country since the early 1970s, neither the Justice Department nor 
any federal prosecutors have ever used the Wire Act to prosecute any 
state licensed and regulated entities for conducting interstate 
simulcasting, commingling of pools or account wagering. The reasons for 
this should be clear. The legislative history of the Wire Act, coupled 
with the passage of the IHA and the existing framework of extensive 
state regulation leads to the inescapable conclusion that the Wire Act 
simply does not apply to the licensed regulated sport of horseracing.
    Stated another way, the logical conclusion of the Justice 
Department's current position would render criminally illegal 
interstate wagering on legal, state-regulated horseracing that 
currently provides hundreds of millions of dollars in annual tax 
revenues, supports hundreds of thousands of jobs, and has been an 
ongoing state-sanctioned activity for decades.
    In conclusion, the current form of H.R. 3125 has been carefully 
crafted to allow the sport of horseracing to continue to conduct its 
business in the same way it has been operating for the last two 
decades. The bill does not in any way expand wagering, but instead 
preserves the status quo. We appreciate the opportunity to present 
these comments on this important legislation and would be happy to 
respond to any questions.

    Mr. Tauzin. Thank you, Ms. Poulson.
    Next will be Mr. Daniel Nestel representing the NCAA here 
in Washington, DC.
    Mr. Nestel.

                   STATEMENT OF DANIEL NESTEL

    Mr. Nestel. Thank you for the opportunity to testify on 
behalf of the National Collegiate Athletic Association in 
support of H.R. 3125. My primary role here today is to 
introduce videotape testimony from a college student who got 
heavily involved in sports gambling on the Internet. However, 
before I do, I would like to briefly discuss why the NCAA is so 
concerned about this activity. Believe me, Mr. Chairman, I 
received your marching orders and I sure you these are the 
highlights.
    The NCAA has long opposed sports gambling because of its 
potential to jeopardize the integrity of the intercollegiate 
athletics contests and to threaten the welfare of student 
athletes. Despite Federal and State laws that prohibit sports 
gambling in nearly every State, this activity remains a growing 
problem on college campuses. In recent years, NCAA institutions 
have suffered damaging point shaving scandals, have witnessed 
the spread of bookies on college campuses, and have taken 
notice of a growing consensus of research that reveals rates of 
pathological and problem gambling among college students that 
are three times higher than the adult population.
    Clearly, sports gambling is not a victimless crime. Now, 
along comes the Internet and Internet gambling. It should not 
be surprising that Internet gambling presents a multitude of 
new potential dangers for young people. College students are, 
perhaps, the best wired group in America. They can surf the Web 
in their school library, in the computer lab or in the privacy 
of their dorm room. Now, with the emergence of Internet 
gambling, students can wager behind closed doors in virtual 
anonymity. This new industry not only increases the ease for 
participation in illegal game fixing schemes, but it also is 
highly attractive to college students.
    In a moment you will hear a videotaped account of a college 
student who, in just a few months, lost $10,000 gambling on 
sports over the Internet. Unfortunately, his story is not 
unique. It is representative of the types of problems that are 
occurring with more frequency on college campuses. This student 
contacted the NCAA after watching an ESPN segment on Internet 
gambling. After months of discussion, the student agreed to 
tell his story and a number of NCAA seminars held for athletic 
administrators. This videotape was filmed at one of these 
sessions. The student has asked the subcommittee to keep his 
identity unknown, after all, he is graduating soon and is 
looking toward a bright future.
    Before we roll the tape, I have one final message to 
deliver. Internet gambling is growing at a rapid pace. 
Agreements have already been made with equipment manufacturers 
to bring Internet gambling to wireless hand-held devices. 
Imagine students placing Internet bets on their cell phones. 
Nevada officials are already warning that if Federal 
legislation fails, U.S. casinos will likely enter the 
marketplace. You can bet that Internet gambling will really 
take off if casinos like Harrah's were to establish its 
recognized brand name in cyberspace.
    The House sponsors of H.R. 3125 have worked several years 
on trying to craft a bill that addresses the areas of concern 
and that has the best chance of passage. The NCAA urges 
Congress not to let this opportunity slip away. If legislation 
is not enacted by the end of this legislative session, it is 
likely that Congress will not be able to check the explosive 
growth of Internet gambling in the future. With that, I would 
like to roll the videotape.
    Mr. Tauzin. Let's see if we can get some lights too, thank 
you. By the way, have you been watching the University of 
Lafayette Cajuns in Omaha and LSU? Isn't that amazing? Awesome, 
awesome.
    [Video played.]
    Mr. Tauzin. Let me suggest you put a mike or something by 
it because we can't really hear it. Pause it for a second.
    Ms. Eshoo. Can we start again, Mr. Chairman, because we 
can't see it.
    Mr. Tauzin. Let's stop it for a second, pause it, back it 
up, let's get a mike on those speakers so that, if you don't 
mind, I want everybody to hear it, otherwise this won't work. 
Let's get it all going. We will try again. Get your volume up.
    [Video played.]
    Mr. Tauzin. The Chair will ask that the demonstration--let 
me ask the demonstration be halted. I am hearing from members 
that they can't understand it. Can you halt it. We can't 
understand it. If we are going to do a demonstration my 
apologies to the presenter, we can't hear it. We can't 
understand it. And let me ask if you would submit a written 
transcript of the gentleman's testimony at this event.
    And let me apologize for the sound in this room, but we are 
wasting I think valuable time when we can't understand the 
young man on that mike. I will do my best whenever I have that 
capacity to make sure this room is high-teched by the time we 
do more demonstration.
    Mr. Nestel, if you would kindly submit to us a transcript 
of his testimony. And basically, I think I understood he 
started betting, he won the first time, he got to betting more 
and more, and personality change, messed up his life real bad, 
and he lost 10 grand. Is that about it? Thanks very much.
    [The prepared statement of Daniel Nestel follows:]
    Prepared Statement of Daniel Nestel, Senior Assistant Director, 
                National Collegiate Athletic Association
    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to testify on behalf of the National Collegiate Athletic 
Association (NCAA) in support of H.R. 3125, the ``Internet Gambling 
Prohibition Act of 1999.'' The NCAA is a membership organization 
consisting of nearly 1,000 universities and colleges and is devoted to 
the regulation and promotion of intercollegiate athletics for over 
330,000 male and female student-athletes.
    The NCAA has long opposed sports gambling because of its potential 
to jeopardize the integrity of intercollegiate athletics contests and 
to threaten the welfare of student-athletes. Despite federal and state 
laws that prohibit sports gambling in nearly every state, this activity 
remains a growing problem on college campuses nationwide. Over the past 
several years, point shaving scandals on the campuses of Northwestern 
University and Arizona State University have received widespread media 
coverage. The impact of these cases must not be minimized. Several of 
the student-athletes involved were indicted and sentenced to serve time 
in federal prisons. Coaches and teammates were betrayed and the two 
schools involved have seen their reputations tarnished. It is clear 
that sports gambling is not a victimless crime.
    A growing consensus of research reveals that the rates of 
pathological and problem gambling among college students are three 
times higher than the adult population. This fact surely did not go 
unnoticed when the National Gambling Impact Study Commission 
recommended a federal ban on Internet gambling nearly one year ago 
today.
    As you can see, there is reason to be concerned about the impact of 
gambling on today's youth. Therefore, it should not be surprising that 
Internet gambling presents a multitude of new potential dangers for 
young people. College students are perhaps the most wired group in this 
country. They can surf the Web in their school library, in a computer 
lab or in the privacy of their dorm room. Now, with the emergence of 
Internet gambling, students can wager behind closed doors, in virtual 
anonymity. This new industry has raised the fears of those concerned 
about the threat of sports gambling. Three years ago, there were 50 
Internet gambling sites, now there are 750. Today, the possibility 
exists for student-athletes to place wagers over the Internet and then 
attempt to influence the outcome of the contest while participating on 
the court or playing field.
    However, the impact of Internet gambling on campus is not a problem 
that is limited to athletics. If left unchecked, the growth of Internet 
gambling could be fueled by college students. Today, you will hear a 
video taped account of a college student who, in just three months, 
lost $10,000 gambling on sports over the Internet. This student 
contacted the NCAA after watching an ESPN segment on Internet gambling. 
After months of discussion, the student agreed to tell his story at a 
number of NCAA seminars held for athletic administrators. This video 
tape was filmed at one of these sessions.
    Please be assured that this student's experience is not unique. The 
NCAA has heard from others with similar stories and the media is widely 
reporting on this emerging problem among young people. The reality is 
that students have the means to participate freely in this activity. 
Studies reveal that over 70% of students have credit cards and 20% have 
four or more cards. They are being aggressively solicited by credit 
card companies who are awarding cards with up to $5,000 credit limits 
to students who have no jobs and little, if any, credit history.
    For students, the question of whether Internet gambling is legal 
has caused great confusion. Visit an Internet gambling site's Web page 
and you will find misleading statements like the one from Diamond 
Sportsbook International (DSI). It reads: ``DSI is a fully licensed 
offshore race and sports book, . . . founded as an alternative to the 
illegal bookmaking operations found within the U.S.'' DSI conveniently 
fails to mention that its sports gambling operations are, in fact, 
illegal in the U.S. But perhaps the best explanation of why there is 
such uncertainty surrounding the legal status of these gambling sites 
among students is that many of them conclude that ``if it is on the 
Internet it must be legal.''
    Federal legislation is desperately needed and we are running out of 
time. Internet gambling is growing at a rapid pace. Agreements have 
already been made with equipment manufactures to bring Internet 
gambling to wireless handheld devices. Imagine students placing 
Internet bets on their cell phones. A Nevada legislator has already 
warned that if federal legislation fails, U.S. casinos will enter the 
marketplace. You can bet that Internet gambling will really take off if 
casinos like Harrah's work to establish its recognized brand name in 
this industry. The House sponsors of H.R. 3125 have worked several 
years on trying to craft a bill that addresses the areas of concern and 
that has the best chance of passage. The NCAA urges Congress not to let 
this opportunity slip away. If legislation is not enacted by the end of 
this legislative session, it is likely that Congress will not be able 
to check the explosive growth of the Internet gambling in the future.
    Thank you.

    Mr. Tauzin. The next witness will be the Reverend Louis 
Sheldon of the Traditional Values Coalition here in Washington 
DC.
    Reverend Sheldon.

               STATEMENT OF REVEREND LOUIS SHELDON

    Mr. Sheldon. Thank you, Mr. Chairman, and thank you for 
holding this hearing today and giving us the opportunity to 
testify and express our viewpoints on behalf of our 43,000 
member churches that comprise the Traditional Values Coalition. 
I want to make it as clear as possible our strong opposition to 
H.R. 3125, as the bill has been reported out of the Judiciary 
Committee. And Mr. Chairman, I would like to speak candidly to 
you and the members of the committee, because I am very 
passionate about this issue. I know the members of the 
committee have worked very hard to present this bill. But there 
is an angle here that we must seriously consider, and that is, 
this angle of these exemptions and some of these statements 
that have been given to us: 95 percent of gambling is included.
    I call that into question and I'd like to have those 
statistics really substantiated in front of us. And 
furthermore, I think it is important to realize that in the 
home, once you invade the home, once you have the right and I 
give you the key to my house, and I gave you a lease to come 
into my house, children, parents, friends, anybody, people are 
then going to become very vulnerable. They are going to find 
that something is happening that they can not control. As the 
Congressman from Texas, Mr. Green, mentioned about his own home 
this morning, and as the Congresslady from California stated 
very clearly these things.
    Protecting children from addictive gambling is very 
important. It is our moral responsibility. Gambling tempts 
people for the quick fix, for the quick wealth. And yet, the 
holy scriptures teach us that the only wealth that is going to 
last is that wealth which has come by the sweat of the brow. It 
may be ingenious, it may be intellectual, it may be labor work, 
but that is the only wealth that is going to have endurance, 
and it is going to have benefit for the full community.
    Gambling, too, often leads people to become dominated with 
other kinds of characteristics in their life that are not 
necessarily acceptable or appropriate. It causes them to 
abandon their commitment to family and to the community and 
even to God. And that is why I cannot stand and understand 
really how my dear friends are particularly supporting this 
bill. And I am on the phone to Pat, I am on the phone to Jerry, 
I want to find out it they know are these exceptions in this 
bill. And already I have spoken to their senior staff in both 
of those offices, and they are saying they don't know.
    So we are going to find out exactly what is happening at 
this level. Mr. Chairman, it is true that a wolf sometimes 
comes dressed in sheep's clothing but this is a wolf itself. 
Everyone knows that certain gambling interests have gutted the 
bill. They know it. Let's face it. The horse racing, dog 
racing, jai alai lobbies obtained the exemptions and that's 
their right.
    I support free enterprise. I like horses, I like dogs. I 
don't race with them. We know that these loopholes will 
increase gambling. We know that. It was stated by, I think Mr. 
Markey, very well. He said earlier to Mr. Goodlatte, hey, you 
have given the exemptions to the people that have been the most 
crafty in getting around the law. So therefore, now you have 
given out, you carved these out, everyone knows that this is 
going to happen. I think it is very important that Justice 
Department has said very clearly in the case with Mr. Cohen, 
they have the ability to prosecute, but they haven't prosecuted 
enough. Fine. That is another case.
    The Congress maybe should do a resolution to Mrs. Reno, 
they should do a resolution to encouraging her, you know, she 
comes before the committees for budget and for money, hey, put 
the screws on it there. Get it done. We at TVC are not ignorant 
of the give and take that is required to pass legislation. We 
know the perfect can not become the enemy of the good. And we 
do not want it to become the enemy of the good.
    With all due respect, Mr. Chairman, what criteria has been 
used for this decision to carve out these exemptions? Is it the 
size of the wealth of the lobbies fighting the ban or is it the 
risk of the harm posed by the conduct? We see how the gambling 
interests have used their influence to gut this well-
intentioned bill. And I would like to submit to the record two 
very simple things, The Washington Post on ``gambling bill of 
Web industry favors,'' the other article is by the Wall Street 
Journal called, ``Click place or show: Playing the ponies in 
your underwear.''
    The story makes clear the horse racing lobby is exciting at 
the prospect of bringing betting into the home. I want to read 
you a brief passage from the Wall Street Journal, ``Still 
things are looking up lately for online racing fans. A bill 
working its way through Congress would ban most forms of 
Internet gambling, but excludes an exemption for horse racing. 
It continues for track operators and horse trainers. It is 
critical to keep bettors playing with officially sanctioned 
companies, because these concerns share revenue with tracks, 
supporting big money, purses for the horses.''
    I would ask the members of the committee, is that what this 
is all about? Big money purses? Do you want to use your vote 
here in Congress to create officially sanctioned companies? 
That can bring gaming into our homes. Certainly this can't be 
the case.
    Now, I do not want to question the motives of my good 
friend, Mr. Goodlatte, or intentions of the sponsors of the 
bill. I know they are trying to do the right thing. I know the 
members of the committee and the Congress want to do the right 
thing. But here's the problem: We are taking what is illegal, 
there are five laws now on the books that say that this kind of 
gambling is illegal, the five laws, and we are now taking what 
is illegal and we are making it legal with these exceptions.
    Mr. Chairman, I hope this bill will have a markup next 
week. I hope you will plead with Mr. Bliley to let that, and I 
hope this bill will not go to the floor unless these exemptions 
are removed. Thank you.
    [The prepared statement of Reverend Louis Sheldon follows:]
 Prepared Statement of Rev. Lou Sheldon, Chairman, Traditional Values 
                               Coalition
    Mr. Chairman, and members of the committee, I am Rev. Lou Sheldon, 
Chairman of the Traditional Values Coalition. I appreciate the 
opportunity to testify before you today on behalf of Traditional Values 
Coalition's 43,000 member churches.
    This bill, the Internet Gambling Prohibition Act, has become the 
Internet Gambling Expansion Act. That which is illegal according to the 
wire act, is now made legal in the current version of H.R. 3125.
    Like gun violations, the Justice Department has chosen not to 
prosecute Internet gambling until recently. However, they recently 
indicted 21 people for illegal Internet sports gambling. It's a good 
(albeit late) start. More should follow.
    Internet gambling is already illegal under federal law, as we have 
said. The Congressional Research Service has noted that Internet 
gambling operators are criminally liable under at least five existing 
federal laws:

1. The Wire Act, 18 USC sec. 1084 (use of wires for sports gambling is 
        a federal crime)
2. The Travel Act, 18 USC sec. 1952 (use of any facility of Interstate 
        commerce to break state gambling laws is a federal crime)
3. The Crime Control Act, 18 USC sec. 1955 (it is illegal under federal 
        law to own any share of a gambling business that operates 
        illegally under state law)
4. Racketeering Influenced and Corrupt Organizations (RICO) Act, 18 USC 
        sec. 1964 (it is illegal to conduct a criminal enterprise that 
        involves a collection of an unlawful debt OR a pattern of 
        activity in which state gambling laws are broken)
5. Amateur and Professional Sports Protection Act, 28 USC sec. 3702 
        (making it illegal to promote or accept wagers on sporting 
        events)
    This bill, H.R. 3125, has been hijacked and pushed by horse racing, 
dog racing, jai alai, and sports betting companies. It would allow for 
in-home gambling via the Internet when it would otherwise be illegal.
    According to the testimony of Deputy Assistant Attorney General 
Kevin Di Gregory, March 9, 2000, before the House Crime Subcommittee, 
``H.R. 3125 exempts parimutuel wagering from the prohibition against 
Internet gambling. The result is that people will be able to bet on 
horse racing, dog racing, and jai alai from their living rooms.''
    This bill does not merely preserve current law . . . it expands in-
home gambling opportunities.

1. There is nothing in current law to allow for in-home gambling on jai 
        alai or dog racing. Nevertheless, under H.R. 3125, in-home 
        gambling on dog races and jai alai matches would be legal.
2. In a letter to Sen. Patrick Leahy on June 9, 1999, Acting Asst. 
        Attorney General Jon Jennings stated, ``The Interstate Horse 
        Racing Act does not [currently] allow for [interstate horse] 
        gambling, and if a parimutuel wagering business currently 
        transmits or receives interstate bets or wagers (as opposed to 
        intrastate bets and wagers on the outcome of a race occurring 
        in another state), it is violating federal gambling laws.''
3. H.R. 3125 also contains a broad carve-out for so-called ``fantasy 
        sports.'' While some of these fantasy sports leagues are 
        legitimate recreation, we are concerned that gambling interests 
        will structure their wagers so that they fall under the fantasy 
        sports exemption.
      For instance, the language in the legislation exempts ``any 
        otherwise lawful bet or wager that is placed, received, or 
        otherwise made for a fantasy sports league game or contest, and 
        defines such a contest as one that ``is not dependent solely on 
        the outcome of any single sporting event or non-participant's 
        singular individual performance in any single sporting event; 
        has an outcome that reflects the relative knowledge and skill 
        of the participants; and 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.''
      There is no harm in individuals competing against each other, 
        trying to pick which athletes are going to perform best in 
        their real-life leagues. However, the existing fantasy sports 
        carve-out in the hands of gambling interests could be a 
        dangerous loophole.
4. H.R. 3125 would require a ``closed loop, subscriber based system'' 
        for pari-mutuel gambling. We have already seen the success of 
        such a system--America Online. AOL WOULD MEET EVERY TEST FOR 
        THE ``CLOSED LOOP, SUBSCRIBER BASED SYSTEM'' under H.R. 3125.
    The companies that would benefit from these exemptions have already 
broken the law. They should not be rewarded with legislation that gives 
them new opportunities for in-home gambling.

1. Youbet.com--the company that already conducts in-home gambling on 
        horse races using the Internet--was prosecuted by the 
        California Attorney General Bill Lockyer last year. Passing 
        H.R. 3125 would lift a consent decree that currently bars 
        Youbet.com from taking California wagers.
2. Youbet.com and others like it are waiting in the wings to aim their 
        marketing toward compulsive gamblers.
    a. Youbet's Internet page attracts gamblers by loudly claiming: 
            ``Make the bet, Feel the rush, All on Line.''
    b. H.R. 3125 contradicts the National Gambling Impact Study 
            Commission's statement that horse racing has the highest 
            incidence of compulsive gambling. This bill allows for 
            these compulsive gamblers to place bets from the 
            convenience of their own home.
    c. In that same report, the National Gambling Impact Study 
            Commission called on Congress to pass a ``clean'' Internet 
            gambling ban--one that does so ``without allowing for new 
            exceptions, or expanding current exemptions in federal 
            law.'' NGISC Recommendation 5-1. Again this bill ignores 
            the commission's recommendation.
    This bill is a Trojan horse for the horse racing, dog racing, jai 
alai, and sports betting companies. If federal prosecutors already have 
laws on the books to prosecute Internet casinos, why pass a bill that 
does nothing but allow new companies to push another form of gambling 
into our homes?
    If we need to pass legislation to wake up America, we should pass a 
sense of the Congress bill that calls on Janet Reno to prosecute 
Internet gambling businesses with the tools she already has in her 
arsenal.
    I have been told that the Justice Department is planning to 
recommend a veto of this bill because it expands gambling. Does 
Congress want to pass a bill that the American people will see as an 
expansion of gambling?
    In conclusion, please remove all exemptions to H.R. 3125 so that 
the bill will be able to accomplish its original intent. With the 
demonstrated problems gambling inflicts upon communities and families, 
these exemptions will only exacerbate the problems. Until they are 
removed Traditional Values Coalition will oppose the bill. Thank you 
for your consideration of Traditional Values Coalition's concerns.

    Mr. Tauzin. Thank you very much, Reverend.
    And next we will hear from the NFL represented by Mr. 
Gerard Waldron, a partner of Covington & Burling here in 
Washington DC.

                 STATEMENT OF GERARD J. WALDRON

    Mr. Waldron. Thank you, Mr. Chairman, and members of the 
committee. My name is Gerry Waldron. I represent the National 
Football League. And let me start off by saying that I think 
the exaggerations have overwhelmed and swept over the core 
principle underlying this bill. The problem that the NFL sees, 
along with the NCAA and the other sports leagues, is 
essentially, technology is being used to repeal the fundamental 
laws against sports gambling in our country. That those laws 
have been on the books for many years. They were recently 
updated in 1992 in the form of PASPA, and that the Internet is 
essentially repealing with technology this fundamental law 
against sports gambling.
    The nature of the legislative process and the nature of 
hearings, and I certainly appreciate that, is to the focus on 
maybe the 10 percent of the bill that people have issues with. 
Well, what I am here to tell you is that 90 percent of the bill 
that goes after the issue of sports gambling is a comprehensive 
and complete solution to the problem of sports gambling on the 
Internet. It is an issue of sports gambling on the Internet, 
which frankly is the dominant part of Internet gambling. And 
let's be clear about that. The statistics Reverend Sheldon 
alluded to came from the Nevada Gambling Commission. I 
testified before the Nevada Gambling Commission, along with the 
Attorney General from Wisconsin 2 months ago, and it was that 
body that came forward, and that is certainly consistent with 
it. So the lion's share of gambling on the Internet is on 
sports, and frankly the lion's share of sports gambling is on 
professional football.
    So that is why the NFL, frankly, is so concerned about this 
issue, and we think that any bill that gives significant 
enforcement mechanisms to the Justice Department is a step 
forward.
    I want to underscore what we heard from the Justice 
Department today. What we heard is that they agree that the 
current law is not adequate. Mr. Di Gregory referred to the 
prosecution of Jay Cohen in New York. The fact is that Jay 
Cohen used telephone wires just like people have been using 
telephone wires for years. And Mr. Di Gregory also said that 
the Justice Department supports changes to current laws because 
the mechanism doesn't work.
    Imagine you have a betting parlor at 101 Main Street. Law 
enforcement officer discovers that there is a bettor parlor 
there. What do they do? They call up Bell Atlantic and they say 
cut the wire to 101 Main Street. The betting parlor is out of 
business. That has been on the book since 1961, it works very 
well. Take it in 2000, what happens when they discover that a 
Web site is operating a gambling operation? They call Bell 
Atlantic and they say cut the wire to AOL? No that would annoy 
22 million people, and that would be a stupid thing to do. 
There is no enforcement.
    Prosecution, frankly, is not a very effective step in 
dealing with this issue. There are 700 Web sites. The Justice 
Department has prosecuted one. We don't expect they have 
important crimes to chase after, it takes a lot of resources, 
we do not expect them to spend all their prosecutorial time 
prosecuting gamblers. What we do want, however, is an effective 
enforcement mechanism such as there is certainly now with 
section 1084. That is what Mr. Di Gregory underscored, that we 
need an update of the law in order to give law enforcement 
those kinds of tools. And that is what is contained in section 
3125.
    Let me also address a point that Mr. Markey and Mr. Shimkus 
both raised about the sort of schizophrenia. And I was a son of 
St. Josephs and I also had--for me it was Saturday night. And 
certainly the clean and pure way, the perfect way, if you will, 
would be to have a one sentence bill. All gambling is 
prohibited on the Internet. Period. The problem is that--and 
frankly, I think some of the sponsors started out with the one 
sentence bill.
    The problem is that our land-based laws on gambling are a 
lot more complicated than that. We have an interstate Horse 
Racing Act of 1978. We have interstate lotteries that are 
permitted. We have the sharing of horse racing and power balls 
that are permitted with compacts. We have the Indian gaming, 
and there is a whole Federal Indian Gaming Regulatory Act. 
Actually, our existing land base laws are fairly complicated. 
And so, the one sentence bill that this started out with, 
unfortunately, frankly from the NFL's perspective, got complex. 
And that is, as this subcommittee knows well, the nature of the 
legislative process.
    But I do also want to just, finally, underscore that the 
enforcement mechanism came directly from the provisions that 
this subcommittee wrote into the WIPO bill, and it is a notice 
and take down provision. They were carefully negotiated over 
months with the Internet service providers and their trade 
associations. The bill, and I want to make sure to address the 
point that Ms. Eshoo and others raised, the bill explicitly 
disclaims any obligation on Internet service providers to 
monitor usage. The bill gives anyone who has been disconnected 
an automatic right to get reconnected.
    So the civil liberties of users have been balanced in here. 
And that it is important to recognize that the notice and take 
down provision in the copyright works well. Just to finish up, 
I am essentially--sports and gambling do not mix. Gambling 
threatens the integrity of the game. And we do not want our 
players used as poker chips on-line or off-line. We think the 
bill accomplishes that goal. We urge it to be adopted.
    [The prepared statement of Gerald J. Waldron follows:]
   Prepared Statement of Gerard J. Waldron on Behalf of the National 
                            Football League
    Mr. Chairman and members of the Subcommittee, my name is Gerry 
Waldron, and I represent the National Football League. I appreciate the 
opportunity to express the NFL's strong support for the Internet 
Gambling Prohibition Act of 1999. The NFL strongly supports this bill 
because it would strengthen and extend existing prohibitions on 
gambling on sports events. The bill comprehensively addresses the most 
popular form of gambling on the Internet, which is sports gambling. If 
the lion's share of gambling on the Internet is sports gambling, the 
lion's share of sports gambling is on professional football. Thus, the 
NFL has a special concern on this matter, and we believe that a bill 
that addresses sports gambling with enhanced enforcement tools tailored 
to the Internet helps a great deal to arrest this growing problem. We 
join the State Attorneys General and other sports leagues in urging 
adoption of this important legislation.
    Simply put, gambling and sports do not mix. Sports gambling 
threatens the integrity of our games and all the values our games 
represent--especially to young people. We don't want our players used 
as poker chips--on-line or off-line.
    For this reason, the NFL has established strict policies relative 
to gambling in general and sports betting in particular. The League 
also has been an active proponent of federal efforts to combat sports 
gambling. We strongly supported the passage of the Professional and 
Amateur Sports Protection Act of 1992. This law, known as PASPA, 
prohibits states from legalizing sports betting. Like PASPA, the 
proposed legislation is a logical and appropriate extension of existing 
Federal law and policy.
    The Internet Gambling Prohibition Act is a necessary and 
appropriate federal response to a growing problem that, as the State 
AGs have testified, no collection of states can adequately address. Ten 
years ago, a gambler might have used the telephone to call his bookie. 
Today, he or she simply logs on. Gambling businesses around the 
country--and around the world--have turned to the Internet in an 
obvious attempt to circumvent the existing prohibitions on gambling 
contained in the Wire Act and PASPA. Many offshore gambling businesses 
provide betting opportunities over the Internet, effectively beyond the 
reach of federal and state law enforcement authorities.
    The bill is needed because it updates our laws to reflect new 
technology. The problem of Internet gambling is significant--and 
growing. The League is aware of numerous sites that offer U.S. citizens 
a chance to gamble on NFL games and other sports. And that is just part 
of the problem. According to recent publications, the Justice 
Department has estimated that Internet gambling generated $600 million 
in revenue in 1997 alone. A recent cover story in USA Today predicts 
that Internet betting will grow to $2.3 billion by 2001. Some scholarly 
articles and Wall Street reports expect Internet gambling revenue to 
grow even faster, up to $10 billion by the year 2003.
    Internet gambling is successful largely because so little effort is 
required to participate. Unlike traditional casinos, which require 
gamblers to travel to the casino and place their bets at that location, 
Internet gambling allows bettors to access on-line wagering facilities 
twenty-four hours per day, seven days a week, from the comfort of their 
home or office. No airfare or lengthy travel time is required. In 
short, Internet gambling is quick, easy, anonymous, but not painless.
    Internet gambling sites are easily accessible and offer a wide 
range of gambling opportunities from all over the world. Any personal 
computer can be turned into an unregulated casino where Americans can 
lose their life savings with the mere click of a mouse. Many of these 
gambling web sites have been designed to resemble video games, and 
therefore are especially attractive to children. But gambling--even on 
the Internet--is not a game. Studies have shown that sports betting is 
a growing problem for high school and college students, who develop 
serious addictions to other forms of gambling as a result of being 
introduced to ``harmless'' sports wagering. As the Internet reaches 
more and more college students and schoolchildren, the rate of Internet 
gambling among young people is certain to rise unless Congress 
addresses this problem early and effectively.
    This legislation is needed because prosecutors lack adequate tools 
under current law to curb Internet gambling. Asserting jurisdiction 
over offshore gambling businesses that use the Internet can be 
problematic. More significantly, the Wire Act does not include direct 
and effective mechanisms for ensuring termination by Internet service 
providers of access to online gambling sites. That is why the bill 
contains carefully negotiated provisions that use a ``notice-and-take 
down'' system borrowed from the WIPO bill that this Subcommittee helped 
write last Congress. The ``notice and take down'' regime has 
protections built into it for ISPs. In fact, this bill carefully 
balances the needs of law enforcement with the efficient operation of 
Internet service providers. Moreover, the bill makes explicit that ISPs 
have no duty to monitor usage and if they comply with requests of law 
enforcement, they will not be subject to prosecution.
    Just as Congress enacted the Wire Act to prohibit the use of the 
telephone as an instrument of gambling, so Congress should now adopt 
specific legislation to prohibit the use of the Internet as an 
instrument of gambling. And just as the Wire Act provides an effective 
mechanism for terminating telephone service to gambling businesses, so 
the Internet Gambling Prohibition Act, through its injunctive relief 
provisions, would provide an effective mechanism for terminating or 
blocking access to gambling sites. In our view, an effective mechanism 
for terminating or blocking access to illegal gambling sites is 
critical to the success of Internet gambling legislation.
    Left unchecked, Internet gambling threatens to expand exponentially 
the amount of legalized gambling in our country. Its effects on the 
integrity of professional and amateur sports and the values they 
represent are pernicious. Just as Congress intervened to stem the 
spread of legalized sports gambling in 1992, so it must intervene to 
stem the spread of Internet gambling today.
    In conclusion, we urge this Subcommittee to support the bill as 
currently drafted. The Internet Gambling Prohibition Act will 
strengthen the tools available to federal and state law enforcement 
authorities to prevent the spread of Internet gambling on sports and 
casino games into every home, office and schoolhouse in this country. 
It also will send the vital message--to children and adults alike--that 
gambling on the Internet is wrong. We strongly support the passage of 
this bill.
    Thank you.

    Mr. Tauzin. Thank you.
    We have time to hear a final witness. Here's our plan: We 
will hear from Mr. Williams for his 5 minutes. That will give 
us time to get to the floor, and we are also going to recess 
for about 40 minutes when we do recess. Give you a chance to 
all go, you know, and take care of some lunch, whatever you 
need to do. We will come back after we hear Mr. Williams 
testimony and take rounds of questions.
    Let me introduce Mr. Richard Williams, chairman of the Lac 
Vieux Desert Band, Lake Superior Chippewa Indian Tribe.
    Mr. Williams.

 STATEMENT OF RICHARD WILLIAMS; ACCOMPANIED BY ROBERT ROSETTE, 
                            COUNSEL

    Mr. Williams. It is indeed an honor to be in front of you 
today representing the Lac Vieux Desert Band of Lake Superior 
Chippewas. We achieved the sovereignty issue with the Federal 
Government in 1988, September 1988. And also ironically, the 
Indian Gaming Regulatory Act became effective in October 1988. 
The testimony I present to you today I would hope that you 
would allow me to reserve 1 minute of that testimony so that my 
counsel could speak on some of the legal complexities of the 
testimony. And I also thank you for acknowledging the 
government-to-government relationships between the United 
States and Indian tribes.
    My testimony also carries with it resolutions from the 
oldest largest and respected Indian organization, the National 
Congress of American Indians, and also two other smaller 
organizations, the Midwest Alliance of Sovereign Tribes, United 
South and Eastern Tribes. So we do have a diverse geography 
that the Indian people are being made aware of the Goodlatte 
bill.
    We ourselves would support an outright prohibition of all 
gaming on the Internet. Such a blanket prohibition would be 
fair to everybody. As of right now, language in the Kyle bill 
and the Goodlatte bill puts us back on our reservations. We 
have come a long ways. It has been quite a struggle in many 
cases, but we are here. We want to be a part of this world. We 
need to be a part of the Internet world. We have created a 
game, we spend a lot of money on it. We have invested millions 
of dollars presenting the world with a game of integrity. And 
what we would like to see inserted as far as language into the 
bill, any otherwise lawful wager for class 2 or class 3 gaming 
as defined in section 4 of the Act of October 17, 1988. This is 
the Indian Gaming Regulatory Act. That is where we took our 
lead from. That is where we did our research from.
    This Congress and this government gave us the authority to 
go forward and use technological advancements to produce and 
rosette our audience. And I believe that is what we did in 
compliance with the law.
    Now, this bill will take everything that is legal and put 
it on the site. Even though they do say we protect your rights, 
but if you want to exercise your rights, you stay out on your 
reservation and do it. I, Mr. Chairman, live off the 
reservation. I cannot even play this game because I live off my 
reservation.
    So in conclusion, I would like to present my counsel, 
Robert Rosette, just for a brief minute of your time so that he 
can explain some things.
    Mr. Tauzin. You have got about a minute and a half, sir.
    Mr. Rosette. Thank you. As counsel for the tribe and a 
member of the Chippewa tribe as well----
    Mr. Tauzin. Give your name for the record.
    Mr. Rosette. My name is Robert Rosette. As you heard, the 
chairman, he was discussing a legal class 2 bingo game that the 
tribe operates completely and entirely on the Indian 
reservation. Very quickly, the tribe did say that they would 
support this legislation if it was a blanket prohibition for 
all of gambling interests. However, in this case, the Indian 
tribal provisions are inadequate for three reasons. The first 
of which is it may violate the Equal Protection clause of the 
United States Constitution. The second, it makes this otherwise 
class 2 bingo game illegal. And third, it doesn't consistently 
apply a criteria for granting carveouts for these other 
gambling interests as it would for class 2 bingo.
    Very quickly, on the due process issue, that can best be 
illustrated by giving you an example. Many tribes have 
compacted with their States through tribal State compacts to 
conduct simulcast wagering. This legislation puts these tribes 
at an extreme competitive disadvantage because while their 
company counterparts or their United States business 
counterparts can offer these games in home now, tribal 
governments are still required that the players be physically 
located on the Indian reservation. That means that the tribes 
cannot market or conduct in-home gambling simulcast wagering, 
which is both sanctioned by the State and by the Indian Gaming 
Regulatory Act, simply because of their status that they are an 
Indian tribe and the companies are not.
    Second, the class 2 bingo game that the chairman is talking 
about is legal. They use the Indian Regulatory Act to design 
it. They took careful attention in designing it. As we heard 
today, the intent to some of these carveouts was to sort of 
stop the line at what is legal and ongoing. Well, not in this 
case, because we see this game as legal, yet they are taking 
away from the tribes, and at the same time, extending the law 
to provide these companies their games.
    Finally, I would just ask if you didn't look at the Indian 
Gaming Regulatory Act or the constitutional due process or 
equal protection implications, that you would look at this from 
a policy standpoint, this game from a policy standpoint, and 
you would see that it compares more to the carveouts than it 
does the games they are trying to prohibit. For example, the 
class 2 gaming is regulated, it is allowed in the State, and 
our amendment that we are offering would not allow tribes to 
conduct any form of class 3 gaming, it would not allow tribes 
to do anything else. All it is is a paramutual game just like 
horse racing.
    [The prepared statement of Richard Williams follows:]
Prepared Statement of Richard Williams, Chairman, Lac Vieux Desert Band 
                   of Lake Superior Chippewa Indians
                            i. introduction
    My name is Richard Williams, and I am the elected Chairman of the 
Lac Vieux Desert Band of Lake Superior Chippewa Indians. I first would 
like to respectfully request that I reserve five minutes of my time so 
that my counsel, Robert Rosette, may address you as to some of the 
legal complexities of my testimony.
    As you know, H.R. 3125, the Goodlatte Bill, which is intended to 
prohibit Internet gaming, is steadily progressing through the House 
process, and Indian tribal leaders have had no opportunity to testify 
as to the negative effects of H.R. 3125 on Indian Nations or the Indian 
Gaming Regulatory Act (IGRA). Therefore, I am thankful that the Sub-
committee has the fairness and fortitude to acknowledge the government-
to-government relationship that exists between the U.S. and Indian 
tribes, and grant my Tribe this opportunity to testify before you 
today.
    That being said, I have attached a resolution from the oldest, 
largest and most respected Indian organization, the National Congress 
of American Indians, which fully supports what I present to you today. 
I have also attached resolutions from the Midwest Alliance of Sovereign 
Tribes and the United South and Eastern Tribes to demonstrate my 
support from the broad spectrum of Indian Country.
    It should be first noted that H.R. 3125's sponsors in the House 
have made an effort to address some of the concerns of Indian Country 
by enacting language that negatively amends the IGRA. The Goodlatte 
amendment that was added to H.R. 3125 at the full Judiciary Committee 
mark-up, which purports to protect Indian Gaming, is in fact a roll 
back of current federal law and is fundamentally unfair to Indian 
tribes. As such, it is unacceptable as a compromise in the present 
legislation.
    Specifically, the Goodlate amendment is inadequate for three 
reasons, to wit: i) It may violate the Equal Protection Clause of the 
Constitution; ii) It makes otherwise legal games under federal policy 
and the IGRA illegal, thus representing a fundamental departure from 
the delicate balance struck by tribes, states and the federal 
government under the IGRA; and iii) It does not consistently apply 
policy considerations for granting carve-outs for certain types of 
special interests.
         ii. h.r. 3125 may violate equal protection for tribes
    It is the Tribes contention that carve-outs within H.R. 3125 will 
be available to the private sector but the exact same carve-outs are 
not available to legitimate Indian tribal government gaming. For 
example, H.R. 3125 includes a novel carve-out for pari-mutual horse and 
dog racing. At the same time, however, the Goodlatte amendment has a 
very strict blanket prohibition against Indian tribes lawfully 
conducting these same games, even though many tribes have secured the 
right to legally conduct pari-mutual horse and dog racing through the 
IGRA, and accordingly, Tribal-State Compacts.
    For example, many Tribal-State Compacts allow tribes to offer 
simulcast wagering to horse and dog racing enthusiasts, which is the 
same privilege as other U.S. horse racing simulcast and gaming 
companies within the same states. These tribes are now at a tremendous 
competitive disadvantage because they can not utilize the Internet to 
expand player participation like their non-tribal counterparts. For 
example, pursuant to H.R. 3125, U.S. companies like YouBet and 
Ladbrooke can offer simulcast horse wagering to a player in the 
player's own home via the Internet. Meanwhile, tribes can not market to 
these same players or enjoy the same in-home wagering benefits because 
players for the tribes must be ``physically located on Indian lands''.
    Therefore, H.R. 3125 does not treat tribes equally because while it 
expands in-home gambling opportunities for U.S. companies, it restricts 
tribes from legally conducting the very same in-home opportunities 
solely because they are Indian tribes and the U.S. companies are not.
 iii. h.r. 3125 makes otherwise legal class ii bingo illegal for tribes
    Even though H.R.3125 expands currently illegal in-home wagering for 
horse, dog, and jai-alai wagering for U.S. companies, it at the same 
time takes away existing legal Internet Class II Bingo from Indian 
tribal governments. For example, my Tribe invested millions of dollars 
and countless hours developing a Class II Bingo game that utilizes 
Internet technology to expand its audience. My Tribe legally developed 
this game based on IGRA, and with the encouragement of Congress. 
(Please see the attached legal analysis, which provides a detailed 
legal description of the Tribe's Class II Bingo game). We developed 
this game because we are located in the Upper Peninsula of Michigan, 
which is very rural, and in order to provide for our future. We 
carefully developed the game so that it fell squarely within the 
purview of existing law.
    As you know, Congress contemplated the use of technological aids to 
link participating individuals to play Bingo from remote locations in 
order to increase player participation for Tribes when it enacted IGRA. 
It is clear the use of telecommunication devices, including the 
Internet, are technological aids available to Class II Bingo operations 
on Indian lands. My Tribe's Class II Bingo game is designed so that all 
elements of the game are played entirely on the Reservation. In 
summary, when applying Class II Internet Bingo to the language, design, 
and object of IGRA, the statute clearly demonstrates that Class II 
Internet Bingo is protected by the preemptive effect of IGRA.
    What is most disappointing is that the Goodlatte amendment is 
deliberately taking away this otherwise legal Class II Bingo from 
tribes, but at the same time, H.R. 3125 is expanding illegal in-home 
Internet gambling for other U.S. gaming interests by allowing gambling 
on-line that is not currently allowed in any other medium.
     iv. h.r. 3125 avoids policy considerations for class ii bingo
    Notwithstanding the Equal Protection and IGRA implications set 
forth above, the Tribe respectfully requests that you analyze our Class 
II Bingo game from the same policy perspective that you analyzed the 
carve-outs. With the special interest carve-outs in H.R.3125, the 
legislation creates two groups: i) gaming that is prohibited on the 
Internet (such as off-shore video slots and black-jack), and ii) gaming 
that is allowed on the Internet (such as horse and dog racing). An 
analysis of the characteristics of these respective groups demonstrates 
that Indian Class II Bingo better fits into the group that is granted 
carve-outs.
    For example, off-shore gaming interests are either unregulated, or 
are regulated within questionable jurisdictions outside of the U.S.. 
Due to this inadequate regulation, most companies offer illegal games 
in many states such as video slot machines and video blackjack. Many 
Internet gaming companies receive bets from minors or fraudulent credit 
cards. The U.S. also can not adequately protect consumers from the 
unscrupulous business practices of these off-shore companies.
    Class II Bingo, however, avoids these problems and has similar 
characteristics to the carve-out games that receive an exception under 
H.R 3125. Like horse and dog racing for example, Class II Bingo is 
regulated by the federal government, which ensures the integrity of the 
game, and further, protects consumers from unscrupulous operators. 
Second, Class II Bingo must be played pursuant to state laws and is 
only offered in those state jurisdictions where it is legal to play. 
Third, Class II Bingo is pari-mutual, meaning the players play against 
each other trying to win a portion of a money pool, rather than against 
a machine. And finally, like the carve-outs, Class II Bingo is 
conducted live, whereby players may witness results.
    In analyzing these respective groups from a policy perspective, I 
ask you one simple question: Which group does Indian Class II Bingo 
best belong? Clearly, the answer is that it better fits with the carve-
outs under H.R. 3125. Therefore, if Congress prohibits the Tribe's 
Class II Bingo game--even in light of its similarities to the carve-
outs--then we respectfully request that the House provide rationale for 
placing Class II Bingo in the prohibited group and not the carve-out 
group. It is extremely unfair and unjustifiable that Indian tribal 
governments are not granted the same protection as other gaming 
interests, especially because the Class II Bingo game developed by the 
Tribe falls squarely within the statutory regulations of state and 
federal laws.
                             v. conclusion
    Since H.R. 3125 treats Indian tribal governments unfair, prohibits 
tribes from conducting gaming that it allows to other U.S. companies, 
and prohibits many tribally operated games that are currently legal 
under IGRA, I would like to recommend language as an Amendment to H.R. 
3125:
    Insert the following new section and renumber accordingly:
        SEC. 4. INDIAN GAMING REGULATION ACT
        ``. . . any otherwise lawful wager for Class II or Class III 
        gaming as defined in Section 4 of the Act of October 17, 1988 
        102 Stat. 2467, conducted by an Indian Tribe on Indian lands.''
    This Amendment prohibits tribal governments from conducting 
internet gambling that is not allowed by Tribal-State compacts or that 
is not allowed by H.R. 3125. Thus, this language would enable Tribes to 
enjoy the same benefits that H.R. 3125 confers upon other private 
sector companies such as simulcast horse racing, and also preserves 
current legal gaming so long as the gaming is allowed pursuant to a 
Tribal-State Compact and legal under H.R. 3125. The Amendment also 
requires that Indian gaming occur entirely on Indian lands, which means 
for example, that tribes could not offer any Class III (Las Vegas 
style) gaming over the Internet. Also, the amendment recognizes the 
carefully constructed regulatory framework that IGRA provides for 
states and the federal government. The Congressionally approved 
framework of IGRA is the best vehicle to regulate Indian gaming.
    Because my testimony is legally complex, I would encourage you and 
your legislative counsels to review the attached legal analysis before 
coming to any conclusions about prohibiting Class II gaming. If you 
have any questions or comments, please do not hesitate to contact me or 
Robert Rosette at (916) 441-2700. Thank you for your time and 
consideration.
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    Mr. Tauzin. We have got to make a vote. So we will have to 
wrap. Let me thank you all. I am particularly going to be 
interested, Mr. Di Gregory, in some of your rebuttal to some of 
the statements that were made, particularly that the later law 
trumps the earlier law, in specific, we want to know what law 
rules here. We will get back to that in just about 40 minutes. 
We'll take a good break. We will come back at 2:45. Without 
objection the committee stands in recess.
    [Brief recess.]
    Mr. Tauzin. The committee will please come back to order. 
We will ask all our guests to take seats and the members to 
assemble.
    I apologize for being a little late. You won't believe it, 
but in the time we left one another we not only took votes on 
the floor but I went and handled another bill in another 
committee and got two passed. Very productive of me--multi-
tasking.
    Let me thank you again for your testimony. As we left, if 
you recall, I was really interested in the state of the current 
law. We have heard a lot of conversation in the morning about 
whether this bill codified existing law or went beyond existing 
law, whether it allowed things to happen that couldn't happen 
under current law, whether it restricted things that were 
happening under current law from happening in the future. And I 
must confess to you I am in some doubt here. I don't know who 
is right or wrong.
    So I suggest, Mr. Di Gregory, why don't we start with that 
discussion? What is the state of current law as it affects--
let's go through the whole range--paramutual betting, let's 
take Jai Alai, let's take lotteries, let's take gambling 
casinos, whether they are owned by corporate America or an 
Indian tribe. What is the state of current law? Let's see if we 
can debate it out and find out where it is.
    Mr. Di Gregory. The state of current law is--let me first 
start off by pointing out that Federal gambling law is premised 
on assisting State governments in the enforcement of their own 
gambling laws. For example, you have got 1084 which allows us 
an exception, as I mentioned earlier, the transmission of 
information assisting in the placing of bets or wagers where 
the placing of those bets or wagers are legal between those two 
States where the bets or wagers are legal.
    And when you are talking about other Federal gambling 
statutes----
    Mr. Tauzin. Give us an example of that so we understand 
what that means.
    Mr. Di Gregory. Let's take Nevada and New Jersey. New 
Jersey and Nevada transmit line information on sports betting 
between the two States using telephone facilities. That is 
information assisting the placing of a bet or wager.
    Mr. Tauzin. So the facilities are exchanging information 
about the betting that is going on.
    Mr. Di Gregory. Not about the betting itself but the kinds 
of information which would be helpful to them in perhaps 
setting odds or establishing lines. You know----
    Mr. Tauzin. I gotcha.
    Mr. Di Gregory. So that is one example of information 
assisting in. So currently----
    Mr. Tauzin. I tell you what, I will maybe get it quicker 
this way. Is it legal today to get on an interstate phone call 
and place a bet paramutual bet?
    Mr. Di Gregory. No.
    Mr. Tauzin. No. You see, there was some confusion about 
that.
    Ms. Poulson, do you think it is legal to do that? Is it 
legal today to get on the phone and make a long distance 
interstate call and place a paramutual bet?
    Ms. Poulson. On a State-by-State basis----
    Mr. Tauzin. Between any two States? Can I call from one 
State to another and place a bet in that other State on the 
phone line--interstate long distance phone call?
    Ms. Poulson. If it is regulated and approved by the two 
States that are involved.
    Mr. Tauzin. Do you agree with that, Mr. Di Gregory?
    Mr. Di Gregory. No.
    Mr. Tauzin. Why not?
    Mr. Di Gregory. I don't agree with it. But let me first 
point to the language of 1084. Section 1084, whoever being 
engaged in the business of betting or wagering knowingly uses a 
wire communication facility for the transmission in interstate 
or foreign commerce of bets or wagers----
    Mr. Tauzin. Wait. Let me stop you, because we are going to 
get confused. I want to know what current law says. Are you 
reading the current law?
    Mr. Di Gregory. Current law.
    Mr. Tauzin. I am sorry if I interrupted you.
    Mr. Di Gregory. Whoever being engaged in the business of 
betting or wagering knowingly uses a wire communication 
facility for the transmission in interstate or foreign commerce 
of bets or wagers or information assisting in the placing of 
bets or wagers on any sporting event or contest or for the 
transmission of a wire communication which entitles the 
recipient to receive money or credit as a result of bets or 
wagers or for information in assisting in the placing of bets 
or wagers shall be fined under this title or----
    Mr. Tauzin. So you say that is a criminal violation to make 
a phone call across States lines, interstate commerce to place 
a paramutual bet. The language covers that you are saying, 
right?
    Mr. Di Gregory. For someone in the business, yes. It is a 
prohibition directed at the gambling business operator and not 
at the person placing the bet.
    Mr. Tauzin. Oh, so are you saying that I can make a phone 
call today--if I am not in the business of gambling, I am just 
a gambler, I can make a phone call and place a paramutual bet, 
interstate commerce today.
    Mr. Di Gregory. You can do that and avoid as a bettor 
Federal prosecution. You may not be able to do that and avoid 
prosecution under State law, depending upon what State law is.
    Mr. Tauzin. And do you agree with that Ms. Poulson?
    Ms. Poulson. Let me tell what you the account wager and 
practices are here. Currently, we have account wager legalized 
in nine States, which is 20 percent of the States, that allow 
wagering on horse racing. You had asked earlier what those 
States are. They are Connecticut, Kentucky----
    Mr. Tauzin. What is account wager so we have the record 
clear.
    Ms. Poulson. It is telephone wagering, where you set up an 
account between States.
    Mr. Tauzin. So how many States that allow you to make a 
phone call wager?
    Ms. Poulson. Nine. And----
    Mr. Tauzin. Would those States allow me to do it over in 
interstate commerce?
    Ms. Poulson. It is our understanding, yes----
    Mr. Tauzin. Okay.
    Ms. Poulson. [continuing] they do. You know, clearly, our 
industry has a disagreement with Justice's position. And we 
believe that their interpretation of the Wire Act disregards 
the specific purpose of that act of combating organized crime 
and the passage of the Interstate Horse Racing Act of 1978 
which federally regulates the----
    Mr. Tauzin. Did the 1978 act come after the Wire Act?
    Ms. Poulson. Yes.
    Mr. Tauzin. So you are saying it came after, and it 
specifically says what now----
    Ms. Poulson. The interstate----
    Mr. Tauzin. [continuing] with regard to interstate calls to 
place bets or paramutual betting?
    Ms. Poulson. What the interstate regulatory framework does, 
it was enacted to provide a Federal regulatory structure for 
interstate wagering on horse racing, and it ensures that all of 
the interests, the States through their racing commissions, the 
race tracks and the horse owners, are participants in that 
process.
    Mr. Tauzin. But that is a special act for horse racing.
    Ms. Poulson. Yes.
    Mr. Tauzin. Let me go back to the other two, Jai Alai and 
dog racing. Sorry.
    Mr. Di Gregory. I would like to comment on the Interstate 
Horse Racing Act, if I might.
    Mr. Tauzin. Please.
    Mr. Di Gregory. First of all, the Interstate Horse Racing 
as, was correctly stated, is a civil regulatory act. It is not 
a criminal prohibition. And what the Interstate Horse Racing 
Act does allow, it allows an interstate off track wager, but it 
is defined in the act as a legal wager placed or accepted in 
one State with respect to the outcome of a horse race taking 
place in the other State. So it allows an intrastate bet.
    And, actually, there is nothing in 1084 which prohibits an 
intrastate bet. Section 1084, and I would submit to you the 
interstate--1084 prohibits an interstate bet from being placed. 
I would also like to read to you, if I may, the legislative 
history of 1084.
    Mr. Tauzin. So you are saying the statute passed in 1978 
only permits the calling inside a State to place a bet inside 
that State of an event that is happening in another State?
    Mr. Di Gregory. Yes.
    Mr. Tauzin. It does not permit the calling into the other 
State to place a bet on the event occurring in that State. Is 
that your interpretation?
    Mr. Di Gregory. That is our interpretation.
    Mr. Tauzin. You disagree with that, Ms. Poulson?
    Ms. Poulson. What I'd like to do, actually, is to read you 
how we interpret that act.
    Mr. Tauzin. Let's do that.
    Ms. Poulson. Congress enacted the Federal statute 
specifically dealing with interstate gambling on horse racing. 
That act made clear that a racetrack controlled wagering on its 
races in interstate and international commerce and provided for 
industry and regulatory approvals before betting was permitted 
between jurisdictions where the wagering was legal.
    The findings of the Interstate Horse Racing Act, Congress 
said that States have the primary responsibility for 
determining what forms of gambling may take place within their 
borders but that the Federal Government should prevent 
interference by one State with the gambling policies of 
another. In the IHA, Congress provided that, with respect to 
the limited area of interstate off track wagering on horse 
racing, quote, there is a need for Federal action to ensure 
that States will continue to cooperate with one another in the 
acceptance of legal interstate wagers.
    Mr. Tauzin. Let me stop you there. Then I hear disagreement 
on the interpretation of the 1978 act. That is what I am 
hearing. You interpret it to say you can make the interstate 
calls to place a bet where the event is happening in another 
State if both States permit that. You are saying, no, they can 
only make a call inside the State, place a bet inside a State 
on the event that is happening in the other State. And I take 
it that is the best way I can describe the disagreement. Has it 
been tested in court?
    Ms. Poulson. No.
    Mr. Tauzin. So we don't have a--have you tried to make a 
case, Mr. Di Gregory? Have you tried to make a case on your 
interpretation? Have you tried to prosecute anyone?
    Mr. Di Gregory. No, we haven't prosecuted anyone.
    Ms. Poulson. You know, one of the things that we 
specifically like to bring up is that these activities have 
been highly visible--interstate simulcasting, account wagering. 
They have been practiced for over 20 years and in a strictly 
regulated----
    Mr. Tauzin. Interstate simulcasting is one thing. Watching 
an event in another State and placing a bet on it in the State 
you are watching it in is one thing. We are being told that he 
agrees with you. That is clearly covered by your act. What I 
hear the dispute on is not the simulcasting in two States of an 
event in one State, it is whether the bet is placed over the 
State line into the other State. And you seem to have a 
legitimate difference of opinion on that, and that is what I 
was trying to get.
    Ms. Poulson. Again, not once in 30 years has the Justice 
Department or any Federal prosecutor----
    Mr. Tauzin. I just heard that, too, they never prosecuted 
anyone. Why haven't you prosecuted someone over all this time?
    Mr. Di Gregory. I can't answer for the last 30 years. I can 
only tell you that this debate that began at least a couple of 
years back to me--back a couple years ago for me has 
highlighted this issue for us at the Justice Department, and we 
are paying attention to it. And we are aware of at least one 
off track betting association which does its mightiest to avoid 
taking phone calls interstate because of their belief, at least 
on the part of some folks, that----
    Mr. Tauzin. We are going to get to the--I want to close 
this out, because I really have to move. I have to give other 
members a chance. I want to tie this down before I move. So we 
don't have this settled in court. We have a dispute of 
interpretation, and that obviously means that maybe either a 
court or Congress has to settle it somewhere. That is the first 
thing I conclude.
    But let's go to dog racing and Jai Alai racing.
    Ms. Poulson. Can I make one statement?
    Mr. Tauzin. Yes, if quickly.
    Ms. Poulson. The problem is the logical conclusion of what 
the Justice Department is saying, that it would render 
interstate wagering illegal on legal State-regulated horse 
racing, which would cripple our entire industry.
    Mr. Tauzin. That is your argument. I understand.
    Ms. Poulson. But it is important.
    Mr. Tauzin. Saying that it is bad for them to do it or 
interpret it that way is not concluding, is not settling the 
question what is legal and not legal. I think what I am saying 
is that we have got a dispute here, very clearly. Somebody is 
probably going to have to settle it 1 day. Either somebody is 
going to get prosecuted and it gets settled or we settle it 
here.
    Let's go to dog racing.
    Mr. Di Gregory. There is one----
    Mr. Tauzin. I want to go to the dogs.
    Mr. Di Gregory. There is one case that I am aware of that 
deals with the subject of the Interstate Horse Racing Act. It 
was not based upon a prosecution brought by the Justice 
Department. We didn't have a chance to argue that case. And we 
can get you all the information, including the copy of the 
case.
    Mr. Tauzin. Thank you, sir. I am going to the dogs. If you 
can help me with this.
    Mr. Williams. Is there any way we can get bingo on the 
agenda, also?
    Mr. Tauzin. Yeah, we are going to talk bingo in a second. I 
am trying to get to bingo.
    Mr. Di Gregory. Can I make one final comment on the horses? 
And this applies to dogs as well.
    Mr. Tauzin. Okay.
    Mr. Di Gregory. It is in the legislative history of 1084 
when they discuss the transmission of information assisting 
between Nevada and New York. But nothing in the exemption says 
the legislative history, however, will permit the transmission 
of bets and wagers or money by wire as a result of a bet or 
wager from or to any State, whether betting is legal in that 
State or not. That is the legislative history of 1084.
    Mr. Tauzin. Okay. That bolsters your argument.
    Now, let's go to dogs and Jai Alai. We know what the new 
bill would propose. Tell me what the current law is. Can I 
place a call in interstate commerce to bet on dog racing, on 
Jai Alai racing? Does anybody say I can do that legally today? 
No. So it is illegal.
    Mr. Di Gregory. Again, depending upon the States, you can 
place the call. It is illegal under current Federal law to 
accept the betting operated business based upon the 
acceptance----
    Mr. Tauzin. So it is illegal to conduct betting operations 
through interstate calls on Jai Alai and dog racing today. Does 
anybody disagree with that?
    Ms. Poulson. There is nobody here to represent them, but it 
is my understanding you can on dog racing but cannot on Jai 
Alai.
    Mr. Tauzin. Is there a special dog racing statute that we 
need to look at?
    Ms. Poulson. It is my understanding through the industry--
and we will be happy to provide you with that information.
    Mr. Tauzin. Do you know, Mr. Di Gregory, whether there is a 
special statute?
    Mr. Di Gregory. I don't think there is, and I think you can 
look to 3125 for some instruction on that. When 3125 talks 
about the exceptions for horse racing and dog racing and Jai 
Alai, it refers to live horse racing made in accordance with 
the Interstate Horse Racing Act, then live dog racing subject 
to regulatory consent agreements that are comparable to those 
required by the Interstate Horse Racing Act, and live Jai Alai 
subject to regulatory consent agreements that are comparable.
    Mr. Tauzin. All right. The staff is instructed, staff, to 
research the state of the law when it comes to both dog racing 
and Jai Alai racing and to provide the committee with 
information on that.
    Ms. Poulson. We did state earlier that the Interstate Horse 
Racing Act is the only Federal legislation out there.
    Mr. Tauzin. It is. It is the only other law we have to deal 
with. I don't think there is a special dog law, but we have to 
check it out.
    Now, let's go from those three categories to lotteries and 
bingos and other forms of gambling, okay.
    Mr. Williams makes a claim that this bill before us would 
diminish his capacity to conduct his Indian gaming and bingo 
from the state of the current law. Does anybody dispute that? 
Is he correct that current law gives him more rights to conduct 
bingo operations than will this Internet Gaming Act that is 
presented to us?
    Let me ask you, please, Mr. Waldron, do you want to answer 
that?
    Mr. Waldron. If I might just say, is the question whether 
he could provide--and I was not clear what position he is 
taking--the IGRA, which is the Indian Gaming Regulatory Act, 
regulates gaming on Indian lands. Whether the suggestion is 
that one can gamble and whether it is bingo or some other type 
of gaming off of Indian lands I think that is clear. The 
current law does not--the current--the IGRA does not permit 
that. I am not--can't address whether it is all on----
    Mr. Tauzin. Let me ask Justice. Can I place a long distance 
call--or a local call for that matter--can I use the wire to 
place a bet on an Indian reservation at one of its gaming 
institutions? We have one in Charenton, Louisiana. Can I, in 
Thibodaux, call Charenton and place a bet?
    Mr. Di Gregory. You can make an interstate call on an 
Indian reservation.
    Mr. Tauzin. How about intrastate?
    Mr. Di Gregory. If it is intrastate and the call is placed 
on Indian lands--it depends upon the kind of gambling that is 
permitted in the State and that the tribe has compacted for.
    Mr. Tauzin. So the answer is, it depends.
    Mr. Di Gregory. That is always a good answer when you don't 
know all the facts.
    Mr. Tauzin. Mr. Williams is pointing out that he has some 
rights to do that under some compacts. It may be compromised by 
this bill. Is that correct, Mr. Williams?
    Mr. Williams. That is correct.
    Mr. Tauzin. You can perhaps get your counsel to the table. 
I want you to be as concise, as specific as you can. What in 
this new bill compromises your current rights to provide gaming 
opportunities to people off the reservation?
    Mr. Rosette. Well, under the Indian Gaming Regulatory Act, 
it only requires that class 2 bingo be conducted entirely on 
Indian lands. And, at the same time, the Indian Gaming 
Regulatory Act exempts tribal bingo from the anti-lottery 
statutes which deal with the interstate transportation of 
tickets.
    And, second, in the legislative history it specifically 
brings up the fact that--the legislative history of the Indian 
Gaming Regulatory Act brings up the fact that Congress would 
like to see Indian tribes in the bill itself use current 
technology and telecommunication devices to expand player 
participation between the different States.
    Mr. Tauzin. I take it in your testimony that you have those 
things cited?
    Mr. Rosette. Yes.
    Mr. Tauzin. I would like if your office could examine those 
arguments that are made, Mr. Di Gregory, that Congress did 
intend them to use these new technologies to provide gaming 
opportunities off reservation, and if you can give us the 
Justice Department position on those things.
    Mr. Di Gregory. I can tell you that I do not believe that 
Congress intended to provide the technological opportunities 
for off-reservation gaming. I can tell you those opportunities 
were restricted to class 2 gaming, and nowhere in the Indian 
Gaming Regulatory Act does it say that the prohibition with 
respect to Indian lands or the provision that the gaming take 
place on Indian lands applies only to class 2 gaming.
    Just very briefly, class 2 gaming refers to bingo and 
similar games. You are aware of that because you are from----
    Mr. Tauzin. Louisiana.
    Mr. Di Gregory. [continuing] Louisiana. Lottery is a form 
of class 3 gaming, and you need to enter into a compact with 
the State in which the reservation sits.
    In order to enter into the compact, the game that you want 
to play must be the same kind that the State wants to play. Let 
me give you an example of a recent case where the issue of 
whether or not the game was being played on Indian lands 
occurred. The Coeur d'Alene tribe in Idaho wanted to operate an 
interstate lottery using a telephone line and also using the 
Internet. Thirteen State attorneys general using provision 1084 
D notified AT&T that the activity that the Coeur d'Alene wished 
to engage in if they engaged in that activity in their States, 
operating a gambling business in their States, would be 
violative of State law. AT&T denied service to the Coeur 
d'Alene, and they had a remedy.
    The remedy was going to Federal district court to seek 
relief which denied them that relief. So there is an instance 
you see 1084 D in play.
    Mr. Tauzin. Mr. Rosette.
    Mr. Rosette. Our position is that we clearly agree with the 
Department of Justice with regard to class 3 gaming, and the 
Coeur d'Alene game is a class 3 game. What the tribe purports 
to do class 2(b), which occurs entirely on Indian lands and 
through the legislative history of the Indian Gaming Regulatory 
Act, you can conduct class 2 bingo entirely on Indian lands 
which is distinguishable from Coeur d'Alene.
    Mr. Di Gregory. That kind of situation is distinctable.
    Mr. Tauzin. Real quick because we are going to get all of 
this analyzed. Where a lottery is concerned, what is the 
current law? Can I, under current law, use the wires to 
purchase lottery tickets in interstate calls?
    Mr. Di Gregory. No.
    Mr. Tauzin. Does anybody disagree with that?
    Can I call Maryland and purchase a Maryland lottery ticket 
from Virginia? The answer is, no?
    Mr. Bowman. We don't know because no one has tried it yet. 
Again, the Department of Justice says one thing and does not do 
it. We know we are on the verge of having multi States coming 
on-line.
    Mr. Tauzin. Are people doing that and making calls?
    Mr. Bowman. There is not a State that is authorized yet.
    Mr. Di Gregory. I don't think that is a problem.
    Mr. Tauzin. How do you know that people are not using the 
telephone to buy lottery tickets?
    Mr. Bowman. I don't think anybody is aware that that has 
been done.
    Mr. Tauzin. So there is nothing in the current law that 
permits, and you think that it is outlawed----
    Mr. Di Gregory. It would depend on 1955, which prohibits 
the operation of gambling business. Section 1084 applies to 
sports betting but not to contests like a lottery.
    Mr. Tauzin. Finally, did we have any disagreement on sports 
betting? Was that pretty clear from everybody here?
    Mr. Waldron. I don't think that there have been any 
objections raised to that.
    Mr. Tauzin. The gentleman from Tennessee, Mr. Gordon.
    Mr. Gordon. Mr. Nestel, do you think that the States could 
do a better job of regulating this gambling on the Internet 
than having Federal legislation?
    Mr. Nestel. The whole reason that we got involved in this 
effort was in part because the national attorneys general came 
to Congress after throwing up their hands saying they couldn't 
regulate it, and once Senator Kyl and Representative Goodlatte 
got involved, we sought a Federal solution as the only way to 
go.
    Mr. Gordon. Do you think that's the camel's nose under the 
tent and other kinds of Federal regulation as to athletics?
    Mr. Nestel. In this case, we already have a Federal law, at 
least when we talk about the 1992 Act, which prohibits sports 
gambling in 49 out of the 50 States. We are working on the 50th 
State.
    We have circumvention when it comes to sports gambling in 
this country. The Federal Government has already gotten 
involved when it comes to sports gambling. I think this is a 
surgical strike when it comes to the Internet, and really, 
given the global communications medium that the Internet is the 
only way to address this problem.
    Mr. Gordon. You think it is better to have a Federal 
legislation than State legislation then?
    Mr. Nestel. I am not a prosecutor. I can only go on what 
the attorneys general have been saying for the past 3\1/2\ 
years.
    Mr. Gordon. But regarding the NCAA, it is better to have 
Federal legislation and continuity rather than individual State 
legislation?
    Mr. Nestel. The NCAA wants definitely to keep in force and 
in compliance with the 1992 Professional and Amateur Sports 
Protection Act, and this doesn't do it. Our concern is if the 
attorneys general are throwing up their hands, that this is the 
only way to do it.
    Mr. Gordon. So you think that it is better to have Federal 
legislation rather than State legislation?
    Mr. Nestel. From what I am hearing from law enforcement, 
yes.
    Mr. Gordon. I want to ask on a quick collateral issue. If a 
sports agent talks to an athlete in certain States, offers them 
money, a suit of clothes or whatever to sign a contract, that--
under NCAA, that athlete would lose his eligibility and the 
school would be penalized, and oftentimes the agent would have 
no penalty against them, are you aware of that?
    Mr. Nestel. Absolutely.
    Mr. Gordon. Why on earth when legislation was proposed on 
the Federal level to punish those agents and not let them get 
by with those few States that allow that, even though coaches 
supported it and the junior college equivalent of the NCAA 
supported it, why on earth would your organization be opposed 
to it saying that it was a bad precedent, it was Federal 
legislation and you were afraid that would lead to other 
Federal legislation when here, today, you are asking for 
Federal legislation?
    Mr. Nestel. I know when you have 1,000 members, you have 
varying opinions.
    Mr. Gordon. This was the board. The board had discussion.
    Mr. Nestel. They looked at the problem and they felt a 
uniform State law was the approach to go. We have been working 
for 4 years to develop a uniform State law with the National 
Conference of Commissioners. I can't say any more than that 
that, except that is what our membership chose to do in terms 
of the approach.
    Mr. Gordon. I was told it was the camel's nose under the 
tent, so it looks to me like the camel is already in there. I 
will be discussing that legislation with your board again. I 
hope that you will follow your members and the coaches all 
around the country rather than just a few board members' 
suggestions, and maybe try to be some help to the athletes and 
the schools that you represent.
    Mr. Nestel. Congressman, I thank you for being interested 
in this issue. We want to continue to work with you.
    Mr. Gordon. We have a bill, and I would like for you to 
work with me. So far you have worked against me. I hope that 
you would like to work together on this.
    Mr. Chairman, I appreciate your indulgence on this 
collateral issue.
    Mr. Tauzin. I thank the gentleman. Mr. Cox, the gentleman 
from California.
    Mr. Cox. Thank you, Mr. Chairman. I wonder, with Mr. Di 
Gregory, if I can go over some of the questions that I have 
about the way that the statute is put together.
    It is my reading of the bill, it is not yet a statute and 
it may never be a statute, that it places a requirement on, at 
a minimum, an Internet service provider to take down a site 
after notice based on probable cause. Is that burden one that 
is imposed on Internet service providers alone or is it also 
imposed on search engines?
    Let me tell you why I asked the question. The dissenting 
views from the Judiciary Committee read as follows. I need my 
reading glasses unfortunately, this is awfully fine print. The 
bill's enforcement scheme is premised on several broad notice 
and take-down blocking and injunctive requirements, which 
principally rely on so-called interactive computer service 
providers to act as surrogates for law enforcement.
    Presumably, this would include Internet service providers 
such as AOL or the Microsoft Network, but potentially would 
include a far broader range of companies such as search engines 
and portals. Then there is a footnote that truly is so small I 
can't read it without a magnifying glass.
    Mr. Waldron. Section 1085(a)(6) defines interactive 
computer service, and one of the changes that was added during 
the Judiciary Committee process was a reference to search 
engines. So search engines are included in that group of 
Internet service providers that would both be subject to a 
notice and also enjoy immunity under that provision.
    Mr. Tauzin. Would the gentleman yield?
    Mr. Cox. Sure.
    Mr. Tauzin. If the gentleman would look at that definition 
with me, it also says interactive computer service means and 
information service or system. Could that be interpreted to 
mean a teleco? What does that mean? It is a new kind of 
definition, and one of the concerns that we've got in 
dissenting views was that it was so broad it could conceivably 
incorporate a teleco.
    Mr. Waldron. This definition was taken from the WIPO bill, 
and I would suggest that system modifies information system or 
access software provider. I think that is the better way of 
parsing it, and that language was borrowed directly from the 
WIPO bill.
    Mr. Cox. The copy of the bill that I have doesn't say 
anything in the definition of interactive computer service that 
I can see about search engines.
    Mr. Waldron. 6 B, the version that I have.
    Mr. Cox. Is engaged in the business of providing an 
information location tool, which means a service that refers or 
links users to an on-line location.
    So if you are a service that links users to an on-line 
location, you have this obligation. I include links in my e-
mails all the time. What does that make me?
    Mr. Waldron. You would not be engaged in the business of 
providing an information location tool.
    Mr. Cox. Is that because I am not in business?
    Mr. Waldron. That's correct.
    Mr. Cox. If I were in business, would that----
    Mr. Waldron. But you are not in the business of being a 
search engine. My understanding, and perhaps the Judiciary 
Committee staff would be better to address this, this language 
was suggested by the search engine members of the Internet 
service provider to describe the business that they are engaged 
in.
    Mr. Cox. Mr. Chairman, we don't have any members of the 
Internet community on this panel, but one of the reasons as I 
read through this with my lawyer's hat on, and I am concerned 
about the bill, is that it is so darn complicated. It raises 
enormous questions, and I would think if we were to enact the 
bill in its present form, we could truly say that we had 
enacted the first thorough-going regulation of the Internet, 
something that we have thus far been able to avoid.
    The Communications Decency Act that the Senate added some 
years back that we in the House had an anecdote for, was struck 
down by the Supreme Court on first amendment grounds, but it 
had other problems as well, chiefly that it relied upon a 
government-industry partnership to try to track down the 
content of Web sites, and we have a similar system here that 
concerns me greatly.
    In the DOJ formal testimony, the point is made that we 
would be wise to adopt a statute here that is technologically 
neutral, and I want to congratulate the Department of Justice 
for that approach because I think that is a very, very 
important principal in drafting legislation in this area. A few 
years ago, we didn't have an Internet, and it is my hope a few 
years from now that we won't have one either, and that we will 
have progressed to something that we haven't thought of right 
now.
    If you write into legislation-defined terms that are 
technical in nature, such as ramaframmer, you have to have 
certain kind of compliance with your ramaframmer with the 
statute that we are writing here, what are the lawyers going to 
tell the techies?
    They are going to say, we realize that the ramaframmer is 
becoming outdated, but it is referred to in the statute and we 
want to make sure, because it may be years before Congress can 
revisit this, we want to make sure that you are in compliance 
with the law, particularly this is a criminal statute, so we 
would like you to continue to have in your system a 
ramaframmer, because otherwise, we don't know what the statute 
will mean, whether the judge will allow us to draw an analogy 
to the son of the ramaframmer that we have invented, and as a 
result, our legislation, which is technologically specific, 
will slow down the pace of technology.
    We have got to find a way to draft a bill like this without 
mentioning the Internet. We have to find a way to build on the 
statute that we already have, which, after all, for the most 
part, covers what we are talking about here anyway.
    The laws of the 50 States for starters, and I will put this 
in the form of a question because I believe it to be true but I 
am not sure that it is. The laws of the 50 States, to a greater 
or lesser degree, prohibit gambling within the jurisdictions of 
those States. Some jurisdictions, like New Jersey and Nevada, 
have especially liberal regimes, but for the most part, States 
have treated these problems.
    Then you have 18 USC 1084 and there has been a recent 
successful prosecution of Internet gambling under that statute, 
which deals with interstate and foreign problems so that we 
have State regulation; we have Federal regulation that 
collectively cover gambling by whatever means, including the 
Internet, within the jurisdiction of a State or conducted 
overseas, but somehow involving the United States.
    So existing law, if I am not mistaken, without mentioning 
the Internet, because it was written before Al Gore invented 
the Internet, somehow manages to cover all of this, isn't that 
right?
    Mr. Nestel. If it is done through wire communication, as we 
mentioned, and as you read from the gambling industry, this 
industry is going wireless. The gambling industry has entered 
into agreements with Erikson to bring this to a cell phone. I 
believe that the current section, 1084, would not cover 
wireless communications.
    Mr. Cox. I understand that there are tweaks that are 
necessary and, in fact, the Department of Justice has 
specifically proposed legislative language to tweak section 
1084. My point is that we had a prosecution of an Internet 
gambling case under a statute that was written before the 
invention of the Internet. Somehow we managed to reach that 
conduct with definitionally, technologically neutral language 
because the Congress that wrote it didn't know about the 
Internet. So it is possible to do. And that is my question.
    Is it your view that it is possible to improve the statute 
to cover the new technologies that we can't even imagine yet 
without being technologically specific?
    Mr. Di Gregory. We believe that it can be done, absolutely. 
That is our proposal.
    Mr. Cox. We happen to agree on that, and I have given you 
one reason that I believe it is important. What were your 
reasons behind the assertion that we should be technologically 
neutral.
    Mr. Di Gregory. One reason was that we felt when you are 
legislating criminal prohibitions, you should focus on the 
conduct involved and not on the telephone or on the Internet or 
anything else, and that for consistency sake you needed to be 
technologically neutral.
    Mr. Cox. By way of analogy, we don't have a murder statute 
for death by knife and another one for death by gun and death 
by bowling pin and so on?
    Mr. Di Gregory. Except there are enhancements if you use a 
firearm in certain jurisdictions.
    Mr. Cox. Should we have a stricter penalty if you gamble by 
Internet?
    Those are my main concerns. I appreciate the Department of 
Justice raising them in this hearing.
    Mr. Tauzin. The answer on the definitional section of 
interactive computer service, the definition that was modeled 
after WIPO, it seems to me is inaccurate. So we don't know what 
an interactive computer system is. The only definition provided 
in the WIPO was a service provider in the 512 K-1 which is much 
narrower. So one of the concerns that those of you who are 
supporting the legislation should take into account is that 
this definition seems to be much broader than anything that we 
have seen before. While the notice and take-down provisions 
seem to be modeled after WIPO, who gets noticed and who is told 
to take down could be considerably broader. It could be whole 
systems as well as subscribers to those systems, and that could 
pose a substantial problem.
    Mr. Markey.
    Mr. Markey. Thank you very much, Mr. Chairman.
    Ms. Poulson, I understand that there is some disagreement 
between you and Mr. Di Gregory over the issue of whether or not 
it is currently legal under the Federal Wire Act to accept 
telephone wagers over State lines. You say that it is legal. He 
says it isn't legal. Can you tell us which facilities that are 
part of your association, can you tell us who--Mr. Di Gregory 
wants to know it is--which associations that are making bets, 
wagers across State lines using wires?
    Ms. Poulson. Who is making those?
    Mr. Markey. Yes.
    Ms. Poulson. It is a State-by-State determination on 
account wagering.
    Mr. Markey. No, you say it is State by State. Mr. Di 
Gregory is making a point that you can't make a call from one 
State into a second State in order to gamble. It is possible 
within a State to make a bet within that State on an event 
outside of the State. Which of those two are you talking about? 
Are you saying that the first is also legal, in your opinion, 
that you can make a bet from across State lines?
    Ms. Poulson. Yes. It is being done currently.
    Mr. Markey. A phone call made from Massachusetts to a place 
in New York State?
    Ms. Poulson. If the State allows it, yes.
    Mr. Di Gregory. It may be being done, but that doesn't make 
it legal. If you are talking about interstate telephone calls, 
it is illegal under 1084 for a gambling business or someone who 
holds himself out as a gambling business to accept a bet.
    Mr. Markey. Can you provide the names?
    Ms. Poulson. Sure. New York State does it. It has its own 
system set up and has, for 30 years, provided account wagering. 
We have the other States that have the account wagering. The 
whole purpose of the Interstate Horse Racing Act of 1978 which 
we have already discussed, followed the Wire Act, so there had 
to be some coordination along those lines to have one follow 
the other to allow this to be occurring. It has been an 
ongoing, highly visible system.
    Mr. Markey. As an ongoing, highly visible, nonprosecuted 
illegal activity?
    Ms. Poulson. It has been 30 years that this has been going 
on, and there hasn't been a single prosecution by the 
Department of Justice or Federal prosecutor of this issue. And 
the reason being you have the legislative history of the Wire 
Act, you have the Interstate Horse Racing Act.
    Mr. Markey. Let's let Mr. Di Gregory reconcile the 
Interstate Racing Act and the Wire Act.
    Mr. Di Gregory. By looking to the definitions in the Wire 
Act, and you reconcile it by noting that the definition of 
interstate off track wager is defined in section 300.23 as a 
legal wager placed or accepted in one State with respect to the 
outcome of a horse race taking place in another State. And then 
you look to the language in 1084 and to the legislative 
history, which says 1084 prohibits the interstate transmission 
of bets or wagers on sporting events.
    Mr. Markey. Ms. Poulson says that in New York State there 
has been open, continuous notorious----
    Ms. Poulson. I didn't say it was notorious.
    Mr. Markey. I am saying a highly visible engagement of that 
kind of activity.
    We absolutely are going to need some kind of written 
statement from you with regard to the contact that Ms. Poulson 
is referring to so that we have some kind of understanding as 
to whether or not we are breaking new ground.
    Mr. Markey. And if they think that it is legal already, why 
do we need the bill? Why do we need a bill if under the Horse 
Racing Act? Ms. Poulson says that they have been doing it. It 
is legal, and why are we wasting our time? So it seems to me 
that there is some reason here why we are reconciling these 
differences.
    Ms. Poulson. From the horse racing perspective, one of the 
reasons that we feel that the bill is important is that the 
legislation deals with the unlicensed and unregulated vendors, 
whether they are offshore or----
    Mr. Markey. But you don't think that you need any 
permission to go across State lines?
    Ms. Poulson. We believe that we have been practicing it and 
it is allowed.
    Mr. Markey. And Mr. Di Gregory does not believe that is 
already current law.
    Mr. Di Gregory. I take your point if the horse racing 
industry is permitted to do what it says that it is permitted 
to do, why do we need any exemption?
    Mr. Markey. Right. We don't have to have them in the 
language of the bill at all, and I would make the amendment to 
delete them if it is already legal. We can deal with offshore 
people.
    Mr. Di Gregory. We, of course, would dispute that point.
    Mr. Markey. We can just mention those that we don't want to 
be able to do it.
    Ms. Poulson. We do believe that it provides an umbrella for 
us for the existing practices simply because of the type of 
thing that is coming up with Justice. I think we need to have 
that umbrella of the protection of the existing practices that 
are there. That is why we have been pushing for the provisions 
that are currently there in light of the Justice Department's--
what we would consider a new position and not one that----
    Mr. Markey. I understand. Much of what we have to do on 
this committee is to take the values of the old world and build 
them into this new world. The first thing that we have to do is 
establish what were the values of the old world. We have a 
significant dispute here as to what those were. This hearing 
has not resolved it. We are going to have to ensure that we do 
so before we mark up, if we do mark up.
    Mr. Williams. Also, Mr. Markey, the socially acceptable 
game of bingo should be held in that category because of IGRA 
which specifically States that we should be allowed to produce 
a class 2 game using technology. So therefore, bingo, I think, 
should be held in that same category.
    Mr. Markey. Okay. For me this is helpful to the extent to 
which I understand it. There is still an atmosphere of 
ambiguity which characterizes this entire area that clearly was 
not resolved definitively in the Judiciary Committee, and I 
think it is the responsibility of Commerce Committee to ensure 
that we do understand exactly what laws we are modifying.
    And I bring to this subject many visits to Wonderland and 
Suffolk Downs. Personal experience counts, so I think I can 
engage in this debate as a fully informed participant. I thank 
you, Mr. Chairman, and I yield back the balance of my time.
    Mr. Cox [presiding]. Thank you. I would ask each panel 
member if you are willing to get back to the subcommittee in 
writing your evaluation of the legislative language that was 
proposed by the Department of Justice. That legislative 
language is appended to their testimony and that testimony was 
distributed at this hearing. If, for any reason, you haven't 
been able to lay your hands on it, the subcommittee staff will 
be pleased to provide it to you. If you can do that within, 
let's say, 10 days, that would greatly facilitate our 
consideration of these issues because our referral is time 
limited.
    And with respect to that language, I would ask Mr. Di 
Gregory if you could satisfy my curiosity on a couple of 
points. There is a long definition in the legislation of 
fantasy sport leagues or rotisserie leagues. It is 
exceptionally detailed. I wonder about the wisdom of making 
that valiant attempt for the same reasons that I was concerned 
about technological neutrality in writing particularly a 
criminal statute.
    I am a bit concerned that we have gone to such great 
lengths in this proposed legislation that you submitted to nail 
these colors to the mast. I would ask, for example, what would 
happen if a rotisserie league awarded de minimus prizes on a 
quarterly basis. It would fall without the definition that you 
have here in the statute, and surely you didn't mean for that 
inconsequential detail to determine whether or not it fell 
within or without the definition.
    Mr. Di Gregory. We were concerned, when we put that 
language together, with the concept of gambling involving 
consideration, chance, and prize or reward. And because there 
were a number of fantasy sports leagues that we were aware of 
that did give out de minimis prizes, and one of the prizes was 
a hockey cap being given out on a regular basis, whether 
quarterly or monthly, I don't recall, and we wanted to try to 
eliminate the situation where someone could argue that that de 
minimis prize would kick in this consideration chance and 
reward aspect of gambling.
    There is considerable debate we found in our research over 
whether or not fantasy sports leagues constitute gambling or 
whether they are simply a contest, and we tried to resolve the 
matter in our legislation by excluding fantasy sports leagues 
or actually defining bets and wagers in such a manner and 
defining the fantasy sports leagues we think would be 
appropriately played, making sure that those leagues were 
outside the scope of the definition of bets or wagers.
    Mr. Cox. And in your description, just now you said that 
you were not sure whether in the example it was monthly or 
quarterly, but in your statute, in your proposed bill, if it 
were quarterly, it would fall without the definition. If would 
not be rotisserie. If it were monthly, it would. It seems to me 
that is one of the perils of trying to do it this way because 
you wouldn't want, I don't think, to exclude from your 
definition someone who is giving away de minimis prizes on a 
quarterly basis. What is the prosecutorial policy of the 
Justice Department with respect to fantasy sports leagues right 
now?
    Mr. Di Gregory. I don't believe that we have engaged in any 
prosecutions of fantasy sports leagues.
    Mr. Cox. Is anybody else doing that?
    Mr. Di Gregory. I know that there are laws on the books in 
some jurisdictions. Montana comes to mind, although I may be 
wrong, which prohibits fantasy sports leagues and State 
governments, as they have always been, are, of course, going to 
regulate in their own States, the kind of conduct that they 
consider gambling, and regulate accordingly.
    Mr. Cox. All right. I don't want to abuse the opportunity 
that I have, as the only remaining member of the committee, to 
ask endless questions of the panel. We appreciate your being 
here. This is a very complicated topic and we want to make sure 
that while we are doing good, we don't mess it up. We will keep 
the record open for the period of time between now and whenever 
you can submit responses in writing to that final question. If 
you can remain for just a minute, I am going to yield the gavel 
to the chairman.
    Mr. Tauzin. Ladies and gentlemen, let me thank you. 
Generally, at the end of a long day like this where we have a 
lot of questions and a lot to say, there is something that 
somebody wants to add to the record. If you have a final 
statement, the last thing that you want us to remember, Mr. Di 
Gregory.
    Mr. Di Gregory. Only that we believe that legislation in 
this area can be much more simply done by utilizing the 
proposal that we have submitted.
    Mr. Tauzin. Thank you.
    Mr. Bowman?
    Mr. Bowman. I would encourage the committee to address the 
problem this year on Internet gambling and get something done.
    Mr. Tauzin. Ms. Poulson?
    Ms. Poulson. I think the horse racing industry feels the 
same way, that we need to move this forward and it is important 
to the preservation of the very cornerstone of our industry.
    Mr. Tauzin. Mr. Nestel?
    Mr. Nestel. I am just going to echo what everybody on the 
panel has already said. We need a bill this year and we are not 
going to probably get an opportunity to do anything in the 
future.
    Mr. Rosette. I would like to say, while the Department of 
Justice and I have both agreed that class 2 bingo is conducted 
legally with technology, Mr. Goodlatte's bill does make that 
activity illegal.
    Mr. Tauzin. Mr. Williams?
    Mr. Williams. I would just like to reassure you that the 
tribe is available to any subcommittee, and these government-
to-government talks need to be upheld and continue. I thank 
you, Mr. Chairman.
    Mr. Di Gregory. Mr. Tauzin, I did not mean to agree that 
class 2 gaming can be conducted through Internet gambling. 
There are technological aids that are permissible, and whether 
or not the Internet can be used is dependent upon the 
circumstances and the game that the tribes are trying to play. 
I wanted to make that point.
    Mr. Tauzin. I would very much appreciate both of you 
elaborating in this area in writing because I need to fully 
understand the two arguments.
    We ask the Department of Justice, for the record, how do 
you think Department of Justice would enforce the blocking 
provisions in the bill for offshore Web sites? You can submit 
it in writing. How burdensome for the 7,000 ISPs would it be to 
block each and every one, and how will they get the information 
and how frequently would they need to update that information? 
Those are the some of the questions that we would like you to 
come back to us on.
    The record will stay open for 30 days. You heard a lot from 
each other. That is why I like big panels. If you don't mind, 
use the time in the next 30 days to send us new information or 
clarifying information that you thinks needs clarifying. I will 
keep the record open if members wish to submit questions to 
you, the record will stay open. We will have an announcement as 
to procedure, strategy, what is to happen with the bill, 
probably sometimes next week, so stand by.
    We deeply appreciate your testimony and as I said, please 
respond in writing to whatever written questions we send you in 
the future. Thank you very much. The hearing is adjourned.
    [Whereupon, at 4 p.m., the subcommittee was adjourned.]
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