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INTERNET GAMBLING PROHIBITION ACT OF 2006

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON

H.R. 4777

APRIL 5, 2006

Serial No. 109–128

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

CHRIS VAN HOLLEN, Maryland 

DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, General Counsel-Chief of Staff 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

HOWARD COBLE, North Carolina, Chairman

DANIEL E. LUNGREN, California 

MARK GREEN, Wisconsin 

TOM FEENEY, Florida 

STEVE CHABOT, Ohio 

RIC KELLER, Florida 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

LOUIE GOHMERT, Texas 

ROBERT C. SCOTT, Virginia 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ANTHONY D. WEINER, New York

MICHAEL VOLKOV, Chief Counsel 

DAVID BRINK, Counsel 

CAROLINE LYNCH, Counsel 

JASON CERVENAK, Full Committee Counsel 

BOBBY VASSAR, Minority Counsel 

(III)

C O N T E N T S 

APRIL 5, 2006

OPENING STATEMENT 

Page 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Chairman, Subcommittee on Crime, Terrorism, and 

Homeland Security ............................................................................................... 1

The Honorable Robert C. Scott, a Representative in Congress from the State 

of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, 

and Homeland Security ....................................................................................... 2

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 4

WITNESSES 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia 

Oral Testimony ..................................................................................................... 7

Prepared Statement ............................................................................................. 8

Mr. Bruce G. Ohr, Chief of the Organized Crime and Racketeering Section, 

United States Department of Justice 

Oral Testimony ..................................................................................................... 9

Prepared Statement ............................................................................................. 12

Mr. John W. Kindt, Professor, University of Illinois 

Oral Testimony ..................................................................................................... 17

Prepared Statement ............................................................................................. 20

Mr. Samuel A. Vallandingham, Vice President and Chief Information Officer, 

The First State Bank 

Oral Testimony ..................................................................................................... 64

Prepared Statement ............................................................................................. 66

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Robert C. Scott, a Representative in 

Congress from the State of Virginia, and Ranking Member, Subcommittee 

on Crime, Terrorism, and Homeland Security ................................................... 95

Response to Post-Hearing Questions from Bruce G. Ohr, Chief of the Organized Crime and Racketeering Section, United States Department of Justice ......................................................................................................................... 97

Response to Post-Hearing Questions from the Honorable William E. 

Moschella, Assistant Attorney General, Office of Legislative Affairs, United 

States Department of Justice, for the April 29, 2003 hearing on H.R. 

21, the ‘‘Unlawful Internet Gambling Funding Prohibition Act’’ ..................... 113

Prepared Statement of John A. Phillips, CEO, ARISTOTLE International ....... 118

Prepared Statement of Kobus Paulsen, Chief Executive, UC Group .................. 120

Letter to the Honorable Howard Coble from the Honorable Bob Goodlatte ....... 130

Letter to the Honorable Bob Goodlatte from Wendy Wright, President, Concerned Women for America ................................................................................. 131

Letter to the Honorable Bob Goodlatte from Peter Brandt, Senior Director, 

Government & Public Policy, Focus on the Family ........................................... 132

Letter to the Honorable Bob Goodlatte from Phyllis Schlafly, President, the 

Eagle Forum ......................................................................................................... 133

Page

IV

Letter to the Honorable Bob Goodlatte from Richard D. Land, President, 

The Ethics & Religious Liberty Commission ..................................................... 134

Letter to the Honorable Bob Goodlatte from Dr. Guy C. Clark, Chairman 

of the Board of Directors, The National Coalition Against Gambling Expansion ........................................................................................................................ 135

Press Release: Family Research Council, dated February 16, 2006 .................... 136

Press Release: Christian Coalition of America, Dated February 15, 2006 ......... 137

Letter from a coalition of organizations in support of H.R. 4777 ........................ 138

News article from The Hill, entitled ‘‘Abramoff gets payback in gaming bills,’’ 

dated March 29, 2006 .......................................................................................... 141

Transcript of speakers from the National Thoroughbred Racing Association 

at the 28th Annual Symposium on Racing ........................................................ 146

(1)

INTERNET GAMBLING

PROHIBITION ACT OF 2006

WEDNESDAY, APRIL 5, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 2 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Howard Coble 

(Chairman of the Subcommittee) presiding. 

Mr. COBLE. Good afternoon, ladies and gentlemen. The Ranking 

Member—the gentleman from Virginia, the primary sponsor, just 

entered the room; and Mr. Scott, the Ranking Member, is on his 

way. But in the interests of time, I am going to go ahead and give 

my opening statement and then recognize Mr. Scott when he gets 

here. 

Today, the Subcommittee on Crime, Terrorism, and Homeland 

Security is conducting a legislative hearing on H.R. 4777, the 

‘‘Internet Gambling and Prohibition Act of 2006.’’ H.R. 4777 is very 

similar to legislation that the Judiciary Committee considered and 

approved during the 107th Congress. 

Currently, Federal law is unclear as to whether or not Internet 

gambling is prohibited by section 1084 of title 18 of the United 

States Code. H.R. 4777 clarifies the law in this area by prohibiting 

Internet gambling and updates existing language to bar use of new 

technologies such as wireless access to gambling sites on the Internet, which were never envisioned when section 1084 was originally 

drafted in 1961. 

The dramatic explosion in Internet gambling raises complex 

criminal and social issues. From a law enforcement perspective, 

this new multibillion-dollar industry has attracted organized crime 

because of the ease by which criminals can launder money and increase illegal revenues without fear of prosecution or even investigation. 

Unlike authorized and regulated wagering in the United States, 

the Internet gambling business is operated in an environment free 

of regulatory oversight and even a remote possibility of civil or 

criminal enforcement. As a result, Internet gambling has turned 

into an industry ripe for organized crime domination. 

The rapid growth in this industry also raises other concerns for 

our communities. Millions of Americans suffer from gambling addiction resulting in financial debt, depression, unemployment, 

bankruptcy, divorce, homelessness, and in some cases, even suicide. 

2

While the Internet has certainly been a boon for our economy, 

our productivity and our general welfare, one downside of the 

Internet has been the ease by which troubled adults and our children gain access to addictive gambling sites. This is a problem 

which must be addressed in order to protect our communities and 

our youth. 

We are fortunate today to have the original sponsor of H.R. 4777, 

the distinguished gentleman from Virginia, Representative Bob 

Goodlatte, to testify and explain the details of his bill. He is the 

sponsor of past Internet wagering bills and probably knows the 

issue as well or better than any Member of Congress. 

Mr. Goodlatte, as you know, our Subcommittee also has experience in this issue, and we look forward to your testimony. 

I just apologized to the distinguished gentleman from Virginia. 

I was not overlooking him, but in an effort to save time, I gave my 

opening statement before Mr. Scott got here because we are going 

to have a vote, I suspect, within an hour, but perhaps a little 

longer than that. So I hope we can get to the business at hand. 

And at this point, I am pleased to recognize the distinguished 

gentleman from Virginia, the Ranking Member, Mr. Bobby Scott. 

Mr. SCOTT. Thank you Mr. Chairman. Mr. Chairman, I noticed 

that at 1 minute past 2 that you are on the third page of your 

statement. 

Mr. COBLE. If the gentleman will yield, look at the time we 

saved. 

Mr. SCOTT. It is a pleasure to be here, Mr. Chairman; I am 

pleased to join you in convening this hearing regarding Federal 

regulation of gambling over the Internet. 

I believe that all gambling should be tightly regulated, and it has 

traditionally been done by the State regulatory responsibilities. It 

should continue to be so, in my judgment, although it is appropriate for the Federal Government to have a role to assist the 

States in the total regulatory scheme. 

The Federal Government took such a role in 1961 with the Wire 

Communications Act as a way to assist in the fight against gambling by organized crime syndicates. The Department of Justice 

contends it can prosecute Internet gambling businesses under that 

law, but clearly that law was not designed with Internet gambling 

in mind. 

While I appreciate the desire of my distinguished colleague, the 

gentleman from Virginia, Mr. Goodlatte, to update the ability of 

the Department to address illegal gambling in today’s context, I do 

not believe that H.R. 4777 is likely to be effective in doing so. 

Regulating anything over the Internet is problematic, even desirable. Most law enforcement is local or jurisdictional based. The 

Internet has no jurisdiction, and as a result, I suspect that even 

if we were successful in closing down business sites physically located in the United States, or in countries where we can get cooperation, because of the nature of the Internet and the ingenuity 

of people using it, the approach of H.R. 4777 will ultimately be ineffective. 

As we hear from our witness panel, this bill will create an enforcement nightmare for financial institutions because they would 

be required to look up and stop illegal gambling transactions. IdenVerDate 0ct 09 2002 17:14 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\040506\26913.000 HJUD1 PsN: DOUGA
3

tifying Internet gambling activities will be very difficult, if not impossible. While some companies may be able to identify some gaming transactions by codes used, such enforcement efforts can easily 

be thwarted. A business can have one code for payment purposes, 

but may be engaged in several activities, including Internet gambling. 

A casino, for example, may have a hotel or gambling. A foreign 

company may have a hotel, a casino, Internet gambling, an e-cash 

or an electronics payment system; or any outside escrow agent can 

relocate to another country and, therefore, evade enforcement 

mechanisms in the bill altogether. With some Internet gaming activities being legal, how would a financial institution distinguish 

between them and legal activities? 

Furthermore, we should not overestimate the cooperation we 

may get from other countries. According to Christiansen Capital 

Advisers, Internet gambling Web sites brought in over $14 billion 

worldwide last year, which is up from 8 billion the year before. 

That number is expected to almost double to 24 billion by 2010. 

Presently, over 85 foreign governments allow some form of gambling online. That number is likely to grow as well. So what governments are likely to cooperate with us in prosecuting businesses 

they authorize to operate? And even if we are successful in getting 

cooperation from some countries, we would be simply increasing 

the profit opportunities for uncooperative countries, especially 

those with whom the United States does not have normal diplomatic relations. 

This bill does not prohibit Internet gambling; it prohibits running the Internet gambling operation. If we want to be effective in 

prosecuting illegal gambling over the Internet, we should prosecute 

the individual gamblers. A few sting operations and the word 

would get around that if you gamble on the Internet, you will be 

caught. And so long as individuals can gamble over the Internet 

with impunity, a market will be provided for them which the regulatory scheme in this bill will not stop. 

For example, Mr. Chairman, we prohibit the sales of illegal 

drugs. But we see that as long as there remains a demand for 

drugs, we have only limited success in the war on drugs. But if we 

took the approach in this bill in enforcing drug laws, we would be 

prosecuting the seller, but not the buyer and have even less effect 

than we have now. 

Since we are not talking about prohibiting gambling on the Internet, but simply prohibiting the operation of the illegal gambling 

site in jurisdictions that the FBI can get to, I believe that there are 

more effective regulatory approaches than the approach offered in 

H.R. 4777. However, the approaches must be developed to take into 

account the technology and State policies with respect to gambling 

and Internet gambling practices and preferences. 

This is the effect of the bill authored by the full Committee 

Ranking Member, Mr. Conyers, last year, H.R. 1223. It established 

a commission that would study the issue and make recommendations for a regulatory environment for Internet gambling that 

would be controlled by the individual States. States do tend to prohibit individuals from gambling, so Internet gambling can both be 

4

effective—can be effective in individualized States and individualized to each State. 

Under the bill’s regulatory scheme, if Nevada opted to allow 

Internet gambling within its borders, it could. If Utah prohibited 

individuals from that State from gambling over the Internet, it 

probably could, and that would be enforceable by the Federal Government and by the States that allow gambling as well as the 

States—as well as the State of Utah, because in the fullness of 

time, a gambler could be required to provide a mailing address in 

order to get paid. 

If protection of the public is the goal of regulating Internet gambling, it is much more likely that those who choose to gamble over 

the Internet will do so under a licensed, regulated entity under the 

Conyers approach than under 4777. First, the consumer in a State 

where Internet gambling was legal would have confidence that if 

they win, they will be paid by the licensed, regulated operation. 

A consumer would have no similar confidence in fly-by-night offshore Casino.com. As a result, from a licensed, regulated Internet 

gaming activity would drive business from the less reputable businesses, and they would essentially drive them out of business. 

Another significant result is that States that choose to authorize 

Internet gambling can tax it. At a time when unauthorized gambling is flourishing—as I said, over $14 billion with over half of it 

originating in the United States—and when most States are cash 

strapped, those States that have chosen to authorize regulated 

gambling could receive much-needed revenue from both the operators and the winners while contributing to the control of the industry and protection of the gambling public. 

The overwhelming portion of those who buy—who play the numbers buy legal lottery tickets, which are regulated and taxed and 

actually pay lower odds compared to the illegal numbers operations. For the same reason, people will choose to gamble over 

Internet—who choose to gamble over the Internet will patronize 

legal domestic Web sites even if they have to pay taxes on the 

winnings. 

I believe we should regulate Internet gambling, but we should do 

so effectively. We should not subject any single business sector to 

the sole or principal responsibility of doing the bulk of the enforcement work, whether it is the banking industry in this bill or the 

Internet service industry, as we tried in prior bills. There are ways 

to regulate Internet gambling effectively, and a study commission 

to develop those ways is the best way to come up with them. 

And, again, Mr. Chairman, I thank you for holding the hearing 

and look forward to the testimony. 

Mr. COBLE. I thank the distinguished gentleman from Virginia. 

We have been joined by the distinguished gentleman from Utah. 

While not a Member of the Subcommittee on Crime, Terrorism, and 

Homeland Security, he is a Member of the full Judiciary Committee. And we have been joined, as well, by the distinguished gentleman from Michigan, the Ranking Member of the full Committee. 

And, Mr. Conyers, if you have a statement, I will be glad to recognize you. 

Mr. CONYERS. Thank you, Mr. Chairman and Members of the 

Committee and our distinguished witnesses here. 

5

I think we have to come far more specifically to grips about the 

issues raised, particularly by the gentleman from Virginia, Mr. 

Bobby Scott. 

Now, gambling is going on now; it is out of the barn, so to speak. 

But when you start doing something as futile as carve-outs and a 

ban on racing, you are on a slippery slope that is going to create 

more problems. 

Let me just make a few points, and I will probably not use my 

full 5 minutes. 

First, this measure claims to ban all forms of online gambling, 

yet specifically exempts betting on horse racing, pay-to-play fantasy 

sports, State-owned and -operated lotteries. And so, we are doing 

a picking and choosing of which gambling activities to sanction 

while disapproving many others; and I will be looking carefully to 

find out how we arrived at the decision of which gambling will be 

sanctioned and which won’t. 

Number two, the bill is not likely to lead to any meaningful reduction in the current number of Americans that place bets on line. 

Isn’t that what the legislation ought to be about? Major financial 

service organizations already employ the bill’s main enforcement 

mechanisms, and Americans can easily circumvent those prohibitions by using third-party payers or even foreign banks. 

Third, by eliminating a customer’s access to the U.S. financial 

services industry, this bill may inadvertently make worse the most 

pressing dangers posed by the Internet gambling industry. After 

all, credit cards play a vital role in determining an individual bettor’s wagers and tracking potential earnings and losses. By prohibiting their use, we effectively lose access to this key information. 

And finally, the bill proposes to establish a complex regulatory 

system for banks that is unworkable. It is all but impossible to 

comply with. And under the provisions of the bill, banks would be 

asked to determine whether a transaction occurring online was illegal or legal based upon the type of gambling activity involved and 

where the location of the transaction occurred, and whether or not 

the transaction involved interstate commerce. 

Now, let’s be real, my friends. If we really want to gain effective 

control of the online gambling industry, we must regulate it. Establishing a partial ban, allowing some forms of gambling to continue 

without the benefit of adequate checks and balances only will make 

the current situation much worse. 

And I thank you, Chairman Coble, for allowing me to get these 

remarks in before our witnesses start their commentary. 

Mr. COBLE. I thank the distinguished gentleman from Michigan. 

Gentleman, it is the practice of the Subcommittee to swear in all 

witnesses appearing before it; so if you would, please stand and 

raise your respective right hands. 

[Witnesses sworn.] 

Mr. COBLE. You may be seated. 

Let the record show that each of the witnesses answered in the 

affirmative. 

We have four distinguished witnesses with us today. Our first 

witness is the Honorable Bob Goodlatte, whom I have previously 

mentioned. Representative Goodlatte serves the Sixth Congressional District in the State of Virginia and was first elected to the 

6

Congress in 1992. He is currently cochairman of the Congressional 

Internet Caucus. He was selected by Speaker Hastert to serve on 

the House Republican Cybersecurity Task Force. 

Prior to serving in the Congress, Representative Goodlatte was 

a partner in the law firm of Bird, Kinder & Huffman, and he is 

an alumnus of Bates College and the Washington and Lee School 

of Law in Virginia. 

And the statement about you, Mr. Goodlatte, is missing a conspicuous ingredient. You also serve as Chairman of the House Agriculture Committee, unless there has been a change that is not 

known to me. 

Our second witness is Bruce Ohr, Chief of the Organized Crime 

and Racketeering Section at the Justice Department. Previously, 

Mr. Ohr served as Assistant U.S. Attorney for the Southern District of New York and Chief of the Violent Gangs Unit in that office. He also worked as an associate at Ohr, Harrington and Sutcliffe. Mr. Ohr received his undergraduate and law degrees from 

Harvard. 

Our third witness is Mr. John Kindt, Professor at the University 

of Illinois School of Law. Previously, Professor Kindt was employed 

in several State and Federal Government positions, and he also has 

served as a Senior Fellow at the London School of Economics. 

Professor Kindt’s research has resulted in over 30 articles in the 

areas of legalized gambling’s economic impacts. He has earned several graduate degrees in law and business, including an MBA, a JD 

and an SJD. 

Our fourth witness is Mr. Sam—sir, help me with your surname. 

Mr. VALLANDINGHAM. Vallandingham. 

Mr. COBLE. Mr. Vallandingham is Vice President and Chief Information Officer at the First State Bank. And headquartered 

where, Mr. Vallandingham? 

Mr. VALLANDINGHAM. Barboursville, West Virginia. 

Mr. COBLE. Thank you, sir. Prior to serving in this capacity, Mr. 

Valling—try me one more time. 

Mr. VALLANDINGHAM. Vallandingham. 

Mr. COBLE. It is really not that difficult—worked as Data Security Officer and Vice President of the Mortgage Department. He is 

also a member of the Independent Community Bankers of America 

where he serves on the Payments and Technology Committee. 

He was awarded his undergraduate degree from Florida State 

University and his graduate degree from Louisiana State University. 

Gentlemen, it is good to have each of you with us. And as I previously informed you, there will be a vote upcoming. We comply 

with the 5-minute rule here, as you all have previously been told. 

And when you see the amber light illuminate on the panel in front 

of you, that is your 1-minute warning. 

And then, when the red light appears, that is when the ice on 

which you are skating has become very thin. We will not unduly 

punish you; however, at that point, if you could wrap up, we would 

be appreciative. 

Now, Mr. Goodlatte, I am told that you have another engagement 

at what time? 

Mr. GOODLATTE. Three o’clock, but I need to leave before that. 

7

Mr. COBLE. We will start with you and you can depart, and if we 

are still going, you are welcome to come back. 

Mr. Goodlatte, you are recognized for 5 minutes. 

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

Mr. GOODLATTE. Thank you, Mr. Chairman, for inviting me to 

testify before this Subcommittee on this very important issue. 

Gambling on the Internet has became an extremely lucrative 

business. Numerous studies have charted the explosive growth of 

this industry, both by the increases in gambling Web sites available and via industry revenues. Internet gambling is now estimated to be a $12 billion industry, with approximately 6 billion 

coming from bettors based in the United States. It has been reported that there are as many as 2,300 gambling sites. 

Virtual betting parlors have attempted to avoid the application 

of United States law by locating themselves offshore and out of our 

jurisdictional reach. These offshore fly-by-night Internet gambling 

operators are unlicensed, untaxed and unregulated, and are sucking billions of dollars out of the United States. In addition, Internet 

gambling can serve as a vehicle for money laundering by organized 

crime syndicates and terrorists. 

Contrary to what many in the gambling community would lead 

you to believe, gambling is not a victimless activity. In fact, the 

negative consequences of online gambling can be more detrimental 

to the families and communities of addictive gamblers than if a 

bricks-and-mortar casino were built next door. 

The anonymity of the Internet makes it much easier for minors 

to gamble online. Furthermore, online gambling can result in addiction, in bankruptcy, divorce, crime and moral decline just as 

with traditional forms of gambling, the cost of which must ultimately be borne by society. 

In fact, I have been contacted by a constituent in my district 

whose son fell prey to an Internet gambling addiction. Faced with 

insurmountable debt from Internet gambling, he took his own life. 

Unfortunately, financial ruin and tragedy are not uncommon 

among online bettors. 

Traditionally, States have had the authority to permit or prohibit 

gambling within their borders. With the development of the Internet, however, State prohibitions and regulations governing gambling have become increasingly hard to enforce as electronic communications move freely across borders. 

Currently, Federal law already prohibits interstate gambling 

over telephone wires. However, because the Internet does not always travel over telephone wires, these laws which were written 

before the invention of the Internet have become outdated. H.R. 

4777, the ‘‘Internet Gambling Prohibition Act of 2006,’’ brings the 

current prohibition against wireline interstate gambling up to 

speed with the development of new technology. It also makes clear 

once and for all that the prohibition is not limited to sports-related 

bets and wagers. 

In addition, H.R. 4777 will add a new provision to the law that 

would prohibit a gambling business from accepting certain forms of 

noncash payment, including credit cards and electronic transfers. 

8

This bill also provides an enforcement mechanism to address the 

situation where the gambling business is located offshore, but accepts money from bank accounts in the United States. The bill also 

provides an additional tool to fight illegal gambling by giving Federal, State, local and tribal law enforcement new injunctive authority to prevent and restrain violations of the law. 

H.R. 4777 will return control to the States by protecting the 

rights of citizens in each State to decide through their State legislatures if they want to allow gambling within their borders. The regulation of intrastate gambling is within the jurisdiction of the 

States. So this bill leaves the regulation of wholly intrastate betting or wagering to the States with tight controls to ensure that 

such betting or wagering does not extend beyond their borders or 

to minors. 

While my legislation prohibits online, interstate gambling, it does 

not overturn previous act of Congress that address gambling. This 

is a strong antigambling bill that also protects the rights of States 

to determine what is and what is not prohibited within their borders. 

The opponents of this legislation have a lot to lose. Offshore online gambling Web sites are cash cows, and the greed that propels 

these companies leads them to solicit bettors in the U.S. despite 

the fact that the Department of Justice already believes this activity is illegal. The greed that motivates many of these offshore establishments has also motivated nefarious lobbyists such as Jack 

Abramoff to spread misinformation about previous attempts of the 

Congress to ban online betting. 

Internet gambling is a serious problem that must be stopped. 

The Internet Gambling Prohibition Act will help eliminate this 

harmful activity before it spreads further. 

I am happy to answer any questions from Members of the Subcommittee and address some of the misrepresentation that is already occurring about this legislation when that opportunity arises. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Goodlatte follows:]

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Thank you, Mr. Chairman, for inviting me to testify before the Subcommittee on 

this important issue. 

Gambling on the Internet has become an extremely lucrative business. Numerous 

studies have charted the explosive growth of this industry, both by the increases in 

gambling websites available, and via industry revenues. Internet gambling is now 

estimated to be a $12 billion industry, with approximately $6 billion coming from 

bettors based in the U.S. It has been reported that there are as many as 2,300 gambling sites. 

Virtual betting parlors have attempted to avoid the application of United States 

law by locating themselves offshore and out of our jurisdictional reach. These offshore, fly-by-night Internet gambling operators are unlicensed, untaxed and unregulated and are sucking billions of dollars out of the United States. In addition, Internet gambling can serve as a vehicle for money laundering by organized crime syndicates and terrorists. 

Contrary to what many in the gambling community would lead you to believe, 

gambling is not a victimless activity. In fact, the negative consequences of online 

gambling can be more detrimental to the families and communities of addictive 

gamblers than if a bricks-and-mortar casino was built right next door. 

The anonymity of the Internet makes it much easier for minors to gamble online. 

Furthermore, online gambling can result in addiction, bankruptcy, divorce, crime, 

9

and moral decline just as with traditional forms of gambling, the costs of which 

must ultimately be borne by society. In fact, I have been contacted by a constituent 

in my district whose son fell prey to an Internet gambling addiction. Faced with insurmountable debt from Internet gambling, he took his own life. Unfortunately, financial ruin and tragedy are not uncommon among online bettors. 

Traditionally, States have had the authority to permit or prohibit gambling within 

their borders. With the development of the Internet, however, state prohibitions and 

regulations governing gambling have become increasingly hard to enforce as electronic communications move freely across borders. 

Current federal law already prohibits interstate gambling over telephone wires. 

However, because the Internet does not always travel over telephone wires, these 

laws, which were written before the invention of the Internet, have become outdated. H.R. 4777, the Internet Gambling Prohibition Act, brings the current prohibition against wireline interstate gambling up to speed with the development of new 

technology. It also makes clear once and for all that the prohibition is not limited 

to sports-related bets and wagers. 

In addition, H.R. 4777 will add a new provision to the law that would prohibit 

a gambling business from accepting certain forms of non-cash payment, including 

credit cards and electronic transfers. This bill also provides an enforcement mechanism to address the situation where the gambling business is located offshore but 

accepts money from bank accounts in the United States. The bill also provides an 

additional tool to fight illegal gambling by giving Federal, State, local and tribal law 

enforcement new injunctive authority to prevent and restrain violations of the law. 

H.R. 4777 will return control to the states by protecting the right of citizens in 

each State to decide through their State legislatures if they want to allow gambling 

within their borders. The regulation of intrastate gambling is within the jurisdiction 

of the states, so this bill leaves the regulation of wholly intrastate betting or wagering to the states with tight controls to ensure that such betting or wagering does 

not extend beyond their borders or to minors. 

While my legislation prohibits online, interstate gambling, it does not overturn 

previous acts of Congress that address gambling. This is a strong anti-gambling bill 

that also protects the rights of States to determine what is—and is not—prohibited 

within their borders. 

The opponents of this legislation have a lot to lose. Offshore online gambling 

websites are cash cows and the greed that propels these companies leads them to 

solicit bettors in the U.S. despite the fact that the Department of Justice already 

believes this activity is illegal. The greed that motivates many of these offshore establishments has also motivated nefarious lobbyists such as Jack Abramoff to 

spread misinformation about previous attempts of the Congress to ban online betting. 

Internet gambling is a serious problem that must be stopped. The Internet Gambling Prohibition Act will help eliminate this harmful activity before it spreads further. I am happy to answer any questions the members of this subcommittee may 

have regarding this legislation.

Mr. COBLE. And you are to be congratulated. You beat the illumination of the red light. 

So the pressure is on you, Mr. Ohr. Mr. Ohr, good to have you 

with us. 

STATEMENT OF BRUCE G. OHR, CHIEF OF THE ORGANIZED 

CRIME AND RACKETEERING SECTION, UNITED STATES DEPARTMENT OF JUSTICE 

Mr. OHR. Good afternoon, Mr. Chairman, Ranking Member Scott. 

Mr. COBLE. Pull that mike a little closer to you, Mr. Ohr. 

Mr. OHR. Good afternoon Mr. Chairman, Ranking Member Scott, 

honorable Members of the Subcommittee. Thank you for inviting 

me to testify today. 

I would like to commend Congressman Goodlatte, as well as Congressman Leach and Senator Kyl for their efforts and long-standing 

commitment to provide law enforcement with additional tools to 

combat Internet gambling. Today, I am happy to offer the views of 

10

the Department of Justice on H.R. 4777, the ‘‘Internet Gambling 

Prohibition Act of 2006.’’

I would like to begin by noting that the Government continues 

to investigate and prosecute illegal Internet gambling. Two recent 

examples: In January of this year, the U.S. Attorney’s office in St. 

Louis announced a $7.2 million settlement with Sporting News to 

resolve claims that the Sporting News promoted illegal gambling 

from 2000 through 2003 by accepting fees for advertising illegal 

gambling. 

In April of last year, the U.S. Attorney’s Office in the District of 

Massachusetts indicted 13 individuals on racketeering charges 

which included allegations that the enterprise used an offshore 

gambling office and that customers placed bets over the Internet. 

The operator of the offshore gambling office has pled guilty. 

I would like to say that the Department supports H.R. 4777 for 

several reasons. This legislation clarifies and strengthens our position that section 1084 of title 18 applies to both telephone and the 

Internet. 

This bill increases the penalties for a violation of section 1084. 

It prohibits the acceptance of credit cards for Internet gambling. It 

provides a civil enforcement mechanism to enforce that prohibition, 

and it provides a method to cut off the transfer of funds to and 

from illegal Internet gambling businesses. 

The Department does have some concerns about certain provisions of H.R. 4777 that may weaken current law, that may allow 

some Internet gambling from the home. We view the existing statutes as prohibiting interstate bets or wagers including bets or wagers on horse races. We have previously stated that we do not believe that the Interstate Horse Racing Act amended the existing 

criminal statutes. We are currently undertaking a criminal investigation related to potential violation of law regarding this activity. 

We would have concerns about any change in the law that could 

be construed as permitting interstate wagering on horse races. 

We are also concerned about the definition of intrastate for the 

purpose of exempting certain Internet gambling transactions from 

the reach of 1084. The definition focuses on the location of the 

bettor and the betting facility, but ignores the routing of the Internet communication placing the bet. Under current law, the routing 

of the Internet communication is of great importance in determining whether the transmission is in interstate commerce. We are 

concerned that the proposed definition might weaken existing law. 

While we welcome the bill’s provision of an injunctive remedy to 

restrain any person from paying or assisting in the payment of illegal Internet bets and wagers, we have concerns over the bill’s limitation or the type of injunctive relief that may be obtained against 

an Internet service provider. We believe that Federal Rule of Civil 

Procedure 65 should be the sole standard used by courts in considering whether to grant injunctive relief and what form that relief 

should take. 

We are concerned that H.R. 4777 permits gambling from the 

home, as this raises issues about gambling by minors and compulsive gambling. We have concerns about the requirement for the secure and effective customer verification and age verification set 

11

forth in the bill. Online gambling businesses cannot see the customer to do onsite age verification. 

Furthermore, the residents’ verification requirements set forth in 

the bill may not be sufficient to ensure that the bettor is, in fact, 

physically located in the same State as the gambling business 

when he makes his wager. 

The Department believes that Internet gambling should remain 

illegal. We are concerned about Internet gambling because of the 

potential for gambling by minors and compulsive gambling, the potential for fraud and money laundering and the potential for involvement by organized crime. 

And to cite one example from this area, in January, 2005, the 

U.S. Attorney’s Office in New York’s Southern District of New York 

indicted 17 defendants in an 88-count indictment for running an illegal gambling business that included both telephone and Internet 

wagers being placed with offsite betting facilities both in the 

United States and abroad. The principals in this scheme are alleged to be associates of the Gambino organized crime family of La 

Cosa Nostra. 

Thank you, Mr. Chairman. 

Mr. COBLE. Well, you too beat the red light. 

[The prepared statement of Mr. Ohr follows:]

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PREPARED STATEMENT OF BRUCE G. OHR


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1See also Denver University Law Review document at http://www.ncalg.org/library/

studies%20and%20white%20papers/economics/kindtjoydenverlaw.pdf. 

Mr. COBLE. But the pressure shifts to Mr. Kindt. 

You won’t be unduly punished if the red light beats you Mr. 

Kindt. 

STATEMENT OF JOHN W. KINDT, PROFESSOR,

UNIVERSITY OF ILLINOIS 

Mr. KINDT. Thank you, Mr. Chairman. I don’t know of any academic who can do this in under 5 minutes, but I will give it a try; 

and I would ask for your kind permission for my written remarks 

be included in their entirety, if you would, sir. 

Mr. COBLE. Without objection, it will be done. 

Mr. KINDT. Thank you, Mr. Chairman, Members of the Committee, participants and guests from the U.S. House of Representatives and the U.S. Senate. Thank you for your kind invitation to 

testify before the Committee. 

Internet gambling destabilizes U.S. national security and the 

strategic economic base. This is a State Department issue. And I 

would like to raise your eyes a little bit beyond the Beltway and 

look at this from an international perspective. This was brought before the full House Committee on the Judiciary before 1995 as an 

issue. 

Some of the problems with Internet gambling are, first, Internet 

gambling destabilizes U.S. and international economies. Secondly, 

it destabilizes and threatens the financial systems of the United 

States and the international economic system. 

Third, it destabilizes U.S. national security in the fight against 

terrorism. Fourth, it destabilizes military readiness. Fifth, it creates and facilitates new criminal activities. 

Sixth, Internet gambling fuels the fastest growing addiction 

among young people, gambling addiction. Seventh, Internet gambling creates enormous socioeconomic costs of $3 for every $1 in 

benefits. 

And finally, Internet gambling creates and facilitates Government corruption in the United States and throughout the world. 

Internet gambling causes immediate harm and irreparable harm to 

the entire U.S. public. 

If you would reference the first overhead, you will see that we 

have a headline here, back in 1996, ‘‘40 Economists Sided Against 

Internet Gambling.’’ Can you get 40 economists to agree on anything? Well, they agree on this. This is a slam dunk. Gambling is 

lose-lose for the public. It is $3 in costs for every $1 in benefits. 

For examples of sworn testimony by professors, academics documenting the immediate and irreparable harm caused by Internet 

gambling and the advertising of such activities, I have appended 

statements from three expert witnesses, including myself, sworn 

testimony from a California case; and I would direct you to that, 

to those affidavits.1

Like drug addiction, the harms to the public are commonly referred to as the ABC’s of legalized gambling, socioeconomic impacts 

caused by gambling activities via cyberspace and particularly via 

18

the Internet include new addicted gamblers, new bankruptcies and 

new crime. 

If I could have the second overhead, please. 

The second overhead here is from the Michigan State, Detroit 

College of Law, Law Review. You can see there at the bottom—this 

is an older statement—talks about the teen population being addicted. And at the top, in the upper right-hand corner, it talks 

about the crack cocaine of gambling. Now this is a terminology that 

sociologists—this is not my terminology; and you can see that 

Internet gambling is well known as the crack cocaine of creating 

new addicted gamblers. 

In the case of these concentrated and multiple electronic gambling devices, the accessibility and the new acceptability, that is, 

the legalization to the public, dictate that new pathological, that is, 

addicted, gamblers will double from approximately 1 percent of the 

public, increasing to 2 percent. Similarly, the new problem gamblers will double from approximately 2 percent to 4 percent of the 

public. 

With the categories specifically focused on teens and young 

adults, these rates are virtually doubled again to between 4 percent 

to 8 percent combined pathological, that is, addicted, and problem 

gamblers. Children, teens and young adults conditioned by the 

Nintendo phenomenon are already demonstrating double the pathological and problem gambling rates of the older adult population 

who matured without video games and without accessible legalized 

gambling venues. 

Accordingly, the 1999 Gambling Impact Study Commission recommended that there be no legalization of Internet gambling, actually called for a prohibition and that the U.S. laws criminalizing 

gambling over the wires be strengthened and expanded to other jurisdictions. I am sure you are familiar with this report. 

Gambling industry spokespersons have frequently referred to 

Internet gambling as the killer application of Internet technology 

because Internet gambling is crack cocaine to addicting new gamblers and because the feeder market is every living room, work station and school desk. 

What are the strategic solutions? It is to eliminate Internet gambling problems and other gambling problems by transforming those 

gambling facilities into educational and practical technology facilities, thereby stabilizing international financial institutions. Instead 

of legalizing the casino slot machine establishment at a failing 

racetrack in 1997, the Nebraska legislature bulldozed the racetrack, cut out all the gambling and made it into an extension of the 

University of Nebraska and a high tech office park. And they just 

expanded that facility. 

On October 27, 2005, the Illinois House of Representatives voted 

67 to 42 for the Senator Paul Simon memorial bill, one of the initial sponsors of the National Gambling Impact Study Commission. 

This bill was to recriminalize the Illinois casinos. It passed the 

House; it is currently awaiting action in the Illinois Senate. 

Similarly, suggestions have been made to recriminalize gambling 

facilities in other States and transform the gambling facilities into 

educational and high tech assets instead of giving the gambling industry tax breaks. 

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On December 6, 2005, Pennsylvania Representative Paul Clymer, 

with 32 cosponsors, introduced a bill to recriminalize the Pennsylvania casinos. 

Finally, in conclusion, the immediate strategic solution to eliminate or curtail many of the problems caused by gambling activity 

is a total ban on Internet gambling activities. Socioeconomic history 

demonstrates that the eventual solution to the U.S. and international gambling problems is to recriminalize gambling, wipe the 

slate clean and transform gambling facilities into educational and 

practical technology facilities. 

Thank you, Mr. Chairman. Thank you, Committee. 

Mr. COBLE. And I plead guilty for having been very naive. I 

should have known a professor could not have wrapped it up in the 

5-minute time frame, but you didn’t do too bad. 

Mr. KINDT. I did the best I could. 

[The prepared statement of Mr. Kindt follows:]

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PREPARED STATEMENT OF JOHN W. KINDT


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STATEMENT OF SAMUEL A. VALLANDINGHAM, VICE PRESIDENT AND CHIEF INFORMATION OFFICER, THE FIRST 

STATE BANK 

Mr. VALLANDINGHAM. You certainly took the pressure off me. So, 

Mr. Chairman, Ranking Member Scott and Members of the Committee, my name is Sam Vallandingham. I am Vice President of the 

101-year-old First State Bank in Barboursville, West Virginia. I am 

also a member of the Payments and Technology Committee for the 

Independent Community Bankers of America. 

Barboursville is a historical town of 3,183 people in the far western part of the State near the Kentucky border. We have 50 employees, two branches and 127 million in assets. 

I appreciate the opportunity to testify on the proposed use of 

checking electronic payments systems to limit Internet gambling. I 

commend this Committee and Members for fighting against terrorism and money laundering. We urge you to recognize that small 

banks like mine have a substantial regulatory burden under the 

USA PATRIOT Act and the Bank Secrecy Act to identify our customers while documenting and reporting suspicious transactions. 

ICBA believes that it is critical that our resources be focused 

where risk to national safety and financial soundness are greatest. 

Our concern is that the added burden of monitoring transactions 

for Internet gambling will drain resources currently engaged in 

antiterrorism and anti-money-laundering compliance and divert 

our attention from the daily operation of our bank. 

Ultimately, we question whether this legislation will actually reduce Internet gambling. Can Congress justify the time and expense 

required by community banks to comply with another layer of regulation? 

Additionally, regulatory burden is detrimental not only to the 

bank, but to the community that depends on us for economic stimulus, small business funding, job creation and continued community revitalization. 

There are two bills pending before the House of Representatives 

that attempt to end Internet gambling through restriction of payments—H.R. 4777, sponsored by Representative Goodlatte of Virginia, and H.R. 4411, recently passed by Financial Services Committee. Although the bills have many similarities, there are some 

important differences. 

H.R. 4411 prohibits any person engaged in the gambling business from accepting credit, electronic funds transfer, checks or 

other types of payment. The bill directs the Treasury Department, 

the Federal Reserve and the Justice Department to work together 

to develop regulations requiring banks to identify and block restricted financial transactions. 

H.R. 4777 would update the law against interstate gaming to include Internet gambling and criminalize acceptance of credit, electronic fund transfers or other payments by anyone in the gambling 

business. 

The regulation and compliance burden created by these proposals 

is substantial. Their key enforcement mechanism would require 

banks to identify and block transactions between customers and 

Internet gaming companies. This will not work because it failed to 

65

recognize the differences between the credit card systems and the 

check clearing and automated clearinghouse or HCS networks. 

Credit cards operate within an electronic system that assigns 

codes to identify the merchants and the type of transaction. Checks 

and ACH payments are routed from the originator of the payment, 

the merchant, to the receiver, the customer, using only bank routing and account numbers. The payee is not identified. And unlike 

credit cards, the check clearing and HCS networks cannot identify 

and block payments to Internet gambling companies, and they cannot reconfigure to function as a transaction monitoring service. 

This legislation, therefore, should exempt check and HCS transactions; otherwise, it would require a massive overhaul of the check 

and HCS systems, create enormous regulatory burden and give police-like powers to financial institutions to identify and block illegal 

transactions. 

The bill should give the Federal Reserve rule-writing and regulatory oversight. The Federal Reserve is well acquainted with payment system and knows the limitations of the check clearing and 

HCS networks. If the check and ACH transactions are not exempted, the resulting compliance cost to the banks and payment system 

would be enormous. 

The CBO’s analysis of H.R. 4411 determined that the costs to the 

private sector would be less than 128 million if it applies to credit 

card transactions only. CBO added, quote, ‘‘If the regulations also 

include the requirement for banks to identify and block checks and 

other bank instruments, the direct cost to comply with the mandates could increase significantly,’’ end quote. These costs would include the redesign and rebuilding of the payment system structure, 

increasing labor and training costs to banks, redesign the checks 

and HCS formats and education of the customer, as well as payment delays and significantly slowed payment systems. 

If the Congress wants to make certain transactions illegal, it 

should look for solutions that do not harm the Nation’s payment 

systems and do not saddle our banks with the burden of enforcement. Responsibility for identifying and blocking prohibited credit 

and debit transactions should lie with the credit card networks, not 

the financial institutions. Only the credit and debit card networks 

have the ability to determine the origin of the transaction, and 

thus, only the credit and debit card networks have adequate information to identify an illegal transaction. 

Neither banks nor our Nation’s payment systems can function as 

transaction monitoring and blocking service as envisioned by this 

legislation. To the extent that this legislation attempts to protect 

families and minor children, I assure the Committee, there are 

processes and procedures in place that permit a customer to rescind fraudulent HCS or check transactions. 

On behalf of my community bank and nearly 5,000 members of 

the Independent Community Bankers of America, I ask you to remember this as you consider the legislation and increased regulatory burden it would create for our industry. 

Thank you. 

Mr. COBLE. Thank you, Mr. Vallandingham. 

[The prepared statement of Mr. Vallandingham follows:]

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PREPARED STATEMENT OF SAMUEL A. VALLANDINGHAM


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Mr. CANNON. Mr. Chairman. 

Mr. COBLE. The gentleman from Utah. 

Mr. CANNON. I am not a Member of this Subcommittee, as you 

know, but because of the peculiar effect that this has on my State, 

I would ask unanimous consent that I be allowed 5 minutes at 

some point in time to question the witnesses. 

Mr. COBLE. Without objection, I will do this caveat, Mr. Cannon. 

I will recognize you after I recognize the Members of the Subcommittee. 

Mr. CANNON. Thank you, Mr. Chairman. 

Mr. COBLE. Without objection. It is good to have you with us, Mr. 

Cannon. 

Before I start questioning, we thank each of you. And each of the 

witnesses alluded to gambling oftentimes. 

I am a country music fan and Merle Haggard, the popular country balladeer, recorded a song some recent years ago entitled ‘‘The 

Kentucky Gambler,’’ and the concluding words of the chorus were 

these, ‘‘But a gambler loses much more than he wins,’’ and I think 

with rare exception, that is true. 

Now, some of these sports shows, Mr. Scott, I have seen lately, 

gambling, some of these guys, I think, win much more than they 

lose. But I think generally, the Haggard conclusion is correct, more 

lost than won. 

Mr. Goodlatte, the authority to authorize and regulate wagering 

has in large part been reserved to the States. What impact would 

your bill have on a State’s ability to authorize and regulate wagering over the Internet, A; and B, if a State chose to permit wagering 

over the Internet, what steps would need to be taken? 

Mr. GOODLATTE. Well, thank you, Mr. Chairman, as it is an excellent question. And this bill is primarily designed to buttress the 

ability of the States to do what has traditionally always been the 

case in the United States; gambling has been illegal in this country 

unless regulated by the States. 

The States, however, because of the very nature of the Internet 

find it difficult to do that; and so, by prohibiting, modernizing the 

Wire Act to cover the new types of transactions that were not contemplated in 1961 when the Wire Act was written 45 years ago, we 

are recognizing that new tools need to be provided to all levels of 

the Government, certainly to the Justice Department, but also to 

State and local governments to enforce the laws that the States 

have to regulate gambling in those States. 

Now, because we also recognize that the States have had the primary responsibility in this area, we tell the States in this legislation that they can regulate gambling on the Internet in their State 

if they meet two criteria which, in my opinion, today cannot be 

met. Perhaps some day in the future technology may allow it, in 

which case then I think it would be up to each individual State to 

do that. 

Mr. COBLE. Hurry along because we have the 5-minute rule. 

Mr. GOODLATTE. They have to make sure that the gambling is restricted to the confines of the State and, two, that minors do not 

participate. The technology does not exist to allow either of those, 

so Internet gambling under this legislation will nonexistent unless 

that technology changes. 

76

Mr. COBLE. I thank you, sir. Mr. Ohr, in your prepared statement, you express concern over the possible weakening of Federal 

law covering Internet wagering on horse racing. Are there other industries similarly situated to horse racing and are they addressed 

in this bill? 

Mr. OHR. Mr. Chairman, the Department obviously continues to 

have the position that Internet gambling should continue to be 

banned; and we would oppose—we would have very serious concerns about any possible weakening of that ban. With respect to 

the existence of other industries, I am not really qualified to speak. 

We would have the same concerns with respect to those other industries as we would as to whether horse racing or any other industry is construed under the bill as getting some kind of permission. 

Mr. COBLE. Mr. Goodlatte, are industries so involved? 

Mr. GOODLATTE. No. I want to make that very clear. In response 

to some of the comments already made, there is no carve-out in 

this legislation for horse racing, for lotteries, or any other type of 

gambling. 

There is, however, as noted by Mr. Ohr, a separate Federal statute that addresses the issue related to gambling on horses. And 

some maintain that that legislation, that previous legislation, allows it. The Justice Department maintains that it does not. 

This legislation takes no position on that issue whatsoever. We 

do not attempt to repeal the statute. But we also do not interpret 

that statute in as much a way to legalize gambling. 

Mr. COBLE. And that was enacted in the early 1970’s? 

Mr. GOODLATTE. I believe that is correct. 

Mr. COBLE. Mr. Kindt, in your opinion, what are the distinct concerns related to Internet gambling versus gambling in person or 

other forms of gambling, A; and B, is the better way to cure the 

social ills associated with Internet gambling to regulate the industry or to make it illegal? 

Mr. KINDT. Thank you, Mr. Chairman. 

First of all, let me clarify one thing you introduced me as a law 

professor. I am a professor of business and legal policy. We make 

more money. 

Mr. COBLE. I stand corrected, and congratulate you for that. 

Mr. KINDT. Thank you, Mr. Chairman. 

If we can get the overheads up there, my No. 4 overhead might 

help visualize this. It is entitled Annual Social Costs Per Pathological Gambler. 

Basically, we are talking about two phenomena here. One is 

called the acceptability factor and the other is called the accessibility factor. If you have the acceptability factor, that means it is 

legalized or we see common today we see PR everywhere that says 

gamble, gamble, gamble; and the younger generation is getting this 

message everywhere that it is okay to gamble on the Internet. 

I see students walking around my campus with T-shirts advertising illegal poker sites, and they don’t know it is illegal. 

So what we are talking about here is what sociologists and academics reference as the acceptability factor and that is, the message that it is okay to gamble, and of course we have legalized cerVerDate 0ct 09 2002 17:14 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\040506\26913.000 HJUD1 PsN: DOUGA
77

tain types of gambling. And that further confuses it and sends a 

message. 

And then there is also the accessibility factor, and that is maximized by Internet gambling. Accessibility, you don’t have to fly out 

to Las Vegas anymore. You don’t have to go down to the casino 

anymore. It is right there at every work desk and every school 

desk, in every living room. 

And so you will see an explosion in the numbers of pathological 

and problem gamblers, and the social costs are enormous. These 

are the top studies in a table for the Committee to review, and the 

social costs are at least $3 for every $1 in benefit. 

Mr. COBLE. When my red light illuminates, I am going to the recognize Mr. Scott. 

But, Mr. Kindt, do you think outright illegal or regulation? 

Mr. KINDT. I think outright illegal, and I testified before the National Gambling Impact Study Commission. They said ‘‘prohibition’’; if you can’t prohibit it, you can’t regulate. 

Mr. COBLE. And, Mr. Banker, hopefully we will have a second 

round. I will get to you subsequently. 

The distinguished gentleman from Virginia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

I think—as Professor Kindt has just indicated, one of the problems I have where you seek to kind of make it illegal—it is not illegal to do it, but it is illegal to run the operation—if you want to 

prohibit the activity, it is my view that it ought to be illegal to 

gamble on the Internet and that would clearly be enforceable. 

Is that right, Professor Kindt? 

Mr. KINDT. Well, I think that I would like to leave the details 

of the practicality of this to the people drafting the legislation, and 

I do that with respect to your question, Representative Scott. 

Mr. SCOTT. Well, Mr. Ohr, if it were illegal to gamble over the 

Internet, would you have any problem catching people gambling? 

If you busted a site, you can get their mailing list and you can go 

after each and every one of them. Word would get around, and they 

would stop doing it. 

Mr. OHR. Congressman, as Congressman Goodlatte has already 

mentioned, the approach of the Federal Government from the beginning of gambling legislation has been to support the States as 

the primary regulators or the ones with primary jurisdiction. 

Mr. SCOTT. With any kind of illegal activity, you catch both sides. 

You don’t just go after the sellers, you also go after the buyers; is 

that right? 

Mr. OHR. Well, the Government has, the Department has traditionally focused on trying to—focusing on the large rings and trying to go after the most sophisticated and the largest operators; 

and we would continue that approach under this bill. 

Mr. SCOTT. Is it illegal to gamble on the Internet? 

Mr. OHR. Not at the Federal level. 

Mr. GOODLATTE. Mr. Scott, if I might respond to that. We have 

had this discussion before, and I certainly understand your point 

of view. But the fact of the matter is—as Mr. Ohr indicates, we 

have always at the Federal level focused on supporting the States 

and targeted the entities offering gambling services. But virtually 

every State has their own regulations regarding what individual 

78

bettors may or may not do. And so we are simply supporting their 

efforts in that regard. 

We don’t think there needs to be a Federal law in conjunction, 

in addition to the State laws that already target the individual bettors. 

Mr. SCOTT. Okay. 

Well, Mr. Ohr, are you aware of anyone who has ever been recently busted for gambling on the Internet? 

Mr. OHR. I am not. At the Federal level, as I said, we don’t have 

a prohibition; and I am not qualified to talk about what the States 

have or who they have busted. 

Mr. SCOTT. You are qualified to speak of what you ever heard. 

Mr. OHR. I am not familiar with any such case. 

Mr. SCOTT. In your prosecutions, have you gotten anybody that 

lived and worked and didn’t come within the jurisdiction of the 

United States? 

Mr. OHR. Yes, we have prosecuted people who have conducted 

offshore gambling sites. Yes, we have. 

Mr. SCOTT. And how did you—where was the prosecution? 

Mr. OHR. Prosecutions took place in the district courts here. One 

example——

Mr. SCOTT. How did you get them here? 

Mr. OHR. In one case, I think the defendant entered the United 

States and stood trial. 

Your question goes, I think, to the problems of international law 

enforcement and——

Mr. SCOTT. You are familiar with—I forgot his name—selling pot 

seeds in Canada. 

Mr. OHR. I am aware of that case. 

Mr. SCOTT. And they won’t extradite him, so we haven’t been 

able to do anything about it. 

Do we expect countries to extradite people running these sites to 

the United States so you can prosecute them? 

Mr. OHR. We have a number of ways of attempting to enforce our 

criminal laws against people outside the United States who violate 

our laws—through extradition, through——

Mr. SCOTT. These sites are running all over the Internet. Who 

have you prosecuted that hasn’t entered the United States? 

Mr. OHR. We need to get them here to the United States before 

we can prosecute them. There are many ways of achieving that. 

We certainly work very hard with our international partners to 

go after criminals who are violating U.S. law, even if they are located in other jurisdictions. It is not just a problem limited to 

Internet gambling. 

It is related to all kinds of crimes, and certainly the Department 

does not believe that the difficulties we face in prosecuting people 

outside the U.S. who commit crimes within the U.S. should stop us 

from trying. And we will continue to work on this. 

Mr. SCOTT. It is illegal now; is that right? 

Mr. OHR. Yes. 

Mr. SCOTT. To run a gambling operation. And anybody—how 

long would it take you to find a gambling site on the Internet, a 

minute? 

Mr. OHR. I think anybody can find an Internet gambling site. 

79

Mr. SCOTT. And it is not illegal to do it, to gamble on the Internet. 

Mr. OHR. There is no Federal prohibition. That is up to the individual States. 

Mr. SCOTT. Do you have any idea how much money is being 

made by the companies with gambling, with the gambling done in 

the United States both in the untaxed winnings and what we could 

get in taxes from the operator if they would submit to the jurisdiction and let us tax their operation? 

Mr. OHR. Well, the tax question I can’t really answer. The 

amount of business that is taking place on Internet gambling sites 

has been cited in this hearing to be billions of dollars, and I believe 

that is correct. 

Mr. SCOTT. Is any of it taxed, so far that you know? 

Mr. OHR. Not that I am aware of. 

Mr. COBLE. I thank you, Mr. Scott. 

The distinguished gentleman from Michigan and Ranking Member, Mr. Conyers. 

Mr. CONYERS. Thank you, gentlemen, for your testimony. We 

seem to begin this discussion with a bit of a conundrum here dealing with horse racing. The Department of Justice asserts, and before Mr. Ohr testified today, that horse racing is not legal. But 

4777 would make it legal. 

Mr. Goodlatte is shaking his head vigorously, ‘‘no.’’ I want it to 

be in the record. 

Mr. Ohr, can you give us a little enlightenment on it? I have read 

your position, particularly page 2. Where are we on horse racing 

in terms of gambling and its illegality? 

Mr. OHR. Congressman, as I stated, the Department’s position is 

that betting, interstate betting on horse races is illegal under 1084, 

and that was not modified by the Interstate Horse Racing Act. 

My understanding from what Congressman Goodlatte has stated 

is that it is not his intention to change that. We certainly look forward to working with Congressman Goodlatte and Members of this 

Committee to effectuate that intent. 

Mr. CONYERS. Well, it is mentioned in the bill, though. Members 

claim that an amendment to the Commerce, Justice, State appropriations bill in 2000 legalized Internet gambling on horse races 

under the Interstate Horse Racing Act. 

Mr. GOODLATTE. Mr. Conyers, if I might be permitted——

Mr. CONYERS. You could be permitted. 

What is your position on this? Is that true? 

Mr. GOODLATTE. What the legislation does is, it does not attempt 

to——

Mr. CONYERS. No. No. No. Wait. Let me pose the question. 

Does—did the 2000 year appropriations bill legalize Internet 

gambling on horse races under the Interstate Horse Racing Act? 

Mr. GOODLATTE. I don’t have an opinion on that particular piece 

of legislation. This legislation does nothing to change the status of 

that legislation. So if that legislation authorizes interstate horse 

racing, we don’t change that. 

If the Justice Department’s position is correct, that that legislation has never allowed betting on horses via the Internet across 

State lines, we don’t change that either. 

80

This legislation does not attempt in any way to overturn that 

statute, which was passed by the Congress and subsequently 

amended by the Congress, nor does it attempt to ratify the position 

taken by the horse racing industry on that. 

So there is no carve-out in this legislation for horse racing. 

Mr. CONYERS. Well, but let’s look at the bill itself, subsection F, 

‘‘Nothing in this section shall be construed to prohibit an activity 

allowed under Public Law 9515 U.S.C. 3001.’’

Mr. GOODLATTE. That’s correct, Mr. Conyers. 

Mr. CONYERS. So, wait a minute, ‘‘nothing shall be construed to 

prohibit activity,’’ so you are making it clear. 

Mr. GOODLATTE. No. No. That says, ‘‘Nothing shall be construed 

to prohibit an activity allowed,’’ but the Justice Department has already testified that they do not believe that that statute allows 

that activity. The horse racing industry will tell you to the contrary. 

We don’t take a position what any particular activity may be allowed or not allowed under that act. We are making it very clear. 

We are not overturning the act. We are also making it very clear 

that we do not take any position on what that act allows. 

Mr. CONYERS. Let me read to you from the Department of Justice 

statement that they submitted: 

‘‘The Department of Justice views the existing criminal statutes 

as prohibiting the interstate transmission of bets or wagers including wagers on horse races. The Department is currently undertaking a civil investigation relating to a potential violation of law 

regarding this activity. 

‘‘We have previously stated that we do not believe that the Interstate Horse Racing Act amended the existing criminal statutes. 

H.R. 4777, however, would change current law and amend it to 

permit the interstate transmission of bets and wagers on horse 

races. This proposal would weaken existing law.’’

Is that essentially what you said here, Mr. Ohr? 

Mr. OHR. Congressman, that was our—that is a statement that 

was, I understand, from Congressman Goodlatte; that is not what 

he intended to do by this provision of the bill. 

Mr. CONYERS. Well, wait a minute. This was after you wrote this, 

you talked to Goodlatte, and then you found out that this is not 

correct. 

Mr. OHR. Right. 

Mr. CONYERS. So you want to change it? 

Mr. OHR. Our concern would be, we would be concerned if the 

law could be construed as changing current law; and obviously we 

look forward to working with Congressman Goodlatte and the 

Members of the Subcommittee to make sure——

Mr. CONYERS. In other words, you think think should be—what 

you have given us is a change of—what you are telling us now is 

a change from what you said here? 

Mr. OHR. That is correct. 

Mr. CONYERS. And you didn’t bother to explain it during your 

testimony, and—I mean, this is a very unusual situation, Mr. 

Chairman. We have got the Department of Justice representative 

telling us that what he has submitted to the Committee is not acVerDate 0ct 09 2002 17:14 Sep 27, 2006 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\040506\26913.000 HJUD1 PsN: DOUGA
81

curate, because he has talked to Chairman Goodlatte, and they 

have gotten this straightened out. 

[2:59 p.m.] 

Mr. OHR. We remain concerned to the extent that the bill’s provision could be construed as legalizing that activity because we 

think—and that is a concern. I can’t say that our concern has been 

fully addressed. 

Mr. CONYERS. I am feeling better already. This is a heck of a way 

to conduct—here is a multibillion dollar subject matter before us 

and I need you to please carefully resubmit to Chairman Coble and 

this Committee where all of this comes out. Because we can’t have 

it both ways. Either there is a carve-out here, which is widely regarded to exist, or there isn’t. 

I thank the Chairman. 

Mr. COBLE. I thank the gentleman. 

I say to the distinguished gentleman from Utah, the distinguished gentlelady from Texas, Ms. Jackson Lee, has consented to 

let you precede her. So you are recognized, Mr. Cannon, for 5 minutes. 

Mr. CANNON. I thank the Chairman and Ms. Jackson Lee. 

As I said earlier, Utah has a particular interest in this issue because it is one of the few States that actually has a total prohibition. Only one other State, like Utah, has a total prohibition on 

gambling. While I am a clear, adamant opponent to gambling, one 

of the things I don’t want to see is the opportunity for gambling 

in my State because we preempt State law. So I have got to acknowledge I am as confused as Mr. Conyers is about where we actually are. 

Let me ask Mr. Ohr a question, and maybe we can elaborate. I 

read your testimony, and it lays out the issues pretty well. But just 

to be clear for the record, it is my understanding the Department’s 

position on Internet gambling bills, whether Leach, Kyl or Goodlatte is those bills, should not have exceptions or carve-outs like 

the ones in section 1084(d) and (f). Is this correct this is the same 

policy position the Department has articulated for at least the last 

6 years? 

Mr. OHR. That is correct. 

Mr. CANNON. What has that changed base had upon your discussions with Mr. Goodlatte? 

Mr. OHR. We continue to believe that interstate gambling on 

horse racing is illegal under 1084. My understanding from what 

Congressman Goodlatte has said is that he does not intend to affect 

the current state of the law, so obviously we want to continue to 

work with him on that, but that does not change the Department’s 

position that we believe this activity is and should remain illegal. 

Mr. CANNON. If I have a kid in Utah that gets addicted to games, 

computer games and Nintendo and the like, and he then gets addicted to gambling and he decides he likes horse racing, you are 

going to argue that whoever is providing that horse racing opportunity is violating the law and the kid who is doing it is violating 

the law. 

Mr. OHR. Certainly that the person providing that service, if they 

are doing it in an interstate fashion, is violating 1084. The kid 

82

would be violating the law under the laws of the State of Utah, as 

I understand it. 

Mr. CANNON. You would cooperate with the State of Utah in 

helping kids get a very clear understanding they should not be 

gambling. 

Mr. OHR. Absolutely. 

Mr. CANNON. What happens when a clever lawyer argues that 

this bill ratifies because it doesn’t take a clear position on precluding horse racing? 

Mr. OHR. That is our concern, and that is why we continue to 

have a concern with that provision. 

Mr. CANNON. It just seems to me you sort of shifted positions. In 

talking to Mr. Goodlatte, you said it not a carve-out. This is a very 

difficult position because, of course, what I want is clarity going 

back to the people in Utah that you can’t gamble in Utah. It is 

clear to me that is going to be a tack or part of the response that 

anybody trying to argue before courts that horse racing is legal, 

they are going to focus on this and say everything was precluded 

except us; therefore, we are obviously not precluded, and the bill 

says we are not precluded. Doesn’t that seriously undermine your 

position? 

Mr. OHR. That is why we have concerns, and we understand 

Congressman Goodlatte’s statement to be that he does not intend 

to legalize or change the current law which we believe prohibits 

this kind of activity. To the extent that his bill could be read or 

construed to permit that, that is a big concern of ours. 

Mr. CANNON. It will be argued by proponents of horse racing that 

that is the meaning of this bill. 

Mr. OHR. Our concern is, if the bill passes in its current form, 

it would; and that would raise the concerns I have stated. 

Mr. CONYERS. Would the gentleman yield for just a second? 

I just wanted to make sure that our friend from the Department 

of Justice understands the Reno Justice Department has a view 

that this kind of legislation that has carve-outs, the Ashcroft Justice Department had the view that this bill has carve-outs, the 

Gonzalez Justice Department has taken the same view, and now 

the Ohr Justice Department agrees with all the previous Justice 

Departments. 

Mr. COBLE. I believe the time belongs—I think the time belongs 

to Mr. Cannon, Mr. Conyers. 

Mr. CONYERS. He yielded. 

Mr. COBLE. I am sorry. 

Mr. CANNON. I note I only have a moment remaining, so let me 

just say that I think the weight of the Federal thinking on this 

issue is pretty consistent, and it is a cause for grave concern. I 

don’t want Utah to get bombarded with gambling that becomes 

legal and back-door a system that is going to lead many kids to the 

kind of difficulty that Mr. Kindt has already talked about, which 

I think is an abomination. 

Unfortunately, Mr. Goodlatte had to leave, so we are not going 

to be able to clarify some of these things, but this is the core problem that I have with this issue, and either we resolve that for the 

sake of Utah or I have to oppose the legislation strenuously. 

Thank you, Mr. Chairman. I yield back. 

83

Mr. COBLE. I thank the gentleman. 

The gentleman from Michigan. 

Mr. CONYERS. I just want unanimous consent to proceed for one 

additional minute. 

Mr. COBLE. Without objection. 

Mr. CONYERS. Because it is very important that we understand 

that this carve-out didn’t just get invented this afternoon. This has 

gone through several Administrations. Mr. Ohr, I think, has come 

around to what is more consistent with his written statement, submitted that there are likely carve-outs. 

Now the good intentions of an author of legislation notwithstanding doesn’t really amount to much in a Judiciary Committee 

hearing. We may in good faith intend a lot of things, but horse racing is a very lucrative business and gambling is part of it, so we 

need to be very careful about this and ask the gentleman to give 

us his best thinking on this, and if there is anything he wants to 

submit to the Chairman after this hearing, we would be delighted 

to receive it. 

Mr. COBLE. Mr. Conyers, we will keep the record open for 7 days. 

We will have a second round. 

Now have you finished, Mr. Conyers? 

The gentlelady—and I apologize, I didn’t realize that Mr. Cannon 

had yielded to you, and to you I apologize for that. 

The gentlelady from Texas, Ms. Jackson Lee, is recognized for 5 

minutes. 

Ms. JACKSON LEE. Mr. Chairman, I appreciate the fact that we 

had a Member and proponent against the legislation, and seems 

that he has disappeared. 

Let me, first of all, raise the question of what—very sort of broad 

question. 

I would be happy to yield. 

Mr. CONYERS. I just wanted to ask Mr. Ohr if he knows that we 

have comments from the horse racing industry that confirm that 

they obtained a carve-out for their industry, that that is their attitude on the subject. Are you familiar? 

Mr. OHR. I am not familiar with their comments. 

Mr. CONYERS. You wouldn’t be surprised if that were the case? 

Mr. OHR. That causes us concern, yes, sir. 

Mr. CONYERS. Thank you very much. I thank the gentlelady for 

yielding to me. 

Ms. JACKSON LEE. I am delighted to yield. 

Mr. Ohr, I will follow up with you then. Mr. Goodlatte is not 

present, and forgive me for being detained at another meeting and 

engaged in another meeting in the outer office here. Give me again 

the assessment that you have from the Department of Justice on 

the necessity of this legislation. 

Mr. OHR. I would be happy to do that, Ms. Congresswoman. 

The Department supports this legislation. We believe that, primarily because it strengthens the position the Department has 

taken throughout, that section 1084 applies both to telephone and 

to the Internet gambling, interstate gambling over telephone or 

interstate gambling over the Internet, and for that reason as well 

as some additional tools that are provided in the bill, the Department supports the bill. 

84

We do have several concerns about certain provisions of the bill, 

some of which we have been discussing here. They are outlined in 

my written testimony. 

Ms. JACKSON LEE. My colleague just mentioned the carve-out for 

horse racing. Are you aware or is the Department aware of the various companies that offer online betting on horse racing already existing, as I understand it? 

Mr. OHR. I don’t have a specific—I would have to get back to you 

on specific examples, if that is what you are asking. 

Ms. JACKSON LEE. I am looking for that kind of explanation, if 

you would. 

Because I guess where I am going on this questioning, and I will 

include the other gentlemen in just a moment, is both the necessity 

but also the discriminatory fact or discriminatory aspects that may 

incur out of this particular legislation if we don’t get it right. And 

so I am sensing that we are not getting it right, and even with your 

support I have great questions. 

I understand the Reno Justice Department, Ashcroft Justice Department and the Gonzalez Justice Department all have taken the 

view that the bill has carve-outs that I think you are concerned 

about, is that my understanding? 

Mr. OHR. We have concerns about any carve-outs. We certainly 

believe that we would have any very serious concerns about any 

bill that would create an exception to 1084 and allow, for example, 

interstate gambling on horse races. 

Ms. JACKSON LEE. With that in mind, since we have a state of 

confusion, I would be concerned about legislation that poses more 

confusion than solutions. 

Is it Mr. Kindt from the University of Illinois? Just because I 

missed Mr. Goodlatte, give me your assessment on a bill that 

seems to have a discriminatory aspect. What are you trying to 

focus on on this legislation? 

Mr. KINDT. I was asked to appear with regard to the socioeconomic impacts of gambling, and to that end let me just mention 

one thing that Representative Scott raised earlier and that was 

about all the flow of income coming in. What I put up here in one 

of the overheads were the eight leading studies, and no matter how 

much money you have coming in in tax revenue, it doesn’t cover 

the social costs. All eight of those studies—it is usually a three to 

one ratio, of $3 in cost for every $1 in benefits. 

Ms. JACKSON LEE. Let me make this point on your point, which 

is have we challenged the industries across the board to actually 

invest in correcting whatever these social ills might bring about? 

Have we ever had a scenario where the industries have been taxed, 

if you will, to create a better atmosphere if, for example, some may 

have thought that the bill has defects in it? 

Mr. KINDT. The industry has created, sometimes voluntarily, 

sometimes with the encouragement of the States, programs to address addicted gambling, but it is usually extremely low considering what the problems are, and when you add up the benefits 

and you do a valid cost-benefit analysis, the costs simply overwhelm the benefits. I put up two or three overheads in this hearing 

to demonstrate that. 

85

It is really a slam dunk when it comes—this is not a debatable 

issue. There is no debate on this. The costs are really just very 

large. It is like drug addiction. They call it the crack cocaine of creating addiction, is this gambling addiction. So that is not my terminology. That is the overwhelming terminology of the majority of sociologists and psychologists who deal with the area. 

I remember Jesse Jackson, Jr., coming to Chicago on Martin Luther King Day and saying—and this is a very contentious statement, but he said ‘‘these are the new economic chains on our people.’’

Ms. JACKSON LEE. My time is gone. Let me conclude, Mr. Chairman, if you would just indulge me an additional minute. 

I cannot pose a question to Mr. Vallandingham, but let me say 

this, even without this legislation, I think what you are suggesting 

is that this legislation would go to the expansion of what may be 

a vastly costly disease, which is gambling, period. My concern 

would be, are we finding a solution to the cancer or are we narrowing it to one isolated form of gambling or one we can bring the 

industry in and challenge it to do a better job, period. If we don’t 

have Internet gambling or we have these carve-outs, we have a 

fractured bill, then we are still not getting to the sickness of gambling for those who are sick in doing it. 

So I make that point, and I make the point that the bill seems 

to—as I said, the proponent is not in the room, and I am sorry that 

he is not, but hopefully we will have some further explanation. I 

think we went through this before, Mr. Coble; and, to Mr. Scott, 

we went through this before. 

I conclude by saying this, that the issue of this gambling issue, 

Mr. Chairman and Mr. Ranking Member, needs to be broader than 

the immediate hearing that we have. I am going to put two questions on the record. So I am going to end, and they can give it to 

me in writing. 

Then I will pose a question, because I was taken aback by a 

hearing by the Energy and Commerce Committee on criminal activity with children and Internet sexual activities. Again, I am just 

making a brief comment; and I would commend to the Chairman 

and the Ranking Member that, since they were talking about criminal penalties in the Energy and Commerce Committee, that we 

might have a subsequent hearing dealing with the utilization of the 

Internet for abuse against children. 

Let me read these two questions: Does the Administration support total ban or does it wish to permit the interpretation of horse 

racing—excuse me, looks like interpretation of horse racing to be 

a subject to controversy. If the exception were deleted from H.R. 

4777, would the domestic horse racing industry stop this practice? 

In any event, we will have these in writing; and I thank the 

Chairman and the Ranking Member for the indulgence. 

Mr. COBLE. I thank the gentlelady. 

Folks, we are on a stopwatch to try to meet that floor vote, so 

I think we are going to have a second round. 

Mr. Kindt, you indicated you might want to make a statement 

during Mr. Conyer’s questioning. Did you get a chance to do that? 

Mr. KINDT. No, sir. I am fine, and I know that I was behind, 

going out of order. I apologize to Mr. Scott, as a fellow Virginian 

86

in my former life, when I addressed one of my comments to Representative Lee. 

Mr. COBLE. I wanted to be sure that you were heard. 

Mr. KINDT. Let me just say, in response to Ms. Lee’s question, 

that from my limited knowledge of reading through the bill my interpretation would be I do not believe it either enables or overturns 

the horse racing. Now, again, the bill changes rapidly, but that is 

my interpretation at this point. 

The only other point I would make with regard to Mr. Cannon—

I hope I am not speaking out of order again—is that I think this 

debate in the legislative hearing would be introduced into any 

court proceeding. So Mr. Goodlatte and the intent of Congress 

would in fact be determinative, I would hope, if the court was having trouble deciding how to interpret the particular statute. 

Mr. COBLE. I thank you, Mr. Kindt. 

Mr. Banker—I pronounce that better. You testified, as it pertains 

to banks, H.R. 4777 would create a, quote, ‘‘an added burden of 

monitoring all payment transactions for the taint of Internet gambling.’’ What section of 4777 are you stating that would create that 

burden? 

Mr. VALLANDINGHAM. As I understand it, Mr. Chairman, it would 

criminalize anybody who was involved in the process of transferring those payments, including the banks, knowingly or unknowingly. So, ultimately, we would be responsible for the monitor of 

those payments and the prohibition of those payments. 

Mr. COBLE. Is it true, sir, that the banking industry is already 

taking steps to assist in the identification of money laundering, one 

of the serious concerns related to Internet gambling? 

Mr. VALLANDINGHAM. Yes, sir. The Anti-Money Laundering Act 

is something that we are vigorously pursuing, and in doing so we 

identify those customers which we deal with, and we also monitor 

transactions of a certain threshold and report those. But we are not 

responsible for making any decisions about whether they are legal 

or illegal. We are only responsible for the recording of those transactions in which another entity makes the determination whether 

those are viable transactions or not. 

Mr. COBLE. Thank you, sir. 

Professor Kindt, I apologize for having demoted you to the school 

of law. It was an innocent omission on my part. 

I have exhausted my time. I will yield to the gentleman from Virginia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. Kindt, you mentioned the question of whether the taxes 

could offset the social costs. If you have got $24 billion a year gambling on the Internet, a large portion which is from the United 

States from which you are getting no taxes, some taxes would be 

more than what you are getting now. 

Mr. KINDT. Representative Scott, we hear this or I have heard 

this argument in academic circles for years; and basically I think 

you raise the issue that I tried to start out with, which is that this 

is an international issue. We need to get the State Department in 

on this and start talking about this in terms of international economics and our friendship, commerce and navigation treaties; and 

that would alleviate this type of problem. 

87

Mr. SCOTT. If you are going to have an international agreement 

and come to an agreement, I think we are going to be on the short 

end of that stick. Because in most of the other countries it is already legal. So if there is going to be a consensus, it is going to 

be to legalize and regulate. 

Mr. KINDT. With respect, Representative Scott, I think what we 

are really doing here, and I have provided several law review articles just as introductions, with citations, I think we are destabilizing——

Mr. SCOTT. You would simplify the thing by making it illegal to 

gamble on the Internet, would you not? 

Mr. KINDT. It has been illegal to gamble on the Internet for ages 

past. 

Mr. SCOTT. That is how you would address it. 

Mr. KINDT. Yes. I think that is how the national commission said 

they would address it as well. 

Mr. SCOTT. Thank you. 

Mr. Ohr, of the people that you have prosecuted for gambling, 

have any of them been for—involving horse racing? 

Mr. OHR. I would have to get back to you on that, Congressman. 

I am afraid I don’t have the answer. 

Mr. SCOTT. You believe the present law, it is illegal to gamble on 

the Internet on horse racing? 

Mr. OHR. That is correct. 

Mr. SCOTT. At one time, having read the bill before you talked 

to anybody, you concluded that it would not be illegal if the bill 

passed. 

Mr. OHR. We certainly have concerns that the bill’s language 

could being construed to permit that. 

Mr. SCOTT. Mr. Vallandingham, do you know the average size of 

a transaction for gambling? 

Mr. VALLANDINGHAM. I am told about $110. 

Mr. SCOTT. When you do drug money, you look for $10,000 transactions? 

Mr. VALLANDINGHAM. Five thousand, generally. 

Mr. SCOTT. So they kind of stick out. Hundred, couple of hundred. 

Mr. VALLANDINGHAM. Couple hundred sequential. 

Mr. SCOTT. Do you know what the credit card entry on Paypal 

would be if somebody paid for one of these bills through Paypal? 

Mr. VALLANDINGHAM. No, I would have to get back to you as far 

as what—I assume you are requesting the merchant code through 

Paypal for the identification of the payee, is that is what you are 

asking about? 

Mr. SCOTT. That wouldn’t help you, because you wouldn’t know 

what it was for. If you knew it was a casino, you wouldn’t know 

if it was legal or illegal, you just know the payee. 

Mr. VALLANDINGHAM. Which is one of the problems. 

Mr. SCOTT. If the payee were an attorney who is serving an escrow agent in France——

Mr. VALLANDINGHAM. The identification of the payee would not 

be sufficient enough to determine whether it was a valid or nonvalid payment. 

88

Mr. SCOTT. Are you aware of procedures that can identify someone in terms of age and residence? 

Mr. VALLANDINGHAM. No, I am not, not based on the Internet. 

Obviously, if you meet with them in person, you do have that information. 

Mr. SCOTT. Mr. Goodlatte is not here. I had a question on how 

they can do an interstate—legalize and regulate intrastate. Anybody want to make a comment on that? 

I yield back. 

Mr. COBLE. Thank the gentleman. 

I will leave it up to Ms. Jackson Lee, you are next in line, or Mr. 

Cannon. 

Ms. JACKSON LEE. I will yield to Mr. Cannon. 

Mr. COBLE. Mr. Cannon, you are recognized for 5 minutes. 

Mr. CANNON. Thank you, Mr. Chairman. 

Let me state as that I believe gambling is a pernicious vice; and, 

Mr. Kindt, I agree with you entirely. From everything I have seen, 

the costs of gambling far outweigh any kind of benefits that a State 

or society can ever gain from gambling. I can’t understand lotteries. 

I think they are the craziest thing we do. It is a tax on people that 

can’t do math, and they tend to be poor anyway. So it is a horrible 

thing, from my point of view. 

As I was speaking about Utah and the problem that we have 

with having Utah law diluted, you were nodding. I take it you 

would agree you would not want to see any carve-outs, horse racing, or whether we characterize it some other way, or lotteries online. You would like to see that not happen, I would think. 

Mr. KINDT. Are you addressing your question to me? 

Mr. CANNON. Mr. Kindt, yes. 

Mr. KINDT. From my limited reading of the bill and the way I 

read it and I understand it, I don’t believe that it enables or overturns—I don’t think it changes the status quo. 

Mr. CANNON. With regard to horse racing. 

Mr. KINDT. With regard to horse racing. 

Mr. CANNON. You pointed out what we are doing here, we are 

writing a law review article or a brief for a court. And the problem 

is, and I think, Mr. Goodlatte, at the end of my time, you may want 

to address this, but seems to me what we are doing with this bill 

is being absolutely unclear about what we are doing with horse racing. That makes the argument for the horse racers when they go 

into court, and I believe Mr. Ohr has said that is probably going 

to be the case, so this bill is going to affect the arguments in court, 

at least. And I don’t know how you can say that we intend—this 

represents a policy against horse racing when, in fact, what we are 

doing is not dealing with horse racing. 

Now that Mr. Goodlatte is back, I would appreciate if you would 

address that, but not right now because I have another couple of 

questions. 

I have always resisted this bill only because of the narrow interest of the States. Utah is only one of two shining stars in the country that don’t have any gambling. That has always been my concern about this particular bill. 

Let me ask, Mr. Ohr, dog racing interests have stated that section 1084(f) will give horse racing an unfair advantage over other 

89

forms of racing. Convenience stores have stated section 1084(f) or 

(d) will allow States to take their lotteries online. Do you agree 

with those two statements, that is, that it is unfair, not whether 

it would make horse racing legal, but——

Mr. OHR. We continue to oppose all forms of Internet gambling. 

I think I have made that general statement. 

Mr. CANNON. What about the lotteries and convenience stories 

and their concerns in particular? 

Mr. OHR. I would make the same statement. 

Mr. CANNON. Mr. Vallandingham, if I understand your testimony 

correctly, you are concerned this bill would burden you with trying 

to determine the purpose of electronic fund transfers, and that is 

a concern, right? 

Mr. VALLANDINGHAM. Yes, it is. Our transactions, check, ACH 

transactions are uncoded. We would not only have to determine 

whether it was illegal or legal but where it occurred and several 

other facets in determining whether it should be paid or not. 

Mr. CANNON. You talked a little about credit card transactions 

and the kind of coding they have, but ACH clearinghouse transactions, those are much harder for you to track. 

Mr. VALLANDINGHAM. Yes. We don’t collect that information on 

ACH transactions. They generally contain the routing number, the 

account number and the amount. Therefore, the payee is not 

known, and it is not tracked, and, as we identified earlier, identification of the payee is not enough to determine if this is a valid 

transaction. 

Mr. CANNON. Do you see that there would be a tendency for people to move away from these relatively traceable transactions? Do 

you see there is a tendency to move away to less traceable transactions like e-commerce transactions or foreign banking transactions? 

Mr. VALLANDINGHAM. If it was a criminalized activity, I think 

they would. Currently, I think that checks in ACH are not a predominant method of payment for these type of transactions, but I 

think most of the transactions occur through the credit and debit 

card industries. 

Mr. CANNON. If you track those, the ability for a person, even a 

very young person, committed to gambling by setting up a Paypal 

account or e-commerce transactions and maybe setting up a bank 

account offshore, that is not a very difficult thing to do for someone 

who has a compulsion. 

Mr. VALLANDINGHAM. That is correct; and I think those involved 

in the gaming industry would make that information readily available, making it that much easier. 

Mr. CANNON. In the few moments I have left, we had an earlier 

discussion—and I know you had to leave, Mr. Goodlatte—but I am 

deeply concerned about the idea that this debate becomes the predicate for a legal argument that transcends what we may have in 

our hearts and minds individually or as a body; and I think that 

issue is sort of enjoined again in my last question to Mr. Ohr. 

Would you like to respond to that? 

Mr. GOODLATTE. I very much would like to respond to that. As 

you know——

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Mr. COBLE. If Mr. Goodlatte would suspend just a moment. We 

are up against the wall on this. This vote is imminent, so, Bob, if 

you could be terse, I would appreciate that. 

Mr. GOODLATTE. Let me make one point very clear, and that is 

no matter what the outcome of the dispute between the horse racing industry and the Justice Department of another statute not a 

part of this legislation authorizes or doesn’t authorize, no matter 

how that turns out, it would still be illegal for Utah residents to 

bet on horse racing, so Utah could still prosecute no matter what 

the outcome was of that dispute between those parties. 

More to the broader question about this, we had this same legislation with some modification before this Committee 5 years ago, 

and if you make the perfect the enemy of the good, you can see exactly what happens. During those 5 years, offshore gambling, sucking billions of dollars out of this country, including from Utah residents, has quadrupled. 

Mr. CANNON. Mr. Chairman, may I make one comment in response? I appreciate that. 

Mr. COBLE. Very tersely. 

Mr. CANNON. We are looking at the issue of preemption. I think 

we decided last cycle it would preempt Utah law. I would like to 

work with you on that. 

Mr. GOODLATTE. We would very much like to work with you. 

Mr. CANNON. How we solve the larger pernicious problem is vital 

in the context of how we keep those places where we actually reject 

gambling pure. Thank you. 

Mr. COBLE. The gentleman’s time has expired. 

We have been joined by the distinguished gentleman from Ohio. 

Mr. Chabot, good to have you with us. 

I am going to recognize the distinguished gentlelady from Texas, 

Ms. Jackson Lee, but I want to say, Mr. Goodlatte, in your absence, 

Mr. Scott—and I don’t want to beat this race horse to death, but 

horse racing has attracted much attention in your absence. 

Ms. Jackson Lee. 

Ms. JACKSON LEE. We welcome him back. 

A lot of issues have gotten a lot of attention. 

Let me just recognize the good faith, Mr. Goodlatte, of this legislation but argue or at least make the provocative argument as to 

whether or not there are elements that we are not curing. For example, it comes to my attention—has come to my attention that an 

Internet gambling industry and prohibition thereof may prevent, or 

the way the legislation is written, gaming operations from 

verifying, one, the age of potential customers, identify problem 

gamblers, which I believe Mr. Kindt is interested in, and preventing the use for fraudulent activities. Your bill may, in fact, be 

standing in the way. 

Let me, as I pose those thoughts for you, suggest that H.R. 4777 

would require, as I understand, States that authorize Internet 

gambling within their borders to impose secure and effective customer ID and age verification systems to ensure compliance with 

age and residence requirements. But is it your understanding that 

such technology exists, technology that can reliably prevent minors 

from gambling on the Internet? 

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If I can finish my line of questioning, I heard Mr. 

Vallandingham—I didn’t have a question before—talk about the 

complication dealing with money laundering or banking scenarios 

which leads us from one pool of dirty water into other. If you might 

comment on that aspect of it. 

Then let me just say that it has also come to my attention, again, 

with the United Kingdom and Australia, they regulate their Internet gaming companies. For example, companies regulated in the 

United Kingdom reportedly must use special age verification software, record all bets, place caps on how much an individual can 

wager at a time and be subject to routine audits for fraud or money 

laundering. Might be interesting, Mr. Goodlatte, that we didn’t 

take that approach. Have you taken a look at these regulatory regimes and assessed their effectiveness in preventing underage use 

and abuse by problem gamblers and money launderers or of regulated gaming sites? 

I think we should look further to both of those nation states as 

to whether that has been an effective approach to take. 

Mr. GOODLATTE. Thank you, Congresswoman. Those are very 

good questions. 

To take the last one first, we have looked at what other countries 

have attempted to do, but the fact of the matter is, as we have all 

acknowledged here today, the way the Internet operates, it goes to 

the lowest common denominator. So the country that is going to 

regulate the least is the one where these sites are going to flock 

to. I think you will find that an attempt to regulate in the United 

States, where we have 50 different States, that each have different 

forms of regulations today would be an impossibility. 

With regard to your first question, also very good, we require 

States that might like to do this to be able to both verify age so 

that minors don’t gamble and verify that the person betting is inside the State when they do that. Neither of those technologies 

exist that are effective today; and notwithstanding what is said 

about what is done in Britain, they cannot effectively verify the age 

of the people placing bets online. 

So if that occurs and if that technology is there to satisfy other 

States and prosecutors that a State can contain it within their 

State, we don’t stop recognizing States have the right to regulate 

gambling as they always have, we don’t stop them here on the 

Internet, but they have to keep it contained within their State. 

Ms. JACKSON LEE. I guess I didn’t hear why we couldn’t go the 

route of Australia and the U.K., which seems to have some semblance of working. I don’t think I have heard clearly why we can’t 

go that route. 

I am going to let Mr. Vallandingham answer this question about 

how murky this gets for you, if you would, please, in terms of the 

assessment you have to make in the banking industry. 

Mr. VALLANDINGHAM. To make sure that I answer your question 

correctly, would you please indicate——

Ms. JACKSON LEE. What difficulties does the bill pose for you as 

presently drafted? I am reminded of an earlier hearing we had this 

week on sex activity with children on the Internet, and there was 

some kind of pay line they had to deal with. But I am asking specifically how does it impact you negatively. 

92

Mr. VALLANDINGHAM. First and foremost, our systems aren’t set 

up to be a payment monitoring system. So in order to do that there 

would be a required major overhaul of both the check clearing system and the ACH system and ultimately increase the cost to the 

banking industry and ultimately to the consumer in the long haul. 

Additionally, I think that the continued change in the way these 

sites would collect their payments would force us—it would be a 

moving target. We would continue to have to alter the systems, 

even if we were in some way able to make it work, so it would be 

continued overhead in the long haul. 

Additionally, it adds yet another layer of regulation in trying to 

assess these payments and determine whether they are valid or not 

valid and should we block them or not; and it would divert attention away from things that are being successful such as anti-money 

laundering and know your customer programs that ultimately help 

us keep the fight against terrorism being successful. 

Ms. JACKSON LEE. Mr. Chairman—and I thank you very much. 

Let me, if you would allow me, to conclude very briefly. 

Because I respect Mr. Goodlatte greatly. He knows that we have 

been dealing now with a series of events that included the former 

lobbyist, Mr. Abramoff, but I want to make sure as we are discussing anew, and I think it is important for you to state, are we 

free of the taint of the e-lottery debacle and writing in language or 

not writing in language or supporting this legislation or not supporting this legislation? Because my particular company or client 

that I am representing was not satisfied. Are we free of that now 

so whatever our position is on this bill, for or against it, that we 

don’t have this taint? I understand he was arguing about protection 

of State lotteries. We may still have that as an issue. But help us 

know that we are free of that taint as the legislation is before us. 

Mr. GOODLATTE. If I might have leave to respond to the 

gentlelady. 

Mr. COBLE. I hate to keep you on a short leash. I have been advised that there is a second Judiciary Subcommittee hearing that 

will commence at 4:00, so we have to wrap up. 

Proceed, Mr. Goodlatte. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. 

Mr. GOODLATTE. Ms. Jackson Lee, first of all, thank you. You 

have been dedicated to working on this issue. You have been working with me on this issue, and I very much appreciate that. 

I will say I think it is very important Members of Congress address the fact this legislation was derailed several years ago because of misrepresentations by the legislation made by Mr. 

Abramoff and others, and I think it is very important that we address it now and we address it as thoroughly and responsibly as 

we can. That is the effort we have made with this legislation. I 

think it is very good and goes a long way to address any problem, 

but we are going to work with other Members to make sure we are 

getting it right and make sure this Congress is not pulled down by 

misrepresentations by lobbyists about the nature of the legislation. 

Ms. JACKSON LEE. I thank the gentleman. I yield back. 

Mr. COBLE. Thank the gentlelady. 

Mr. Scott and I have one remaining question. 

Mr. Vallandingham—am I getting better, Mr. Vallandingham? 

93

Mr. VALLANDINGHAM. Getting better. 

Mr. COBLE [continuing]. Is it your belief that Mr. Goodlatte’s bill 

creates criminal penalties for banks and/or financial institutions? 

Mr. VALLANDINGHAM. It is my understanding that it would create 

criminal penalties for anybody who facilitated those payments. So 

I would say yes. 

Mr. COBLE. Mr. Goodlatte, I was thinking that the civil penalties 

were only directed at gambling businesses. Now do you want to address that, Mr. Goodlatte? 

Mr. GOODLATTE. Yes, I would very much welcome the opportunity to address that and assure the members of the banking industry that there are no criminal penalties that apply to banks. 

The fact of the matter is that this is directed at the gambling institutions, and the only authority that is provided to law enforcement 

with regard to any financial institution is the right to seek civil injunctive relief. 

Mr. COBLE. How about civil penalties against banks or lending 

institutions? 

Mr. GOODLATTE. Only under what is already in existence under 

laws related to failure to comply with injunctions that might be approved by a court after they are approached by a law enforcement 

agency that says that somebody is in violation of the law and they 

want them enjoined from——

Mr. COBLE. Mr. Vallandingham, when you return to West Virginia, will this cause you to sleep more soundly at night after hearing that? 

Mr. VALLANDINGHAM. No, it won’t. Because the bill doesn’t define 

gambling business other than to say the business of betting and 

wagering. Other statutes use similar terms, having construed to include within its scope anyone that conducts a gambling business if 

that person performs any act, duty or function which is necessary 

or helpful in operating the enterprise. This includes waitresses and 

other servers, even if they weren’t paid. It included custodians, 

telephone clerks and doormen, also bookkeepers and secretaries. 

So, clearly, a bank can be viewed as necessary or helpful to an 

Internet gambling enterprise. No bank acting prudently could ignore that risk. 

Mr. COBLE. This will be for another day. 

I know Mr. Scott has a question, and 4 is imminent. So, Mr. 

Scott. 

Mr. SCOTT. Let me just pose the question, and we can get the information in due course. I wanted more information on how a State 

could—if a State wanted to—if Nevada wanted to legalize gambling 

on the Internet, how would that work? If you have information on 

that. 

Also, if you are aware of identification processes where a person 

over the Internet can be identified as the person who is over 21 

and possibly where their residence happens to be. 

Mr. GOODLATTE. Mr. Scott, thank you. 

As I have indicated earlier, we don’t believe that such technology 

exists today. So while the legislation would recognize the rights of 

States to continue to regulate gambling, including gambling on the 

Internet, unless they can meet those two criteria of being able to 

94

identify where the person is placing the bet and whether or not 

they are a minor, they will not be able to proceed. 

If that technology is developed in the State of Nevada or some 

other State wanted to proceed to do that, they would proceed to do 

that; and if some other State believed they were not using technology adequate to that purpose, then they would seek the remedies under this legislation to establish that they should be enjoined from doing that. 

Mr. COBLE. I thank the gentleman. 

Mr. Goodlatte, you were chomping at the bit. I didn’t want to cut 

you off. Did you want to be heard one final minute in response to 

Mr. Vallandingham? 

Mr. GOODLATTE. Only to ensure him that the intent of this legislation is not to put banks in the situation he described, and we are 

more than happy to work with his association to accomplish that 

goal. 

As the gentleman knows, another piece of legislation similar but 

operating somewhat differently in its effect passed the financial 

services industry and is headed to the floor of the Congress. We 

want to make sure that these two pieces of legislation are made 

harmonious and in the process are as friendly to the banking industry as we possibly could make it. 

Mr. COBLE. This has been a productive hearing, and I thank the 

witnesses and I thank those in the audience who have very patiently endured the time with us. 

We thank you for your testimony, gentlemen, and in order to ensure a full record and adequate consideration of this important 

issue, the record will be left open for additional submissions for 7 

days. Also, any written questions that a Member wants to submit 

to the witnesses should be submitted within that same 7-day period. 

This concludes the legislative hearing on H.R. 4777, the ‘‘Internet 

Gambling Prohibition Act of 2006.’’ We thank you for your cooperation and attendance, and the Subcommittee stands adjourned. 

[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.] 

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MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE ROBERT C. SCOTT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA, AND RANKING MEMBER, SUBCOMMITTEE

ON CRIME, TERRORISM, AND HOMELAND SECURITY

Thank you, Mr. Chairman. I am pleased to join you in convening this hearing regarding federal regulation of gambling over the Internet. I believe that all gambling 

should be tightly regulated. It has traditionally been, primarily, a state regulatory 

responsibility. It should continue to be so, in my judgment, although it is appropriate for the federal government to have a role to assist states in the total regulatory scheme. 

The federal government undertook such a role in passing the 1961 Wire Communications Act as a way to assist in the fight against gambling by organized crime 

syndicates. The Department of Justice contends that it can prosecute Internet gambling businesses under that law, but, clearly, that law was not designed with Internet gambling in mind. While I appreciate the desire of my colleague, the gentleman 

from Virginia, to update the ability of the Department to address illegal gambling 

in today’s context, I do not believe that H.R. 4777 is likely to be effective in doing 

so. Regulating anything on the Internet is problematic, even where desirable. Most 

law enforcement is jurisdiction dependent. The Internet has no jurisdiction and, as 

a result, I suspect that even if we are successful in closing down business sites in 

the United States or in countries that we can get to cooperate, because of the nature 

of the Internet, and the ingenuity of persons using it, the approach in H.R. 4777 

will be, ultimately, ineffective. As we will hear from our witness panel, this bill will 

create an enforcement nightmare for the financial institutions it requires to look for 

and stop illegal internet gambling transactions. Identifying Internet gambling activities will be very difficult if not impossible. While some companies may be able 

to identify some gaming transactions by the codes used, such enforcement efforts 

can be easily thwarted. A business may have one code for payment purposes but 

may engage in several activities, including Internet gambling. Caesar’s Palace could 

have a hotel and a gaming operation or a foreign company could have a hotel and 

a casino that could be paid as a single account over the Internet. Or, an e-cash or 

electronic payment system, or any escrow agent can relocate in another country and 

thereby evade the enforcement mechanism in this bill, or even domestically. All the 

bank knows is that the payment came from ‘‘PayPal’’. And with some Internet gaming activities being legal, how would a financial institution distinguish between 

them and illegal activities? 

Further, we should not overestimate the cooperation we will get from other countries. According to Christiansen Capital Advisors, Internet gambling websites 

brought in $14.71 billion worldwide last year, which is up from $8 billion the year 

before. This number is expected to almost double to an expected $24 billion by 2010. 

Presently, over 85 foreign governments allow some form of gambling online, and 

that number is likely to grow, as well. So what governments are likely to cooperate 

with us in prosecuting businesses they authorize to operate? And even if we are successful in getting cooperation from some countries, we would simply be increasing 

the profit opportunities for uncooperative countries, especially those with whom the 

United States does not have normal diplomatic relations. 

This bill does not prohibit internet gambling; it prohibits running the operation. 

If we wanted to be effective in prosecuting illegal gambling over the Internet, we 

would prosecute individual gamblers. A few sting operations would get the word out 

that if you gamble over the Internet, you are at the mercy of law enforcement, because you leave a trail they can follow. So long as individuals can gamble over the 

Internet with impunity, a market will be provided for them which the regulatory 

96

scheme in this bill will not be able stop. For example, we prohibit sales of illegal 

drugs but we see that as long as there remains a demand for drugs, we only have 

limited success in the war on drugs. If we took the approach of this bill in enforcing 

drug laws, we would be prosecuting the seller but not the buyer, and have even less 

effect than we have now. 

Since we are not talking about prohibiting Internet gambling but simply prohibiting the operation of internet gambling sites in jurisdictions the FBI can get to, I 

believe that there are more effective regulatory approaches than the approach offered by H.R. 4777. However, the approaches must be developed, taking into account 

the technology, state policies with respect to gambling, and Internet gambling practices and preferences. This was the effect of the bill authored by full Committee 

Ranking Member Conyers last Congress, H.R. 1223. It established a Commission 

that would study the issue and made recommendations for a regulatory environment for Internet gambling that would be controlled by individual states. States do 

tend to prohibit individuals from gambling, so Internet gambling can be both effective and individualized to each state. Under the bill’s regulatory scheme, if Nevada 

opted to allow Internet gambling within its borders, it could. If Utah prohibited individuals in that state from gambling over the Internet, it could and that would be 

enforceable by the federal government, by the states that allow gambling as well 

as by the state of Utah because in the fullness of time, a gambler could be required 

to provide a mailing address in order to get paid. 

And if protecting the public is a goal of regulating Internet gambling, it is much 

more likely that those who chose to gamble over the Internet will do so through a 

licensed, regulated entity under the Conyers approach than under H.R. 4777. First, 

a consumer in a state where Internet gambling is legal will have confidence that, 

if they win, they will get paid by the licensed, regulated operation. A consumer 

would have no similar confidence in ‘‘fly-by-night-off-shore-casino.com’’. So, a likely 

result from licensed regulated Internet gaming entities would be to drive less reputable businesses, who do not abide by the law, out of business. 

Another significant result is that states that chose to authorize Internet gambling 

can tax it. At a time when unauthorized Internet gambling is flourishing (over $14 

billion dollars with half of it originating in the U.S.), and when most states are cash 

strapped, those states that have already chosen to authorize regulated gambling 

could receive much needed revenues from both the operators and winners, while 

contributing to the control of the industry and protections to the gambling public. 

The overwhelming portion of those who play the numbers buy legal lottery tickets 

which are regulated and taxed and actually pay lower odds compared to illegal numbers operations. For the same reasons, people who choose to gamble over the Internet will patronize legal domestic websites, even if they have to pay taxes on 

winnings. I believe we should regulate Internet gambling, but we should do it effectively. And we should not subject any single business sector to sole or principle responsibility for doing the bulk of the enforcement work, whether it is the banking 

industry, as in this bill, or the Internet service industry, as we tried in prior bills. 

There are ways to regulate Internet gambling effectively, and a study Commission 

to develop those ways is the best way to come up with them. Again, I thank you, 

Mr. Chairman, for holding this hearing and look forward to hearing the testimony 

of the witnesses.

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RESPONSE TO POST-HEARING QUESTIONS FROM BRUCE G. OHR, CHIEF OF THE ORGANIZED CRIME AND RACKETEERING SECTION, UNITED STATES DEPARTMENT OF JUSTICE


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RESPONSE TO POST-HEARING QUESTIONS FROM THE HONORABLE WILLIAM E. 

MOSCHELLA, ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGISLATIVE AFFAIRS, 

UNITED STATES DEPARTMENT OF JUSTICE, FOR THE APRIL 29, 2003 HEARING ON

H.R. 21, THE ‘‘UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION ACT’’


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PREPARED STATEMENT OF JOHN A. PHILLIPS, CEO, ARISTOTLE INTERNATIONAL

‘‘Law enforcement and consumer protection agencies as well as industry self-regulatory bodies have long recognized the need for rapid online identity verification for 

Patriot Act and anti-money laundering compliance, fraud prevention and risk mitigation involving age-restricted products such as tobacco, alcohol, pharmaceuticals, 

video games and mature content. 

The private sector is responding to mounting public pressure in an increasingly 

socially responsible manner by deploying reliable state-of-the-art technology that effectively addresses this important need. 

According to Forbes Magazine, Aristotle’s INTEGRITY verification service is the 

market leader in online identity and age verification technology. INTEGRITY is utilized today by global Fortune 1000 enterprises that are required by law or best-practices professional codes of conduct to identify individuals requesting permission to 

enter a facility, a website, open an account or conduct certain transactions online. 

Institutions relying on INTEGRITY include more than 350 of the nation’s largest 

financial services companies, government agencies and airport security authorities, 

wineries, distillers, makers of premium cigars, video game publishers and major motion picture studios. 

The Federal Trade Commission and other governmental agencies have urged that 

reliable state-of-the-art methodologies available on the market be deployed to protect children from accessing promotions intended only for adults. In its 2003 report 

to Congress on the marketing of beverage alcohol products, the FTC pointed to the 

emergence of online methods, and Aristotle’s service in particular, as addressing 

this public need. (See FTC Report to Congress: Alcohol Marketing and Advertising

September 2003). 

Aristotle’s INTEGRITY verification technology is a logical response to the acute 

need of responsible marketers for reliable, robust and commercially reasonable protective screening. 

INTEGRITY today is utilized, for example, to comply with the multi-state Tobacco 

Master Settlement Agreement provisions that prohibit marketing to minors. The 

service exceeds the strict standards of such laws for online age-verification as California’s Business and Professions Code § 22963, and Virginia Code § 18.2–246.8, governing online tobacco sales. Since adoption, not one INTEGRITY service client has 

ever been found to have improperly marketed a tobacco product to a minor. 

The major motion picture studios also use INTEGRITY to comply with the Motion 

Picture Association of America (MPAA) guidelines for restricting minors’ online access to studio promotions with ‘‘R’’ rated content. Blocking underage teens from purchasing tobacco online is another important value. The Campaign for Tobacco-Free 

Kids (http://tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=425) presents the urgency of this issue on its website. 

Vendors in the beverage alcohol business use INTEGRITY as well. In the new era 

of direct wine shipments, for example, online age verification is an essential component for compliance and responsible marketing across the United States. Without 

a service such as INTEGRITY, Members of Congress, and the general public would 

not be able to purchase fine cigars or quality wine, purchase lottery tickets or an 

R-rated movie by mail, by telephone or online. 

In the United Kingdom, INTEGRITY is widely used by licensed casino operators 

to comply with the strict UK requirements for age verification online. 

In addition to the risk mitigation and child protection benefits of age and identity 

verification, INTEGRITY will benefit those individuals who acknowledge that they 

are problem gamblers and wish to avoid relapse, or who, for whatever reason, do 

not wish to be solicited for products or services that are potentially harmful or personally offensive. At the INTEGRITY web site, individuals will be able to put their 

own names on a confidential list of those who do not wish to be solicited or allowed 

to open an account with a casino. 

Many states have enacted legislation enabling each gaming venue to maintain a 

list of individuals who have identified themselves as problem gamblers. The problem 

is that there are many forms of gaming available, each with its own regulatory 

agency and there is currently no coordination among or between them. Some of the 

regulations are written in such a way that in Nevada, for instance, you have to register in person at every single casino where you may want to be blocked from temptation. 

Leaving aside the irony of sending people to the very places they are trying to 

avoid, with hundreds of casinos in Clark County alone you’d have to visit several 

per day every day to achieve comprehensive coverage—and then start over to find 

the new casinos that had been built in the interim 

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Aristotle is working on a proposal with the National Council on Problem Gambling, the national non-profit advocate for programs to assist problem gamblers and 

their families, to enhance INTEGRITY’s ability to address this problem. The proposed program would deploy current technology to allow individuals to voluntarily 

place their names on a self-exclusion master list—one time, at a single web site, 

rather than having to seek out hundreds of separate sites or physical locations. 

The list would be strictly confidential, and the names would not be disclosed to 

anyone. Individuals could remove their names from the list after a minimum period. 

Should someone whose name is on the list attempt to open an account with a merchant in the gambling industry, INTEGRITY would not return a match (approval) 

code to the merchant. The reason for the non-return of the match code would not 

be specified to the merchant. 

In their determination to comply with the law, market responsibly, and meet best 

practice standards, a rapidly growing number of enterprises across a broad spectrum of commerce and government use Aristotle’s INTEGRITY solution. 

In its simplest terms, the case for robust ID authentication has never been more 

apparent, urgent or efficient, thanks in large part to the capabilities of Aristotle 

International’s online service, INTEGRITY.’’

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PREPARED STATEMENT OF KOBUS PAULSEN, CHIEF EXECUTIVE, UC GROUP


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LETTER TO THE HONORABLE HOWARD COBLE FROM THE HONORABLE BOB GOODLATTE


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LETTER TO THE HONORABLE BOB GOODLATTE FROM WENDY WRIGHT, PRESIDENT, 

CONCERNED WOMEN FOR AMERICA


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LETTER TO THE HONORABLE BOB GOODLATTE FROM PETER BRANDT, SENIOR

DIRECTOR, GOVERNMENT & PUBLIC POLICY, FOCUS ON THE FAMILY


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LETTER TO THE HONORABLE BOB GOODLATTE FROM PHYLLIS SCHLAFLY, PRESIDENT, 

THE EAGLE FORUM


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LETTER TO THE HONORABLE BOB GOODLATTE FROM RICHARD D. LAND, PRESIDENT, 

THE ETHICS & RELIGIOUS LIBERTY COMMISSION


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LETTER TO THE HONORABLE BOB GOODLATTE FROM DR. GUY C. CLARK, CHAIRMAN

OF THE BOARD OF DIRECTORS, THE NATIONAL COALITION AGAINST GAMBLING EXPANSION


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PRESS RELEASE: FAMILY RESEARCH COUNCIL, DATED FEBRUARY 16, 2006


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PRESS RELEASE: CHRISTIAN COALITION OF AMERICA, DATED FEBRUARY 15, 2006


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LETTER FROM A COALITION OF ORGANIZATIONS IN SUPPORT OF H.R. 4777


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NEWS ARTICLE FROM THE HILL, ENTITLED ‘‘ABRAMOFF GETS PAYBACK IN GAMING

BILLS,’’ DATED MARCH 29, 2006


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TRANSCRIPT OF SPEAKERS FROM THE NATIONAL THOROUGHBRED RACING ASSOCIATION

AT THE 28TH ANNUAL SYMPOSIUM ON RACING


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Æ


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