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[House Report 110-910]
[From the U.S. Government Publishing Office]

110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-910

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

 
                 PAYMENTS SYSTEM PROTECTION ACT OF 2008

                                _______
                                

October 3, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6870]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 6870) to ensure that implementation of proposed 
regulations under subchapter IV of chapter 53 of title 31, 
United States Code, does not cause harm to the payments system, 
and for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     3
Hearings.........................................................     5
Committee Consideration..........................................     6
Committee Votes..................................................     6
Committee Oversight Findings.....................................     7
Performance Goals and Objectives.................................     7
New Budget Authority, Entitlement Authority, and Tax Expenditures     7
Committee Cost Estimate..........................................     8
Congressional Budget Office Estimate.............................     8
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Constitutional Authority Statement...............................    10
Applicability to Legislative Branch..............................    10
Earmark Identification...........................................    10
Dissenting Views.................................................    12

                               AMENDMENT

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Payments System Protection Act of 
2008''.

SEC. 2. PROHIBITION.

  (a) In General.--The Secretary of the Treasury and the Board of 
Governors of the Federal Reserve System, whether acting jointly or 
separately, may not propose, prescribe, or implement any regulation 
under subchapter IV of chapter 53 of title 31, United States Code, or 
otherwise give effect to such subchapter or any such regulation, 
including the proposed regulations published in the Federal Register on 
October 4, 2007, except to the extent as any such regulation pertains 
to unlawful Internet sports gambling or except as provided in section 
3.
  (b) Interim Final Regulations on Unlawful Internet Sports Gambling.--
Before the end of the 60-day period beginning on the date of the 
enactment of this Act, the Secretary and the Board of Governors of the 
Federal Reserve System, in consultation with the Attorney General, 
shall jointly prescribe interim final regulations as required by 
subchapter IV of chapter 53 of title 31, United States Code, to the 
extent that such regulations pertain to unlawful Internet sports 
gambling.
  (c) Unlawful Internet Sports Gambling Defined.--
          (1) In general.--For purposes of this Act, the term 
        ``unlawful Internet sports gambling'' means bets or wagers 
        placed over the Internet on a lottery, sweepstakes, or other 
        betting, gambling, or wagering scheme based, directly or 
        indirectly (through the use of geographical references or 
        otherwise), on 1 or more competitive games in which amateur or 
        professional athletes participate, or are intended to 
        participate, or on 1 or more performances of such athletes in 
        such games.
          (2) Exception.--For purposes of paragraph (1), the term 
        ``competitive games in which amateur or professional athletes 
        participate'' does not include events described in section 3704 
        of title 28, United States Code (parimutuel animal racing or 
        jai-alai games).
  (d) Treasury List of Unlawful Internet Sports Gambling Businesses.--
No regulations under subsection (a) to implement the requirements of 
section 5364 of title 31, United States Code, shall be effective unless 
such regulations--
          (1) require the Secretary of the Treasury to compile and 
        maintain a list of unlawful Internet sports gambling 
        businesses; and
          (2) do not require any person to block or refuse to honor any 
        transaction, or prohibit the acceptance of any product or 
        service of such person, other than in connection with a 
        business on the list maintained by the Secretary.

SEC. 3. RULEMAKING TO IMPLEMENT SUBCHAPTER ON PROHIBITION ON FUNDING OF 
                    UNLAWFUL INTERNET GAMBLING AND DEFINE UNLAWFUL 
                    INTERNET GAMBLING.

  (a) In General.--Notwithstanding section 2, the Secretary of the 
Treasury and the Board of Governors of the Federal Reserve System, in 
consultation with the Attorney General, shall jointly develop and 
implement regulations (which the Secretary and the Board jointly 
determine to be appropriate), on the record after opportunity for 
agency hearing involving an administrative law judge or similar 
official, under subchapter IV of chapter 53 of title 31, United States 
Code, that shall include a definition of the term ``unlawful Internet 
gambling'' for purposes of such subchapter and such regulations, after 
conducting a full economic impact study of the proposed regulations 
under chapter 6 of title 5, United States Code (commonly referred to as 
the ``Regulatory Flexibility Act'').
  (b) Treasury List of Unlawful Internet Gambling Businesses.--No 
regulations under subsection (a) to implement the requirements of 
section 5364 of title 31, United States Code, shall be effective unless 
such regulations--
          (1) require the Secretary of the Treasury to compile and 
        maintain a list of unlawful Internet gambling businesses; and
          (2) do not require any person to block or refuse to honor any 
        transaction, or prohibit the acceptance of any product or 
        service of such person, other than in connection with a 
        business on the list maintained by the Secretary.
  (c) Coordination With Prohibition.--Upon the effective date of final 
regulations under subsection (a), section 2 shall cease to apply.

                          PURPOSE AND SUMMARY

    H.R. 6870, ``The Payments System Protection Act of 2008,'' 
requires the Federal Reserve and Department of the Treasury to 
issue an interim final rule under the Unlawful Internet 
Gambling Enforcement Act within 60 days of enactment. The 
interim final rule applies only to sports betting, and would 
require Treasury to compile and maintain a list of internet 
sports gambling businesses to which funds could not be 
transferred.
    The legislation also establishes a formal rulemaking 
process (with on the record hearings) to determine the 
definition of ``unlawful internet gambling.'' It also adds a 
new requirement that Treasury compile and maintain a list of 
unlawful internet gambling businesses.
    The bill also prohibits the regulators from issuing or 
finalizing any regulations under the Unlawful Internet Gambling 
Enforcement Act (UIGEA), other than these interim final 
regulations on sports or through the formal rulemaking process.

                  BACKGROUND AND NEED FOR LEGISLATION

    The U.S. government has faced profound difficulties in 
preventing people from engaging in online gambling, which the 
Justice Department has deemed to be illegal from the earliest 
days of the Internet. The Department of Justice interprets the 
1961 Wire Act to prohibit all online interstate betting, 
regardless of type, notwithstanding that the only federal 
appellate court to consider the issue has ruled that the Wire 
Act prohibits sports gambling online but does not prohibit non-
sports online gambling.\1\ Although the Justice Department 
chose not to appeal that case, it continues to take the 
position that all online gambling in the U.S., regardless of 
type, is prohibited by the Wire Act if the wager crosses state 
borders.
---------------------------------------------------------------------------
    \1\In re Mastercard, 313 F. 3d 257, 262-263 & n. 20 (5th Cir. 2002) 
(``[A] plain reading of the statutory language [of the Wire Act] 
clearly requires that the object of the gambling be a sporting event or 
contest.'').
---------------------------------------------------------------------------
    In 2006, Congress enacted the UIGEA, which restricts the 
use of the payments system for U.S. citizens who seek to gamble 
online. The UIGEA requires the Fed and Treasury to issue 
regulations to cover financial institutions. The law required 
these regulations to be in effect by July 10, 2007. The 
proposed rules were issued on October 4, 2007, and the comment 
period ended December 12, 2007.
    During subcommittee testimony in April 2008, the regulators 
and the industry made it clear that the pending proposed 
regulations are unworkable. On April 10, Chairman Frank 
introduced legislation, H.R. 5767, which would prohibit their 
implementation. The current bill, H.R. 6870, which would 
transition the current rulemaking process to a formal 
rulemaking process and clarify the definition of ``unlawful 
internet gambling,'' is very similar to a Peter King of New 
York amendment which was offered during the Committee markup of 
H.R. 5767 on June 24th. The King amendment failed on a 32-32 
tie vote, and then the motion to order the underlying bill 
reported failed on a voice vote.
    The proposed regulations, like the underlying legislation, 
fail to define the term ``unlawful internet gambling,'' leaving 
it to each financial institution to reconcile conflicting state 
and federal laws, court decisions and inconsistent Department 
of Justice interpretations, when determining whether to process 
a transaction. Furthermore, some of the information needed to 
make this determination would generally be unavailable to banks 
because customers or financial institutions in foreign 
jurisdictions will likely be unwilling or unable to provide it. 
At the hearing, representatives from the regulatory agencies 
themselves admitted that there are serious problems in crafting 
regulations to implement the UIGEA in a manner that does not 
have a substantial adverse effect on the efficiency of the 
nation's payment systems.

Some common concerns

     Failure to define ``unlawful internet gambling,'' 
and ``restricted transaction.'' The proposed regulation states 
that a transaction is considered unlawful if it ``is unlawful 
under any applicable Federal or State law in which the bet or 
wager is initiated, received or otherwise made.'' As indicated 
above, the Department of Justice currently applies the Wire Act 
more broadly than some district courts and the Fifth Circuit 
Court of Appeals. Furthermore, the UIGEA specifically exempts 
three categories of transactions from the general definition of 
``unlawful internet gambling,'' (i) intrastate transactions; 
(ii) intratribal transactions; and (iii) interstate horseracing 
transactions (any activity that is allowed under the Interstate 
Horseracing Act of 1978 (IHA), 15 U.S.C. 3001, et seq.). 
However, while the UIGEA excludes these transactions from the 
definition of ``unlawful internet gambling'' the Department of 
Justice has taken the position that the IHA does not alter the 
criminal statutes prohibiting such transmission of bets or 
wagers. Finally, the UIGEA contains a Sense of the Congress 
provision that preserves this ambiguity, indicating that this 
subchapter ``is not intended to resolve any existing 
disagreements over how to interpret the relationship between 
the Interstate Horseracing Act and other Federal statutes.''\2\ 
This puts every financial institution in the position of 
choosing between conflicting statutory interpretations.
---------------------------------------------------------------------------
    \2\331 U.S.C. 5362(10)(D)(iii)
---------------------------------------------------------------------------
     OFAC-type lists. Many commenters have said that a 
government-established and -maintained list of unlawful 
internet gambling businesses would be a helpful resource for 
the purpose of identifying and preventing restricted 
transactions, and some requested a safe harbor to accompany 
such a list. While the agencies indicated that it would be 
difficult to compile and update, most commenters indicated that 
individual institutions would be forced to create their own, 
less reliable and less comprehensive lists.
     ``Knowledge'' standard. The regulation requires 
certain policies and procedures (which may include closing the 
customer's account or severing the relationship with the 
customer) if an institution ``becomes aware'' that a customer 
is processing a restricted transaction or if a foreign bank is 
``found to have'' engaged in restricted transactions. 
Commenters have argued for an ``actual knowledge'' standard, 
which is less vague than the proposed terminology.
     Implementation period. Most commenters indicate 
that the six month implementation period is insufficient, and 
should be extended to 24 months after publication of the final 
rule to allow for the amending of existing agreements.
     Additional payment system exemptions. Some 
commenters requested that ACH, wire transfers and check 
collection systems be completely exempt from the regulations. 
Cross-border implementation issues will encounter significant 
difficulties. Unlike card transactions, these payment systems 
do not have codes to indicate the type of transaction, and 
given that internet gambling is legal in many foreign 
jurisdictions, cooperation by correspondent banks may be 
problematic within their own jurisdictions.
     Regulatory Flexibility Act. The Small Business 
Administration's Advocacy Office, which has the statutory 
responsibility to ensure agency compliance with the Regulatory 
Flexibility Act, submitted a comment that the agencies have not 
properly analyzed the economic impact of the proposed rule on 
small businesses, and should revise the analysis to consider 
potential legal fees and training costs, as well as less 
burdensome alternatives and exemptions. Finally, under RFA the 
agencies have an obligation to determine if there are any 
duplicative, overlapping, or conflicting federal rules, rather 
than shifting this burden to commenters. SBA sent a written 
statement to Treasury and the Fed which concluded:
           that the agencies did not disclose the 
        totality of the cost estimates to the public and that 
        the cost estimates did not include all relevant costs,
           that the agencies failed to give attention 
        to exercising their legal authority to exempt small 
        entities from the proposed rule, and
           the agencies should revise the Initial 
        Regulatory Flexibility Analyses and send it out for 
        public comment.
     Paperwork Reduction Act. In its comment letter, 
the Center for Regulatory Effectiveness argued that the 
proposed rule's failure to define ``restricted transaction'' in 
its delegation to the banks of the responsibility for 
determining what is and isn't ``unlawful Internet gambling'' is 
a de facto labeling requirement under the Paperwork Reduction 
Act, as payment processors would be required to electronically 
``label'' transactions as restricted or unrestricted. If it is 
determined that a proposed rule contains a labeling 
requirement, it faces a higher threshold for approval by OMB.
    When an agency proposes a rule that would require 
individuals or companies to retain records, it is considered an 
Information Collection Request (ICR), which has to be approved 
and assigned a tracking number by the Office of Management and 
Budget to show that it is compliant with the Paperwork 
Reduction Act.
    In a memo from OMB to Treasury, OMB refused to approve 
Treasury's ICR or assign it a tracking number, because Treasury 
hadn't adequately addressed the PRA issues raised by CRE. This 
memo was posted on OMB's web site in February, but at some 
point before the hearing on UIGEA in April, it was taken down 
with no explanation.

                                HEARINGS

    The Subcommittee on Domestic Monetary Policy, Trade and 
Technology held a hearing on April 2, 2008 on ``Proposed UIGEA 
Regulations: Burden without Benefit?'' The following witnesses 
testified:

Panel one

     Ms. Louise L. Roseman, Director, Division of 
Reserve Bank Operations and Payment Systems, Board of Governors 
of the Federal Reserve System.
     Ms. Valerie Abend, Deputy Assistant Secretary for 
Critical Infrastructure Protection and Compliance Policy, U.S. 
Department of the Treasury.

Panel two

     Ms. Harriet May, President and Chief Executive 
Officer, GECU of El Paso, Texas on behalf of the Credit Union 
National Association.
     Mr. Wayne A. Abernathy, Executive Vice President, 
Financial Institutions Policy and Regulatory Affairs, American 
Bankers Association.
     Mr. Leigh Williams, BITS President, The Financial 
Services Roundtable.
     Mr. Ted Teruo Kitada, Senior Company Counsel, 
Legal Group, Wells Fargo & Co.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
September 16, 2008, and ordered H.R. 6870, the ``Payment System 
Protection Act,'' as amended, favorably reported by a roll call 
vote of 30 yeas and 19 nays.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Frank to report the bill, as amended, to the 
House with a favorable recommendation was agreed to by a record 
vote of 30 yeas and 19 nays (Record vote no. FC-121). The names 
of Members voting for and against follow:

                                             Record Vote No. FC-121
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................        X   ........  .........  Mr. Bachus.......  ........        X   .........
Mr. Kanjorski..................        X   ........  .........  Ms. Pryce (OH)...        X   ........  .........
Ms. Waters.....................        X   ........  .........  Mr. Castle.......  ........        X   .........
Mrs. Maloney...................  ........  ........  .........  Mr. King (NY)....        X   ........  .........
Mr. Gutierrez..................        X   ........  .........  Mr. Royce........  ........        X   .........
Ms. Velazquez..................        X   ........  .........  Mr. Lucas........  ........        X   .........
Mr. Watt.......................        X   ........  .........  Mr. Paul.........  ........  ........  .........
Mr. Ackerman...................        X   ........  .........  Mr. LaTourette...  ........        X   .........
Mr. Sherman....................        X   ........  .........  Mr. Manzullo.....  ........  ........  .........
Mr. Meeks......................  ........        X   .........  Mr. Jones........  ........        X   .........
Mr. Moore (KS).................        X   ........  .........  Mrs. Biggert.....        X   ........  .........
Mr. Capuano....................        X   ........  .........  Mr. Shays........        X   ........  .........
Mr. Hinojosa...................  ........  ........  .........  Mr. Miller (CA)..  ........  ........  .........
Mr. Clay.......................  ........  ........  .........  Mrs. Capito......  ........        X   .........
Mrs. McCarthy..................        X   ........  .........  Mr. Feeney.......  ........  ........  .........
Mr. Baca.......................        X   ........  .........  Mr. Hensarling...  ........        X   .........
Mr. Lynch......................        X   ........  .........  Mr. Garrett (NJ).  ........        X   .........
Mr. Miller (NC)................  ........  ........  .........  Ms. Brown-Waite..  ........        X   .........
Mr. Scott......................  ........        X   .........  Mr. Barrett (SC).  ........        X   .........
Mr. Green......................  ........  ........  .........  Mr. Gerlach......        X   ........  .........
Mr. Cleaver....................        X   ........  .........  Mr. Pearce.......  ........        X   .........
Ms. Bean.......................        X   ........  .........  Mr. Neugebauer...  ........  ........  .........
Ms. Moore (WI).................        X   ........  .........  Mr. Price (GA)...  ........  ........  .........
Mr. Davis (TN).................  ........  ........  .........  Mr. Davis (KY)...  ........        X   .........
Mr. Hodes......................  ........  ........  .........  Mr. McHenry......  ........  ........  .........
Mr. Ellison....................        X   ........  .........  Mr. Campbell.....  ........        X   .........
Mr. Klein......................        X   ........  .........  Mr. Putnam.......  ........        X   .........
Mr. Mahoney (FL)...............  ........  ........  .........  Mrs. Bachmann....  ........        X   .........
Mr. Wilson.....................        X   ........  .........  Mr. Roskam.......  ........        X   .........
Mr. Perlmutter.................        X   ........  .........  Mr. Marchant.....  ........  ........  .........
Mr. Murphy.....................        X   ........  .........  Mr. McCotter.....  ........  ........  .........
Mr. Donnelly...................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Foster.....................        X   ........  .........  Mr. Heller.......        X   ........  .........
Mr. Carson.....................  ........  ........  .........
Ms. Speier.....................  ........  ........  .........
Mr. Cazayoux...................        X   ........  .........
Mr. Childers...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    During the consideration of the bill, the following 
amendment was considered:
    An amendment in the nature of a substitute by Mr. Frank, 
No. 1, making various technical and substantive changes, was 
agreed to by a voice vote.

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 6870 requires the Federal Reserve and Department of 
the Treasury to issue an interim final rule under the Unlawful 
Internet Gambling Enforcement Act within 60 days of enactment. 
The interim final rule applies only to sports betting, and 
would require Treasury to compile and maintain a list of 
internet sports gambling businesses to which funds could not be 
transferred. The legislation also establishes a formal 
rulemaking process (with on the record hearings) to determine 
the definition of ``unlawful internet gambling.'' It also adds 
a new requirement that Treasury compile and maintain a list of 
unlawful internet gambling businesses. The bill also prohibits 
the regulators from issuing or finalizing any regulations under 
the Unlawful Internet Gambling Enforcement Act (UIGEA), other 
than these interim final regulations on sports or through the 
formal rulemaking process.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                                September 29, 2008.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6870, the Payments 
System Protection Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
Gramp.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

H.R. 6870--Payments System Protection Act of 2008

    Summary: H.R. 6870 would amend existing law regarding 
federal regulation of Internet gambling. It would suspend 
certain restrictions on such activities until the Department of 
the Treasury and the Board of Governors of the Federal Reserve 
develop new regulations based on the terms and conditions 
outlined in the bill. H.R. 6870 would add a statutory 
definition of ``unlawful Internet sports gambling,'' require 
the regulators to define ``unlawful Internet gambling,'' and 
direct the department to publish lists of businesses engaged in 
such unlawful activities. Implementation and enforcement 
efforts for the final regulations would be based on those lists 
and on a study of the economic impact of the proposed 
guidelines and public hearings.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing the bill would cost $227 million 
over the next five years, primarily because of the costs 
associated with publishing lists of businesses engaged in 
unlawful Internet gambling activities. Enacting H.R. 6870 would 
affect revenues because of the provisions affecting the Federal 
Reserve, but CBO estimates that such impacts would not be 
significant. Enacting this bill would not affect direct 
spending.
    H.R. 6870 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 6870 is shown in the following table. 
The costs of this legislation fall within budget function 800 
(general government).

----------------------------------------------------------------------------------------------------------------
                                                                 By fiscal year, in millions of dollars--
                                                         -------------------------------------------------------
                                                            2009     2010     2011     2012     2013   2009-2013
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...........................      135       30       31       31       32       259
Estimated Outlays.......................................       27       87       51       31       31       227
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
legislation will be enacted near the beginning of fiscal year 
2009 and that the necessary amounts will be appropriated each 
year.

Spending subject to appropriation

    CBO expects that implementing H.R. 6870 would significantly 
increase the workload of the Department of the Treasury, which 
currently has fewer than 10 full-time staff dedicated to 
regulating Internet gambling. Developing lists of businesses 
engaged in unlawful Internet gambling that would withstand 
regulatory scrutiny would involve screening hundreds of 
thousands of Web sites, examining targeted Web sites in detail, 
coordinating with state and foreign governments, and monitoring 
changes in the Web sites included on the lists. Little is known 
about the number, location, or complexity of Internet gambling 
sites, and the department expects that extensive data 
collection efforts would be necessary to comply with the bill.
    For this estimate, CBO assumes that the department would 
acquire computer software to identify Internet gambling Web 
sites and conduct comprehensive reviews of at least 2,000 
businesses. Based on information from the department, CBO 
estimates that preparing the lists would require an initial 
appropriation of about $130 million and that maintaining them 
would cost about $30 million a year. Costs could be higher if 
additional businesses required an in-depth examination, with 
all costs subject to appropriation of the necessary amounts.
    H.R. 6870 also would direct the department to conduct 
special studies and hearings on proposed regulations related to 
Internet gambling. Based on information from the department, 
CBO estimates that those activities would cost about $5 million 
in 2009.

Revenues

    Under H.R. 6870, the Board of Governors of the Federal 
Reserve would participate in the development of the revised 
regulations governing unlawful Internet gambling activities. 
Based on information from the Federal Reserve, those activities 
would have no significant effect on its workload or budget. The 
budgetary effects of the Federal Reserve are recorded as a 
change in revenues (governmental receipts). Thus, CBO estimates 
that enacting this bill would have a negligible effect on 
revenues over the 2009-2018 period.
    Intergovernmental and private-sector impact: H.R. 6870 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal costs: Kathleen Gramp; Impact 
on state, local, and tribal governments: Elizabeth Cove; Impact 
on the private sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Assistant Director 
for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 6870 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section establishes the short title of the bill, the 
``Payments System Protection Act of 2008''.

Section 2. Prohibition

    Section 2 prohibits the Federal Reserve Board and the 
Treasury from finalizing regulations under UIGEA except as they 
pertain to unlawful internet sports betting, or as provided in 
section 3. Section 2 defines unlawful internet sports betting, 
and requires that interim final regulations be issued within 60 
days of enactment. Treasury is required to establish and 
maintain a list of unlawful internet sports gambling 
businesses.

Section 3. Rulemaking to implement subchapter on prohibition on funding 
        of unlawful internet gambling and define unlawful internet 
        gambling

    Section 3 requires the Federal Reserve Board and Treasury 
to undergo formal rulemaking (with on the record hearings) to 
determine what other forms of gambling constitute the 
definition of ``unlawful Internet gambling.'' That rule would 
be subjected to regulatory flexibility analysis, and then 
Treasury would also compile and maintain a list of businesses 
that accept other forms of illegal internet gambling.

                            DISSENTING VIEWS

    H.R. 6870 would undermine the effective implementation of 
the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) 
(Public Law 109-347). UIGEA was intended to stem the growth of 
gambling on the Internet, by making it illegal for financial 
institutions and credit card companies to process payments for 
settling Internet gambling wagers and imposing new criminal 
penalties on Internet gambling businesses. Prior to UIGEA's 
enactment, the United States had few tools to enforce 
applicable state and Federal law because the sites offering 
Internet gambling services were located overseas and beyond the 
jurisdictional reach of U.S. law enforcement.
    UIGEA was supported by an overwhelming majority of Members 
on the Financial Services Committee and the full House, and by 
college and university presidents, the American Bankers 
Association, the American Psychiatric Association and major 
sports organizations including the National Collegiate Athletic 
Association (NCAA), Major League Baseball (MLB), the National 
Football League (NFL), National Basketball Association (NBA) 
and the National Hockey League (NHL).
    H.R. 6870 would require the Federal Reserve Board and 
Treasury Department to scrap the proposed regulations mandated 
by UIGEA, except those applicable to sports betting. It would 
also require the Treasury Department and Federal Reserve, in 
consultation with the Justice Department, to jointly develop 
and implement regulations that define ``unlawful Internet 
gambling,'' after an administrative hearing and a full economic 
impact study. There is no deadline for the agencies to finish 
their work. Thus, while H.R. 6870 would result in financial 
transactions involving sports betting being blocked, it would 
allow a wide variety of other addictive forms of gambling to 
continue unimpeded, including poker, blackjack, roulette, 
craps, baccarat, and slots.
    Enactment of H.R. 6870 would harm families and communities. 
The consequences of unfettered illegal Internet gambling are 
profound and its characteristics are unique: online players can 
gamble twenty-four hours a day from home; children may play 
without sufficient age verification; and betting with a credit 
card can undercut a player's perception of the value of cash, 
leading to gambling addiction, bankruptcy and crime. As a 
professor of business at the University of Illinois noted, the 
Internet is ``crack cocaine'' for gamblers. ``There are no 
needle marks,'' he says. ``There is no alcohol on the breath. 
You just click the mouse and lose your house.''
    The real victims are the young people who by the tens of 
thousands become compulsive, addictive gamblers. Studies show 
that the earlier one begins gambling, the more likely it is he 
or she will become an addicted problem gambler. In the most 
recent study of Internet gambling in Canada, where Internet 
gambling is regulated, the University of Lethbridge Professor 
Robert Williams found that the average monthly loss of Internet 
gamblers is $541, compared to an $82 loss of all gamblers.
    Since UIGEA, gambling companies such as PartyGaming, which 
runs the PartyPoker.com and PartyBingo.com web sites, have 
withdrawn from the U.S. market. According to the Annenberg 
Public Policy Center, weekly use of the Internet for gambling 
among college-age youth declined precipitously, dropping from 
5.8 percent in 2006 to 1.5 percent in 2007. ``The strong drop 
in use of Internet sites also suggests that Federal legislation 
restricting the transfer of funds to Internet gambling sites 
has had its intended effect,'' the Director of the Annenberg 
survey stated.
    In addition to its destructive influence on families and 
our nation's youth, Internet gambling has the potential to 
undermine our national security. FBI and Justice Department 
experts have repeatedly warned that Internet gambling sites are 
vulnerable to exploitation by money launderers, drug 
traffickers and even terrorist financiers. These sites evade 
rigorous U.S.-based regulations that control gambling by minors 
and problem gamblers and ensure the integrity of the games.
    In October 3, 2001 testimony before the Financial Services 
Committee, Dennis Lormel, then-chief of the FBI's Financial 
Crimes Section, stated:

          Internet gambling and online capabilities have become 
        a haven for money laundering activities. We believe 
        there is a huge potential for offshore sites being 
        utilized to launder money, and there are examples of 
        pending cases, particularly in our organized crime 
        program, involving enterprises using these types of 
        services as conduits for money laundering.

    In a March 2004 ``International Narcotics Control Strategy 
Report,'' the U.S. Department of State expressed a similar 
concern:

          The Internet gambling operations are, in essence, the 
        functional equivalent of wholly unregulated offshore 
        banks with the bettor accounts serving as bank accounts 
        for account holders who are, in the virtual world, 
        virtually anonymous. For these reasons, Internet 
        gambling operations are vulnerable to be used, not only 
        for money laundering, but also criminal activities 
        ranging from terrorist financing to tax evasion.

    While the proponents of this bill have endeavored to refine 
and modify a previous legislative proposal that the Committee 
rejected on June 25, 2008 (H.R. 5767), H.R. 6870 remains a 
fundamentally flawed legislative product. Congress should stop 
meddling in the regulatory process and allow UIGEA to be fully 
implemented.

                                                    Spencer Bachus.

                                  
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