79–006

106TH CONGRESS REPT. 106–771 " ! HOUSE OF REPRESENTATIVES 2d Session Part 1

UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION

ACT

JULY 20, 2000.—Ordered to be printed

Mr. LEACH, from the Committee on Banking and Financial

Services, submitted the following

R E P O R T

[To accompany H.R. 4419]

[Including cost estimate of the Congressional Budget Office]

The Committee on Banking and Financial Services, to whom was

referred the bill (H.R. 4419) to prevent the use of certain bank instruments for Internet gambling, and for other purposes, having

considered the same, report favorably thereon with amendments

and recommend that the bill as amended do pass.

The amendment is as follows:

Strike out all after the enacting clause and insert in lieu thereof

the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Unlawful Internet Gambling Funding Prohibition

Act’’.

SEC. 2. FINDINGS.

The Congress finds as follows:

(1) Internet gambling is primarily funded through personal use of bank instruments, including credit cards and wire transfers.

(2) The National Gambling Impact Study Commission in 1999 recommended

the passage of legislation to prohibit wire transfers to Internet gambling sites

or the banks which represent them.

(3) Internet gambling is a major cause of debt collection problems for insured

depository institutions and the consumer credit industry.

(4) Internet gambling conducted through offshore jurisdictions has been identified by United States law enforcement officials as a significant money laundering vulnerability.

SEC. 3. PROHIBITION ON ACCEPTANCE OF ANY BANK INSTRUMENT FOR UNLAWFUL INTERNET GAMBLING.

(a) IN GENERAL.—No person engaged in a gambling business may knowingly accept, in connection with the participation of another person in unlawful Internet

gambling—

(1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card);

2

(2) an electronic fund transfer or funds transmitted by or through a money

transmitting business, or the proceeds of an electronic fund transfer or money

transmitting service, from or on behalf of the other person;

(3) any check, draft, or similar instrument which is drawn by or on behalf

of the other person and is drawn on or payable at or through any financial institution; or

(4) the proceeds of any other form of financial transaction as the Secretary

may prescribe by regulation which involves a financial institution as a payor

or financial intermediary on behalf of or for the benefit of the other person.

(b) DEFINITIONS.—For purposes of this Act, the following definitions shall apply:

(1) BETS OR WAGERS.—The term ‘‘bets or wagers’’—

(A) means the staking or risking by any person of something of value

upon the outcome of a contest of others, a sporting event, or a game predominantly subject to chance, upon an agreement or understanding that the

person or another person will receive something of greater value than the

amount staked or risked in the event of a certain outcome;

(B) includes the purchase of a chance or opportunity to win a lottery or

other prize (which opportunity to win is predominantly subject to chance);

(C) includes any scheme of a type described in section 3702 of title 28;

and

(D) does not include—

(i) any bona fide business transaction governed by the securities laws

(as that term is defined in section 3(a)(47) of the Securities Exchange

Act of 1934) for the purchase or sale at a future date of securities (as

that term is defined in section 3(a)(10) of such Act);

(ii) any transaction on or subject to the rules of a contract market

designated pursuant to section 5 of the Commodity Exchange Act;

(iii) any over-the-counter derivative instrument;

(iv) any contract of indemnity or guarantee;

(v) any contract for life, health, or accident insurance; or

(vi) any participation in a simulation sports game or an educational

game or contest that—

(I) is not dependent solely on the outcome of any single sporting

event or nonparticipant’s singular individual performance in any

single sporting event;

(II) has an outcome that reflects the relative knowledge and skill

of the participants with such outcome determined predominantly

by accumulated statistical results of sporting events; and

(III) offers a prize or award to a participant that is established

in advance of the game or contest and is not determined by the

number of participants or the amount of any fees paid by those

participants.

(2) GAMBLING BUSINESS.—The term ‘‘gambling business’’ means—

(A) a business that is conducted at a gambling establishment;

(B) a business that—

(i) involves—

(I) the placing, receiving, or otherwise making of bets or wagers;

or

(II) the offering to engage in the placing, receiving, or otherwise

making of bets or wagers;

(ii) involves 1 or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and

(iii) has been or remains in substantially continuous operation for a

period in excess of 10 days or has a gross revenue of $2,000 or more

from such business during any 24-hour period; and

(C) any agent who knowingly solicits for a business described in subparagraph (A) or (B).

(3) INTERNET.—The term ‘‘Internet’’ means the international computer network of interoperable packet switched data networks.

(4) UNLAWFUL INTERNET GAMBLING.—The term ‘‘unlawful Internet gambling’’

means to place, receive, or otherwise make a bet or wager by any means which

involves the use, at least in part, of the Internet where such bet or wager is

unlawful under any applicable Federal or State law in the State in which the

bet or wager is initiated, received, or otherwise made.

(5) OTHER TERMS.—

(A) CREDIT; CREDITOR; AND CREDIT CARD.—The terms ‘‘credit’’, ‘‘creditor’’,

and ‘‘credit card’’ have the meanings given such terms in section 103 of the

Truth in Lending Act.

(B) ELECTRONIC FUND TRANSFER.—The term ‘‘electronic fund transfer’’—

3

(i) has the meaning given such term in section 903 of the Electronic

Fund Transfer Act; and

(ii) includes any fund transfer covered by Article 4 of the Uniform

Commercial Code, as in effect in any State.

(C) FINANCIAL INSTITUTION.—The term ‘‘financial institution’’ has the

meaning given such term in section 903 of the Electronic Fund Transfer

Act.

(D) MONEY TRANSMITTING BUSINESS AND MONEY TRANSMITTING SERVICE.—

The terms ‘‘money transmitting business’’ and ‘‘money transmitting service’’

have the meanings given such terms in section 5330(d) of title 31, United

States Code.

(E) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of the Treasury.

(c) CIVIL REMEDIES.—

(1) JURISDICTION.—The district courts of the United States shall have original

and exclusive jurisdiction to prevent and restrain violations of this section by

issuing appropriate orders in accordance with this section, regardless of whether a prosecution has been initiated under this section.

(2) PROCEEDINGS.—

(A) INSTITUTION BY FEDERAL GOVERNMENT.—

(i) IN GENERAL.—The United States, acting through the Attorney

General, may institute proceedings under this subsection to prevent or

restrain a violation of this section.

(ii) RELIEF.—Upon application of the United States under this subparagraph, the district court may enter a preliminary injunction or an

injunction against any person to prevent or restrain a violation of this

section, in accordance with Rule 65 of the Federal Rules of Civil Procedure.

(B) INSTITUTION BY STATE ATTORNEY GENERAL.—

(i) IN GENERAL.—The attorney general of a State (or other appropriate State official) in which a violation of this section allegedly has

occurred or will occur may institute proceedings under this subsection

to prevent or restrain the violation.

(ii) RELIEF.—Upon application of the attorney general (or other appropriate State official) of an affected State under this subparagraph,

the district court may enter a preliminary injunction or an injunction

against any person to prevent or restrain a violation of this section, in

accordance with Rule 65 of the Federal Rules of Civil Procedure.

(C) INDIAN LANDS.—Notwithstanding subparagraphs (A) and (B), for a

violation that is alleged to have occurred, or may occur, on Indian lands (as

that term is defined in section 4 of the Indian Gaming Regulatory Act)—

(i) the United States shall have the enforcement authority provided

under subparagraph (A); and

(ii) the enforcement authorities specified in an applicable Tribal-State

compact negotiated under section 11 of the Indian Gaming Regulatory

Act shall be carried out in accordance with that compact.

(3) EXPEDITED PROCEEDINGS.—

(A) IN GENERAL.—In addition to any proceeding under paragraph (2), a

district court may, in exigent circumstances, enter a temporary restraining

order against a person alleged to be in violation of this section upon application of the United States under paragraph (2)(A), or the attorney general

(or other appropriate State official) of an affected State under paragraph

(2)(B), in accordance with Rule 65(b) of the Federal Rules of Civil Procedure.

(d) CRIMINAL PENALTY.—

(1) IN GENERAL.—Whoever violates this section shall be fined under title 18,

United States Code, or imprisoned for not more than 5 years, or both.

(2) PERMANENT INJUNCTION.—Upon conviction of a person under this subsection, the court may enter a permanent injunction enjoining such person from

placing, receiving, or otherwise making bets or wagers or sending, receiving, or

inviting information assisting in the placing of bets or wagers.

(e) SAFE HARBOR FOR FINANCIAL INTERMEDIARIES.—

(1) IN GENERAL.—No creditor, credit card issuer, financial institution, operator

of a terminal at which an electronic fund transfer may be initiated, money

transmitting business, or national, regional, or local network utilized to effect

a credit transaction, electronic fund transfer, or money transmitting service

shall be liable under this section for the involvement of such person, or the use

of the facilities of such person—

4

(A) in any credit transaction, electronic fund transfer, or money transmitting service described in subsection (a); or

(B) in drawing, paying, transferring, or collecting any check, draft, or

other instrument described in subsection (a) or in any regulation prescribed

under such subsection.

(2) EXCEPTION FOR KNOWING PARTICIPATION IN A GAMBLING BUSINESS.—Paragraph (1) shall not apply with respect to any person referred to in such paragraph which is a gambling business or which knowingly participates in any activity referred to in subparagraph (A) or (B) of such paragraph as an agent or

representative of a gambling business.

SEC. 4. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.

(a) IN GENERAL.—In deliberations between the United States Government and

any other country on money laundering, corruption, and crime issues, the United

States Government should—

(1) encourage cooperation by foreign governments and relevant international

fora in identifying whether Internet gambling operations are being used for

money laundering, corruption, or other crimes;

(2) advance policies that promote the cooperation of foreign governments,

through information sharing or other measures, in the enforcement of this Act;

and

(3) encourage the Financial Action Task Force on Money Laundering, in its

annual report on money laundering typologies, to study the extent to which

Internet gambling operations are being used for money laundering.

(b) REPORT REQUIRED.—The Secretary of the Treasury shall submit an annual report to the Congress on the deliberations between the United States and other countries on issues relating to Internet gambling.

SEC. 5. ENFORCEMENT ACTIONS.

Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) is amended by

adding at the end the following new subsection:

‘‘(x) DEPOSITORY INSTITUTION INVOLVEMENT IN INTERNET GAMBLING.—Notwithstanding section 3(e) of the Unlawful Internet Gambling Funding Prohibition Act,

if any appropriate Federal banking agency determines that any insured depository

institution is engaged in any of the following activities, the agency may issue an

order to such institution prohibiting such institution from continuing to engage in

any of the following activities:

‘‘(1) Extending credit, or facilitating an extension of credit, electronic fund

transfer, or money transmitting service with the actual knowledge that any person is violating section 3(a) of the Unlawful Internet Gambling Funding Prohibition Act in connection with such extension of credit, electronic fund transfer,

or money transmitting service.

‘‘(2) Paying, transferring, or collecting on any check, draft, or other instrument drawn on any depository institution with the actual knowledge that any

person is violating section 3(a) of the Unlawful Internet Gambling Funding Prohibition Act in connection with such check, draft, or other instrument.’’.

Amend the title so as to read:

A bill to prevent the use of certain bank instruments for unlawful Internet gambling.

BACKGROUND AND NEED FOR LEGISLATION

In recent years, gambling activities have proliferated over the

Internet. Over 850 sites of offer real-time live gambling over the

Internet, and it is estimated that in 1999, Internet gambling revenue reached $1.2 billion. In testimony before the Committee, the

Department of Justice reported that the Internet and other new

technologies have made possible types of gambling that were not

feasible a few years ago. For example, a U.S. citizen can now log

on from his living room and participate in an interactive Internet

poker game operated from a computer located in Antigua.

The Internet manifests new challenges to designing balanced

public policy for gambling activities. Broad public policy concerns

with respect to Internet gambling include the absence of regulation, accessibility by minors, and susceptibility to criminal activity.

5

ABSENCE OF REGULATION

State law has largely shaped legalized gambling in this country.

However, there is no regulatory infrastructure for Internet gambling as there is for traditional gambling activities. The nature of

the Internet allows gambling sites to escape protections imposed by

State gaming commissions on gambling business such as registration and licensing of gaming operations, inspection of gaming

equipment, and strict accounting standards.

In this regard, the National Gambling Impact Study Commission

(the ‘‘Commission’’) Report, released in June 1999, stated that because Internet gambling crosses state lines, it is difficult for states

to adequately monitor and regulate such gambling. The Commission examined the possibility of regulating on-line gambling activities using today’s casino regulation as a model. However, the Commission rejected this approach due to technical and legal questions.

Thus, the Commission recommended that the federal government

prohibit, without new or expanded exemptions, Internet gambling

and develop appropriate gambling enforcement strategies.

Similarly, in testimony before the Committee, the National Association of Attorneys General (‘‘NAAG’’) stated that Internet gambling is one of the few instances where the states have actively promoted and supported the adoption of Federal law to combat such

an issue. NAAG stated that ‘‘the somewhat unique nature of our

support reflects the importance of federal legislation to aid the

states’ general efforts to control gambling activity that occurs within our borders.’’

ACCESSIBILITY BY MINORS

Protections under state gambling laws encompass the goal of providing gambling in a controlled environment, which among other

things prevents gambling by minors. In discord with this goal, the

Internet defies time and place restrictions by offering gambling at

home at any hour, with little insurance against accessibility by minors. The Commission reports that most sites rely on the registrant

to disclose his or her correct age and makes little or no effort to

verify the accuracy of the information.

The National Collegiate Athletic Association’s testimony before

the Committee stated that the emergence of Internet gambling enables students to wager behind closed doors in virtual anonymity,

which provides a multitude of new opportunities for young people

to gamble on college sports. NCAA institutions note that the growing consensus of research that reveals rates of pathological and

problem gambling among college students that are three times

higher than the adult population.

SUSCEPTIBILITY TO CRIMINAL ACTIVITY

The dual protection of anonymity and encryption provided by the

Internet raises a host of issues regarding criminal activities. The

National Gambling Impact Study Commission Report states that

problems associated with Internet gambling include: 1) the potential for abuse by gambling operators who can alter, move, or entirely remove sites within minutes; 2) the ability of computer hackers or gambling operators to tamper with gambling software to maVerDate 11-MAY-2000 19:06 Jul 21, 2000 Jkt 079006 PO 00000 Frm 00005 Fmt 6659 Sfmt 6602 E:\HR\OC\HR771P1.XXX pfrm03 PsN: HR771P1
6

nipulate games to their benefit; and 3) the provision of an additional means for individuals to launder money.

PURPOSE AND SUMMARY

The purpose of this legislation is to make it unlawful for a gambling business to accept a bank instrument in connection with unlawful Internet gambling. In addition, H.R. 4419 provides that, in

deliberations between the U.S. and any other country on money

laundering, corruption, and crime issues, the U.S. should advance

policies that promote the cooperation of foreign governments in the

enforcement of this legislation.

HEARINGS

On June 20, 2000, the full Committee held a hearing to hear testimony on the legislation. Testifying at the hearing were: The Honorable Ernest L. Fletcher; Gregory A. Baer, Assistant Secretary for

Financial Institutions, Department of the Treasury; Kevin V. Di

Gregory, Deputy Assistant Attorney General, Crime Division, Department of Justice; Alan Kesner, Assistant Attorney General, Wisconsin Department of Justice, on behalf of the National Association

of Attorneys General; Richard Leone, President, The Century Foundation, and former Commissioner on the National Gambling Impact Study Commission; Daniel Nestel, Assistant Director of Federal Relations, The National Collegiate Athletic Association; Alexander Ingle, Chief Financial Officer, New York Racing Association,

Inc.

COMMITTEE CONSIDERATION AND VOTES

(Rule XI, Clause 2(l)(2)(B))

On June 28, 2000, the Committee met in open session to mark

up H.R. 4419, the ‘‘Internet Gambling Funding Prohibition Act.’’

During the markup, the Committee approved, by voice vote, two

amendments to H.R. 4419. With a quorum being present, a motion

to adopt and favorably report H.R. 4419, as amended, to the House

was approved by voice vote.

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, the Committee reports that the findings

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT FINDINGS

As provided for in clause 3(c)(4) of rule XIII of the Rules of the

House of Representatives, no oversight findings have been submitted to the Committee by the Committee on Government Reform.

CONSTITUTIONAL AUTHORITY

In compliance with clause 3(d)(1) of rule XIII of the Rules of the

House of Representatives, the Constitutional Authority of Congress

7

to enact this legislation is derived from Article I, section 8, clause

1 (relating to the general welfare of the United States): Article I,

section 8, clause 3 (relating to Congressional power to regulate

commerce); Article I, section 8, clause 5 (relating to the power ‘‘to

coin money’’ and ‘‘regulate the value thereof’’); and Article I, section

8, clause 18 (relating to making all laws necessary and proper for

carrying into execution powers vested by the Constitution in the

government of the United States).

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of rule XIII of the Rules of the House of Representatives is inapplicable because this legislation does not provide new

budgetary authority or increased tax expenditures.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the

Federal Advisory Committee Act were created by this legislation.

CONGRESSIONAL ACCOUNTABILITY ACT

The reporting requirement under section 102(b)(3) of the Congressional Accountability Act (P.L. 104–1) is inapplicable because

this legislation does not relate to terms and conditions of employment or access to public services or accommodations.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE AND UNFUNDED

MANDATES ANALYSIS

The cost estimate pursuant to clause 3(c)(3) of rule XIII of the

Rules of the House of Representatives and section 402 of the Congressional Budget Act of 1974 is attached herewith:

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 17, 2000.

Hon. JAMES A. LEACH, Chairman, Committee on Banking and Financial Services, House of

Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4419, the Internet Gambling Funding Prohibition Act.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Mark Hadley.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

H.R. 4419—Internet Gambling Funding Prohibition Act

Summary: H.R. 4419 would prohibit gambling businesses from

accepting credit cards and other bank instruments from gamblers

who illegally bet over the Internet. The bill also would authorize

the agencies that regulate insured depository institutions to issue

8

cease-and-desist orders against institutions that knowingly facilitate Internet gambling. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office

of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) would enforce the provisions of H.R. 4419 as they

apply to financial institutions.

CBO estimates that implementing this legislation would result in

no significant cost to the federal government. Because enactment

of H.R. 4419 could affect spending and receipts, pay-as-you-go procedures would apply to the bill. However, CBO estimates that any

impact on direct spending and receipts would not be significant.

Although H.R. 4419 would prohibit gambling businesses from accepting credit card payments and other bank instruments from

gamblers who bet illegally over the Internet, the bill would not create a new intergovernmental or private-sector mandate. Under current federal and state law, gambling businesses are generally prohibited from accepting bets or wagers over the Internet. Thus, H.R.

4419 does not contain a new mandate relative to current law.

Estimated cost to the Federal Government: CBO estimates that

the government would incur no significant costs to implement H.R.

4419.

Basis of estimate

CBO estimates that implementing H.R. 4419 would increase administrative costs of the Department of Justice and the NCUA, but

any such costs would be negligible. The bill also would have a

small effect on the operating costs of the FDIC and the Federal Reserve System. Finally, the bill would have a negligible effect on the

collection and spending of criminal penalties.

Spending subject to appropriation

Because H.R. 4419 would establish a new federal crime relating

to Internet gambling, the federal government would be able to pursue cases that it otherwise would not be able to prosecute. CBO expects, however, that most cases would be pursued under state law.

Therefore, we estimate that any increase in federal costs for law

enforcement, court proceedings, or prison operations would not be

significant. Any such additional costs would be subject to the availability of appropriated funds.

H.R. 4419 would require the Department of Justice to submit an

annual report on deliberations with other countries on issues related to Internet gambling. CBO estimates that preparing and completing the report would cost less than $100,000 a year, subject to

the availability of appropriated funds.

Because we expect few cease-and-desist orders would be issued.

CBO estimates that implementing H.R. 4419 would increase the

costs of the NCUA by less than $200,000 a year over the 2001–

2005 period.

Direct spending and revenues

Both the OTS and the OCC charge fees to cover all their administrative costs; therefore, any additional spending by these agencies

to implement the bill would have no net budgetary effect. That is

not the case with the FEC, however, which uses deposit insurance

9

premiums paid by all banks to cover the expenses it incurs to supervise state-chartered banks.

The bill would cause a small increase in FDIC spending, but

would not affect its premium income. In total, CBO estimates that

H.R. 4419 would increase direct spending and offsetting receipts of

the OTS, OCC, and FCC by less than $500,000 a year over the

2001–2005 period. Budgetary effects on the Federal Reserve are recorded as changes in revenues (governmental receipts). Based on

information from the Federal Reserve, CBO estimates that enacting H.R. 4419 would reduce such revenues by less than $500,000

a year over the 2001–2005 period.

Because those prosecuted and convicted under the bill could be

subject to criminal fines, the federal government might collect additional fines if the bill is enacted. Collections of such fines are recorded in the budget as government receipts (i.e., revenues), which

are deposited in the Crime Victims Fund and spent in subsequent

years. Any additional collections are likely to be negligible because

of the small number of cases involved. Because any increase in direct spending would equal the amount of fines collected (with a lag

of one year or more), the additional direct spending also would be

negligible.

Pay-as-you-go considerations: The Balance Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. Enacting H.R. 4419

could affect both direct spending and receipts, but CBO estimates

that any such effects would be negligible.

Intergovernmental and private-sector impact: Although H.R.

4419 would prohibit gambling businesses from accepting credit

card payments and other bank instruments from gamblers who bet

illegally over the Internet, the bill would not create a new intergovernmental mandate. Under current federal and state law, gambling

businesses are generally prohibited from accepting bets or wagers

over the Internet. Thus, H.R. 4419 does not contain a new mandate

relative to current law.

H.R. 4419 would authorize federal banking regulators to require

depository institutions that have knowingly participated in transactions with unlawful Internet gambling businesses to cease doing

so. This provision would not create a new private-sector mandate

for depository institutions because federal banking regulators already have such powers under current law.

Previous CBO estimate: CBO estimated the costs of two other

bills related to Internet gambling. On May 1, 2000, CBO transmitted a cost estimate for H.R. 3125, the Internet Gambling Prohibition Act of 2000, as ordered reported by the House Committee on

the Judiciary on April 6, 2000. On July 15, 1999, CBO transmitted

a cost estimate for S. 692, the Internet Gambling Prohibition Act

of 1999, as reported by the Senate Committee on the Judiciary on

June 17, 1999. Both bills would prohibit gambling conducted over

the Internet, and neither bill would result in any significant cost

to the federal government.

Estimate prepared by: Federal costs: Mark Hadley; revenues:

Carolyn Lynch; impact on State, local, and tribal governments:

Shelley Finlayson; and impact on the private sector: John Harris.

Estimate approved by: Robert A. Sunshine, Assistant Director for

Budget Analysis.

10

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

This Act may be cited as the ‘‘Unlawful Internet Gambling Funding Prohibition Act.’’

Section 2. Findings

Congressional findings include: (1) the role that Internet gambling funded through the use of bank instruments plays in the creation of ultimately uncollectible personal debt, and (2) the susceptibility of Internet gambling to abuse by money launderers.

Section 3. Prohibition on acceptance of any bank instrument for

Internet gambling

This section prohibits a gambling business from accepting bank

instruments in connection with unlawful Internet gambling. Covered instruments include credit cards, electronic fund transfers,

and checks.

Subsection (b) defines the term ‘‘bets or wagers’’ a the staking or

risking by any person of something of value upon the outcome of

a contest of others, a sporting event, or a game predominantly subject to chance with the agreement that the winner will receive

something of greater value than the amount staked or risked. This

subsection clarifies that ‘‘bets or wagers’’ does not include a bona

fide business transaction governed by the securities laws; a transaction subject to the Commodities Exchange Act; an over-thecounter derivatives instrument; a contract of indemnity or guarantee; an contract for life, health, or accident insurance; or certain

participation in a simulation sports game of education game.

Subsection(b) also defines the terms ‘‘gambling business, ’’ ‘‘Internet, ’’ and ‘‘unlawful Internet gambling.’’

Subsection (c) authorizes civil remedies, including a preliminary

injunction or injunction against any person to prevent or restrain

a violation of this Act.

Subsection (d) authorizes criminal penalties, including fines or

imprisonment for not more than five years or both.

Subsection (e) provides that a financial intermediary(creditor,

credit card issues, financial institution, operator of a terminal a

which an electronic fund transfer may be initiated, money transmitting business, or national, regional, or local network) shall not

be liable for the involvement of a financial intermediary or the use

of the facilities of the financial intermediary in connection with a

transaction under this Act. However, the subsection specifies that

the safe harbor does not apply to a financial intermediary that engaged in a transaction as an agent of a gamble business knowing

that the transaction is in violation of this Act.

The purpose of subsection (e) is to ensure that a financial intermediary is not held liable for a violation of this Act solely based

on the unknowing and unintentional involvement of the intermediary through the use of the facilities of such intermediary in an

unlawful Internet gamble transaction, unless the intermediary

acted as an agent of a gambling business and had: (1) actual

knowledge that the specific transaction is an unlawful Internet

gambling transaction; and (2) the intent to engage in the business

11

of submitting into the payment system Internet Gambling transactions prohibited by this Act.

Section 4. Internet gambling in or through foreign jurisdictions

Section 4 provides that, in deliberations between the U.S. Government any other country on money laundering, corruption, and

crime issues, the U.S. Government should encourage cooperation by

foreign governments in identifying whether Internet gambling operations are being used for money laundering, corruption, or other

crimes, advance policies that promote the cooperation by foreign

governments in the enforcement of this Act; and encourage the Financial Action Task Force on Money Laundering to study the extent to which Internet gambling operations are being used for

money laundering.

Section 5. Enforcement actions

This section provides that a Federal banking agency may take

appropriate enforcement action against an institution that knowingly permitted its payment or credit facilities to be used in connection with Internet gambling activity that violates this Act.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (new matter is printed in italic

and existing law in which no change is proposed is shown in

roman):

SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT

SEC. 8. (a) * * *

* * * * * * *

(x) DEPOSITORY INSTITUTION INVOLVEMENT IN INTERNET GAMBLING.—Notwithstanding section 3(e) of the Unlawful Internet Gambling Funding Prohibition Act, if any appropriate Federal banking

agency determines that any insured depository institution is engaged in any of the following activities, the agency may issue an

order to such institution prohibiting such institution from continuing to engage in any of the following activities:

(1) Extending credit, or facilitating an extension of credit,

electronic fund transfer, or money transmitting service with the

actual knowledge that any person is violating section 3(a) of the

Unlawful Internet Gambling Funding Prohibition Act in connection with such extension of credit, electronic fund transfer,

or money transmitting service.

(2) Paying, transferring, or collecting on any check, draft, or

other instrument drawn on any depository institution with the

actual knowledge that any person is violating section 3(a) of the

Unlawful Internet Gambling Funding Prohibition Act in connection with such check, draft, or other instrument.

Æ