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37–553 PDF 2007

CAN INTERNET GAMBLING BE

EFFECTIVELY REGULATED TO PROTECT

CONSUMERS AND THE PAYMENTS SYSTEM?

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JUNE 8, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–37

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

June 8, 2007 ...................................................................................................... 1

Appendix: 

June 8, 2007 ...................................................................................................... 41

WITNESSES 

FRIDAY, JUNE 8, 2007

Balko, Radley, Senior Editor, Reason Magazine ................................................... 12

Colopy, Michael, Senior Vice President, Communications, Aristotle, Inc. .......... 22

Hogan, Reverend Gregory J., Sr. ............................................................................ 20

Kitchen, Gerald, Chief Executive, SecureTrading Group Limited ...................... 14

Prideaux, Jon, Chief Executive, Asterion Payments ............................................ 16

Schmidt, Jeff, Chief Executive Officer, Authis ...................................................... 18

APPENDIX 

Prepared statements: 

Carson, Hon. Julia ............................................................................................ 42

Cleaver, Hon. Emanuel .................................................................................... 44

Balko, Radley .................................................................................................... 45

Colopy, Michael ................................................................................................. 49

Hogan, Reverend Gregory J., Sr. ..................................................................... 53

Kitchen, Gerald ................................................................................................. 59

Prideaux, Jon .................................................................................................... 71

Schmidt, Jeff ..................................................................................................... 81

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Statement of the Antigua Online Gaming Association ......................................... 84

Paper submitted by the Gaming Law Review ....................................................... 89

Statement of Mark Holland, Partner, Baker Tilly ................................................ 105

Statement of Craig Pouncey, Partner, Herbert Smith LLP (Brussels) ............... 108

Statement of the Remote Gambling Association ................................................... 113

Statement of Keith Whyte, Executive Director, National Council on Problem 

Gambling ............................................................................................................... 119

Statement of Mary Williams, Chief Secretary, Isle of Man Government ........... 122

Statement of Andre Wilsenach, Chief Executive Officer, Alderney Gambling 

Control Commission, Channel Islands ............................................................... 132

Letter to Chairman Barney Frank from Frank Catania, Catania & Associates, 

LLC ........................................................................................................................ 147

Letter to Chairman Barney Frank and Ranking Member Spencer Bachus 

from Chad Hills, Analyst for Gambling Research & Policy, Focus on the 

Family ................................................................................................................... 149

Letter to Chairman Barney Frank from Andrew Poole, Head of Online Services, GamCare ....................................................................................................... 151

Letter from the General Board of Church and Society of the United Methodist 

Church ................................................................................................................... 165

Letter from the National Coalition Against Gambling Expansion ...................... 167

Letter from the National Association of Attorneys General ................................ 169

Joint letter from the National Basketball Association, the National Collegiate 

Athletic Association, the National Hockey League, Major League Baseball, 

and the National Football League ...................................................................... 174

(1)

CAN INTERNET GAMBLING BE 

EFFECTIVELY REGULATED TO PROTECT 

CONSUMERS AND THE PAYMENTS SYSTEM? 

Friday, June 8, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10 a.m., in room 2128, 

Rayburn House Office Building, Hon. Barney Frank [chairman of 

the committee] presiding. 

Present: Representatives Frank, Carson, Cleaver, Wexler; Bachus, Paul, and LaTourette. 

The CHAIRMAN. Good morning. The hearing will come to order. 

First, let me apologize to the witnesses for the fact that only a couple of us are here. When I originally scheduled this hearing, we 

were under the impression that there would be votes this morning. 

On the other hand, your testimony will not be interrupted by our 

having to go off for an hour while you all sit here, so there are 

pluses and minuses to that. Staff members of various members are 

here, and they are often a very good way to get information to us. 

This hearing is on the subject of the regulation of Internet gambling. Gambling in general is not the jurisdiction of this committee, 

and in fact, I had a conversation on Monday, I believe of this week, 

or Tuesday, rather, with John Conyers, the chairman of the Judiciary Committee, which has primary jurisdiction over gambling. 

In the previous Congress, we did enact legislation to restrict the 

payment of Internet debts where credit cards were involved, and 

that’s wholly within our jurisdiction. I voted against that bill, and 

I think it’s important to be clear about what I think is really at 

issue here. 

The bill was justified in part by people who said that we must 

prevent money laundering for the purposes of either terrorism or 

drugs, and that we must prevent young people from doing things 

that they shouldn’t do. But my own conviction, having talked to a 

lot of members, and listening to the debate, is that the primary motivation came from people who think gambling is wrong. 

Now, I have no quarrel with people who think that gambling is 

wrong. My quarrel is with people who, thinking that gambling is 

wrong, want to prevent other people from doing it. 

This whole debate has driven me back to a book that I only 

vaguely remembered, and I have now become impassioned with: 

John Stuart Mill’s, ‘‘On Liberty.’’ I recommend it to people for the 

great philosophic text in our tradition. 

2

The book makes the essential point that it is not the role of the 

government to send people with guns, under the threat of imprisonment, to make you better. We can give people information. We 

can, through various institutions in the society, give people instruction. But in the end, adults ought to be able to decide for themselves how they will spend the money that they earn themselves, 

as long as it does not have an effect on others. 

Now, it is possible to argue that everything we do affects everybody else. People have said, ‘‘Well, you say it doesn’t affect others, 

but if you gamble too much, then you’re affecting others.’’ Well, if 

you do anything too much, it affects others. The problem with that 

is it’s a classic case of an argument that proves too much. 

If you take that argument that, in fact, people have a right to 

your services, that people have a right for you to be healthy, it goes 

to extremes. People start telling each other what to eat, when to 

exercise; all of those things affect you. 

Clearly, there is in the minds of most of us a distinction between 

those things we do that primarily affect ourselves and those who 

choose voluntarily to associate with us, and those things that we 

do that inevitably impact on others. That is a line that I think government would be well advised to respect, and this bill undoes 

that. 

It is one of the rare cases where some of my conservative friends 

and some of my liberal friends come together. I have conservative 

friends who tell me gambling is wrong, and apparently I hear from 

some that there are biblical injunctions against it, although apparently there is an exception for bingo, which I have not yet been 

able to—I don’t have a good enough textual expertise to find it, but 

I gather it is there. On the part of my liberal friends, to be honest, 

I think many of them think it’s tacky. I think that they just don’t 

think it’s a nice thing to do, and therefore feel free to ban other 

people from doing it. 

Some argue, well, we must protect the poor from spending their 

money unwisely. I reject that. If you want to help poor people, 

there are other ways to do it. 

I suppose if you don’t have enough money, there are a lot of 

things that I might advise you not to do: drink beer; go to baseball 

games; buy certain things; or spend too much on articles of clothing. Yes, there are a lot of pieces of advice we should give people. 

But I would not legally ban lower-income people from spending too 

much on their athletic shoes and their jeans, and I don’t think we 

should do that here. 

Now, I know the argument is, well, but there are abuses here. 

I believe we can deal with the abuses. Let me deal with one, and 

that is young people. There is a great danger in this society that 

we will substantially circumscribe the freedom that adults ought to 

have because we are afraid that some young people might abuse 

it. 

It is incumbent upon us to try to differentiate in our laws between what adults can do and young people can do, and as far as 

Internet is concerned, I will say, from a lot of my conservative colleagues, I hear the mantra, ‘‘Never regulate the Internet.’’ 

And I guess what they really mean is, ‘‘Never regulate the Internet unless we find something offensive, and then we’ll regulate it,’’ 

3

because this is the most substantive interference with the freedom 

of the Internet that has ever been enacted into law. 

People are entitled to be for this. They are not entitled to be for 

this and then say, ‘‘Oh, but we respect the integrity of the Internet 

to be free.’’ 

And let me just close by saying this: We do allow a number of 

things to go on through the Internet that should be age-restricted. 

You can buy wine over the Internet. You can buy cigarettes over 

the Internet. You can look at—in fact, the courts have said to us, 

to the Congress, ‘‘You have gone too far in terms of First Amendment rights in banning certain kinds of sexual-oriented material.’’ 

Instead, they have said, ‘‘Differentiate according to age.’’ 

So we have been told by the courts, by the Supreme Court of the 

United States, that it is not appropriate simply to ban something 

entirely because young people might abuse it. Instead, we are 

under the obligation constitutionally to do the best we can to differentiate. 

I think we know that there are ways that you can not totally prevent, but substantially diminish, age-inappropriate uses through 

the Internet. That ought to be done here. 

But I again want to repeat, and we’re also told, ‘‘Well, gambling 

is this possible front for terrorism.’’ Well, everything is a possible—

everything. But there is zero evidence that we have, in fact, had 

people playing poker so they can bomb buildings. I await that evidence. I hope it isn’t there. If it is, I’ll look at it. But I don’t believe 

it is. 

I think, just to close, what we have is people who don’t like gambling and think that they have a right, through the government, 

to prevent other people from doing it. I regard that as a very grave 

crossing of the line that we in government ought to respect. 

I now recognize the gentleman from Alabama. 

Mr. BACHUS. I thank the chairman, and I appreciate the opportunity for us to discuss the legislation that we passed last year. 

One of the last acts that this Congress passed last year was the 

Unlawful Internet Gambling Enforcement Act. It passed 317 to 93, 

and enforcement of the Act capped a multi-year effort to protect 

American families from the well-documented ill effects of illegal online gambling. 

The new law attacks the problem of Internet gambling, illegal 

Internet gambling, through the payment systems, by prohibiting financial intermediaries from processing transactions involving unlawful gambling under applicable State and Federal laws, including 

the Federal Wire Act, and the Professional and Amateur Sports 

Protection Act. 

It does not prohibit anything which is not already illegal. It simply enforces the law that has existed in this country for years. 

As the record developed by this committee and the Judiciary 

Committee over the past several years has shown, gambling too 

often, illegal Internet gambling, results in addiction, bankruptcy, 

the destruction of families, and criminal activity. Internet gambling 

magnifies the destructiveness of gambling by bringing the casino 

into the home. 

According to an extensive study conducted by the University of 

Connecticut Health Center, 74 percent of those who have used the 

4

Internet to gamble have serious, chronic problems with addiction, 

and many of those have resorted to criminal activities to pay for 

their habit. 

One of the witnesses who is with us this morning, Pastor Greg 

Hogan, will share with this committee the story of how Internet 

gambling addiction placed his high-achiever son on a path that ultimately led to prison. 

The NBA, the NCAA, major league baseball, all of those testified 

before our committee as to the corrupting influence of illegal Internet gambling on athletes. Some claim that illegal Internet gambling is a victimless crime. The chairman has done that this morning. 

In fact, the real, the very real victims of illegal Internet gambling, the ones I’m concerned about, are the ones he spoke of, the 

underage gamblers who, by the tens of thousands, are becoming 

compulsive, addictive gamblers. 

They can’t go in a casino. They can’t go in debt legally. So they 

do it on the Internet, which is prohibited and illegal, but they do 

it anyway. They do it in their bedrooms. They do it in their dorm 

rooms. It is a mushrooming epidemic, leaving in its wake suicides, 

crime, and financial and family tragedies. 

The Judiciary Committee, and our committee, had several instances of college students who committed suicide as a result of 

Internet gambling and the debts they drove up. When it comes to 

illegal Internet gambling—and I stress, we’re talking about illegal 

Internet gambling. So those who are testifying in favor of this bill 

are actually talking about taking away prohibitions on what is already illegal. 

If the activity was legal, then it would have been in our court to 

try to make it illegal, but this is not a debate over whether it’s illegal or not. Every State in this union has a prohibition against this 

type of gambling. 

When it comes to this type of gambling, illegal Internet gambling, there are three reasons in particular why it is dangerous. 

Number one, the Harvard Medical School, the University of 

South Florida, and the American Psychiatric Association all conducted studies showing that the earlier one begins gambling, the 

more likely it is he or she will become an addicted, problem gambler. In fact, the Harvard study—and you are a graduate of Harvard, Mr. Chairman—showed that teenagers are 3 or 4 times more 

likely to become addicted than the older population. 

Second, pre-teens, teens, and college students have unlimited access to the Internet, 24 hours a day, 7 days a week. Because of the 

repeated exposure they have to illegal Internet sites, gambling 

sites, they fall victim by the thousands. These are illegal sites operated, most of them offshore, or all of them offshore, I would assume. 

So the people who are operating these sites are violating the 

laws of our country. I don’t know any other way to say it, other 

than that they are criminals. If you violate the criminal laws of our 

country, does that make you a criminal? I think it does. In fact, a 

University of Connecticut study showed that as many as three in 

four pre-teens and teens who are exposed to Internet gambling become addicted. 

5

Third, compulsive, problem gambling, particularly among young 

people, has been shown to result in the following: Increased withdrawal from normal activities; and turning to criminal activities to 

recoup financial losses. 

The NCAA testified before the Judiciary Committee about the 

starting quarterback at Florida State University, who on an illegal 

Internet site ran up over $10,000 worth of debt, turned to burglary 

to try to solve this problem, was betting on games involving his 

own institution, and ended up in prison. He is only 1 of about 14 

NCAA athletes who have been convicted in the past few years of 

illegal Internet gambling. A lot of people don’t care about this. 

They make money on these games, they make money on these athletes, and so they aren’t really concerned with whether the athletes 

end up in jail. 

But this same study, the Connecticut study, showed that many 

of these teens turn to criminal activities to recoup their financial 

losses, they take drugs to deal with the depression, and as the Harvard study showed, the South Florida study, the American Psychiatric study, and 48 other studies by universities and health 

groups showed, their irresponsible behavior leads also to family 

and other relational problems. 

A study by McGill University, and this is in the past 2 years—

we didn’t have the benefit of this study—found that nearly onethird of teen compulsive gamblers have attempted suicide. 

The University of Pennsylvania has recently found that the number of young people addicted to gambling, largely due to what they 

found was an increased exposure to illegal Internet gambling, is 

growing by an alarming 20 percent between 2004 and late 2005. 

They call this an epidemic which the country will deal with socially and economically for decades to come. 

Thus, Congress’s failure to act for many years, because of the resistance of many of the people pushing for today’s bill, we are seeing the devastating consequences of efforts in this Congress for 2 

or 3 years to stall our efforts. 

The law we passed last year has already had a significant impact 

on the market for illegal gambling services, prompting the major 

players in the industry, many of which are publicly traded companies in the United Kingdom, to cease their U.S. operations immediately. 

As reports in the Washington Post and others showed, they spent 

over $100 million resisting our effort to pass this bill. And yet, just 

as the new law is in the process of being implemented, through 

regulations that the Treasury and the Federal Reserve are expected to issue shortly, a concerted effort is already underway to 

undo it. 

Chairman Frank has introduced legislation that we regulate 

rather than prevent gambling over the Internet. I don’t question 

his motive, but the bill would establish the presumption in favor 

of legalized online casinos and sports betting—something that the 

NBA, major league baseball, the National Football League, and the 

NCAA worked for years to stop—and reward and legalize offshore 

Internet gambling sites that accept debts from Americans in violation of the U.S. law. 

6

The licensing regime contemplated by the legislation is premised 

upon the ability of Internet gambling sites to detect and block attempts to gamble online by minors, compulsive gamblers, and individuals located in jurisdictions that legally prohibit gambling. 

Let me say in conclusion, Mr. Chairman, that experts in the field 

of online protection and identity verification have openly questioned the effectiveness of technology currently available that attempts to verify age and identity in online settings, and advise the 

Judiciary Committee that only the prohibition we passed would 

work. 

In summary, Mr. Chairman, there is no compelling reason to 

change the course that Congress wisely charted last year when it 

passed strong legislation to combat the scourge of Internet gambling. 

Rather than spending our time trying to undermine the new law, 

we should be devoting our energies to rigorous implementation. 

America’s youth, their families, and communities should expect no 

less. 

Thank you, Mr. Chairman. 

And let me say this— 

The CHAIRMAN. We’re over 10 minutes. 

The gentleman from Florida. 

Mr. WEXLER. Thank you, Mr. Chairman. 

I will be brief. I just want to make a couple of quick points. 

First, I very much want to associate myself with Chairman 

Frank’s remarks and simply want to point out what I think are 

certain misunderstandings in terms of the current law. 

If you were to listen only to those last year who advocated in 

support of the Unlawful Internet Enforcement Gambling Act and 

listen to the ranking member this morning, you might have the impression that there is no legal gambling on the Internet today in 

the United States. That’s not true. 

The law, the way it was crafted last year, in the current state 

of the law, if you want to bet on horse racing on the Internet today, 

you can do it with perfect legality. So if your thing is betting on 

horses, you can bet on the Internet, and we sanction it. If you want 

to participate in lotteries, in many of the States across the Nation, 

you can bet on lotteries all you want, on the Internet. Off-track betting is now on the Internet. 

So the uneven state of the law simply says that if you’re a horse 

racing fan, you can bet on the Internet, but if you’re a poker player, 

you can’t bet on the Internet. If you play Mah Jongg, and I represent a district that is probably the Mah Jongg capital of the 

world, if you play Mah Jongg, you can’t bet on the Internet. 

So this statement of gambling versus non-gambling is not, I don’t 

think, reflective of the reality of the law the way we are today. 

And if I can make one point as to personal responsibility, which 

I think gets to the heart of some of the objections, I have three 

kids. You could turn on HBO at 1:30 in the morning, and probably 

very simply watch movies I wouldn’t want my 14-year-old child to 

watch. Does that mean we should shut down HBO? Of course not. 

What it means is, I or my wife ought to be wondering why my 14-

year-old is up at 1:30 in the morning, and if he is, checking to see 

what he’s watching on television to see if we permit it. 

7

But it’s not HBO’s fault if he’s watching something at 1:30 in the 

morning, and I’m not bothering to check on my 14-year-old. Likewise, to bet on gambling on almost all sites, and I understand there 

are some exceptions, you need a credit card. Well, how does a kid 

get a credit card? He or she gets a credit card usually because mom 

or dad or the caregiver or the guardian permits them to have a 

credit card. And if they’re really industrious and they’re going 

about getting these phone cards from Eastern Europe or whatever 

it is, again, parental responsibility. 

So I find it somewhat ironic that those that often are so quick 

to argue parental responsibility, individual responsibility, when it 

comes to online gambling, all of a sudden parents have no responsibility at all, apparently, to monitor the conduct of their teenage 

children. 

The real issue is, adults that want to gamble on games of skill 

in particular, like poker and Mah Jongg, why not? Why should we 

make it into an illegal behavior? 

And with respect to adults gambling, they do it today legally 

with the Congress’s blessing, with State legislatures’ blessing, all 

across America, but they happen to be the preferred choice of gambling apparently, horse racing and lotteries, but if you want to bet 

on poker and Mah Jongg, and other games, dog racing, apparently 

that’s somehow immoral. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Texas. 

Dr. PAUL. Thank you, Mr. Chairman. I appreciate the opportunity to talk about this bill, since I am an original co-sponsor. I’m 

not sure that I can improve on John Stuart Mill, or your statement, 

because I endorse essentially what you said, but I do want to make 

a few comments about this. 

It has already been mentioned, but I strongly believe there are 

two major reasons why this is a good bill. One, freedom of choice 

is important in a free society. Responsibility for improving one’s behavior should be on the individual, the family, and the church and 

local community, not on the Federal Government. It hasn’t worked 

before, and it probably won’t ever work in the future. 

Also, I strongly believe in supporting this type of legislation because I want to do my utmost to protect the Internet, in that this 

is a source of the spread of information. Even for good reasons, regulating the Internet can backfire on us and be used for other reasons. 

I was particularly interested in the chairman’s comments about 

the economic right to spend one’s own money, and I strongly endorse that principle, but I would like to emphasize that I’d like to 

see the day when the individual has an economic right to spend all 

their money and not just the money left over after the government 

took their share. So I would make a distinction there that I would 

like to see that we, as individuals, have the right to spend all our 

money. 

But I would like to identify with the ranking member’s statement, as well, because he has made some very good points, and I 

agree with his concerns about the danger of gambling. 

8

Obviously, the issue of gambling doesn’t interest me that much, 

because I don’t like it, and I taught my kids not to do it, but it’s 

back to the problem of who is really responsible. 

One thing, if we look at our history, prohibitions never worked. 

It was a total failure for alcohol, and we’re currently failing with 

drugs, so if you come in and have another prohibition, it won’t 

work. It will just drive it into the underground, and even in the 

electronic age, there are ways of doing that. 

One thing that is interesting in this new age of prohibition is 

that in the original prohibition era, when we thought we had to 

prohibit the use of alcohol to improve one’s behavior, we did it, and 

because of great concern for the Constitution, we amended the Constitution. Then we repealed it when we found out it didn’t work. 

Today, there’s no concern. We just write laws of prohibition, 

whether it’s gambling or drugs or whatever. And I think the way 

we do these things is every bit as important as the issue itself. 

But I’m a strong supporter of this legislation, and over the years, 

I had opposed the efforts of H.R. 4411, but I strongly support H.R. 

2046 to restore the rights of Americans to decide for themselves 

whether or not to gamble online. 

I yield back. 

The CHAIRMAN. The gentleman from Ohio. 

Mr. LATOURETTE. Thank you, Mr. Chairman. I’ll attempt to be 

brief. 

I want to welcome all our witnesses here today, in particular 

Reverend Hogan, whose church I understand is in Congresswoman 

Sutton’s district, but you live in Hudson, Ohio, so I guess I get to 

claim you, and welcome you. 

And I think that, as I listen to the other opening remarks, I have 

to tell you, maybe after this hearing, the gentleman from Florida 

can tell me how you bet on Mah Jongg. I’m not familiar with that. 

And the other observation about parental responsibility— 

The CHAIRMAN. If the gentleman would yield, I think the interesting question is, from my experience, how do you teach Mah 

Jongg players to use the Internet? 

[Laughter] 

Mr. LATOURETTE. It has been probably 25 years since I played 

Mah Jongg, so I don’t know. 

But relative to the credit card issue, I understand the whole 

thing about HBO and bad movies, but I have two children, one 23 

and one 19. I have more than two children, but those are the ones 

who are of age, and both of them have three credit cards, and neither one of them have a job. I was horrified to find that out, and 

it certainly wasn’t done with my permission or consent, 

A former member of this committee, who is now elevated, I guess 

we call it, elevated to the United States Senate, Senator Sanders, 

I was always willing to join with him on this notion of these unsolicited credit card solicitations that go to people without jobs who 

are not of age. And so I think it’s pretty easy for a person without 

a parent’s knowledge, who is in college, to have a credit card and 

engage in this activity. 

I respect the chairman’s principled opposition to the bill that we 

passed last year. I guess I’m saddened that before the regulations 

are written, we are attempting to adjust that. 

9

But I do hope that today’s hearing does address some of the serious concerns, that even if the chairman’s idea is a good idea, that 

the technology exists to actually do what the chairman envisions. 

And the only case that I’m aware of, that I’ve had the chance to 

review, was ACLU v. Gonzales, and I think in that case, the judge 

said that the stuff doesn’t exist, and if it does exist, it doesn’t work. 

So I respect the chairman’s observations about children and 

keeping them from gambling and age restrictions, but if we don’t 

have the software or hardware or whatever ware we need to accomplish what he’s attempting to accomplish, I have to remain opposed 

to this legislation. 

And I yield back. 

The CHAIRMAN. I thank the gentleman. 

I’m going to recognize myself for additional time. There are a 

couple of points that I want to make. 

First of all, with regard to credit cards, frankly, I’m somewhat 

surprised to hear my Republican colleagues complain about the excessively free use of credit cards. I didn’t vote for the bill, the bankruptcy bill that gave the credit card companies all those advantages. Some of the people on the Democratic side of the aisle, our 

colleague from North Carolina, Mr. Watt, had tried to put some restrictions on credit card company solicitations to young people. 

So I do think it is the case that many of my Republican colleagues, in particular, have in every other aspect supported the 

ability of the credit card companies to solicit, to have special protections in bankruptcy, and now to complain that some of the people who get the credit cards that you have made so freely available 

and so iron-clad in terms of their collectability, that some people 

are misusing them, seems to me impinge on the freedom of others. 

And I am struck that what I heard from the ranking member 

and others is that some people will abuse this. The argument that 

you ban something entirely because some people will abuse it 

seems to me the wrong principle for society. 

I’m also struck by the inconsistency—my conservative friends, in 

particular, usually say, ‘‘Listen, if you’ve committed a crime, you’re 

responsible.’’ This notion that society made me do it is generally 

mocked by Republicans when we talk about criminal behavior. 

And now what we’re told is, ‘‘Oh, you must stop everybody in 

America from doing this because a minority of them will be led into 

criminal behavior and it won’t be their fault.’’ Well, that is an abdication of the principle of personal responsibility. 

And the other thing I would say is that in terms of age restriction, I assume we will soon have legislation to ban the sale of cigarettes and alcoholic beverages over the Internet. To my understanding, you can buy cigarettes and alcoholic beverages over the 

Internet. Those are age-restricted, and I think they’re very important. 

Actually, I am struck that we—and I may have misunderstood 

here. I thought we were talking about young people, though as the 

gentleman from Florida said, if your pre-teen has a credit card, for 

God’s sakes, take it away. Don’t come and tell adults that they 

can’t do something because you can’t keep your 9-year-old’s hands 

off of your credit card. But we’re talking apparently about adults, 

10

about people in their 20’s, and I think we should make whatever 

we can available. 

I would also say this: If you are in your 20’s, and you have this 

predilection to do something wrong, it’s very hard for a free society 

to stop you. At some point, there are other ways you can do it. 

But I am struck again that what we are told here is not that this 

is inherently something wrong. You know, most things that I want 

to ban are just wrong. You should never take someone else’s 

money. You should never assault someone. You should never start 

a fire. You should never cheat someone. But the argument that you 

make something illegal because a minority are going to abuse it is 

a problem,. 

And the last thing I would say is this, in terms of the consistency 

issue. Many of my Republican friends have again talked about the 

importance of free trade and living up to our international free 

trade obligations, and we have been told that we can’t do certain 

things because we did adhere to the World Trade Organization—

I voted no, but we did—and we have to live up to those obligations. 

We have been found in violation of our World Trade Organization 

obligations under this bill, and people are basically saying, ‘‘Well, 

who cares? The people who complain about us are little, so we can 

ignore them.’’ But, you know, people are entitled to one side or 

other of the argument, but not to both. 

Mr. LATOURETTE. Does the gentleman have any more time left? 

The CHAIRMAN. Yes. You have 2 minutes left on your side. 

Mr. LATOURETTE. Thank you. I’ll try and just use about 30 seconds of it. 

I hope the chairman was using the royal ‘‘you’’ because when we 

had the discussions on credit cards and everything else, I did in 

fact join with Sanders and Watt and so forth and so on. 

I happen to not think that this unbridled solicitation of minors 

and people who aren’t financially responsible should have credit 

cards, one, I thought it was a bad idea then, and I continue to 

think it’s a bad idea now. 

And so— 

The CHAIRMAN. I acknowledge that, but I was talking about, I 

thought I was explicit, the great majority of the Republican party. 

The bankruptcy bill was passed by— 

Mr. BACHUS. Will the gentleman yield? 

The CHAIRMAN. I yield to the gentleman. 

Mr. BACHUS. How much time do we have left on this? 

The CHAIRMAN. On your side, none, but go ahead. 

Mr. BACHUS. Okay. 

[Laughter] 

Mr. BACHUS. That concludes my remarks. No. 

Let me just again say that the chairman has used the words 

‘‘make illegal,’’ ‘‘ban,’’ ‘‘prohibit,’’ and ‘‘stop.’’ What we did late last 

year did none of those things. 

Illegal Internet gambling was illegal, prohibited in all 50 States 

except in one or two rare cases, and in those cases, we didn’t—the 

law didn’t operate. 

So yes, we have the right to decide what we’re going to make 

legal and illegal, and we did that in this country, and that’s why 

the— 

11

The CHAIRMAN. I would ask the gentleman, what’s the purpose 

of the law? If it was already illegal, what did you need this law for? 

Mr. BACHUS. I mean, we didn’t decide that— 

The CHAIRMAN. But why did you want this law, then, if it was 

already illegal? 

Mr. BACHUS. The law is an enforcement mechanism because even 

though there was a prohibition, it was a criminal activity to engage 

in it, people did it in offshore sites, and we weren’t able to shut 

them down. 

And I will agree with you, the WTO has come in and said it’s 

a violation of the WTO and our international trade agreement for 

us to try to stop illegal Internet gambling in our own homes, which, 

boy, is— 

The CHAIRMAN. No, let me— 

Mr. BACHUS.—the testimony of the WTO and— 

The CHAIRMAN. No, what the WTO said is what the gentleman 

from Florida pointed out, that it’s hypocritical and inconsistent to 

allow your own gambling if it takes place at a racetrack in America 

or a dog track in America and ban it when it takes place in a foreign country. 

What the WTO found us guilty of was blatant hypocrisy and violating the fundamental principle of the WTO, namely, that you 

cannot give yourself economic rights that you then deny to other 

countries. 

Mr. BACHUS. I think we let other countries come in if they want 

to come in and gamble at our racetracks— 

The CHAIRMAN. You might, but again, you misstated the WTO’s 

principle. The WTO, if we had banned all gambling in America, 

then I don’t think you would have had this WTO case. 

But what they hit on was that we allow gambling in America, 

you can gamble on a racetrack in America, or a dog track in America, or State lotteries, or a whole lot of other things, but you can’t—

you know, And I guess, look, I suppose the next thing we’ll see is 

that young people are buying too many scratch tickets. I don’t 

know how you stop them doing that. 

Mr. BACHUS. Well, of course, your scheme—you know, this legislation today, still the WTO has indicated they’re still going to challenge what you do because it restricts access to our U.S. market. 

The CHAIRMAN. Yes. And I would like to, if we had jurisdiction, 

I would restrict that, as well, but our committee doesn’t have jurisdiction over that. 

Mr. BACHUS. In fact, they have indicated that it’s going to be 

easier to challenge, the WTO challenge, if this legislation passes. 

The CHAIRMAN. Oh, I don’t believe that’s the case. We’ve already 

been found in violation. How can it be easier? 

Mr. BACHUS. Well, you have arbitrary opt outs— 

The CHAIRMAN. But it’s already— 

Mr. BACHUS.—and carve outs, which they prohibit. 

The CHAIRMAN. You mean for the sports teams, the leagues? Yes, 

we did give those arbiters of absolute moral superiority, the professional athletic leagues, in a concession to reality, the right to opt 

out. 

Well, let’s get to the witnesses. The gentleman from Texas is 

going to introduce the first witness. 

12

Dr. PAUL. Thank you, Mr. Chairman. 

Chairman Frank, Ranking Member Bachus, I am pleased to welcome Radley Balko, senior editor of Reason Magazine, one of my 

favorite publications, to the hearing. 

Mr. Balko is one of the most perceptive critics of government 

policies that prevent individuals from engaging in what the government considers immoral or unhealthy behavior. Mr. Balko’s defense 

of civil liberties has appeared in a wide range of publications, including the Wall Street Journal, the Washington Post, and 

foxnews.com. 

His writings on the militarization of law enforcement were cited 

by Justice Stephen Breyer’s dissent in the Hudson v. Michigan 

case. 

I’m sure my colleagues will benefit from Mr. Balko’s thought on 

how banning Internet gambling is inconsistent with constitutional 

government and a free society. 

Welcome. 

The CHAIRMAN. Mr. Balko, go ahead. I know you went to some 

considerable trouble to get here, and we appreciate that. 

STATEMENT OF RADLEY BALKO, SENIOR EDITOR, REASON 

MAGAZINE 

Mr. BALKO. Thank you, Mr. Chairman. 

Mr. Chairman, and distinguished members of the committee, my 

name is Radley Balko, and I am a senior editor with Reason Magazine. I am also a former policy analyst at the Cato Institute. 

I have spent a good deal of my time writing and researching civil 

liberties issues, including the problems associated with the prohibition of victimless crimes. I’d also like to commend Chairman Frank 

for his work defending individual freedom, and I thank the committee for inviting me today. 

The Unlawful Internet Gaming Act was passed under rather dubious circumstances. It passed the U.S. Senate on the last day of 

Congress, late at night, with no Floor debate, after being attached 

to an unrelated port security bill. My problem with how the bill 

passed, however, is beside the point. Let’s get to the crux of this 

issue, Mr. Chairman. 

What Americans do in their own homes, with their own money, 

on their own time, is none of the Federal Government’s business. 

Take online poker, by far the most popular form of online gambling. Poker has enjoyed a surge in popularity over the last several 

years. The game is about as mainstream and uniquely American as 

baseball. 

Poker evolved from similar card games in the early 1800’s, then 

flourished in popularity on Mississippi’s river boats, winning over 

such iconic American aficionados as Mark Twain. Today, most daily 

newspapers have a poker column, including the New York Times. 

The game saturates cable television. And until recently, even members of the Supreme Court had a monthly poker game. 

Online poker is merely a new evolution of the game, similar to 

the way Civil War poker games introduced the straight, and gave 

us variations like draw and stud poker. The Internet merely removes the geographic barrier preventing those who love the game 

13

from finding opponents of similar skill who are willing to wager 

similar amounts of money. 

No one is hurt when two or more consenting adults sit down for 

a game of poker, be it online or in person. Why any of this should 

be of concern to the Federal Government is rather perplexing. 

I respect the fact that many Americans and many Members of 

Congress may have moral objections to gambling, online or otherwise. To them, I’d say simply, well, don’t gamble, then. 

But in a Nation where Las Vegas is one of our fastest-growing 

cities and most popular tourist destinations, where Indian casinos 

are commonplace, where horse racing is a national pastime, where 

nearly every State in the union derives public funds from State lotteries, singling out Internet gambling for prohibition seems arbitrary, and, frankly, hypocritical. 

Yes, it’s possible that a parent could bet away their family’s savings or their child’s education fund in an online poker game. They 

could also fritter that money away on eBay or on booze or fancy 

cars or exotic travel. But these are personal decisions, and if a free 

society means anything, it means we should have the freedom to 

make bad choices in addition to good ones. 

The ban on Internet gambling punishes the millions of Americans who are wagering online responsibly due to anecdotal evidence of a few who may do so irresponsibly. It’s an affront to personal responsibility and symptomatic of a government that treats 

its citizens like children. A government based on the principle of 

liberty doesn’t police the personal lives of its citizens for bad habits 

at any level, much less the Federal level. 

Supporters of a ban on Internet gambling say that the industry 

is unregulated, that underage people are more likely to gamble online, and that it supports money laundering and similar criminal 

enterprises. These are all problems wrought not by the decision of 

a consenting adult to gamble, but by the Government’s decision to 

prohibit it. 

Were Congress to give its blessing to legalized online gambling, 

I suggest you’d soon see brand names like Harrah’s, MGM, and 

Trump immediately enter the market. Reputable offshore brands 

like FullTilt Poker and PartyPoker would almost certainly incorporate in the United States and subject themselves to U.S. market 

regulation and Government oversight, including age restrictions. 

Customers want to know that they’re playing a fair game, that 

their bankrolls are secure, and that their privacy is protected. 

Companies that set up shop in the United States with the blessing 

and encouragement of the U.S. Government will almost certainly 

dominate the market. Winning could be taxed. Market forces and, 

if necessary, the Federal Government, could regulate and monitor 

gaming sites for fairness and transparency. 

Most importantly, if online gambling were decriminalized, the 

Federal Government could get out of the trivial business of breaking up online poker games and Federal law enforcement officials 

and prosecutors could expend taxpayer-funded resources on more 

appropriate endeavors, like pursuing Internet or interstate fraud, 

theft, and protecting the country from terrorism. 

In closing, the Unlawful Internet Gaming Act is a significant and 

disturbing and disturbing encroachment on individual liberty. I’d 

14

urge the committee to correct this overreach and let Americans do 

as they please within the privacy of their own homes. 

Thank you. 

[The prepared statement of Mr. Balko can be found on page 45 

of the appendix.] 

The CHAIRMAN. Thank you. 

Next, we have Mr. Gerald Kitchen, the chief executive officer of 

the Secure Trading Group. He has worked in a number of relevant 

capacities involving the administration of credit cards. 

Mr. Kitchen. 

STATEMENT OF GERALD KITCHEN, CHIEF EXECUTIVE, 

SECURETRADING GROUP LIMITED 

Mr. KITCHEN. Mr. Chairman, and distinguished members of the 

committee, thank you for the opportunity to provide this testimony. 

I have over 20 years global experience in the card and payments 

industry. I have served in various positions during this time, including as a director of Visa and Master Card, respectively. Until 

my current role of chief executive of SecureTrading, I was the managing director of Barclay Card in the United Kingdom, one of the 

largest processors of card and payment transactions in the world. 

SecureTrading is a U.K. company which operates a financial payments business providing secure processing and settlement of 

Internet payments across all sectors of industry. 

Mr. Chairman, the card and payment industry is a multi-layered 

cooperative and interdependent system that has matured and continues to mature over many years. This system provides regulation 

and compliance policies for consumers, credit card companies, 

transaction processes, acquirers, and operators. An overriding consideration of all participants in this system is balancing convenience and risk. 

In my decades-long experience, it is only in a licensed and regulated world that we participants are able to enforce such policies 

to protect all participants. The aim of the U.K. law relating to gambling is protection against underage and problem gambling, protection against consumer and operator fraud, and finally, protection 

against money laundering and organized crime. These objectives 

have largely been achieved. 

Achieving these objectives, however, comes at a price. The price 

is investment in appropriate technology and processes to achieve 

these regulations. The successful outcome is consumer protection, 

and, we believe, freedom of choice. It is far easier to protect consumers when they use industry issued bank cards to register and 

play. 

While other forms of payment may be possible, we do not believe 

they provide the same degree of security assurance as that associated with the bank cards. This approach keeps cash out of the system, a further protection against money laundering, and also allows player transactions to be tracked in the case of a dispute, and 

simplifies regulation. 

I will, Mr. Chairman, in this testimony, attempt to address some 

of the more obvious concerns being raised here today. 

As part of the responsibility of the operator in protecting against 

underage gambling and identity theft, strict, and at times lengthy 

15

and inconvenient consumer identity validations are enforced at 

both the time of consumer registration and during ongoing play. 

These today include production of a driver’s license, a utility bill, 

and even a passport. 

Know your customer or, as we refer to it, KYC, provides a critical 

form of protection to the consumer when playing and when registering. Under prohibition, with unregistered operators, it is not 

possible to validate or authenticate that this practice is being adhered to. 

Underage gambling is, without doubt, a concern. As a father, I, 

too, share this concern. A further guard against that is the rules 

of credit card companies today, who do not issue cards to minors. 

In the case that a card is issued to minors, they can be tracked, 

as the issuing bank flags these cards at the time of issue, and subsequent authorization of credits from such a card is declined when 

it is received from a gambling operator in a regulated world. 

The challenge of compulsive gambling is not something we underestimate, nor am I an expert in this field. We do, however, recognize this problem, and work relentlessly and responsibly with 

various support groups and authorities to protect and attempt to 

support the vulnerable consumers. 

By way of example, operators and processors like ourselves provide daily limit-setting parameters for consumers to limit their betting. Operators limit the amount of daily bets accepted. Consumers 

can only use one card at a time with an operator, which further 

limits credit exposure. Further, too, we do provide and support access to self-exclusion databases for consumers to register themselves. 

One thing is certain, Mr. Chairman, and members of the committee. In an unregulated world, the consumer is far more vulnerable and at risk than in a regulated world. A further consideration 

is the question of enforcing laws where certain jurisdictions opt out 

from Internet gambling. 

Our implementations in place today allow for the exclusion of 

customers based on their location, in the event that a jurisdiction 

chooses to opt out. The individual’s location can be identified using 

various forms of IP geo-location technology. This involves matching 

the customer’s IP address to a specific State, and in some cases, a 

city or town. 

This evolving technology is provided by a number of third parties. These systems, under independent audit by companies such as 

PWC, are known to provide accuracy up to levels of 99.9 percent 

at a State level. This accuracy can be further enhanced by considering IP location together with both the registration information 

provided by the customer and the address of the payment card. 

Finally, our collaboration with Baker Tilly, the global accountancy firm which provides back office processing services for us, is 

an important part of the service. We insist that all gambling operators, and in fact all other potentially high-risk sectors, like travel, 

are required to open an escrow account or a rolling reserve with 

the back account being under the independent control of Baker 

Tilly. 

16

This deposit provides immediate access to funds in the event of 

a valid consumer dispute. Further, too, this rolling reserve provides 

protection against the risk of money laundering. 

Mr. Chairman, and members of the committee, I thank you for 

the opportunity to provide this testimony. I trust that our experience gives you helpful insight as to how a regulated environment 

can work, and why we believe prohibition does not. 

Thank you. 

[The prepared statement of Mr. Kitchen can be found on page 59 

of the appendix.] 

The CHAIRMAN. Thank you. 

By the way, I should have said that without objection, any written material that any of the witnesses wish to submit will be made 

a part of the record. 

Next, we have Mr. Jon Prideaux, who is an independent payments consultant. 

Mr. Prideaux. 

STATEMENT OF JON PRIDEAUX, CHIEF EXECUTIVE, ASTERION 

PAYMENTS 

Mr. PRIDEAUX. Thank you very much, Mr. Chairman, and members of the committee. Thank you very much for the honor and the 

privilege of giving my testimony to you today. 

As you said, my name is Jon Prideaux, I am an independent payments consultant, and I have nearly 2 decades of experience in the 

payments industry in Europe. Most of this was with Visa, though 

I should emphasize to the committee that I’m not speaking on behalf of Visa today. 

I’ve worked together with banks and as a consultant with payment systems providers and also with marketing companies. I must 

tell you that I have never consulted for any Internet gambling company and I have no plans to do so. 

Gambling in Europe, and in the U.K. in particular, is widely 

available, both on the main street and also online. Internet gambling, as has been mentioned, is offered by multi-billion dollar companies listed on public exchanges that are well-regulated and their 

shares are widely held and traded. 

To place a bet and to withdraw one’s winnings for an Internet 

gaming transaction is a multi-stage process. In each of these 

stages, there is independent validation and checking. By definition, 

Mr. Chairman, in a regulated world, Internet gamblers cannot be 

anonymous. 

In this electronic medium, they must go through multiple ‘‘know 

your customer’’ stages in order to establish an account, and will 

necessarily leave an audit trail of their actions when they play. 

So what are the control processes that are in place in Europe? 

There is an important role for the State. In the U.K., the National Gambling Commission has the job of ensuring that the operator plays fair and also that the vulnerable are protected. 

And in addition, the Financial Services Authority, or FSA, the 

agency in the U.K. which performs an oversight role similar to that 

of the Federal Reserve, is charged with protecting the integrity of 

the payment system, is charged with ensuring protection of consumers, and also with minimizing financial crime. 

17

My own particular expertise, Mr. Chairman, is in the regulation 

and compliance programs operated by payment schemes. Visa, and 

to the best of my knowledge, Master Card and the other card companies, operate such regulatory and compliance programs and regimes directed at various different stages of the payment process. 

The first process is directed at the accurate flagging and identification of Internet gaming transactions. Controls also apply at the 

moment at which transactions are authorized. When they’re 

cleared through the system, monitoring can be done for unusual 

patterns, as can also be done when credits or payouts are made. 

And in addition, as an important safeguard, there is a possibility 

to monitor the level of disputes or chargebacks. 

So these are the controls, this multi-leg process. What results do 

they give, Mr. Chairman? 

Well, in my experience in Europe, regulated Internet gambling 

transactions are less likely to give rise to a dispute than e-commerce in general. Certainly, regulated Internet gambling is significantly less dispute prone than other digital sales, such as music 

downloading or Internet service provider subscriptions. 

During my many years as the chairman of Visa Europe’s compliance committee, I can tell you, Mr. Chairman, that I did become 

aware from time to time of many different complaints that consumers had about various aspects of the Visa system. 

But during this same period, Mr. Chairman, I can tell you that 

I did not receive a complaint, nor was I aware of any complaint relating to Visa of problem gambling, nor was I aware of complaints 

relating to operators cheating their customers on regulated sites, 

and neither did our anti-money laundering procedures cause us to 

make any suspicious transaction reports in the regulated sector. 

I conclude, therefore, Mr. Chairman, that Internet gambling can 

and should be regulated effectively. 

The arrival of the Internet, Mr. Chairman, has changed many industries. The gambling industry is no different. The genie cannot 

be put back in the bottle. Internet gambling is a fact. We must deal 

with it. 

This change of access to gambling has certainly brought with it 

new challenges, but, Mr. Chairman, it also brings with it new tools 

for management and for control, and a modernized regulatory regime will surely lead to better outcomes for all concerned. 

It is a matter of incentives, I would say. A prohibition regime 

provides incentives for operators to go underground. In a regulated 

regime, the incentive is to act responsibly. Surely, Mr. Chairman, 

that’s what we all want. 

Thank you for your time. 

[The prepared statement of Mr. Prideaux can be found on page 

71 of the appendix.] 

The CHAIRMAN. Thank you. 

And to introduce the next witness, I’ll call on the ranking member. 

Mr. BACHUS. Thank you. 

Jeff Schmidt is a recognized expert, author, and speaker on the 

topics of information security and infrastructure protection. 

He worked with MicroSoft Corporation in the Windows production security department. He was one of the CIOs of the Ohio State 

18

University, chief information officer. He was the founder and elected director of the InfoGuard National Members Alliance, which was 

the private sector component of the FBI’s InfoGuard program. He’s 

an entrepreneur who has started several successful ventures in the 

information security space. He actually worked with the FBI to 

start the InfoGuard program in 1998, and received his MBA from 

Fisher College of Business at Ohio State University. 

I welcome him. 

STATEMENT OF JEFF SCHMIDT, CHIEF EXECUTIVE OFFICER, 

AUTHIS 

Mr. SCHMIDT. Thank you very much, Mr. Chairman, and committee members. I appreciate the biographical information. I can 

now scratch that off of my list here. 

I have been in the information security space for the last 15 

years, and have focused specifically on identity and authenticationrelated issues for the last 3 years. 

I come to you today with the luxury of not having an opinion 

about Internet gambling. That’s not what I’m here to talk about. 

I’m a security practitioner, and it’s my job to give you a candid review of the state-of-the-art with respect to two specific technologies 

and techniques that we’ve been talking a lot about today, namely, 

identity and age verification, as well as geographic location or IP 

geo-location. 

My written submitted testimony contains several pages of excruciating detail on these particular technologies and techniques and 

again, a candid explanation of the state-of-the-art. 

I’m going to skip to the highlights. These technologies are not reliable in their current form today. Technologies that attempt to 

identify a person’s age as well as identify their geographic location 

will fail on the order of 20 percent. 

These numbers come from the vendors of these technologies 

themselves. They come from independent parties that have researched these particular techniques. And they come from my own 

research and my company’s own research. 

Again, 20 percent, I don’t know if that’s good, bad, or indifferent 

for the application that we’re talking about today. It is my job to 

make sure that the committee is fully informed about this reality 

when considering the policy decisions that are in front of us. 

The policy decisions are again, fortunately for me, well above my 

pay grade. So the best way to demonstrate this is with a couple of 

very simple demonstrations. 

On this piece of paper I have written down my user name and 

my password, as do 70 percent of all Americans in this country. 

Mr. Hogan. Now, Mr. Hogan is Jeff Schmidt. Online, anywhere 

else, if that were an age verified credential, Mr. Hogan would now 

be my age. It really is that simple, and recent data has confirmed 

that. 

First of all, ACLU v. Gonzales, with respect to CAPA, did a 

lengthy discussion about age verification and identity verification 

technologies, and found them to be unreliable. 

Also, I would remind the committee that the largest and most 

quickly growing complaint to the FTC has consistently been around 

identity fraud and identity theft-related issues. 

19

It really is, that is the sad state of affairs right now. We will see 

failure rates. Another way to think about what the failure rates 

might be is to consider a very simple and very common age 

verification problem, the problem that we see when credentialing 

a youth at a bar. 

According to research done by the University of Wisconsin, the 

University of Arizona, and the FBI, use of forged, faked, or borrowed IDs for the purchase of cigarettes and alcohol exceeds 20 to 

25 percent. Online age verification is a much harder problem. 

You’re not in person, you’re not inspecting a government-issued ID. 

Therefore, it is safe for us to assume that failure rates will be higher in the online scenario. 

The second technology that we’ve discussed is IP geo-location. 

The way that the Internet is constructed, it is extremely difficult 

to determine the geographical location with any sort of precision or 

reliability. 

Again, a very simple demonstration. Mr. Chairman, Boston is 

one of my very, very favorite cities. I was there yesterday. I used 

this Verizon card to access the Internet. I used the same card again 

this morning to access the Internet from my hotel here in the District. 

And in both cases, I received different answers from all the major 

IP geo-location providers. One had me in Dallas, Texas; one had me 

in Reston, Virginia; and one had me in Minneapolis. In no case did 

they agree or in no case did they actually put me in the accurate 

locations. 

Now, I understand that the use of these wireless cards is somewhat of a curve ball. However, this is the emerging technology, and 

this technology is standard equipment in almost every new laptop 

that is being built today. 

My other personal research around geo-location technologies has 

demonstrated failure rates for non-curve ball types of applications 

in the 20 to 30 percent range, as well. 

So again, it’s critical to understand that you will see very high 

failure rates and it is critical to factor that in when making these 

important policy decisions. 

Thank you. 

[The prepared statement of Mr. Schmidt can be found on page 

81 of the appendix.] 

The CHAIRMAN. Thank you. 

And to introduce our next witness, the gentleman from Ohio. 

Mr. LATOURETTE. Thank you very much, Mr. Chairman. I did 

welcome this witness earlier, but Gregory Hogan, Sr., is the pastor 

of the First Baptist Church in Barberton, Ohio, which is in Representative Betty Sutton’s district. 

He has a Bachelor’s Degree in Education from Tennessee Temple 

University. He is married with 4 children, and he is here to talk 

about the experience of his family and one of his children. 

And so welcome, Reverend Hogan. We look forward to hearing 

from you.

20

STATEMENT OF REVEREND GREGORY J. HOGAN, SR. 

Rev. HOGAN. Thank you very much. 

Chairman Frank, Ranking Member Bachus, my own Congressman, Mr. LaTourette, and members of the House Financial Services Committee, thank you for inviting me here today. 

As a parent, we dread a call that often comes to us. That call 

came to me on December 9, 2005. On the other end of the line was 

my son. It was not his cell phone number that showed up on my 

wife’s phone, but one we did not recognize. 

He immediately started crying, and he said, ‘‘I’ve done something 

terribly wrong. I’m in jail for robbing a bank.’’ Time stopped. My 

wife couldn’t even drive across the street, and I do not remember 

today how we got home from the restaurant that evening. But my 

son was under arrest for doing something that was inconceivable 

for him. 

What could have put my son in a state of mind to do that act? 

He was president of the sophomore class at Lehigh University. He 

was second-tier cellist in their orchestra. The high school psychologist who worked with him for 4 years called him a ‘‘straight arrow.’’ 

And no one who knew Gregory could believe that he had done such 

an act. 

How could this young man who appeared twice at Carnegie Hall 

in New York City think that he could rob a bank? The answer has 

to do with illegal Internet gambling. 

It all began when a non-student came into his room, walked over 

to his computer and said, ‘‘Hey, look how much money I made on 

the Internet.’’ He keystroked a few things into my son’s computer, 

and up on the screen popped $120,000. He downloaded the program 

so my son could gamble through his preferred site. 

And then for 14 months, we began to watch our son’s descent 

into the black hole of addiction to Internet gambling, especially 

poker. It began when a few overdraft charges showed up at our 

house, and our first conversation was on wasting money and avoiding spending money frivolously. 

It included a battle with depression, daily notices from the banks 

about overdrafts, and I had to live at a home that I did not like. 

I had to take out all the computers in our house. I had to lock them 

up. I had to make sure that my wallet was beside my bedside every 

night and all my financial papers were in the safe. 

Whenever Greg was around, I had to secure our family finances, 

and the TV was always turned to Texas Hold ’em. After interviews 

with a certified gambling therapist, with members of GA, and begging colleges to provide a counselor for him, we sent Greg back to 

Lehigh University for his sophomore year. 

With him he had taken, without our knowledge, $2,000 in savings bonds from our family safe, and he began to gamble again. 

Greg’s student account at the bank in Bethlehem, Pennsylvania, 

did not allow Internet payments, so he found an intermediary site 

to continue his gambling. 

I installed Gamblock, an anti-gambling program, on his personal 

computer, and so he began gambling at the Lehigh University library, up to 12 hours a day. I asked the university to block his access to the computer, and I was told that nothing could be done. 

21

By December of 2005, he had been shut out of all the sites because of bad bank transactions. His fraternity brothers were asking 

for their money back so they could buy Christmas gifts for their 

families. Greg’s grades were slipping. And he was descending into 

the pit of addiction. He became two different people. 

The weekend before his arrest, he ran a volleyball tournament to 

raise money for the local Boys and Girls Club. He had to make one 

more bet. So, with the bravado of a bluffing gambler, dressed as 

a typical college sophomore, Greg walked into a bank, waited in 

line, passed a note to a teller, and walked out with the money in 

his backpack. 

He was arrested that evening, as he came into the college arts 

center on his way to orchestra practice. Greg has pleaded guilty to 

a first-degree felony, and is now serving 22 months to 10 years in 

Pennsylvania. 

After Greg’s arrest, we sent him to a gambling rehab center, 

CORE, in Shreveport, Louisiana. He came home and said, ‘‘Dad, 

you never told me gambling was evil.’’ You can’t imagine a Baptist 

pastor not saying gambling is evil, but I never had talked that way 

to my children. He realized how evil it was, emotionally and intellectually, and how it was damaging so many lives. 

This time next year, instead of watching my son receive his diploma from Lehigh University as president of his class, I’ll be waiting proudly outside the gates of prison to see my son released. I 

will count myself fortunate, because many dads have stood by the 

graves of their sons who took more drastic steps to end their addiction to Internet gambling, such as suicide. 

Why tell my personal story for a piece of Federal legislation? 

Well, Greg’s story is being repeated in so many young lives. According to the AMA, the APA, up to 5 percent of all college students 

will become compulsive gamblers when exposed to Internet gambling. Are we willing to see up to 16 million new gambling addicts 

in our Nation? 

Greg’s story is one that recounts loss. I have met many people 

who have $30,000 to $50,000 in online gambling debts. Many people drop out of college. They drop out of life. They drop out of society, to pursue online gambling. 

The World Series of Poker that’s going on this week may be 

glamorous, but the life of an addicted gambler on the Internet is 

not. It is just a series of broken hopes, promises, dreams, and lives. 

The question I ask this committee today is the same that the 

apostle Paul asked the Romans: ‘‘Shall we continue to do good, or 

shall we continue to do evil that good may prevail?’’ The answer 

to that, obviously, is no. 

Thank you, Mr. Chairman. 

[The prepared statement of Reverend Hogan can be found on 

page 53 of the appendix.] 

The CHAIRMAN. Next, Mr. Michael Colopy from Aristotle International, who manages communications for Aristotle. 

And I know you are the first non lawyer, the Wall Street Journal 

noted, to be a general partner in a U.S. law firm. I don’t know if 

you’re the last, but you’re the first. 

Go ahead. 

22

STATEMENT OF MICHAEL COLOPY, SENIOR VICE PRESIDENT, 

COMMUNICATIONS, ARISTOTLE, INC. 

Mr. COLOPY. Thank you, Mr. Chairman. I just want to add to 

your comment about John Stuart Mill. Your predecessor, and my 

family friend, Bob Drinan, said years ago, referring to how some 

of these debates develop, that policy is often formed by the voices 

that are heard rather than the realities that exist. 

He said, if Rene Descartes were alive today, he wouldn’t say, 

‘‘Cogito ergo sum,’’ he would say, ‘‘Dico ergo sum’’—‘‘I speak, therefore I am.’’ And so, reluctantly drawn by that dictum, I’m here 

today. 

The CHAIRMAN. My predecessor, Father Drinan, was much more 

adept at Latin than I, I should acknowledge. 

Mr. COLOPY. Moving right along, there are so many things that, 

in his day and now, have to be elucidated by these hearings, and 

that is why Aristotle, the company that is the leading provider of 

verification technology for most elected officials of the United 

States, and is also now the industry leader in online age and ID 

verification, insisted that I respond to your request and be here 

today. 

So I’m going to make a few generic remarks, and I want to address some things that are said here today and that are put about 

by PR and interested parties in confusing an issue that must be 

seen clearly for policy to be framed in a coherent and an effective 

manner. 

Number one, let’s look at what society wants to do, which presumably is to do the right thing—protect our most vulnerable 

members, mitigate risk of fraud and abuse and so on. 

And then the second question is, what is the market, what is the 

free enterprise system doing to address these issues? 

Those are two fundamental questions. 

First off, we have to point out the fact that while time flies, technology rockets forward, that technologies that were discussed in 

just the last Congress are now almost obsolete. 

I know, for example, that there was a report aired in November 

2005, which I believe we have, right? Let’s take a look at it. This 

is from ‘‘60 Minutes,’’ November 2005. 

[A videotape was played.] 

Mr. COLOPY. Mr. Chairman, many of the points you made resonate with this report, but as I said, that was in November of 2005. 

‘‘60 Minutes’’ re-aired it in November of 2006, because members 

here and elsewhere were saying they weren’t aware that there 

were any technologies available that could age verify and identity 

verify. 

The court record that was referred to earlier is already being 

noted as an example of judicial opinion that is way behind the 

times. 

Right now, the company that I represent here today, Aristotle, 

and others, are doing tens of millions of high-risk verifications all 

the time. All of the major motion picture studios that show R-rated 

trailers use the verification system to keep kids out. 

Tobacco sales. In the State of Virginia, it’s on the books that you 

have to have online age verification. We have not had a single sale 

get through the system. 

23

California has similar rules. So do— 

The CHAIRMAN. Internet sales? 

Mr. COLOPY. Online Internet sales and marketing. 

So I’d like to point out that, like 120 years ago, there was a great 

cartoon in ‘‘Punch,’’ where two wealthy socialites are rolling along 

in a carriage, and on all sides of them are vehicles driving by. 

And one fancy lady says to the other, ‘‘They’re showoffs. They say 

bold things about what they can do.’’ That cartoon applies to much 

of what I hear being said now about online age and ID verification. 

I’m not making a bid for gaming in any form. I’m simply saying 

that we have to have an honest and truthful representation of what 

is possible, and that brings me to the second part of it. 

What’s the market doing? Why does American Express use it? 

Why do 350 major financial institutions use it all the time? They’re 

not doing it for their health. They’re doing it to mitigate risk. 

They’re doing it to make sure they’re not sued for dealing with underage kids. 

On the question of credit cards, by the way, a very important 

point should be made. The U.S. operations of Visa, Master Card, 

American Express, and others have a prohibition on the use of 

credit cards for verification for a very specific reason—that credit 

cards were in fact sold and distributed to many people who are, 

therefore, underage. 

But there are also other reasons why they do not believe that a 

credit card by itself is a sufficient proxy for age. That is a very important point. It’s not a sufficient proxy for age. It is a system with 

lots of weaknesses if just the credit card is used. 

However, when you use a mix of data, as Nigel Payne mentioned 

here, and as others have said, and you use state-of-the-art technology, including geo-location, which despite what Mr. Schmidt 

said here today, which was a technologically incorrect representation of the technology, you can identify up to a very high degree 

the location of an individual from where they are accessing your 

site. 

I’d like to make another point. Many of these arguments are put 

forward by interested parties who don’t want to be inconvenienced 

by child protection. That should not be taken as a technological argument. Ours is the leading technology in this field, but there are 

many others. 

None of us have been surveyed by the opponents of this. The 

most definitive paper, by Adam Tier, includes on data, and he 

spurned a request to look at the state-of-the-art of online age and 

ID verification. 

I put that before you when you’re listening to these dramatic 

tales about how unreliable these systems are. 

[The prepared statement of Mr. Colopy can be found on page 49 

of the appendix.] 

The CHAIRMAN. Thank you. If we get to the questioning now, we 

may have a chance for a couple of rounds. 

I’m struck here, actually. We talked about age, but it does seem 

to me, as I listen to the sad stories of some of the younger people 

who are involved, that we’re not talking about 10 or even 15-yearolds; we’re talking about college students. So first of all, we ought 

24

to be clear that the age verification issue seems to me to be secondary, in that the sad tales we’ve heard tend to be young adults. 

And whether age verification is good or not good isn’t going to 

resolve the problem of people who are 18 or beyond, and then you 

do get to the philosophical question, do you prohibit some adults 

from doing something because a small number of adults are going 

to abuse it? 

But with regard to age verification, I want to ask Mr. Schmidt 

one question. You said that 20 percent was the failure rate, but you 

then suggested that it would be much higher by comparison because you said the FBI statistics are that in person failure rates 

for alcohol and cigarettes are higher than 25 percent, and therefore 

it’s probably higher online. 

How does that square with your citation of the 20 percent figure? 

Mr. SCHMIDT. Mr. Chairman, the 20 percent number was a general number for both cases. 

I think you can make a case very strongly that age and ID 

verification would fail to that level or greater— 

The CHAIRMAN. Well, no, I guess— 

Mr. SCHMIDT.—comparison. 

The CHAIRMAN.—no, if it’s 25 percent for in person and it averages out to 20 percent, online must be below 20 percent, because 

how do you get—if you start with 25 percent and you wind up with 

20, somebody has to be below 20. 

But I don’t want to bog down too much here. I do think we’re 

not talking age verification. 

But I want to ask you this, in the figures that you gave, you said 

that it is probably about 25 percent. That’s based on alcohol and 

cigarettes. 

Can I ask, do members of the panel think we should ban the sale 

of alcohol and cigarettes online? 

Mr. Schmidt, what would you think the incidence is of underage 

people buying wine or cigarettes online? 

Mr. SCHMIDT. I’m not aware of any direct research about incidents— 

The CHAIRMAN. But you would expect it to be well above 20 percent? 

Mr. SCHMIDT. Well, it’s a little different, because there’s a delivery of a physical product, that would increase the rates of success, 

that, you know, a bottle a wine or a pack of cigarettes that showed 

up. I would expect— 

The CHAIRMAN. You don’t think that children— 

Mr. SCHMIDT.—lower. 

The CHAIRMAN. You don’t think that 15-year-olds clever enough 

to get by this couldn’t find a place to have the mail delivered? 

Mr. SCHMIDT. I would expect it to be lower, probably not dramatically lower, but— 

The CHAIRMAN. Well, but I do want to make that point, that my 

point is this. 

You know, we have real reasons and reasons that are advanced. 

I think the real reason for this legislation is that people don’t like 

gambling, and they don’t think other people ought to gamble. I 

think there is a moral disapproval of gambling. 

25

And I don’t gamble. For one thing, I have a short attention span, 

and you can’t gamble if you’re thinking about something else. 

You’re going to lose your pants. And that’s why I don’t gamble. 

But I don’t do a lot of things, and I certainly do not think the 

world should be restricted to things I like to do. 

But to the extent that it is age, here is the great inconsistency. 

I have had people who were strong advocates of this bill, but 

they’re also strong advocates of selling wine over the Internet. 

And, you know, it seems to me, just a clear contradiction with 

regard to that, and how people can be for this and talk about underage, and continue to support the sale of tobacco and wine, just 

seems to me to show that’s not the real reason. 

But let me ask philosophically, because this—and Reverend 

Hogan, and I sympathize and admire—the story you told is of an 

extremely dedicated parent, the lengths you went to to try and be 

supportive and protective of your son. 

But would you, if you could, restrict other forms of legal gambling? People can bet on horses. They can go to lotteries. And we 

have certainly had addicts. 

I have been in public life for 40 years. I’ve heard stories of addictions to gambling when we considered a lottery in the Massachusetts legislature in the 1970’s. People said, ‘‘Don’t do that, there are 

addicted gamblers.’’ Casinos, we talked about casino gambling in 

Massachusetts. Again, all in-person gambling. And so the problem 

of addiction, a sad problem, certainly pre-existed the Internet and 

continues today. 

Would you personally propose—you said, you know, that gambling is evil, or your son said—would you restrict other forms of 

gambling that are now legal in the United States? 

Rev. HOGAN. Thank you, Mr. Chairman. 

In 2005, the Media Awareness Network said that 23 percent of 

male students in grades 10 and 11 reported visiting a gambling 

site, so there is a lot of underage gambling going on, and I have 

known families who do that. 

In my own personal life, as some people—personally, myself, I 

would recommend that no one gamble, because— 

The CHAIRMAN. So would I, by the way. But the question is, 

there is a difference between what we individually would do and 

what we would recommend to others, and what we would use the 

law enforcement mechanism to enforce. 

Would you, given the prevalence of addiction in other parts of 

gambling, not just you, or the fact of it, would you legally ban other 

forms of gambling that are now legal in the United States, nonInternet gambling? 

Rev. HOGAN. I was relieved last year when the Congress passed 

the Internet gambling bill, because it reinforced the Wire Act of 

1961. I was relieved because I knew that my son was doing an illegal activity, and yet it seemed like I was powerless to stop him 

from doing it. 

We have a principle, I believe, in the government, that we allow 

the States to decide these questions, and now you’re trying to make 

the Federal Government decide the question. 

26

The CHAIRMAN. I guess I would differ with you on this, and I understand, and I admire the lengths to which you went to work with 

your son. 

But the argument is not one of federalism, in substance, it is if 

gambling is wrong and that you get into addiction, and I guess 

again, it is—I am not very confident that if you were able to ban 

all Internet gambling, that addictive gambling would go away. 

Addictive gambling preceded that, and wouldn’t go away, and if 

we ban Internet gambling, or increase the effectiveness of the ban 

on Internet gambling, because there is addiction, then I don’t understand, again, we let cigarettes and tobacco be sold on the Internet. 

Why don’t we shut down all forms of gambling? Because it is certainly the case that there is a wide range of addiction, gambling 

addiction, other than that. 

But my time has expired. The gentleman from Alabama. 

I’m sorry. I don’t mean to— 

Rev. HOGAN. I’m sorry. Thank you, Mr. Chairman. 

I’m an American Baptist pastor, and the American Baptist denomination has passed a resolution against gambling— 

The CHAIRMAN. In all forms, legal gambling? 

Rev. HOGAN.—warning people against gambling that really is not 

a profitable aspect of State government. 

I used to be employed by a public school district. Our public 

school district received very little money from the State lottery, but 

the lottery was perceived as the panacea for paying for public 

schools. 

And I just don’t see where gambling is a necessary— 

The CHAIRMAN. I appreciate the consistency, and I think that’s 

an honest and consistent answer. 

But I don’t see one for saying, let’s restrict Internet gambling 

more, but allow it to go elsewhere. 

The gentleman from Alabama. 

Mr. BACHUS. Thank you, Mr. Chairman. 

Mr. Balko, in your testimony, one of the brands that you singled 

out for praise was FullTilt Poker? 

Mr. BALKO. Well, it is one of the more reputable poker— 

Mr. BACHUS. One of the more reputable firms. 

Have you looked at their Web site? 

Mr. BALKO. Yes, I have. 

Mr. BACHUS. Did you read—you know, they have the biographies 

of some of the players, and you’ve seen those, haven’t you? 

Mr. BALKO. I’m familiar with several of the biographies of the top 

poker players, yes. 

Mr. BACHUS. Are you familiar with Ross Boatman’s biography on 

their Web site? 

Mr. BALKO. No, I’m not. 

Mr. BACHUS. Let me tell you about him. 

Ross was 10 years old when he played poker for the first time. 

His brother Barney, who is a little older than Ross, was playing 

with some friends, and after much pleading, they let him sit in. 

His gambling career really didn’t get started until a couple of 

years later, though, when he was 12 years old. Ross was too young 

and didn’t have the money to play with those guys—I guess they’re 

27

talking about his 14-year-old brother—but they let him sit and 

watch, and he learned plenty. 

I guess the verification system didn’t work. 

Mr. BALKO. I believe that was well before the age of Internet 

gambling, Congressman. 

Mr. BACHUS. Okay. Was it? I wonder why it’s still on the site 

today. 

Mr. BALKO. Well, I think—well, first of all, if I understand the 

biography correctly, he didn’t actually wager, he was allowed to sit 

and watch. 

Mr. BACHUS. Oh, just sit and watch. Okay. 

At 18—this is Howard—deferred college for a year, moved to 

New York to pursue his passion. 

He discovered poker. He was immediately hooked. For the next 

2 years, he played poker relentlessly, clocking 70 to 80 hours a 

week. He went home broke 9 nights out of 10. Well, they’re pretty 

honest about that. 

Alan attended UCLA where he planned on pursuing an engineering degree. While he enjoyed his study, he discovered playing 

poker. Soon, the success he experienced led him to leave school and 

pursue poker full-time. It’s a move he hasn’t regretted. It worked 

out well for him. 

Mr. BALKO. Can I respond, Congressman? 

Mr. BACHUS. What? 

Mr. BALKO. Can I respond very quickly? 

Mr. BACHUS. Yes. 

Mr. BALKO. The second part of the question, I guess, all occurred 

after he was 18, and in this country, I think we recognize 18 as 

the age of consent to contract. 

Mr. BACHUS. You know, at 18, in every State in the union, and 

I have a letter from attorneys general that I’ll introduce at this 

time, where they wrote us last year, illegal Internet gambling that 

he was doing is prohibited in all 50 States. 

I’d like to introduce that for the record. 

The CHAIRMAN. Reserving the right to object, I guess. 

Mr. BACHUS. Let me—Mr. Kitchen, you process Internet gambling payments, your company? 

Mr. KITCHEN. We process transactions in all industry sectors, 

yes. 

Mr. BACHUS. Okay. So you actually make a lot of money processing the payments of these illegal Internet gambling sites? 

Mr. KITCHEN. We don’t process for any illegal companies, and I’m 

not sure that the— 

Mr. BACHUS. They’re legal companies, and you can—you’re aware 

that they’re engaging, they’re allowing people in the United States, 

where it’s illegal—are you aware that it’s illegal to gamble over the 

Internet in the— 

Mr. KITCHEN. I am aware that companies that we process for do 

not take U.S. bets. 

Mr. BACHUS. Okay. Are you aware that the companies that you 

process payments for, that a lot of those payments are people who 

are gambling here in our country? 

Mr. KITCHEN. Will you repeat that, please, sir? 

28

Mr. BACHUS. Are you aware that the companies, that some of the 

companies that you’re processing their payments, you say they’re 

legal. They’re legal in the U.K. But are you aware that they are 

gambling sites that are—people in the United States are gambling 

on those sites? 

Mr. KITCHEN. The companies that we process for do not take bets 

from U.S. consumers. 

Mr. BACHUS. Okay. How about the ones that did before the law 

passed last year? 

Mr. KITCHEN. Well, I joined the firm as previously managing director—joined before the ban, and at that point my company was 

doing none of that. 

Mr. BACHUS. So you don’t have any financial interest in any of 

these, in any Internet gambling sites? 

Mr. KITCHEN. Absolutely not. We are a processing company, and 

we process transactions— 

Mr. BACHUS. And you don’t do business with Internet gambling 

sites? 

Mr. KITCHEN. We do business with Internet gambling sites which 

are legalized and regulated in the United Kingdom. 

Mr. BACHUS. Okay. 

I’d also, Mr. Chairman, like to introduce a letter from the National Coalition Against Gambling Expansion, and they actually 

pointed out again, reminded me in their letter of June the 6th that 

it was Mr. Abramoff who lobbied for 10 years against the bill we 

passed last year on Internet gambling. 

I’d like to introduce it for the record. 

The CHAIRMAN. Without objection. 

Mr. BACHUS. And finally, I’d like to introduce a letter which I received last week from the NFL, major league baseball, the NBA, 

the NHL, and the NCAA. 

And I’ll say this to all members of the panel. Are you all aware 

that this Congress in 1992 bipartisanly and overwhelmingly, with 

a vote in the Senate of 88 to 5, passed the Professional and Amateur Sports Protection Act which prohibits Internet gambling of 

sporting events online? So it wasn’t actually our bill last year. 

Mr. Kitchen, were you aware of that Act? Are you familiar with 

that Act? 

Mr. KITCHEN. I’ve been asked to comment on the effectiveness of 

regulation of the Internet. I’m not aware of the— 

Mr. BACHUS. Okay. 

Mr. KITCHEN. No, I’m not. 

Mr. BACHUS. I’ll just—let me introduce this. 

It also points out that—well, their very strong opposition to this 

bill today, which they believe will allow, if passed, that sports betting will likely proliferate and the integrity of American athletes 

would be compromised. 

Now, that’s the NFL, major league baseball, the NBA, the National Hockey League, and the NCAA. 

The CHAIRMAN. Was that about steroids? 

Mr. BACHUS. I’m sorry? 

The CHAIRMAN. Was that about steroids? 

Mr. BACHUS. About what? 

The CHAIRMAN. Was that about steroids? 

29

Mr. BACHUS. I couldn’t hear you. 

The CHAIRMAN. Was that about steroids, this letter? 

Mr. BACHUS. No, but I’ll try to get you a letter on that, if you 

like. 

[Laughter] 

The CHAIRMAN. The gentleman from Ohio. 

Mr. LATOURETTE. Thank you, Mr. Chairman. 

Mr. Chairman, I’m glad that you talked in your questioning 

about it’s not just underage, and I think that Mr. Hogan, Reverend 

Hogan’s story does point to the fact that it’s a problem that goes 

to these people who are maybe away from home for the first time. 

And I mean, I probably shouldn’t tell this story in public, but 

even though I’m from Ohio, I went to the University of Michigan, 

and the reason that I went to the University of Michigan is, at the 

time, Michigan had a drinking age that was 18, and Ohio was still 

21. It was not a good reason to pick an educational path, but I benefitted from my degree. 

But I think Reverend Hogan’s story is not unusual, in someone 

being away from home for the first time, with a credit card, in a 

dorm room or apparently even after he loads software onto his computer at the library, and you can do it all night. 

And so I appreciate this hearing, and I appreciate your principled stance. 

I have enjoyed this hearing, because it’s very rare, we often have 

people coming in with different opinions, but unless I’m wrong, we 

now have people have different facts, and have a severe disagreement. 

So Mr. Colopy, I understood you, and I think also Mr. Kitchen, 

to talk about effective rates of the, let’s take the IP locator technology of 99 percent or some such thing, and Mr. Schmidt’s testimony is a 20 percent failure rate. 

So Mr. Colopy, I’ll put it as directly as I can, being from the midwest. I mean, you think that Mr. Schmidt is full of baloney with 

his observations? 

Mr. COLOPY. I only insist on what the evidence shows. What Mr. 

Schmidt referred to is no evidence; what we do daily is evidence. 

You know, arguments and PR have no beta test. Data and companies that use them do. They perform or they’re not used. They’re 

effective or they’re not paid for. 

No company takes on age verification, the extra burden of a 

check, unless it has a direct material impact on benefits to that 

company, meaning to their consumers. 

So what I’m talking about are facts, and as I mentioned earlier, 

in the research that’s been bandied about about this topic, efforts 

to actually look at real-time online age and identity verification 

were not accepted. 

No one has never asked us for any information on what we do 

that opposes this. That is significant, because public relations is 

often damaged by data. 

What we’re talking about is hard data, what’s happening today, 

what the marketplace is doing. 

Whether you’re liberal, moderate, or conservative, in our society, 

we have this combination of humane principles and a market economy. 

30

In both cases, the movement of the market under those humane 

principles is toward real-time, effective, robust, reliable age 

verification and identity verification. 

Mr. LATOURETTE. Let me ask, and then I’ll go to you, Mr. 

Schmidt. 

I have trouble turning my computer on, so I don’t know a lot of 

the different things, but there is something called spooling or spoofing, and when Mr. Schmidt was talking about using his phone 

card, in my small world, when we said spoofing, when I was growing up, it meant playing a joke on your parents, but apparently 

now it’s a computer term. 

Are you indicating that Mr. Schmidt’s experience with whatever 

he used, and I’ll ask him about that again, where he got three different answers on where he was and none of them were Boston and 

Washington, is nothing more than a story that he’s telling? 

Mr. COLOPY. Again, I can’t comment on data I haven’t seen or 

a fact base that’s put before me. I’ve never seen any of that information. In prior events like this, there’s been no hard data presented. 

The hard data that I see all the time is what the Aristotle operation shows. 

Now, the other important point here is that in doing work, for 

example, for the New York State lottery—no offense, Mr. Chairman, but we actually assist them in complying with agreements 

they have with other States. 

I don’t mean an offense to what you said, but to bring up that 

lottery question again, this is a contentious issue, and as the reverend said, people have different views about it. 

But, as an operational matter, which is the only thing I’m talking 

about, as an operational matter, it’s fundamentally important that 

the State of New York know that the purchaser of that ticket is 

within the State of New York. 

It’s also fundamentally important for banking operations, both 

internationally and nationally, to know where somebody is when 

they’re attempting to execute a transaction. 

What was said earlier about how unreliable it is does not square 

with the facts of 2007, but it probably is relevant to the facts of 

2001. 

I’m suggesting that technology in the service of social good in the 

private sector is here, it’s available, it’s effective, and we should be 

using it. 

Mr. LATOURETTE. I appreciate that, and just by way of a commercial, I use your software and have never been fined by the FSA, 

so I appreciate it very much. 

Mr.— 

The CHAIRMAN. If the gentleman would yield, for a representative from Ohio, that’s a significant— 

[Laughter] 

Mr. LATOURETTE. Well, Mr. Schmidt, let me ask you the same 

question, because I listened to your testimony, and I listened to 

your story about the IP locator and your experience. 

And so is it a fair representation that you and Mr. Colopy don’t 

agree on this issue, and I guess are you willing to stand up for 

31

yourself, because basically he says that you have—well, I’m not 

going to put words in his mouth. You heard him. 

So what do you have to say? 

Mr. SCHMIDT. I believe it was full of baloney. 

Mr. LATOURETTE. No, no, no, that was my question. He did not 

say you’re full of baloney. I asked him if you were full of baloney 

and he would not respond in that kind. 

Mr. SCHMIDT. First of all, as an Ohioan who went to Michigan, 

I’m having a little trouble over here, as a Buckeye myself. 

Mr. LATOURETTE. I got it. 

Mr. SCHMIDT. I, in addition, rely on the facts and the data, and 

the leading provider of IP go-location data says that their data is 

99 percent accurate to the country, 85 percent accurate to the city, 

and 80 percent—I’m sorry—85 percent accurate to the State, and 

80 percent accurate to the city. 

That’s the leading provider, in their own—so in our research, and 

we use, my company uses geo-location data as one of many factors 

to determine information. 

It cannot be solely relied on, because it is unreliable, but it is 

perfectly valid for, you know, one of many factors. 

We found reliability in the 70 to 80 percent range, in general. 

Again, that’s from factual operational experience. 

Now, two comments. 

First of all, the experience that I had with the wireless card that 

I mentioned with respect to D.C. and Boston, that was with no attempts on my part to actively circumvent the system. 

That’s a standard issue piece of technology from the carrier, not 

unlike the technology that’s embedded in many laptops these days, 

with no active attempt by the user to circumvent it. IP geo-location 

is absolutely trivial for a user to actively circumvent. 

So in addition to its inherent unreliability, with no active attempt to subvert the system, it is absolutely trivial to subvert 

through a whole host of technical measures, none of which are terribly difficult. 

And moreover, anybody with an engineering and technical understanding of how the Internet works would not disagree with my 

statements here. It simply was not designed to allow geographic location. 

It was designed to survive failures, it was designed to allow, you 

know, an infinite number of paths between any two points, and 

there are a whole host of reasons why, technically and engineeringwise, it is just not reliable technology. 

Mr. LATOURETTE. Mr. Chairman, I know my light is on. Mr. 

Colopy stuck his hand up, and I think he wants to respond to that. 

The CHAIRMAN. Go ahead. 

Mr. COLOPY. I think it’s an important point to make that, just 

like an automobile does not run alone on its transmission or on its 

cylinders, it needs brakes, tailpipe, and the works, we’re talking 

about a system that, to be effective as age an identity verification, 

has many component parts. 

These systems, by the way, have several levels of tolerance, 

which are set according to the risk confronted. What they call it is, 

process matched to risk. Therefore, it is a complex mix, algorithm 

32

if you will, of capabilities that are adjusted in the cases in which 

they are used. 

It is not appropriate to make any general statement about all of 

these cases and give a statistical number without looking at the 

context and the set of data you’re talking about. 

Again, the data tells the story. The data tells the story in the 

marketplace every day, in the tens of millions, where a lot is at 

risk. That is what we do. 

Mr. LATOURETTE. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Missouri has joined us. 

Mr. CLEAVER. Thank you, Mr. Chairman. I apologize. I had another committee hearing. 

Thank you for this meeting on gambling. 

We had a very lively debate last year when we considered legislation to address unlawful Internet gambling, and I’m always in a 

struggle with these kinds of issues. 

I served as the Mayor of Kansas City for 8 years, and during 

that 8-year period, we enacted riverboat gaming, which I did not 

support as the Mayor. However, I wasn’t elected to serve as the 

pope of Kansas City, so I signed it into law. 

I normally believe that Congress should not be involved in any 

way, shape, or form with regard to regulating morals as a policy 

or as a practice, so I always struggle when these kinds of issues 

surface. 

But where there is a longstanding public policy interest in regulating activities that do harm our society, such as illegal gambling, 

then there is an appropriate Federal legislative role. 

I’d like to thank all of you for coming. I apologize for not hearing 

your comments, but I do have your comments. 

And Mr. Prideaux—hopefully I pronounced that— 

Mr. PRIDEAUX. Prideaux, in fact. 

Mr. CLEAVER. Prideaux—you mentioned that the U.K. is starting 

to regulate online gambling. 

I wonder how many people are gambling on the regulated sites 

versus the ones in countries such as Antigua, that have fewer regulations, and is there any data available that the U.K.’s experience 

with regulating has actually reduced the problem with regard to 

gambling behaviors? 

Mr. PRIDEAUX. I wish I had precise data, but the weight of evidence essentially is that gamblers are attracted towards regulated 

sites, for a number of reasons. 

The first thing is, that gamblers are attracted towards regulated 

sites because they know that they’re going to be treated fairly. 

I mean, if you’re operating in an underground prohibition environment, where there are sites who are not subject to regulation, 

then gamblers have less confidence in the fairness of the games 

that they’re being offered, and they have less confidence in the payment scheme they’re operating. So, there is a huge commercial incentive for sites to operate within a regulated regime. 

I think it’s also the case, Congressman, that there is evidence 

that within a regulated regime, better safeguards can be put in 

place to protect vulnerable people playing on sites. 

33

And so you do have this kind of self-reinforcing process, whereby 

consumers come to sites that are regulated, and that tends to capture, as it were, the overwhelming preponderance of the market. 

Mr. CLEAVER. Thank you. 

You know, talking about this conflict I have anytime something 

like this comes up, the Bible actually supports gambling, which is 

a bit troubling theologically, but I think, Reverend, you would 

agree that there are some rather bold examples of gambling in the 

Bible. But my struggle continues, anyway. 

Mr. Balko, you have an interesting blog, theagitator.com. 

You recently wrote, ‘‘On Friday, I’ll be testifying before the 

House Banking Committee in support of Representative Barney 

Frank’s bill to repeal the Internet gambling ban. I’ll be taking the 

it’s-none-of-the government’s-damn-business position, though I’ll 

probably refrain from using the word damn.’’ 

I’ve been your surrogate. 

[Laughter] 

Mr. CLEAVER. If I read this blog correctly, you understand H.R. 

2046 to be a bill that will legalize many forms of currently illegal 

gambling and expand the U.S. market for Internet gambling. 

Mr. BALKO. Yes. 

Mr. CLEAVER. Yes. Okay. 

Mr. BALKO. Yes. 

Mr. CLEAVER. And so the chairman has invited you here to testify, so I think that your understanding is instructive. 

By contrast, some persons advocating this bill have claimed that 

it is designed to be a more effective system for enforcing U.S. gambling laws. 

If this argument were true, and the net effect of us passing this 

bill would be less Internet gambling, would you still support this 

bill? 

Mr. BALKO. I’m not sure that this bill would result in less Internet gambling. 

I think, had this bill passed before the Unlawful Internet Gambling Act passed, I think you may have been correct, but I think 

what this bill does is it gives Web site operators a path to legitimacy and a way to establish legitimacy with consumers, and it 

also allows consumers of Internet gambling sites to have a reputable site where they can wager, knowing that their money is secure, that they’re playing on a fair site, that if something does happen, they have some recourse. 

You know, also, the law that was passed last year didn’t really 

stop Internet gambling. It put a significant dent in it, but it still 

goes on, and it’s still fairly easy to place a wager online. 

The difference now is that the companies that are facilitating the 

wagers are less reputable, and there are less avenues for recourse 

if a consumer is defrauded. 

So I think what it’s actually done is, like a lot of prohibitions, 

it’s forced a lot of this stuff underground, and it’s removed some of 

the market regulation, in addition to a lot of the government regulations that were in place. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

The CHAIRMAN. I’m just going to give myself a second round. 

34

First of all, I’m sorry the ranking member isn’t here, because I 

want to take very strong exception to what I think was an unusual 

breach of appropriateness on his part by noting that this bill had 

been opposed, the one that was passed by Jack Abramoff. That 

kind of ‘‘McCarthyite’’ guilt by association has no place in this discussion. I did note that my colleague seemed a little abashed as he 

was reading it. 

But bad people support good things and good people support bad 

things, and this is a position I’ve long held, wholly unrelated to Mr. 

Abramoff, and I would not think it would behoove members of the 

Republican Party to start tallying up who more often found themselves on the side of Mr Abramoff. It’s an irrelevancy. 

Mr. Balko. 

Mr. BALKO. I’d actually like to respond to that, because Mr. 

Abramoff’s name was invoked in the original bill to ban Internet 

gambling by the proponents of the bill several times, and in fact, 

if you look at the bill that Mr. Abramoff was pushing, it was actually a prohibition on Internet gambling with carveouts for the clients that Mr. Abramoff was representing, including State lotteries. 

That’s exactly the bill that we have now. 

So Mr. Abramoff actually was pushing for the bill that we have— 

The CHAIRMAN. Thank you for that correction, and obviously, it 

doesn’t affect the merits one way or the other. 

I do want to get back, first of all, I want to say on geography, 

to me that’s an irrelevancy. 

Mr. Colopy has inspired me to ‘‘Latinize’’ a little bit more, and 

I think one important set of Latin phrases here is the distinction 

between ‘‘mala prohibita’’ and ‘‘mala per se’’—something evil only 

because it is banned and something which is evil in and of itself. 

Gambling to me is clearly ‘‘mala prohibita,’’ and underage gambling, gambling by 12-year-olds and 13-year-olds, I would say was 

‘‘per se.’’ That’s a bad thing. 

Gambling by someone who happens to live in one State rather 

than another is simply because of prohibition, so I would distinguish. I am much more concerned about our ability to do age distinctions. Geographic distinctions, I cannot understand why any rational human being would care whether you put the bet down in 

one State or another. 

And you say what about federalism? We’re talking about national 

laws. And again, we have been told over and over again by many 

people that the Internet, after all, doesn’t know interstate versus 

intrastate commerce. The Internet is transcendent of State boundaries, so I would put aside the geographic location. I think that is 

irrelevant. 

The age one is relevant, but again, I would say, and I just want 

to reiterate as we talk, I think even if we had a 100 percent foolproof age cut, that opposition to this—the sides wouldn’t change. 

That is, I believe the motivation for trying to further restrict the 

ability of people to gamble on the Internet is based on a moral disapproval of gambling, a fear about addiction, but all of the examples we’ve heard about addiction have been from older people, who 

are of age. 

The last thing I just would want to agree with Mr. Prideaux 

about, and this—my basic motivation here is, I spend a lot of time 

35

here, as a Member of Congress, trying to protect people from other 

people who would treat them unfairly, certainly people who would 

physically abuse them and steal their property, people who would 

unduly pollute the atmosphere in which we all have to live, people 

who would be economically exploitative in ways in which you have 

to come together. 

I have no energy left to protect people from themselves. Adults 

have to do that without me. And I think once the government does 

that, once we accept the principle that we have the right to protect 

people from things to which they might become addicted, our lives 

would become very much poorer in terms of the richness of things 

we could do. 

I think it is a terrible mistake to say that government has an obligation to protect adults from making poor choices in matters that 

affect them. 

And addiction, there are addictions to gambling, there are addictions to sex, there are addictions to video games. We’ve heard 

about kids who spend much too much time on video games, or 

young adults. There are addictions to alcohol, to tobacco. 

We should give people the information with which they can be 

told that this is bad for them. We should—I’m prepared to provide 

funding through various medical programs to recognize inability to 

fight addiction. But banning something because adults will misuse 

it in a minority, when it is not otherwise harmful, is a grave error. 

The last thing I would say with regard to Mr. Prideaux, I would 

agree with him that intelligently regulating something may—in 

that it does take away from the illegal site, and the best example 

is, it has been the experience, I believe, in Massachusetts, and 

much elsewhere, 30 years ago, before you had State lotteries, what 

was called the numbers racket was very prevalent. People would 

bet on what number was going to come out. Maybe it was a parimutuel handle, etc. 

I know that has substantially diminished. The existence of legal 

lotteries has essentially, in a way that no law enforcement and no 

rules could ever have done, substantially diminished the numbers 

racket in America, because people do prefer, most rational people, 

a legal status. 

And, you know, people can be upset about the State treasurers, 

they can be upset about the State lottery, but I know of no State 

treasurer who has ever broken a kneecap, or refused to pay when 

someone hit it. 

With that, I have no further questions. Does anybody in the 

panel—the gentleman from Ohio. 

Mr. LATOURETTE. Thank you very much, Mr. Chairman. 

Just a piece of housekeeping. 

The ranking member has asked that I ask unanimous consent to 

submit a letter dated today to you and he from Focus on the Family, and I would ask that it be included in the record. 

The CHAIRMAN. It’s a letter to me from Focus on the Family? I 

will treasure that. I get so few of them. 

[Laughter] 

The CHAIRMAN. I thank you. I thank the gentleman. 

Mr. LATOURETTE. It is, in fact, addressed to you and to Mr. 

Bachus. 

36

The CHAIRMAN. Could I just ask the gentleman, is it signed, 

‘‘Yours truly,’’ or ‘‘With great affection?’’ 

Mr. LATOURETTE. Let me just see. 

The CHAIRMAN. What is that? 

Mr. LATOURETTE. ‘‘Sincerely.’’ 

The CHAIRMAN. Oh. Well, all right. That’s good. 

Mr. LATOURETTE. If we’re doing a second round, does that mean 

I can have 5 minutes? 

The CHAIRMAN. Yes. But let me recognize the gentlewoman from 

Indiana first. 

Mr. LATOURETTE. Okay. 

The CHAIRMAN. And then I’ll give the gentleman a second round. 

She came in afterwards. The gentlewoman from Indiana. 

Ms. CARSON. Thank you very much, Mr. Chairman, and members 

of the committee. 

I come from Indianapolis, Indiana, probably the State that has 

more gambling casinos than any other State in the United States. 

I have a question in terms of consistency. 

The race, the Kentucky Derby held in Louisville, Kentucky, you 

could bet on it from anywhere in Indiana, by computer. 

According to the question, what’s the difference between Internet 

gambling and being able to gamble on the horses? 

Could one of you refined gentlemen answer that question for me, 

please? 

You’re not going to answer? 

Mr. KITCHEN. I’m not sure there is a difference. 

Ms. CARSON. I’m not, either. That’s why I’m confused. 

[Laughter] 

Mr. KITCHEN. I think we all are. 

Rev. HOGAN. Madam Congresswoman, to me, as the chairman 

said to me, last November in Ohio, we had an issue on the ballot 

which basically would allow slot machines in Ohio. The vast majority of Ohioans said no to that. 

And the vast majority of Ohioans also said yes to the election of 

Mr. Brown to the Senate, which gives your party—helps them quite 

a bit to have a majority in the Senate. 

Ms. CARSON. How do you know what party I’m with? 

Rev. HOGAN. You’re on that side of the room. 

[Laughter] 

Rev. HOGAN. But coming down to this issue, I think the issue of 

this bill is that in Ohio, we said no, but West Virginia said yes, and 

I have friends who drive down to West Virginia. I don’t think we 

should put roadblocks over the West Virginia border saying you 

can’t go play slot machines in West Virginia. 

But the issue is, with the Internet gambling, the situation has 

been, we do not want to see bets put across State lines. I know that 

they made an exception for horse racing, and now we’re not going 

to discuss the wisdom in that, but still, right now, we’re actually 

expanding that, so why should we have more of it? 

And the issue is now it is illegal, it has been illegal since 1961 

before Al Gore invented the Internet, and it’s going to—and we 

want to continue to keep it at that standing there. 

So that’s why I’m saying, I would love to see every individual locality continue being consistent, the Federal Government being 

37

consistent, and allowing the locals to decide what they want to do, 

and we’ve all said Internet gambling is illegal in all 50 States, or 

at least the majority of them. 

Thank you. 

Ms. CARSON. Thank you. 

I know I have heard objections to this for family reasons, because 

they feel like they’ll gamble all their money before they bring the 

paycheck home to their spouses, but they do that now. It doesn’t 

require Internet gambling to make some irresponsible person not 

accommodate his or her responsibilities first for the family. 

But I’m still confused on how you can bet at a racetrack—you go 

up, they put your numbers in by computer, give you a receipt, and 

in this situation, beginning with this legislation, you can do it over 

the Internet, either by credit card or whatever kind of card you 

use. 

And I guess the bottom line, and I don’t want to belabor the 

point, is why are we debating this? People gamble because they 

want to gamble. 

As long as it’s consensual adults gambling, whether they’re being 

responsible or not responsible—wouldn’t it be wonderful if we could 

legislate responsibility among human beings of age? We can’t do it. 

So while I think I voted for restrictions the last time—and I don’t 

feel hypocritical, either—I just think more time has passed, and 

you understand better what it is that you’re trying to do. 

We have changed a lot of laws, reversed a lot, and I don’t know 

what the chairman is going to do with this one, but if he wants to 

repeal what we did, I’m going to vote to repeal it, because it just 

doesn’t make any sense, to me. But I’m not the brightest star in 

the galaxy, either, so I have to have some help. 

I’ve enjoyed the testimony. Believe it or not, I’ve read it. And I 

thank you very much. 

The CHAIRMAN. I thank the gentlewoman for her support, and I 

would caution the witnesses, if they haven’t already figured this 

out, that it is when the gentlewoman from Indiana is at her most 

self-deprecatory, that I would be very careful, if I were you. 

[Laughter] 

The CHAIRMAN. The gentleman from Ohio. 

Mr. LATOURETTE. Thank you very much, Mr. Chairman. 

And Reverend, most of the folks who live in the northern part 

of the district where I am, in Lake County, go to Niagara Falls instead of West Virginia, but now they can’t get passports, so there 

will probably be more of them going down to West Virginia. 

And I want to associate myself with the remarks of the chairman 

on Mr. Abramoff. A lot of the stuff that goes around reminds me 

of gang reporting, the way they used to in the 1920’s and the 

1930’s, and I really think it’s disgusting, and as I said on the Floor 

the other night, even though I didn’t get a lot of converts to join 

me, I really think that we’re engaged in a race to the bottom on 

some of these things. People who do bad things should be punished, 

and they have. 

But Mr. Prideaux, I want to focus on Page 8 of your testimony, 

and get to the compulsive gambler. I think we’ve talked about the 

technology, we’ve talked about the underage problem, but the compulsive person. 

38

And you talk about velocity controls, and maybe somebody else 

talked about velocity controls. 

I know, even though it pisses me off, sometimes I go to an ATM 

and it only lets me take out $200 of my own money, then charges 

me $2.50 for the privilege of giving me my own money back, but 

they won’t give me $300, they’ll give me $200. 

And so it seems to me that may be a way to deal with the compulsion problem, and I’m not aware of any constitutional right to 

be able to not only bet online, but bet a lot of money online. 

Can you describe for me what you mean about the velocity controls and how that’s utilized in your experience relative to online 

gambling? 

Mr. PRIDEAUX. Yes. Thank you, Congressman. 

In essence, though, I mean, if I could just interpret your question 

a little broadly, and talk about velocity controls in general—and 

clearly, some can be applied by the payment scheme, I think as you 

have said, particularly for credit cards, where gaming transactions 

are considered quasi-cash. 

The risk profile that issuers take is to not extend the whole of 

a credit line for quasi-cash style transactions, and certainly that’s 

one mechanism as far as the payment scheme that can operate, 

that can provide some safeguards to the problem of compulsive 

gambling. 

At the same time, I mentioned in my testimony that there was 

a multi-layered approach from this. I think there are a number of 

other important aspects to talk about. 

The first one, of course, is that of the operator themselves acting 

in their self-interest, and the majority of reputable regulated sites 

will establish limits for new players to the extent that they can 

play, and indeed, they will also make available to players the ability for that individual to self-limit, a sort of a cooling off period. 

And of course, the regulators themselves, if they felt it was appropriate, could enforce some of these mechanisms. 

I think the point that I want to make is that we talked about 

how the Internet was transforming businesses, and clearly it transforms the Internet. And they also have access based controls, being 

substituted by these controls here, to address compulsive gambling. 

None of the features that I’ve described have really been available in the face-to-face gaming environment. This is a good example of a place where the problem of compulsive gambling which exists today can be better controlled in a regulated environment for 

Internet gambling as opposed to gambling in the face-to-face environment. 

Mr. LATOURETTE. Thank you. 

And just my last question relative to the bill that the chairman 

has put forward, I understood from your testimony that in the 

United Kingdom, the Gambling Commission regulates the gambling activities, while the Financial Services Authority has no particular responsibility for gambling. 

As I understand the chairman’s bill, the Treasury Department 

takes responsibility for the financial transactions, which it obviously knows, but it doesn’t know much about gambling, I would assume. 

39

Have you looked at the chairman’s bill, and have you had the 

chance to compare his proposed regulatory scheme to the one that 

exists in the United Kingdom that you are familiar with? 

Mr. PRIDEAUX. I must profess that I’m not an expert in the regulatory apparatus of the United States, but to the extent that I have 

looked at the bill, it does seem to me that the same twin regulatory 

structures of the financial system on the one hand and of the gambling perspective on the other do seem to be features of the chairman’s bill. 

Mr. LATOURETTE. Thank you very much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. If the gentleman would yield—because there was 

a concern raised when the bill was passed about money laundering, 

terrorism, etc. That’s why we did assign the FinCen operation 

there. 

I thank the members for participating on a Friday. Frankly, I 

like Friday hearings. The fewer members you have, the more you 

can get in. 

I thank the witnesses. It is a topic on which reasonable people 

can differ. I think, on the whole, we have done that today. 

Before we adjourn, I am going to ask for a blanket unanimous 

consent to insert various statements into the record. I have one 

from our colleague, Congresswoman Berkeley, from the United 

Methodist Church, and one from the National Coalition on Gaming, 

basically agreeing with the point Mr. Prideaux made about how to 

do this, and I know that on the Republican side, there are also a 

number of statements, o we’ll get unanimous consent to put those 

statements into the record. 

And with that, the hearing is adjourned. 

[Whereupon, at 12:02 p.m., the hearing was adjourned.] 

(41)

A P P E N D I X

June 8, 2007

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