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ESTABLISHING CONSISTENT ENFORCEMENT 

POLICIES IN THE CONTEXT OF ONLINE WAGERS 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

NOVEMBER 14, 2007 

Serial No. 110–116 

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 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. (BOBBY) SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

(III) 

C O N T E N T S 

NOVEMBER 14, 2007 

Page 

OPENING STATEMENT 

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

State of Michigan, and Chairman, Committee on the Judiciary ..................... 1 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 2 

WITNESSES 

The Honorable Shelley Berkley, a Representative in Congress from the State 

of Nevada 

Oral Testimony ..................................................................................................... 3 

Prepared Statement ............................................................................................. 5 

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

of Virginia 

Oral Testimony ..................................................................................................... 6 

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

The Honorable Catherine L. Hanaway, United States Attorney, Eastern District of Missouri, U.S. Department of Justice 

Oral Testimony ..................................................................................................... 10 

Prepared Statement ............................................................................................. 13 

The Honorable Valerie Abend, Deputy Assistant Secretary, Critical Infrastructure Protection and Compliance Policy, U.S. Department of the Treasury 

Oral Testimony ..................................................................................................... 19 

Prepared Statement ............................................................................................. 21 

Mr. Joseph H. H. Weiler, Professor and Director, Jean Monnet Center for 

International and Regional Economic Law & Justice, New York University 

School of Law 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 25 

Ms. Annie Duke, on behalf of The Poker Players Alliance, Los Angeles, 

CA 

Oral Testimony ..................................................................................................... 33 

Prepared Statement ............................................................................................. 36 

Mr. Thomas E. McClusky, Vice President of Government Affairs, Family 

Research Council 

Oral Testimony ..................................................................................................... 46 

Prepared Statement ............................................................................................. 48 

Mr. Michael Colopy, Vice President for Communications, Aristotle, Inc. 

Oral Testimony ..................................................................................................... 50 

Prepared Statement ............................................................................................. 51 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Chairman, Committee on 

the Judiciary ......................................................................................................... 1 

Page

IV 

Material submitted by the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia 

Letter from the National Association of Attorneys General, dated March 

21, 2006 ............................................................................................................. 81 

Letter from the Honorable Douglas Gansler, Maryland State Attorney General, and the Honorable Bill McCollum, Florida State Attorney General, 

dated September 28, 2007 ................................................................................ 86 

Letters from the National Basketball Association, the National Collegiate 

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

and the National Football League, dated May 31, 2007 ............................... 88 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Jim McDermott, a Representative in 

Congress, from the State of Washington ............................................................ 93 

Letter from the Honorable Mitchell E. Daniels, Jr., Governor, State of Indiana, dated November 9, 2007 .............................................................................. 95 

Prepared Statement of the Honorable L. Errol Cort, Minister of Finance 

and the Economy, Government of Antigua and Barbuda ................................. 97 

Prepared Statement of Craig Pouncey, Partner, Herbert Smith LLP (Brussels) ....................................................................................................................... 100 

Prepared Statement of John Lyons, Group Security Advisor, UC Group ........... 105 

Prepared Statement of Naotaka Matsukata, Ph.D., Senior Policy Advisor, 

Alston & Bird, LLP .............................................................................................. 110 

Prepared Statement of I. Nelson Rose, Professor of Law, Whittier Law School 113 

Prepared Statement of Richard Winning, President, the American Greyhound 

Track Operators Association ............................................................................... 115 

Prepared Statement of Steve Lipscomb, Chief Executive Officer, President 

and Founder, WPT Enterprises, Inc. .................................................................. 119 

Prepared Statement of Harlan W. Goodson, President, Interactive Skill 

Games Association ............................................................................................... 120 

(1) 

ESTABLISHING CONSISTENT ENFORCEMENT 

POLICIES IN THE CONTEXT OF ONLINE WAGERS 

WEDNESDAY, NOVEMBER 14, 2007 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:09 a.m., in Room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Committee) presiding. 

Present: Representatives Conyers, Berman, Scott, Jackson Lee, 

Wexler, Cohen, Sherman, Baldwin, Ellison, Smith, Coble, Goodlatte, Chabot, Issa, Feeney, Franks, and Gohmert. 

Staff present: Gregory Barnes, Majority Counsel; Michael Volkov, 

Minority Counsel; and Teresa Vest, Chief Clerk. 

Mr. CONYERS. Good morning, all. Let us begin the hearing. We 

have the dazzling diva of Las Vegas as a congressional witness, 

and then our ordinary Member from Virginia, Bob Goodlatte, 

former chairman of Agriculture and long-time serving Member of 

Judiciary. 

We welcome you both here, and we want to have you set the tone 

for us. The only thing I want to say before yielding to Mr. Smith 

is that we have a dilemma here. Gambling is a social evil, but the 

enforcement of it is sort of selectively picked and chosen. We have 

loopholes in the current system. There are people now beginning to 

talk about regulating, rather than banning. We have concerns 

about the rights of States over the Federal system, which we will 

hear about. 

They are telling us that some games are so much skill and so little chance that they shouldn’t even be called gambling, per se. The 

only people not organized to my knowledge, Ranking Member 

Smith, are the crap-shooters, the guys that roll the dice. They don’t 

have an association. They don’t have anybody speaking up for 

them. They don’t have lobbyists. So maybe, I hope I am not encouraging them to do something about it. 

But it is a pleasure to have our colleagues here. I am going to 

put my written statement in the record and yield to Lamar Smith. 

[The prepared statement of Chairman Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND CHAIRMAN, COMMITTEE ON THE

JUDICIARY

Today’s hearing is on the Internet and the need to establish consistent enforcement policies in the context of online wagers. 

2 

At last count, federal prosecutors had at least six major federal laws at their disposal to go after and prosecute unlawful gaming activities. These laws include: the 

Wire Act, the Travel Act, RICO, the general prohibition against money laundering, 

the ban on illicit gambling operations, and the recently enacted ‘‘Unlawful Internet 

Gambling Enforcement Act of 2006.’’ Yet, despite such far reaching tools, questions 

still persist in the area of online gambling. 

Namely, we find ourselves questioning the selective nature of the federal government’s enforcement efforts, to date. Indeed, for several years now, members of this 

Committee have heard repeated claims that the Wire Act prohibits several forms 

of online gambling, but we fail to see it enforced in the context of interstate bets 

connected to horseracing. 

Second, questions continue to persist as to whether the current approach establishes a workable framework, in terms of preventing unlawful gambling from occurring. Just last year, as previously mentioned, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006. And, at the time of the bill’s passage, proponents of the measure claimed that the legislation was absolutely necessary to 

‘‘bring an end to unlawful online gaming once and for all.’’ 

A few days ago, however, we got a chance to review the Treasury Department’s 

proposed implementing regulations. And, the proposed regulations make clear that 

many forms of online gambling will continue to proceed unfettered, despite the new 

set of regulations. To make matters worse, there’s strong evidence that the new regulations will prohibit certain activities that are perfectly legal. 

The final question confronting us today relates to the viability of any ban given 

the nature of the internet and the infrastructure it uses. Admittedly, our track 

record thus far on this topic hasn’t been too successful. In fact, our latest approach 

not only threatens legitimate businesses; it also poses substantial problems for the 

intellectual property community, as witnessed by the latest proceedings taking place 

before the World Trade Organization. Not to mention the fact that the current approach does very little to prevent underage gambling or thwart possible acts of 

money laundering. 

Continuing with the same old failed policies for the sake of feel good politics 

doesn’t make sense. We can do better. We must do better. 

Mr. SMITH. Thank you, Mr. Chairman. 

I do want to thank you for holding today’s hearing because I 

think Internet gambling is a very important subject. And also at 

the outset, I want to commend my colleague, Congressman Bob 

Goodlatte, who is with us today, for his commitment to this issue. 

He has worked for years on the problem of Internet gambling. 

The dangers of Internet gambling are well known. According to 

law enforcement officials, Internet gambling sites are often fronts 

for money laundering, drug trafficking, and criminal organizations. 

Furthermore, these sites evade gambling regulations that restrict 

gambling by minors, protect chronic gamblers, and ensure the integrity of the games. Young people and compulsive gamblers are 

particularly vulnerable. 

The characteristics of Internet gambling are unique. Online players can gamble 24 hours a day from home. Children may play without age verification, and betting with a credit card can lead to addiction, bankruptcy, and crime. Just over a year ago, Congress enacted the Unlawful Internet Gambling Enforcement Act. The act 

prohibits the acceptance of financial payments for unlawful Internet gambling. The law has, in fact, had its intended effect. It has 

reduced the availability of Internet gambling. 

Many of the major players in the industry, such as publicly traded companies in the United Kingdom, have stopped their U.S. operations. For example, the Financial Times reported that 

PartyGaming quit the United States market entirely. The act has 

reduced gambling by young people. A recent study conducted by 

the National Annenberg Survey Center found that weekly use of 

the Internet for gambling among college-age youth declined from 

3 

5.8 percent in 2006 to 1.5 percent in 2007. For college-age males, 

monthly Internet gambling dropped from 8.9 percent to only 2.9 

percent. 

Even with these obvious benefits, media reports show that major 

Internet gambling companies are seeking to undo the prohibition 

against Internet gambling. Legislation has been introduced to legalize, tax, and regulate Internet gambling. Turning back the clock 

to permit Internet gambling will only encourage the problems we 

hope to avoid. 

At today’s hearing, I am especially interested in learning more 

about the Treasury and Justice Departments’ current enforcement 

efforts and their need for additional authorities or resources to 

tackle the problem of Internet gambling. 

Mr. Chairman, I yield back the balance of my time. Also, I certainly agree with you. I think we can eliminate going after the 

dice-throwers. [Laughter.] 

Mr. CONYERS. Thank you very much, Mr. Smith. 

Bob Wexler is dying to make a statement, but I am not going to 

let him do it. I will recognize him first, though, when we begin our 

witnesses, or begin our Members’ asking questions. Chairman Scott 

has graciously agreed to let you go first. 

We turn now to Shelley Berkley herself—fifth term, Ways and 

Means, Veterans Affairs. If anyone has been in or out of the state 

of Nevada and not seen Shelley Berkley, then something was 

wrong with their schedule. We are happy to have her begin this 

discussion. As Lamar Smith said, there are at least five laws on 

the books federally—RICO, Wire, money laundering. There is another one coming down the pike. So let us find out what the state 

of play is and we are welcome to have Ms. Berkley with us this 

morning. 

TESTIMONY OF THE HONORABLE SHELLEY BERKLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA 

Ms. BERKLEY. Thank you very much, Mr. Chairman. I appreciate 

the opportunity to testify before the Committee today on the issue 

of Internet gaming. As you can certainly attest, Mr. Chairman, I 

have been requesting a hearing on this topic for some time. As Las 

Vegas’ representative in Congress, and as the only Member of this 

body that has worked in the gaming industry, I feel I can offer the 

Committee an important perspective on this ongoing debate. 

I think the use of the word ‘‘consistent’’ in the title of today’s 

hearing helps highlight the absurdity of the current situation with 

respect to Internet gaming. A combination of outdated laws, selective enforcement by the Justice Department, and an intentional 

lack of clarity by Congress resulted in a confusing environment for 

those law-abiding Americans who want to wager online, and that 

was before enactment of last year’s Unlawful Internet Gambling 

Enforcement Act. 

The law actually made things worse by targeting the financial 

sector and creating a hypocritical carve-out for horseracing. Now, 

I don’t know how those who say they are protecting the morals of 

their fellow Americans by prohibiting legal online betting can reconcile that with their equal enthusiasm to protect online horserace 

betting. 

4 

After the vote last year, in which the ban on Internet gaming 

was sneaked into the Port Security bill, which was a must-pass 

bill, the horserace industry reps declared that this ban on online 

gaming was the biggest boon to their industry ever. If the Committee would like me to submit the direct quotes, I would be glad 

to do so. 

Although some Internet gaming executives have been arrested 

and reputable operators have stopped doing business in the United 

States, an estimated 10 million Americans are still wagering online 

on poker alone, and Mr. Smith, if you think for a minute that the 

kids on the college campuses and the dormitories aren’t betting online, you need to go visit some of them. They all are. 

Americans are still wagering online even with this ban, and they 

are doing so without the benefit of protections afforded by Federal 

regulatory oversight. 

Mr. SMITH. Since you mentioned my name, let me respond. Yes, 

I know they are, but my point was, and the figures that I cited, 

shows how dramatically they have dropped as a result of last year’s 

bill. 

Ms. BERKLEY. I would challenge that assertion. 

In this era of global economy, this situation has only caused consternation among our closest trading partners. The WTO has ruled 

that our laws banning Internet gaming unfairly discriminate, and 

now the U.S. is on the hook for what could be a substantial penalty. 

The Bush administration responded to this embarrassing defeat 

in the WTO by seeking to withdraw any gambling-related service 

from our WTO commitments, opening us up to further liability in 

the form of compensation to the EU, Australia, Japan, and other 

allies. This is the trade equivalent of taking our ball and going 

home, and sets a dangerous precedent for other nations. You can 

be sure that if China one day decides that it shouldn’t have to comply with its WTO obligations, we will be the first to object. 

So where do we go from here? I applaud this Committee for attempting to lay the groundwork for a legislative solution that ideally would legalize online gaming, subject it to some sort of regulation, and protect underage and problem gamblers. There are several pieces of legislation pending—Mr. Wexler’s poker carve-out, 

Mr. Frank’s financial instruments bill. 

I have also introduced legislation calling for a 1-year study by 

the National Research Council on this issue, something that should 

have been done before we went forward with last year’s ban. I can’t 

imagine why anybody would be opposed to actually having a congressionally authorized full-fledged study to determine whether or 

not the assertions that are made by the anti-Internet gaming people are true, or if they are not. 

I encourage the Committee to consider my bill so that we can 

have the unbiased information we need to make informed decisions 

on what is a very complicated topic. 

Now, may I say I grew up in Las Vegas. If you go to the grocery 

store for a container of milk, there are slot machines. If you want 

to take your kids to a movie, you go into a casino. That is where 

our movies are located. If you want to go bowling, if you belong to 

a bowling league, all the bowling alleys are in the casinos. 

5 

If you want to go take your family for Sunday brunch after 

church, you go into a casino and you have brunch in the casino. I 

have been exposed to casinos and gambling my entire life. I have 

neither an interest in gambling nor do I have an addiction. 

For those that claim that they are worried about problems gambling and underage gaming, there is technology available to identify these people and prevent them from betting online. There are 

28 million self-identified poker players who want to play and bet 

online. They are adults who as American citizens have a right to 

play poker, a game of skill, in the privacy of their own homes on 

their own computers. 

There is a limit to how much government can interfere with our 

fellow citizens’ rights to participate in a recreational activity of 

their choice. As far as addiction is concerned, there are far more 

people addicted to shopping online than gambling online. Unless 

Congress is going to ban Internet shopping, we better think long 

and hard about prohibiting people from Internet gaming because 

that is an area that government has no business intruding into. 

I urge this Committee to move forward with my study bill. Let 

us get the facts. Mr. Chairman, you mentioned that gambling in 

your opening remarks is a social evil. I respectfully would disagree 

with you. I grew up in Las Vegas. My father was a waiter when 

I was growing up. On a waiter’s salary in Las Vegas, he put a roof 

over our head, food on the table, clothes on our backs, and two 

daughters through college and law school. Not so bad on a waiter’s 

salary. The reason that was possible was because we have a strong 

economy fueled by the gaming industry. I don’t see a social evil 

there. 

With that, I yield back the balance of my time. 

[The prepared statement of Ms. Berkley follows:] 

PREPARED STATEMENT OF THE HONORABLE SHELLEY BERKLEY, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEVADA

Thank you Mr. Chairman. I appreciate the opportunity to testify before the committee today on the issue of Internet gaming. As you can attest, Mr. Chairman, I 

have been agitating for a hearing on this topic for some time. As Las Vegas’ representative in Congress, and as the only member of this body with actual gaming 

experience, I feel I can offer the committee an important perspective on this ongoing 

debate. 

I think the use of the word ‘‘consistent’’ in the title of today’s hearing helps highlight the absurdity of the current situation with respect to Internet gaming. A combination of outdated laws, selective enforcement by the Justice Department, and an 

intentional lack of clarity by Congress resulted in a confusing environment for those 

law-abiding Americans who want to wager online, and that was before enactment 

of last year’s so-called Unlawful Internet Gambling Enforcement Act. The UIGEA 

actually made things even more confusing by targeting the financial sector rather 

than gamblers, and further memorializing the carve-out for horseracing. Although 

some Internet gaming executives have been arrested and some of the more reputable operators have stopped doing business in the U.S., an estimated 10 million 

Americans are still wagering online on poker alone, and they are doing so without 

the benefit of the protections afforded by effective regulatory oversight. 

In this era of the global economy, this situation has also caused consternation 

among our closest trading partners who have been shut out of a potentially lucrative 

market. The WTO has ruled that our laws unfairly discriminate against Antigua, 

and now we’re on the hook for what could be a substantial penalty. The Bush administration responded to this embarrassing defeat by seeking to withdraw any 

gambling-related service from our WTO commitments, opening us up to further liability in the form of compensation to the EU, Australia, Japan, and other allies. 

This is the trade equivalent of taking our ball and going home, and sets a dangerous 

6 

precedent for other nations. You can be sure that if China one day decides that it 

shouldn’t have to comply with its WTO obligations, we will be the first to object. 

So where do we go from here? I applaud this committee for attempting to lay the 

groundwork for a legislative solution that ideally would legalize online gaming, subject it to some sort of regulation, and protect underage and problem gamblers. While 

this debate continues, I have introduced legislation calling for a one-year study by 

the National Research Council on these very issues, something that should have 

been done before we went forward with last year’s ban. I encourage the committee 

to consider my bill so that we can have the unbiased information we need to make 

informed decisions on what is a very complicated topic. 

Thank you again for holding this hearing. 

Mr. CONYERS. Thank you. We on the Committee feel we got off 

light, Shelley, this morning. [Laughter.] 

You are very kind and understanding of our approach to this 

matter. We do remember, though, and know that you are not ordinary. You are quite special. So I am not quite sure if we can use 

your experience as the prototypical model that we would emulate. 

But I am glad that you represent in person the fact that you can 

grow up around gaming or gambling and that it can reap very good 

results. I thank you for that. 

Bob Goodlatte is a Member of this Committee in his eighth term. 

He has divided his career between Judiciary and Agriculture. He 

has been the Chairman of that latter Committee. He is one of our 

experts in particular areas in the Judiciary Committee. We welcome him to come before the Committee at this time. Of course, we 

will include all the statements of our guest Members of Congress 

and Members of the Committee in the record. 

Welcome, Bob. 

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

Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your inviting me to testify on this important issue. It is a pleasure to be 

here with my colleague from Las Vegas, Ms. Berkley. 

Let me start by saying that I concur with your observation about 

the social ills of gambling. 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 or in your community like Las Vegas, because Las Vegas and 

other communities like that have an organized regulatory structure 

that the Internet is not suited for. 

Sadly, I have even 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. 

We are all familiar with the Lehigh University student body 

president who last year was arrested for armed robbery to pay an 

Internet gambling debt. We are aware of the family problems, the 

youth gambling problems, the addictive gambling problems, the organized crime problems, the bankruptcy problems that occur with 

gambling. 

Traditionally, States have had the authority to permit or prohibit 

gambling that occurs wholly within their borders. Indeed, State 

7 

gambling laws vary greatly, with states like Nevada, represented 

by Ms. Berkley, that allow and regulate almost every form of gambling. The neighboring state of Utah bans every form of gambling. 

With the development of the Internet, however, State prohibitions and regulations governing gambling have become increasingly 

hard to enforce as electronic communications, and thus illegal bets 

and wagers, move freely across borders. Congress has acted to help 

enforce State laws before. 

In 1961, Congress passed the Federal Wire Act which cracked 

down on illegal gambling operations that were using telephone 

lines to communicate bets and wagers across State lines in violation of State law. Today the Internet and wireless technologies are 

the preferred method of communicating illegal bets and wagers 

across State lines and we need to make sure the law also contemplates Internet transactions. 

While the Department of Justice continues to state publicly that 

the Wire Act covers Internet technologies and also covers all forms 

of gambling, it has also welcomed legislation to clarify these provisions. Virtually all State law enforcement agencies support Federal 

laws to give teeth to their gambling laws. Last Congress, 48 of the 

50 State attorneys general signed a letter to Congress calling for 

legislation to combat Internet gambling. 

In order to provide more tools to law enforcement, the House of 

Representatives passed H.R. 4411 last Congress by an overwhelming bipartisan vote of 317 to 93. This legislation was perhaps 

the strongest legislation prohibiting Internet gambling that has 

been considered on the House floor in the past few decades. It contained important provisions to update and clarify the Wire Act, as 

well as a new tool to require financial transaction providers to 

block payments of illegal bets and wagers. 

Contrary to the assertions of some that there was no public debate on this bill, this legislation was the subject of hearings and 

markups in the Judiciary and Financial Services Committees, as 

well as a robust debate on the House floor. Ultimately, only the 

portion of the bill blocking illegal Internet gambling payments was 

signed into law. In keeping with previous laws, the new law only 

applies to transactions that violate State and Federal gambling 

laws, thus continuing to leave the decision of whether to allow or 

prohibit gambling primarily to the States. 

While it was only one piece of the broader House-passed bill, this 

new law, coupled with stepped-up enforcement actions by the Department of Justice, has already proven extremely effective. A new 

study by the Annenberg Public Policy Center, cited by the Ranking 

Member, Mr. Smith, shows that card playing for money among college-age youth has declined from 16.3% in 2006 to 4.4% in 2007. 

The same study shows that weekly use of the Internet for gambling 

among the same age bracket has declined from 5.8% in 2006 to 

1.5% in 2007. 

Perhaps even more promising is the fact that problem gambling 

symptoms have declined since last year. Among males ages 18 to 

22, those who reported some type of gambling on a weekly basis 

and who also reported at least one symptom of problem gambling 

dropped from 20.4% in 2006 to 5.9% in 2007. 

8 

This has been aided significantly by recent significant prosecutions by the Department of Justice, most notably some of the publicly traded online gambling interests, some of the largest have 

done that, have withdrawn from our market, and NetTeller, which 

announced that it would continue in the market notwithstanding 

the legislation passed by Congress, quickly withdrew from the market after two of its directors were prosecuted. They were transferring over $6 billion a year outside the country and may well account for the largest gain in the significant reduction we have experienced in online gambling since last year. 

The Department of Treasury has issued draft regulations implementing the anti-gambling statute we passed last Congress, and it 

is my understanding that there will be a witness in the next panel 

to explain in detail the proposed regulations. 

While there is overwhelming bipartisan Congressional support 

for a strong ban on Internet gambling, as reflected by the vote in 

the House just last year, that has not stopped many in Congress 

from introducing legislation this year to overturn and even reverse 

the new Federal statute, to exempt poker and other forms of gambling from the law, and to study whether we should regulate Internet gambling. 

These types of bills are premature at best since the regulations 

have not even been finalized yet. At worst, these bills have the potential to reverse the positive trend mentioned above of reducing 

addictive behaviors that destroy the lives, families, and financial 

well-being of America’s citizens. 

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

Mr. Chairman, thank you for inviting me to testify on this important issue. 

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, 

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 that 

occurs wholly within their borders. Indeed, state gambling laws vary greatly with 

states like Nevada permitting and regulating virtually all gambling and states like 

Utah prohibiting virtually all forms of gambling. 

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. Many gambling operations are beginning to 

take advantage of the ease with which communications can cross state lines in order 

to elicit illegal bets and wagers from individuals in jurisdictions that prohibit those 

activities. The most egregious types of these operations are those overseas operations that have little fear of violating U.S. and state laws. 

Congress has acted in this area before. In 1961 Congress passed the Federal Wire 

Act which cracked down on illegal gambling operations that were using telephone 

lines to communicate bets and wagers across state lines in violation of state law. 

This statute was passed to help states enforce their own gambling laws, and was 

cutting-edge at the time. However, today the Internet and wireless technologies are 

the preferred method of communicating illegal bets and wagers across state lines 

9 

and we needed to make sure the law contemplates Internet transactions, as well as 

traditional wire communications. 

Virtually all State law enforcement agencies support federal laws to give teeth to 

their gambling laws. Last Congress, 48 Attorneys General signed a letter to Congress calling for legislation to combat Internet gambling. The letter declared that 

‘‘We, the undersigned Attorneys General, wish to express our strong support for the 

efforts of the 109th Congress to pass legislation seeking to combat illegal Internet 

gambling in the United States. While we do not support federal preemption of our 

state laws related to the control of gambling, Internet gambling transcends state 

and jurisdictional boundaries and requires that all segments of the law enforcement 

community (state, federal and local) work together to combat its spread.’’ 

The Department of Justice has consistently stated publicly that it believes that 

the Wire Act covers Internet technologies and also covers all forms of gambling. 

However, DOJ has also welcomed legislation to clarify these provisions in order to 

allow it to more efficiently prosecute violations. One only has to look as far as the 

prosecutions of the payment processing company NETeller and the Internet gambling site BetonSports to see that DOJ can and does aggressively and effectively enforce the laws. 

In order to provide more tools to law enforcement, the House of Representatives 

passed H.R. 4411 last Congress by an overwhelming bipartisan vote of 317–93. This 

legislation was perhaps the strongest legislation prohibiting Internet gambling that 

has been considered on the House Floor in the past few decades. It contained important provisions to update the Wire Act, including clarifying that it covers all forms 

of gambling as well as all forms of technology that allow interstate gambling activities to occur. This legislation also contained important provisions to give law enforcement an additional tool to prohibit illegal Internet gambling, namely, it required financial transaction providers to block payments of illegal bets and wagers. 

This legislation was the subject of hearings and markups in the Judiciary and Financial Services Committees, as well as robust debate on the House Floor. 

Ultimately, only the portion of the bill blocking illegal Internet gambling payments was signed into law. In keeping with previous laws, the new law only applies 

to transactions that violate state and federal gambling laws, thus continuing to 

leave the decision of whether to allow or prohibit gambling primarily with the 

states. 

While it was only one piece of the broader House-passed bill, this new law, coupled with stepped-up enforcement actions by DOJ, has already proven extremely effective. A new study by The Annenberg Public Policy Center shows that card playing for money among college-age youth has declined from 16.3% in 2006 to 4.4% in 

2007. The same study shows that weekly use of the Internet for gambling among 

the same age bracket has declined from 5.8% in 2006 to 1.5% in 2007. Perhaps even 

more promising is the fact that problem gambling symptoms have declined since 

last year. Among males ages 18–22, those who reported some type of gambling on 

a weekly basis and who also reported at least one symptom of problem gambling 

dropped from 20.4% in 2006 to 5.9% in 2007. 

The Department of Treasury has issued draft regulations implementing the antigambling statute we passed last Congress, and it is my understanding that there 

will be a witness in the next panel to explain in detail the proposed regulations. 

While there was overwhelming bipartisan Congressional support for a strong ban 

on Internet gambling in the House just last year, that has not stopped many in Congress from introducing legislation this year to overturn and even reverse the new 

federal statute, including legislation to override all state laws and permit all Internet gambling at the federal level and legislation to exempt poker and other forms 

of gambling from the definition of bets and wagers in the law. These types of bills 

are premature at best since the regulations have not even been finalized yet. At 

worst, these bills have the potential to reverse the positive trend mentioned above 

of reducing addictive behaviors that destroy the lives, families, and financial wellbeing of America’s citizens. 

Thank you again for allowing me to testify on this important issue. 

Mr. CONYERS. Thank you so much. We appreciate that. 

Are you okay with a study, Bob? 

Mr. GOODLATTE. Mr. Chairman, I think the most appropriate 

thing to do right now is to have the new law take effect and have 

enforcement of that measure operate. And then if at some point in 

the future it appears that questions arise about whether it is effective, a study would be appropriate. But I don’t believe a study is 

10 

necessary at this point in time. What I think would be appropriate 

would be to see stepped-up enforcement and implementation of the 

new regulations that the Treasury Department has put forward. 

Mr. CONYERS. Thank you. 

The last word goes to the lady. 

Ms. BERKLEY. I would respectfully disagree with my colleague on 

whether or not a study is warranted. The reality is the study 

should have been conducted before the ban on Internet gaming was 

passed initially. What Mr. Goodlatte asserts as the negative consequences of Internet gaming are the exact same negative consequences that the anti-gaming people bring out and talk about 

every time there is a bill that would eliminate some form of gaming. There is nothing new in what he is saying. 

I believe it would be responsible on the part of Congress that we 

actually had a congressional study by the National Academy of 

Sciences to determine whether or not there are negative impacts 

caused by Internet gaming. I cannot imagine why anybody would 

be opposed to it. We should have done this a year ago before we 

banned the sport. 

Mr. CONYERS. Well, thank you. This has been a good way to start 

us off. I would like to call up now our witnesses on the second 

panel: The Honorable Catherine Hanaway, Ms. Valerie Abend, Professor Joseph Weiler, Ms. Annie Duke, Tom McClusky, and Michael 

Colopy. 

If you would all join us? I will start with our United States Attorney for the Eastern District of Missouri, from the Department 

of Justice, Catherine Hanaway. She was the former Speaker of the 

House of the State of Missouri, and is a lawyer, graduated Catholic 

University of America, Columbus School of Law. We are delighted 

to have you here. We have everyone’s testimony that will be included in the record. You may begin your discussion. Welcome. 

TESTIMONY OF THE HONORABLE CATHERINE L. HANAWAY, 

UNITED STATES ATTORNEY, EASTERN DISTRICT OF MISSOURI, U.S. DEPARTMENT OF JUSTICE 

Ms. HANAWAY. Thank you, Mr. Chairman, Members of the Committee. Good morning. My name is Catherine Hanaway. I am the 

United States Attorney in the Eastern District of Missouri. I am 

pleased to offer the views of the Department of Justice about Internet gambling. 

As you all know, gambling in the cyber-world takes on many different forms. The Department of Justice’s view is and has been for 

some time that all forms of Internet gambling, including sports wagering, casino games and card games, are illegal under Federal 

law. While many of the Federal statutes do not use the term 

‘‘Internet gambling,’’ we believe that the statutory language is sufficient to cover it. 

As we have noted on several occasions, the Department believes 

that Internet gambling should remain illegal. As set forth more 

fully in my prepared testimony, the Department of Justice has concerns about Internet gambling because it poses an unacceptable 

risk due to the potential for gambling by minors and for compulsive 

gambling. Current cases also show the potential for fraud and 

11 

money laundering, and the involvement of organized crime in online gambling. 

As we have stated on previous occasions, the Department interprets existing Federal statutes, including 18 U.S.C. Sections 1084, 

1952, and 1955, as pertaining to and prohibiting Internet gambling. In October, 2006, the Unlawful Internet Gambling Enforcement Act, also known as the UIGEA, was enacted. This statute 

was codified at 31 U.S.C. Sections 5361 through 5367, and it prohibits the acceptance of specified forms of payment for unlawful 

Internet gambling by a business of betting or wagering. 

It is the view of the Department that Internet gambling was illegal under existing Federal criminal statutes even before the 

UIGEA. Since the enactment of this statute, several Internet gambling businesses have ceased accepting bets and wagers from individuals in the United States. 

The UIGEA required the Department of Treasury and the Board 

of Governors of the Federal Reserve, in consultation with the attorney general, to issue regulations to implement applicable provisions of the UIGEA. These agencies consulted with the Department 

during the drafting process. The regulations were published for 

public comment in the Federal Register on October 4, 2007. The 

time period for the public to submit comments on the proposed regulations to the Department of Treasury or to the Board of Governors of the Federal Reserve ends on December 12, 2007. 

The Department of Justice continues to prosecute illegal gambling over the Internet. Most of the prosecutions are the result of 

joint investigations by Federal and State law enforcement agencies. 

As set forth more fully in my prepared statement, the United 

States has several successful and ongoing prosecutions. 

For example, in the NetTeller prosecution in the Southern District of New York, the company NetTeller admitted criminal wrongdoing and agreed to forfeit $136 million for its part in a conspiracy 

to promote illegal Internet gambling businesses and to operate an 

unlicensed money-transmitting business. 

Two founders of NetTeller pled guilty to conspiracy charges. 

Other cases have been charged and are awaiting trial. For example, on June 28, 2007, in the Eastern District of Missouri, the Federal grand jury returned a superseding indictment in United States 

v. BetonSports, PLC, et al. BetonSports was a publicly traded company that owns a number of Internet sports books and casinos. The 

company, BetonSports, pled guilty to Federal racketeering charges 

on May 24, 2007. 

In addition to these prosecutions, the Department also has 

reached several settlements concerning Internet gambling. In January, 2006, the United States Attorney’s office in St. Louis announced a $7.2 million settlement with the Sporting News to resolve claims that the Sporting News promoted illegal gambling 

from early 2000 through December, 2003, accepting fees in exchange for advertising illegal gambling. As part of the settlement, 

the Sporting News is conducting a public service campaign to advise the public of the illegality of commercial Internet and telephonic gambling. 

On behalf of the Department of Justice, I want to thank you for 

inviting me to testify today. We thank you for your support over 

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the years, and reaffirm our commitment to work with Congress to 

address the significant issue of Internet gambling. I will be happy 

to take any questions you want to ask. 

[The prepared statement of Ms. Hanaway follows:] 

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PREPARED STATEMENT OF CATHERINE L. HANAWAY


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Mr. CONYERS. Thank you for starting us off. 

We welcome now Deputy Assistant Secretary of Treasury Valerie 

Abend. In her capacity, she serves as advisor to Internet gambling 

issues, money laundering, identity theft, and other related matters 

that occur in the course of the duties of the Treasury Department. 

She was before that been associate director of public policy at the 

public accounting firm of KPMG. 

We welcome you this morning. 

TESTIMONY OF THE HONORABLE VALERIE ABEND, DEPUTY 

ASSISTANT SECRETARY, CRITICAL INFRASTRUCTURE PROTECTION AND COMPLIANCE POLICY, U.S. DEPARTMENT OF 

THE TREASURY 

Ms. ABEND. Thank you. 

Mr. Chairman, Ranking Member Smith, and Members of the 

Committee, it is my privilege to represent the Treasury Department today to discuss the Unlawful Internet Gambling Enforcement Act of 2006. 

The act is designed to require the various payment systems to 

stop the flow of funds from gamblers to businesses providing unlawful Internet gambling services. To accomplish this, the act requires the Treasury Department and the Federal Reserve Board, in 

consultation with the Justice Department, to jointly prescribe regulations requiring participants in designated payment systems to establish policies and procedures that are reasonably designed to prevent or prohibit such funding flows. 

On October 4, 2007, the Treasury Department and the Federal 

Reserve Board published a notice of proposed rulemaking seeking 

public comment on the proposed rule. Our goal when writing this 

proposed rule was to faithfully adhere to the mandate set forth by 

Congress in the act. 

We have learned a lot since the passage of the statute by working with both the Federal Reserve Board and the Justice Department. Payment systems are complex and vary greatly. They are 

built to meet the needs of particular participants, and while some 

are modernized, others are paper-based systems. The complexity 

and differences necessitate different approaches to meet the requirements of the statute effectively. We expect to learn more from 

the comments that we will receive during the comment period, 

which extends through December 12, 2007. 

As I mentioned earlier, our overarching principle has been that 

the proposed rule should faithfully adhere to the congressional 

mandate in the act. First, the act requires us to designate payment 

systems that could be used in connection with unlawful Internet 

gambling. The proposed rule designates the following five payment 

systems: automated clearinghouse systems; card systems, including 

credit cards, as well as stored value cards; check collection systems; 

money transmitting systems; and wire transfer systems. 

Second, the act requires us to provide exemptions if the Treasury 

Department and the Federal Reserve Board jointly determine that 

it is not reasonably practical for participants in designated payment systems to prevent or prohibit unlawful Internet gambling 

transactions. No payment system is exempted completely from this 

proposed regulation. 

20 

However, the proposed rule does partially exempt certain participants within some of the designated payment systems from having 

to establish policies and procedures. The Treasury and the Federal 

Reserve Board determined that this was the most appropriate way 

to implement the act consistent with congressional intent. 

Under the proposed rule, the gambling business’s bank, or if 

abroad, the first U.S. bank dealing with that bank, is not exempted 

because it could through reasonable due diligence ascertain the nature of its customer’s business and ensure that the customer relationship is not used to receive unlawful Internet gambling transactions. Let me emphasize that there are requirements under the 

proposed rule for the bank in the United States that has a corresponding relationship with a gambling business’s bank. The proposed exemptions generally extend to the gambler’s bank. 

Third, the act requires us to provide nonexclusive examples of 

policies and procedures which would be deemed ‘‘reasonably designed’’ to prevent or prohibit unlawful Internet gambling transactions. As a result, this proposed rule contains a ‘‘safe harbor’’ provision, as mandated by the act, that includes for each designated 

payment system nonexclusive examples of reasonably designed 

policies and procedures. 

Fourth, the act requires us to ensure that certain transactions 

excluded from the definition of the term ‘‘unlawful Internet gambling’’ are not prevented or prohibited by the proposed rule. 

Through our efforts to date, we are making great progress in 

reaching our objective of promulgating a final rule that strictly adheres to the statute. We expect to receive a large number of comments as we approach the close of the comment period. We have 

an open mind on all aspects of the proposed rule. 

We will be providing analysis of the comments received, and reasons for any decisions that will be made, as we publish the final 

rule. Let me assure you that we are committed to giving fair consideration to all relevant comments as we work toward promulgating a final rule. We have much work to do, but we understand 

the task ahead and what we will need to do to reach our objective. 

Thank you very much for your time. I would be happy to answer 

any of your questions. 

[The prepared statement of Ms. Abend follows:] 

21 

PREPARED STATEMENT OF VALERIE ABEND


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Mr. CONYERS. Thank you very much. 

Welcome, Professor Weiler. We are delighted to have you here 

today. We introduce you as a professor of law at the New York University School of Law. You have specialized in international law for 

quite a while and taught at both Harvard School and the University of Michigan Law School. You have had a lot of contact with 

the World Trade Organization. 

We would like to get your perspective on Internet gambling this 

morning, and we are glad that you are before us today. 

TESTIMONY OF JOSEPH H. H. WEILER, PROFESSOR AND DIRECTOR, JEAN MONNET CENTER FOR INTERNATIONAL AND 

REGIONAL ECONOMIC LAW & JUSTICE, NEW YORK UNIVERSITY, SCHOOL OF LAW 

Mr. WEILER. Thank you, Chairman Conyers and Members of the 

Committee for inviting me to be here today. This is the first time 

I have testified before a congressional Committee, so I apologize in 

advance if inadvertently I do something that goes against the conventions. 

My name is Joseph Weiler. 

Mr. CONYERS. We have our people standing out by the door in 

case you make a mistake of any magnitude. [Laughter.] 

Mr. WEILER. I have already prepared my neck. [Laughter.] 

My name is Joseph Weiler. I am married. I have five children. 

I want to say at the outset that I express no views on gambling, 

remote Internet gambling, or any other form of gambling. My testimony is only as regards the compliance of the United States with 

its international legal obligations and the rule of law. 

The WTO is the central world organization which regulates 

trade. The United States is a founding and prominent member, the 

prominent member. Under the rules of the WTO, contrary to some 

myth, a State is not obliged to accept any services from outside. It 

is not obliged to accept any goods from outside. It is entirely up to 

them whether or not to give a commitment. Once a State gives a 

commitment, it is expected that it will follow it because other 

economies and other individuals base their commercial activities on 

that commitment. 

The United States gave a commitment which has been interpreted authoritatively on three distinct occasions as covering remote gambling. The United States contested that before the WTO. 

It lost before a panel. It lost before the appellate body, which is, 

if you want, the World Trade Court, and it lost again before a compliance panel. There is simply no question in anybody’s mind that 

the ban on remote gambling coming from other members of the 

WTO is in violation of the United States’s international legal obligations. 

The United States also claimed in those proceedings that there 

were serious public policy reasons why remote Internet gambling 

should be banned. The WTO did not reject in principle that type 

of justification, but said that it had to be across-the-board, and yet 

it found on three distinct occasions that the United States was discriminating, that what it was banning for outside providers was in 

fact allowed legally within the United States, so that it gave in 

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spect protectionism, not protecting consumers, but protecting special remote gambling interests within the United States. 

I repeat: the WTO does not oblige the United States to have remote gambling. What it does not allow is to pick and choose, to 

have legalized remote gambling within the United States, and to 

ban it when it comes from outside partners to whom the United 

States gave a commitment. 

The reaction to this ruling by the WTO has been curious, to use 

a neutral word, in two respects. First of all, despite the fact of this 

clear and egregious and unambiguous illegality, the United States, 

or I should say the executive branch of the United States, continues to indict, prosecute and threaten indictment of corporations 

and individuals who are exercising a commercial activity which the 

United States guaranteed to its partners would be available to 

them. They are doing that under the shield of the Uruguay Round 

Agreement Act which in the opinion of the executive branch allows 

them to do that despite the abject illegality at the international 

level. 

And secondly, the United States has announced that it will withdraw its commitment in respect of remote betting. My view is that 

these two reactions are damaging to the United States. Being a law 

professor, I will explain the first with a hypothetical. Imagine another country, say India, gave a commitment to the United States 

in respect of supply of medical services. On the basis of that, American corporations and doctors set up a hospital and a medical facility, invested and practiced and offered their services. And then this 

country in violation of that commitment one day announced this 

can no longer take place. 

We would be outraged. They would lose all the investment. Imagine further, not only did they suddenly pull the rug from that commitment, but they prosecuted the doctors, the administrators, the 

nurses which were offering these medical services, and put them in 

prison. We would be doubly outraged. And if they said even though 

we acknowledge the international legal violation, we are still going 

to prosecute these individuals. 

We would be most outraged, Mr. Chairman and Members of the 

Committee, if then they turned around and said, and in doing that, 

we are simply following the example of the United States in the 

gambling case. The United States is the world leader in trade matters, and it leads by example. This is not a good example in which 

we should conduct our trade policy. 

The second reason is that if our economy is increasingly a service-oriented economy, and increasingly directed to exports; if today 

it is the only instance to my knowledge in which in the face of an 

adverse ruling of the world body to which the United States agreed 

to give unconditional compliance, that the country is withdrawing 

its commitment. It would be detrimental to the interests of the 

United States in the future when other countries, when we win the 

case, their response is to withdraw the commitment. 

Finally and lastly, Mr. Chairman, the statements of the executive branch are putting the responsibility on you, on the Congress. 

They are saying we are doing this on behalf of the Congress of the 

United States. That is how we were instructed to conduct this busiVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
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ness when the Uruguay Round Agreement Act was passed. I do not 

think this is wise. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Weiler follows:] 

PREPARED STATEMENT OF JOSEPH H. H. WEILER


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Mr. CONYERS. We appreciate very much your testimony here 

today. There will be a number of questions following. 

We are now joined by Ms. Annie Duke, a graduate from Columbia University where she double-majored in English and psychology. That later held her in good stead as she went on to become 

the holder of the women’s record for the most in-the-money finishes 

in the World Series of Poker. She has helped tutor and train many 

people in the skill of poker, none of which are Members of the Judiciary Committee of which you are before now. 

Welcome. 

TESTIMONY OF ANNIE DUKE, ON BEHALF OF THE 

POKER PLAYERS ALLIANCE, LOS ANGELES, CA 

Ms. DUKE. Thank you, Chairman Conyers and Members of the 

Committee, and thank you for giving me the opportunity to testify 

today. I am testifying as a representative of the 800,000 members 

of the Poker Players Alliance, but also as an American citizen who 

is keenly interested in the issues of personal freedom and responsibility. 

I am a mother of four young children ages 12, 9, 7, and 5. As 

Chairman Conyers pointed out, I attended Columbia University for 

my BA and then went on to pursue my Ph.D. in cognitive psychology at the University of Pennsylvania. From there, I chose not 

to go into academics, but in 1994 I used my education to become 

a professional poker player, which I am sure the National Science 

Foundation which gave me the grant to go to graduate school, is 

quite happy about. [Laughter.] 

But I did excel at my profession, becoming the leading female 

money-winner in the history of the game, and I have supported my 

four young children for 13 years on my poker winnings. 

Mr. CONYERS. Can some of the Committee Members join in your 

classes? 

Ms. DUKE. Absolutely. I actually just gave a class last weekend, 

is what I was doing. And I do do private tutoring if anybody’s interested. 

So for me, obviously, the freedom to play poker is an extremely 

important one, and the freedom to play where and when I want is 

extremely important. So the basic issue for me is personal freedom, 

the right to do what I want in the privacy of my own home. 

As part of the wonderful core curriculum at Columbia University, 

I was compelled to read John Locke and John Stuart Mill. They 

were the first to put forward the idea that except where one is 

doing direct harm to others, the government should not direct the 

activities of the people. Madison and Jefferson enshrined this idea 

in our country’s founding documents. It is my opinion that Congress strayed significantly from these founding principles in passing the Unlawful Internet Gaming Enforcement Act in the late and 

closing hours of the legislative session in 2006. 

Now, some of you may believe that gaming is immoral or unproductive. I certainly respect your beliefs. I absolutely respect your 

opinion, and I respect your choice not to engage in those activities 

if they are against your moral code. What I do not respect, though, 

is that they should seek to have government prevent others from 

engaging in those activities. Ronald Reagan said, ‘‘I believe in a 

34 

government that protects us from each other. I don’t believe in a 

government that protects us from ourselves.’’ I believe that the 

UIGEA is in violation of Mr. Reagan’s words. 

Prohibitionists site compulsive gambling as one of the reasons 

that they want to prohibit gaming. The Committee has received a 

study from Dr. Howard Schaffer of Harvard Medical School to the 

effect that the incidence of problem gambling is less than 1 percent, 

and the U.K. gambling study which was just completed confirms 

that. So I am not going to speak to that. 

But if the government is going to ban every activity that can lead 

to compulsion, they are going to have to ban nearly every activity— 

shopping, day-trading, sex, chocolate, even water-drinking can lead 

to compulsion. I am aware of one person who died from an addiction to water. Like gambling, compulsive shopping happens to a 

very small percentage of the population, and yet we don’t seek to 

ban it. In terms of costs to society, the damage caused by problem 

gambling is far less than that of alcohol, tobacco, fatty foods, sugary soft drinks, or any other number of things that the government 

does not seek to ban. 

Prohibitionists also point to the possibility of children playing online as a justification to ban it. Now, Mr. Colopy, my colleague on 

the witness panel, will show technology designed to prevent children from getting on the Internet to gamble, and will speak to the 

regulatory programs in the U.K. and elsewhere that work well, so 

I won’t speak to those in particular. 

But as a mom of four children ages 12, 9, 7 and 5, I would like 

to say that in my opinion whether children gamble online is primarily a parent’s responsibility, and it is their responsibility to 

know what their children are doing on the Internet, make sure 

they are not stealing their credit card, and make sure that they 

have control of what is happening in their household. 

Frankly, if a child is gambling behind their parents’ back and 

stealing their credit cards, I imagine that online gambling isn’t 

really the problem there and there are larger issues in that family. 

But I do believe that if I do choose to enforce those rules in my 

household, that we should have good government policy to support 

my rules. 

The UIGEA is not that good government policy. In the closing 

hours of the last Congress, Senator Bill Frist slipped the UIGEA 

into the port security bill. The UIGEA essentially deputizes financial institutions and makes them function as the Internet morality 

police. The Internet gambling laws that we have right now are a 

hodge-podge of antiquated laws, most of which don’t even contemplate the Internet. The governing Federal statute, the Wire Act 

of 1961, has been interpreted by the Fifth Circuit Court to only 

apply to sports betting, and not other forms of gambling like poker, 

and few States actually have laws that speak directly to Internet 

wagering. 

In the proposed rule, the Treasury and the Fed make clear that 

they do not intend to clarify what unlawful Internet gambling 

means. In other words, they are going to create a crime, but they 

are not going to tell anyone what the crime is. The regulators say 

that it would be too difficult for them to go through the laws of 

each and every State with respect to every form of gambling and 

35 

ascertain what is or isn’t legal in each State. And yet that is exactly what they are requiring the general counsel of each and every 

bank to do. 

This is no way to make regulatory law, and in my opinion, not 

good government policy. Instead, the Poker Players Association 

supports Representative Frank’s legislation to create a Federal licensing and regulation system for Internet gaming where States 

can opt in or out of any or all forms of gaming. 

We also support Representative McDermott’s bill to impose a 

small tax on Internet gaming deposits, which would yield billions 

of dollars for Federal and State governments. We also support Representative Wexler’s bill to clarify that poker, bridge, mahjong, 

backgammon, and other games of skill are outside the ambit of the 

Federal gambling statutes, provided they have adequate protections against minors and compulsive gamblers. 

The Poker Players Association also supports Representative 

Berkley’s bill to study the issues with Internet gambling. Although 

we believe there is adequate information available today, we believe that additional study will only make it more clear that licensing and regulation is always better than prohibition. 

In closing, though, I do want to go back to what I originally said, 

that this for me is an issue of personal freedom and civil liberties. 

Again, I would like to thank you for the opportunity to testify 

today. 

[The prepared statement of Ms. Duke follows:] 

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PREPARED STATEMENT OF ANNIE DUKE


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Mr. CONYERS. Thank you so much. 

Tom McClusky, Vice President of the Family Research Council— 

and they study a variety of issues, and for our purposes the one 

that we are concerned with is gambling policy. He has written, 

done television, radio. His works have appeared in Forbes magazine, Investors Business Daily, and the Washington Times. We are 

delighted to have him here as a witness today. Welcome to the 

Committee. 

TESTIMONY OF THOMAS E. McCLUSKY, VICE PRESIDENT OF 

GOVERNMENT AFFAIRS, FAMILY RESEARCH COUNCIL 

Mr. MCCLUSKY. Thank you, Chairman and all the distinguished 

Members of the Committee, for allowing me to testify today. 

Part of me was also hoping that Senator Al D’Amato, the wellpaid lobbyist for the Poker Players Alliance, would be here and join 

us today. In one of those odd twists of fate, both the Senator and 

my Dad used to play poker together when they attended Syracuse 

University when they were younger. From the stories I have heard, 

if poker is a game of skill, they could certainly use your teaching 

there, Ms. Duke. 

What the Senator and his colleagues lobby for today, though, is 

very different from the mostly innocent gambling my Dad and the 

Senator did way back when. In lobbying for legislation such as 

Congressman Frank’s bill, which seeks to overturn Federal and 

State laws in relation to Internet gambling, and also the bill sponsored by Representative Wexler which seeks to carve out an exemption for poker, Senator D’Amato and his friends seek to open up a 

Pandora’s box of consequences. Adoption of these bills will lead to 

an ominous corruption, dissolution of families and disruption of today’s delicate negotiations between the United States and other 

countries. 

There are many reasons why Congress originally decided to take 

a look at Internet gambling. It was only after continued prodding 

from a unique coalition that Congress finally passed the Unlawful 

Internet Gambling Enforcement Act, UIGEA, of 2006. This coalition’s members represent a wide range of support, not only from organizations like my own and Eagle Forum, but a host of State family groups, religious organizations such as the United Methodists, 

Southern Baptists, National Council of Churches, every major 

sports association, many major financial organizations, including 

the American Bankers Association also supports this legislation. 

They were joined by the National Association of Attorneys General, 

the National District Attorneys Association, and the Fraternal 

Order of Police. 

This deep and diverse support on the Federal and State level 

contributed to a version of the Unlawful Internet Gambling Enforcement Act passing Congress in July of 2006 with a vote of 317 

to 93. And it persuaded the Senate to include the bill in the Safe 

Port Act. 

Clearly, this bill was not some fly-by-night piece of legislation, 

but a well thought-out measure that was years in the making. For 

the answer to why such a large and diverse group would gather in 

support of the UIGEA, one need only look at the study that ConVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6601 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
47 

gress did quite a few years ago in 1999 under the National Gambling Impact Study Commission. 

The commission documented the grave toll gambling takes on society. The report estimated the lifetime costs of gambling, including 

bankruptcy, arrests, imprisonment, legal fees for divorce, et cetera, 

mounted to about $10,550 per pathological gambler, and $5,130 per 

problem gambler. With those figures, it calculated that the annual 

cost of pathological gambling caused by the factors cited above 

were approximately $5 billion, in addition to $40 billion in estimated lifetime costs. 

This financial cost to gamblers in turn affects their families. The 

report continued that many families of pathological gamblers suffer 

from a variety of financial, physical and emotional problems, including divorce, domestic violence, child abuse and neglect, and a 

range of problems stemming from the severe financial hardship 

that commonly results from pathological gambling. 

Children of compulsive gamblers are more likely to engage in delinquent behaviors such as smoking, drinking and using drugs, and 

have increased risk of developing problems of pathological gambling themselves. As access to money becomes more limited, gamblers often resort to crime in order to pay debts, appease bookies, 

maintain appearances, and garner more money to gamble. 

Now, the aforementioned concerns address gambling as a whole. 

When you add the anonymity of the Internet, the troubles caused 

by gambling increase exponentially. It is the uniqueness of the 

Internet when it comes to gambling that inspired the aforementioned Dr. Howard Schaffer, the director of Harvard’s Medical 

School’s Division on Addiction Studies, to call Internet gambling 

the ‘‘crack-cocaine of the Internet.’’ 

Due to the ease with which online gamblers can play from home, 

online players can gamble 24 hours a day from home with no real 

sense of the losses they are incurring. Additionally, while many 

Internet gambling sites require gamblers to certify that they are of 

legal age, most make little or no attempt to verify the accuracy of 

the information. The intense use of the Internet by those under the 

age of 21 has led to concerns that they may be particularly susceptible to Internet gambling. 

Now, in September, the British Gambling Prevalence Survey was 

published by the National Center for Social Research in the United 

Kingdom. This large objective government study shows the Internet and electronic forms of gambling are far more addictive than 

traditional social forms of gambling. 

Only 1 percent to 2 percent of Britons who play the lottery are 

problem gamblers. The study found that 1 percent of people who 

bet on horse races off-line are problem gamblers, and the rate is 

about 3 percent for bingo and slot machines. Before I get the question, the rate of problem gambling for private betting, as in the 

case of the Senator and my Dad, was a much lower 2.3 percent, so 

I think they are okay. 

But compare that with the problem gambling rates for people 

who gamble on computers: 11 percent for fixed-odds betting terminals, similar to video poker or video lottery terminals in the U.S.; 

12 percent for systems that take spread-bets and outcomes ranging 

48 

from sports races to stock prices; 7.4 percent for other types of online betting such as poker. 

Now, I see that my time is up, except the aforementioned 

Annenberg study I think found that the UIGEA is working before 

it has even had a chance to be implemented. According to 

PokerSiteScout.com, a website dedicated to web statistics for online 

gambling sites, a number of online gambling operators has stopped 

accepting bets from players identified to be in the United States. 

Now, as I can picture my Dad saying to former Senator D’Amato 

and the questionable alliance behind him, when you have the law, 

the States, financial institutions, religious and family organizations 

and an array of law enforcement agencies against you, it is about 

time to fold your cards and go home. 

Thank you. 

[The prepared statement of Mr. McClusky follows:] 

PREPARED STATEMENT OF THOMAS E. MCCLUSKY

Thank you, Mr. Chairman, and all the distinguished Members of the Committee 

for allowing me to testify today. Part of me was also hoping that former Senator 

Al D’Amato, the well-paid lobbyist for the Pokers Players Alliance would join us 

here today. In one of those odd twists of fate the Senator used to play poker with 

my Dad many years ago when they were at Syracuse University together. 

However, what the Senator and his colleagues lobby for today is very different 

from the mostly innocent gambling they did back in their youth. In lobbying for legislation such as Congressman Frank’s bill, H.R. 2046, which seeks to overturn federal and state laws in relation to Internet gambling, and H.R. 2610, sponsored by 

Representative Robert Wexler (D-FL), which seeks to carve out an exemption for online poker, they seek to open up a Pandora’s Box of consequences. Adoption of these 

bills will lead to anonymous corruption, the dissolution of families, and the disruption of today’s delicate negotiations between the United States and other countries, 

notably the United Kingdom and Antigua. 

There are many reasons why Congress decided to take a look at Internet gambling, and it was only after continued prodding from a unique coalition that Congress finally passed the Unlawful Internet Gambling Enforcement Act of 2006. This 

coalition’s members represented a wide range of support not only from organizations 

like Family Research Council and Eagle Forum and a host of state family groups, 

but also from religious organizations such as the United Methodists, Southern Baptists and the National Council of Churches. Every major sports association and 

many major financial organizations including the American Bankers Association 

also supported the legislation. They were joined by the National Association of Attorneys General, the National District Attorneys Association, and the Fraternal 

Order of Police. This deep and diverse support on the federal and state level contributed to a version of the Unlawful Internet Gambling Enforcement Act passing Congress in July of 2006 with a vote of 317–93, and it persuaded the Senate to include 

the bill in the SAFE Port Act. 

Clearly this bill was not some fly-by-night piece of legislation but a well-thoughtout measure that was years in the making. For the answer to why such a large and 

diverse group would gather in support of the UGIEA, one need only look at the National Gambling Impact Study Commission, which was created by Congress in 1996 

and issued its final report in 1999. The Commission documented the grave toll gambling takes on society. The report estimated that lifetime costs of gambling (including bankruptcy, arrests, imprisonment, legal fees for divorce, etc.) amounted to 

$10,550 per pathological gambler, and $5,130 per problem gambler. With those figures, it calculated that the aggregate annual costs of pathological gambling caused 

by the factors cited above were approximately $5 billion, in addition to $40 billion 

in estimated lifetime costs. 

This financial cost to gamblers in turn affects their families. The report continues 

that ‘‘many families of pathological gamblers suffer from a variety of financial, physical, and emotional problems, including divorce, domestic violence, child abuse and 

neglect, and a range of problems stemming from the severe financial hardship that 

commonly results from pathological gambling. Children of compulsive gamblers are 

more likely to engage in delinquent behaviors such as smoking, drinking, and using 

drugs, and have an increased risk of developing problem or pathological gambling 

49 

themselves. As access to money becomes more limited, gamblers often resort to 

crime in order to pay debts, appease bookies, maintain appearances, and garner 

more money to gamble.’’ 

The aforementioned concerns address gambling as a whole. When you add the anonymity of the Internet, the troubles caused by gambling increase exponentially. 

The theft of credit card numbers from customers is a very real concern and it is 

much easier for gambling web sites to manipulate games than it is in the physical 

world of highly regulated casinos. Additionally, gambling on the Internet provides 

remote access, encrypted data and, most importantly, anonymity. Because of this, 

a money launderer need only deposit funds into an offshore account, use that money 

to gamble, lose a small amount of that money, and then cash out the remaining 

funds. 

It is the uniqueness of the Internet when it comes to gambling that inspired Dr. 

Howard Shaffer, the director of Harvard Medical School’s Division on Addiction 

Studies, to call Internet gambling the ‘‘crack cocaine of the Internet’’ due to the ease 

with which online gamblers can play from home. Online players can gamble 24 

hours a day from home with no real sense of the losses they are incurring. Additionally, while many Internet gambling sites require gamblers to certify that they are 

of legal age, most make little or no attempt to verify the accuracy of the information. The intense use of the Internet by those under the age of 21 has led to concerns that they may be particularly susceptible to Internet gambling. Problem gamblers between the ages of 18 and 25 lose an average of $30,000 each year and rack up $20,000 to $25,000 in credit card debt, according to the California 

Council on Problem Gambling. In a health advisory issued by the American Psychiatric Association in 2001, ten percent to 15 percent of young people reported having experienced one or more significant problems related to gambling. 

In September, the British Gambling Prevalence Survey 2007 was published by the 

National Centre for Social Research. This large, objective government study shows 

that Internet and electronic forms of gambling are far more addictive than traditional and social forms of gambling. Only 1–2% of Britons who play the lottery are 

problem gamblers. The study found that 1.7% of people who bet on horse races offline are problem gamblers, and the rate is about 3% for bingo and slot machines. 

But compare that with problem gambling rates for people who gamble on computers: 

11% for fixed-odds betting terminals (similar to video poker or video lottery terminals in the U.S.), 12% for systems that take spread bets on outcomes ranging from 

sports to political races to stock prices, 6% for online betting with bookmakers, and 

7.4% for other types of online betting, such as online poker. The data is unequivocal: 

gambling online is several times more addictive, and regulation of online gambling 

in Britain doesn’t change this fact. 

And before I get the question, the rate of problem gambling for ‘‘private betting,’’ 

as in the case of my Dad and Senator D’Amato many years ago, is a much lower 

2.3%. 

In June of this year an aggrieved father, Pastor Greg Hogan, Sr., gave powerful 

testimony to the House Financial Services Committee on how his son, also named 

Greg—a college student with a bright future ahead of him—became addicted to online gambling. Mr. Hogan told the heartbreaking story of how his son became obsessed with playing poker online and, due to the ease with which it was offered to 

him (as it is offered to college students across the U.S.), Pastor Hogan’s son soon 

found himself saddled with such deep losses that he turned to bank robbery to pay 

his debts. Now the main debt Greg Hogan, Jr. is paying is to society in the form 

of a 20-year sentence in federal prison. What Greg Hogan, Jr. did was wrong and 

he is paying for it. However, his family and other families continue to suffer as 

those they love become obsessed with Internet gambling. 

By passing the Unlawful Internet Gambling Enforcement Act of 2006 Congress 

was sending a strong message that it was willing both to protect states’ prerogatives 

and to protect families. Even before the recent release of the Department of Treasury’s regulations in connection with the UIGEA, Congress’s efforts to combat unlawful Internet gambling showed immediate fruit. 

A recent National Annenberg Survey Center study found that the number of college students who gambled in 2006 fell by 70 percent the next year, following the 

passage of the UIGEA. The new law restricts banks from transferring funds to 

Internet gambling sites, all of which operate outside the U.S., so many sites closed 

as a result. 

According to Pokersitescout.com, a web site dedicated to web statistics for online 

gambling sites, a number of the online gambling operators have stopped accepting 

bets from players identified to be in the United States and the overall use of these 

sites has dropped drastically. These losses for online gambling sites are victories for 

American families; it would be a shame if this Congress decided to reverse the rare 

50 

strong bipartisanship and rapid progress that have been shown on this important 

issue. 

As I can picture my Dad saying to former Senator D’Amato and the questionable 

alliance behind him, when you have the law, the states, financial institutions, religious and family organizations, and an array of law enforcement agencies against 

you—it is time to fold your cards and go home. 

Mr. CONYERS. Thank you very much, Mr. McClusky. 

Mr. Michael Colopy is the Vice President of Aristotle, Incorporated, a major developer of computer software, and has recently 

developed one brand called INTEGRITY, which provides comprehensive age and identity verification services to its customers. 

This verification software has been featured very widely and I 

think he would want to explain it a little bit further. 

Welcome to our hearings today, sir. 

TESTIMONY OF MICHAEL COLOPY, VICE PRESIDENT FOR 

COMMUNICATIONS, ARISTOTLE, INC. 

Mr. COLOPY. Thank you, Mr. Chairman. 

As somebody who worked here many years ago on the Democratic side of the aisle, it has been something I learned from previous Chairmen that unless strong coffee has been served, it is best 

not to read your statement if there have been witnesses ahead of 

you. So taking that advice, I am going to paraphrase what I have 

to say, and also get to some issues that have been touched on earlier so that the Q&A might be more practical in its focus. 

Also, I should add that despite the fact that Aristotle is one of 

the global leaders in age and identity verification, I am not, technologically speaking, the sharpest card in the deck, with apologies to 

Ms. Duke. But there are policy issues and there are practical modalities that we need to discuss that directly respond to issues that 

have been raised—two in particular. 

One is, of course, screening out the underaged. I was happy to 

hear that Congressman Goodlatte did not say again what was said 

here last year, which we never had the chance—we were not called, 

as we were today, so we weren’t here to present evidence to the 

contrary. But for a few years, responsible major industries that 

wished to adhere to best practices and reflecting the fact that the 

courts have always held the State has a compelling interest in protecting children, they sought to use technology not just to market, 

but to protect. 

When it comes to those who are underage, of course, there are 

restricted products and services—tobacco, alcohol and so on. These 

industries, and today on a massive scale, deploy age and ID 

verification to screen out the underaged. In fact, screening online 

is far more effective than checking a driver’s license at the local 7- 

11. 

There simply is no argument to be made anymore and there 

hasn’t been for a while, that effective and available age identification is deployable and affordably so. That is being done by the largest beer brewers in the United States today. It is being done by 358 

major financial institutions. It is being done by distillers. It is 

being done even by State lotteries. 

The second question I wish to address of the two principal ones 

is the one of protecting people from themselves. Aside from the 

philosophical issue of it—and I must say this is the second hearing 

51 

in which we have been asked to testify where I have heard John 

Stuart Mill mentioned. Perhaps he should be made an honorary 

witness at the table hereafter. But the argument that addiction per 

se is a disqualification for the implementation of a given policy is 

one that can and must be addressed in terms of its practical solutions. 

One thing that this company did when it went first way out on 

a limb, and now became the leader in this field, it sought to look 

at the social downside and benefit to the use of its technology. It 

created something called the ‘‘self-exclusion list.’’ SEL is a global 

system that allows an individual, acknowledging addiction, to put 

themselves within the system so that any casino, online or bricks 

and mortar, when they present their identification would essentially as a proxy for that individual, exclude them as voluntary selftherapy. 

It is only one of many pieces if we are talking about therapy, but 

nonetheless, to help an addicted individual avoid relapse is one 

piece of that therapy. It is something that social service organizations the world over recognize the value of. It also directly addresses the question of whether or not there are tools that can be built 

into the system to address addiction and are also currently available and deployable. And yes, indeed, they are. 

There are other points to be made. For example, the question of 

verification, and I know from questions I have from Members that 

there has been some confusion, particularly because in dealing with 

alcohol over the years, the Federal Trade Commission has used the 

term ‘‘verification’’ in a rather sloppy way, allowing for example 

that sites that simply have an age screen that says ‘‘you must be 

18, tell us you are 18 and in you go,’’ can and should not be characterized as verification. I mean, every run-of-the-mill legal or illegal 

operation can do this and does it. In fact, the most disreputable 

ones do it with more panache than legal ones. 

So I would point out, and I would ask the Committee if its definition corresponds to the Latin roots of this word, that is ‘‘to establish as true.’’ That is the term as we use it, as verification. Ronald 

Reagan was mentioned earlier. In the entire negotiations over strategic weapons limitation, verification was used as the standard of 

immutable proof beyond arbitrary self-selection or self-attestation. 

So in the case of verification as we use the term and as we deploy 

it, it is against public records of data. It is not somebody simply 

alleging that they are of age. 

And finally, there is the question of credit card usage. Credit 

cards are common among teenagers, my own included. They cannot 

and should not be used as proxies for age, as the credit card issuers 

themselves say. That is something that also should be addressed 

in discussing these issues. 

Thank you very much. 

[The prepared statement of Mr. Colopy follows:] 

PREPARED STATEMENT OF MICHAEL COLOPY

Mr. Chairman and Members of the Committee, good morning. 

I am here at the Chairman’s request as the representative of Aristotle Inc., a 

leading provider of verification services for child protection online. Age and ID 

verification online first emerged several years ago as a solution of choice for many 

industries concerned about their social responsibilities to the broader society, espeVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
52 

cially where their marketing and sales efforts might reach underage teens or expose 

children to risk. Even three years is a generation in the lifecycle of technology. The 

Internet has brought an acceleration of technological remedies that are far more effective today than they were at the start of the last Congress: state-of-the-art online 

verification illustrates this pattern. 

The Sixty Minutes report you just viewed is a relevant illustration of how in the 

instance of online gaming robust technology can be used by responsible private enterprise to perform a necessary social good. But the robust verification capability 

you witnessed is unfamiliar to those who do not follow these technological developments closely. As recently as last fall, some Members of this body professed to be 

unaware of the online age verification and ID methods the CBS report appropriately 

demonstrated, giving this as their reason to support the selective online gaming 

ban. Yet, the tech savvy son of the producer of Sixty Minutes could not enter the 

gaming site that uses an effective verification service but easily penetrated those 

that do not deploy it. That report first aired in November, 2005: the robust system 

that kept the youngster out of the gambling site is even more effective today and 

in vastly more widespread use across the United States and in other parts of the 

world. 

I am here as a stand-in for John Phillips, the CEO of Aristotle Inc. whose age 

and ID verification system, INTEGRITY, is the backend of the effective system in 

the unscripted test you just saw. Commenting on what Aristotle does for its many 

clients is not our custom but we were persuaded to appear because of erroneous assumptions about age verification that should not be left uncorrected, particularly 

where they pertain to child protection. 

America is a society guided by humane principles: we are also an economy built 

on free enterprise. In the context of today’s hearing, therefore, there are two considerations that should guide this exploration: First, what is necessary to provide reasonable protection to society’s most vulnerable members, reduce fraud and mitigate 

risk, and, second, how is the market choosing to do this? 

Over the last ten years, law enforcement and consumer protection agencies as 

well as industry self-regulatory bodies have recognized the need for rapid online 

identity verification for Patriot Act and anti-money laundering compliance, fraud 

prevention and for risk mitigation involving age-restricted products such as tobacco, 

alcohol, pharmaceuticals, video games and mature content from many sources. 

Alongside the steep rise in public concern, online age and ID verification has matured as a needed solution such that any merchant may do online what is routinely 

done at stores every day across America. In fact, as ever more efficient technologies 

and databases have been developed, online transactions have become in many instances faster and less risky than the visual driver’s license scans that suffice for 

alcohol or cigarette purchases in America’s neighborhood convenience stores, restaurants and bars. And although it is certainly true that no manmade system is 

foolproof—whether it be a seatbelt, an airbag or an airplane, the verification methods now deployed justify a relatively high degree of confidence. Which is why they 

have earned broad adoption across American commerce. 

Government agencies that monitor commerce have been notably slower than the 

market in recognizing what has been happening but that too is gradually changing. 

The Federal Trade Commission and other agencies have urged that reliable stateof-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 one logical response to the acute 

need of marketers for reliable, robust and commercially reasonable protective 

screening that also addresses important privacy and security concerns. Depending 

primarily on public records data rather than on personal financial information, INTEGRITY comprises several levels of authentication in a methodology that matches 

process to risk. The INTEGRITY system is now a major component of the private 

sector’s accommodation of mounting public pressure for a technological solution that 

is both socially responsible and commerce friendly. 

According to Forbes Magazine, Aristotle’s INTEGRITY verification service is the 

market leader in online identity and age verification. INTEGRITY is utilized today 

by global Fortune 1000 enterprises that are required either 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, 

53 

wineries, distillers, makers of premium cigars, video game publishers and the major 

motion picture studios. In general, the firms with the greatest market share are the 

most assiduous users of INTEGRITY. 

It is utilized 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. 

Aristotle’s INTEGRITY service offers indemnification in the event of failure. Since 

adoption, not once has that happened. Blocking underage teens from purchasing tobacco online is believed by most citizens to be an important social value. (The Campaign for Tobacco-Free Kids (http://tobaccofreekids.org/Script/DisplayPress Release.php3?Display=425) presents the urgency of this issue on its website.) 

Hollywood has also seen the wisdom of the new approach to marketing. The major 

motion picture studios 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. In fact the overwhelming majority of visitors to 

studio sites with restricted ads are age verified through Integrity. 

Vendors in the beverage alcohol business use INTEGRITY as well. In the new era 

of direct wine shipments, for example, online age verification has become an essential component for compliance and responsible marketing across the United States. 

Without a verification service such as INTEGRITY, Members of Congress and the 

general public would not be able legally to purchase fine cigars, wines, lottery tickets or R-rated movies by mail, by telephone or online. 

Another social mandate that relates to the question, online gaming, before the 

committee today, that INTEGRITY is designed to meet is in the area of problem 

gambling. In addition to the risk mitigation and child protection benefits of age and 

identity verification, this service benefits those individuals who acknowledge that 

they are problem gamblers and wish to avoid relapse. There are several components 

to effective therapy for this affliction but allowing an individual to establish a blocking mechanism is one part of such a program. A central self-exclusion list program 

(SEL) has been under development over the last several months and is now deployed. Through the SEL 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. As with all data in the INTEGRITY system, the list is strictly confidential, and the names would not be disclosed to anyone. Individuals could remove 

their names from the list after a set minimum period. 

In the United Kingdom, INTEGRITY is widely used by licensed casino operators 

to comply with the strict UK requirements for age verification online. 

The question sometimes arises: in the web world, how can a governmental jurisdiction mandate the exclusion of persons entering online from outside its authority? 

The method is known as IP geo-location. It’s true that some IP addresses can only 

be identified at a country level. And there are certain types of proxies and satellite 

IPs that prevent us from geo-locating and that the geolocation technology can’t be 

applied to long-distance modem dialup calls (e.g., a user from California calls a 

dialup number in New York). 

The good news is that we can identify these types of IP addresses. And these IP 

addresses are assigned low confidence scores. 

Organizations like the New York Lottery and the BC Lottery only use IP addresses that are scored at near 100% confidence, meaning that we are nearly 100% certain that any given IP address correctly correlates with a location. Addresses not 

scoring very high are excluded. 

Overall these exclusions represent only a very small percent. 

The solution allows us to be 100% compliant. Because we are only delivering IP 

addresses that are scored virtually at the 100% confidence level, we are able to adhering to the lotteries’ strict compliance requirements. 

As a practical matter, everyone in this room at some time orders airline tickets 

or executes some similar transaction where the vendor needs to be fairly confident 

that the purchaser is who he says he is. This kind of real time vetting online is 

now routine. 

In their determination to ‘‘do the right thing’’ and comply with the law while marketing responsibly under best practices standards, a large and growing number of 

enterprises across the broad spectrum of American commerce have adopted online 

age and ID verification. The market leaders have spoken and there is no ambiguity 

remaining. Simply put, they have opted for responsible child protection in the form 

of state-of-the-art online age and identity verification, making effective age and ID 

verification the norm. The substantial and growing danger, especially to the young, 

that unrestricted access over the Internet represents has stimulated technological 

solutions by the private sector such as INTEGRITY. 

54 

In its simplest terms, the case for deploying this child protection measure has 

never been more apparent or compelling. Age and ID verification is efficient, effective, reliable and available nearly everywhere. 

Thank you. I look forward to responding to your questions. 

Mr. CONYERS. This has been a very engaging morning for us. I 

would like to ask, starting with Ms. Hanaway, to indicate anything 

that she has heard here from her co-panelists that she would want 

to give us some comment about or caution the Committee or take 

mild issue with, or anything else she may be thinking that is reportable in the record. 

Ms. HANAWAY. Mr. Chairman, that is a very broad question. 

Thank you for that opportunity to comment on some of what the 

other panelists have said. 

I think I might be better to defer to more specific questions. I 

will say this about the last witness’ testimony. Boy, it would be 

helpful to law enforcement if there were real online verification 

ability of age, but almost in the reverse of the context that he just 

described. 

If we could verify that those going on sites that were available 

to underage kids really were under the age of 18 and not child 

predators; if we could really identify who people were because the 

context from a prosecutor’s perspective in which we most often see 

people making misrepresentations about their age is in the context 

of predators preying on children and saying that they are under 18. 

So if we could find a tool that really was verifiable, it would be 

helpful. It really would. 

Mr. CONYERS. Mr. Colopy? 

Mr. COLOPY. Well, I am delighted to tell the Justice Department 

that the very tool I described does exactly that. In fact, in the INTEGRITY system, we also have access to complete registered sex 

offender lists. So not only can you establish that someone stupid 

enough to come in under their own name and is a registered sex 

offender is now in your site, we can also verify that every person 

coming in is of a certain age, and if there is an anomaly, they don’t 

get on. So the solution that you are looking for, ma’am, exists. 

Mr. CONYERS. Ms. Hanaway? 

Ms. HANAWAY. If I understand correctly, and I really want to understand correctly, Mr. Chairman, I think that his system works 

only if the person logs on to whatever computer service they are 

using by putting on their own identity. The situation we most often 

find is that people pose as someone else. I don’t know that the system that has just been described has an ability to detect whether 

you are using someone else’s identity as you are logging on. 

Certainly, it is easy to find sex offenders if they log on using 

their own identity, but most often they pretend to be someone else. 

From what I have heard, I don’t see how the system screens for 

that, screens for either a minor who wants to gamble, taking the 

identity of a parent or an aunt or an uncle, or a sexual predator 

taking the identity of someone else and going online, someone who 

really exists and really is of age-appropriate and economic-appropriate status. 

Mr. COLOPY. Well, first of all, it is important to say that as with 

seatbelts, airbags and anything else, no system is perfect. But the 

system that we are deploying has many different points of 

55 

verification. I am not sure if you have it, but 60 Minutes did a test 

of this to demonstrate definitively. 

It did actually what they thought was a sting on a site where a 

CBS producer’s son attempts to get on the Internet using his father’s credit card and posing as his father, and was repeatedly 

rebuffed. He never succeeded, which was startling. However, when 

they went to systems that did not have robust age verification, including some outside the country, he got in rather easily. 

So without telegraphing to every teenager what all those points 

of data are, I wish to emphasize emphatically that the issue that 

has been raised is addressed by the technology we are deploying 

today. 

Mr. CONYERS. Ms. Duke, what have you heard here that would 

make you want to make a comment at this point? 

Ms. DUKE. That is a dangerous question to ask me. I want to just 

respond very quickly to Ms. Hanaway’s concern that only if you log 

on as yourself can you identify someone. There is technology out 

there right now which is called SNARE. It is from a company 

called Iovation, which is out of Portland, Oregon. It is used by such 

companies as, for example, Dell Financial Services Online. 

It is a new technology and it is patented. It has to do with device 

sharing, as opposed to worrying about who a person is, once a person is logged onto a computer and been identified as a bad guy, 

then any computer that that person is related to will also be shut 

down if you choose to. You can set the SNARE or the trap for as 

wide as you want, for as many associations as you want. 

So for example, if I log on and they find out I am a minor or they 

were to find out that I was, say, a compulsive gambler or someone 

who is a predator, and I logged onto a computer, if I had logged 

onto another person’s computer, their computer would get shut 

down and then whoever that computer, that user had shared a 

computer with would also shut down. So it is like if you tell two 

friends, if we remember that commercial, it is like that. And again, 

you can set the trap for as wide as you want. 

What that does is it makes it so that someone cannot create new 

accounts. If they create a new account, it is their computer that is 

tagged as bad, and not their account that is tagged as bad, and actually not their personal identity that is tagged as bad. In fact, the 

software is completely blind to the person’s identity. They only care 

about the device. 

Now, the interesting thing about this is that these devices are 

shared by any company that chooses to use these services. So once 

Dell Financial Services, for example, finds out that there is a bad 

guy on their network, then if MySpace chose to use this, that person would be identified as bad automatically for their network. 

They wouldn’t have to do a bad thing on MySpace for MySpace to 

know about them. 

So there certainly is a lot of really good technology out there that 

is completely blind to the user and only interested in the device, 

which is a much more powerful way to stop these people from getting online. 

As a second point, as far as the prosecutions that have taken 

place in the Justice Department, my understanding is that they 

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cept sports betting wagers, as they should, because the Wire Act 

of 1961 clearly states that sports betting is illegal. However, there 

aren’t any prosecutions that pertain to poker because the Federal 

decisions that we have on that up to the Fifth Circuit Court state 

very clearly that poker is not covered by the Wire Act. 

So I am not sure how that is germane necessarily to the UIGEA 

which clearly states that if an activity is legal in the State, then 

it should remain legal in the State because it doesn’t supersede the 

Wire Act. And if it is illegal in a State, then it should remain illegal in a State, that that is really a State-by-State issue that now 

has some Federal governing to it. So yes, the people from 

BetonSports got prosecuted. They were accepting sports wagers. 

NetTeller was involved in sports wagering and so have all the 

other prosecutions that have been involved. 

As far as Mr. Goodlatte’s testimony to the individuals, and Mr. 

McClusky’s, that have bankruptcies in their family, I just want to 

say quickly that if we start legislating based on individual cases of 

people having bankruptcy, we are going to be in pretty big trouble 

because we are going to have to legislative basically every activity. 

The issue for me is that people make bad decisions all the time 

that create bankruptcy and problems in their family. For example, 

accepting a sub-prime zero percent down mortgage has created a 

lot of bankruptcies recently. Online shopping or shopping in real 

life has created a lot of bankruptcies. 

If we choose to be on every activity that creates financial hardship in a family, we are going to be banning basically every activity. If we choose to ban anything that hurts a family, we are going 

to be banning McDonald’s, for example, because many fathers die 

prematurely from eating fatty foods and leave their children with 

no means to support themselves, and you know, a lot of ruining of 

lives occur because people are eating too many McDonald’s’ hamburgers. I would hope that we aren’t going to ban that either. 

Mr. CONYERS. Thank you. 

Before we go to vote, we are going to recognize Mr. Smith, but 

I have to ask Professor Weiler what he has made of the discussion 

with his fellow panelists. 

Mr. WEILER. Mr. Chairman, thank you. I was struck not by what 

I heard, but what I did not hear. In particular, I would be interested in the position of the Justice Department if, for example, say 

China hypothetically, were to prosecute an American citizen and 

put them in prison in violation of an international legal obligation 

owed to the United States. 

Simply they would say to the United States that under our internal Chinese law, this individual has no defense, despite the fact 

that we recognize that we are violating the international obligation 

to you, and then China moved to withdraw the commitment they 

had given to the United States. What would be the position of the 

Justice Department in such a situation, with a little rider, that 

China would add, ‘‘and we have learned this trick from you’’? 

Mr. CONYERS. What do you think, U.S. Attorney? 

Ms. HANAWAY. Well, I think it would be unwise, Mr. Chairman, 

for me to try and answer a hypothetical situation that does not 

exist. I will say that we are currently in the district for which I 

am U.S. attorney prosecuting BetonSports; that there have been 

57 

motions made suggesting that our prosecution violates the World 

Trade Organization treaties. Obviously, this is currently being litigated, so I can only talk about the positions we have taken on the 

public record, and those are essentially two. 

The first is that this Congress in enacting the statutes necessary 

to carry out those treaties said in the law that nothing in those 

treaties would overturn existing laws of the United States. The 

Wire Act was already the law when those treaties were executed. 

The second position that we have taken which really doesn’t go to 

this country-to-country discussion is that the defendants as private 

citizens don’t have a right to challenge under the treaty. 

Mr. CONYERS. Are you mildly satisfied, Professor Weiler? 

Mr. WEILER. Of course, Ms. Hanaway has answered honorably, 

and that indeed is the position taken. I think it is a very unfortunate position for the rule of law and for the reputation of the 

United States in the world order. It is creating a highly dangerous 

precedent for our own citizens trading in other countries. 

Mr. CONYERS. Ms. Hanaway, why did you not mention horse racing in your list of prosecutions in Internet gambling? 

Ms. HANAWAY. Well, I was highlighting, Mr. Chairman, some of 

the more notable prosecutions that are currently going on. There 

was no particular reason not to mention horse racing. 

Mr. CONYERS. Well, it has been noted that they are frequently 

excluded from prosecution, generally, not in your area. You didn’t 

know that. 

Ms. HANAWAY. I had not heard you note that. I have heard you 

note it now. I am not sure if there is a question in your notation. 

Mr. CONYERS. Oh, there is. [Laughter.] 

Ms. HANAWAY. I am sure of it. 

Mr. CONYERS. Mr. Smith? 

Mr. SMITH. Mr. Chairman, will we return after the vote? 

Mr. CONYERS. You don’t want lunch, so the answer is yes, absolutely, after the votes. 

Mr. SMITH. Mr. Chairman, I will try to be brief. 

Ms. Abend, when do you expect the regulations to be in effect for 

the enforcement act? 

Ms. ABEND. Thank you, Congressman, for asking about that. We 

obviously are in the opportunity right now of an open comment period which ends next month on December 12. Our intent, just as 

in the timeframe of when we promulgated the proposed rule, is to 

work very closely with the Federal Reserve Board and the Department of Justice in a timely and thorough manner. 

Mr. SMITH. Right. I understand all that. When do you expect 

them to be effective? 

Ms. ABEND. Well, Congressman—— 

Mr. SMITH. Give me an estimate roughly. 

Ms. ABEND. Congressman, until the comment period is closed, it 

would be very difficult for me to say. We need to go through all of 

those comments. We expect an awful lot. 

Mr. SMITH. Okay. I won’t pursue it, but it doesn’t seem to me it 

was that difficult of a question. 

Ms. Hanaway and Ms. Abend, what gaps are there in the current 

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tion on Internet gambling, particularly with regard to payments or 

anything else? Ms. Hanaway? 

Ms. HANAWAY. Well, certainly it is the position of the Department that Internet gambling in all forms is illegal under the laws 

today. 

Mr. SMITH. Are there any gaps in current law? 

Ms. HANAWAY. I think it would be helpful to have some of the 

further clarifications that were contained in legislation Congressman Goodlatte proposed last year. Perhaps some further specification of the specific forms of gambling that are covered, although we 

do believe and take the position that all forms of gambling, including poker, are covered by existing law. 

Mr. SMITH. Okay. 

Ms. Abend, any gaps in the current law that need to be closed? 

Ms. ABEND. Thank you, Congressman, for your question. Treasury Department is not seeking additional authorities at this time. 

Mr. SMITH. Okay. Thank you. 

Ms. Duke, I have a couple of questions for you. First of all, congratulations on your success. I have to say, you certainly got your 

money’s worth from that Ph.D. 

Two questions. One, do you see any distinction between poker 

and other forms of gaming, or do you think they are all the same? 

Ms. DUKE. No. From a civil liberties standpoint, I would call 

them all the same. 

Mr. SMITH. Okay. 

Ms. DUKE. However, there is a very huge distinction between 

poker and other forms of gambling. Other forms of gambling are 

house-banked and are designed so that the house has an edge. So 

that when someone chooses to play them, they know that they are 

mathematically guaranteed to lose in the long run, but they are 

choosing to try to get lucky in the short run. 

Poker is a game where you can play with an edge because it is 

a game of skill. So it is a game that you can get better at that actually has quite a bit of social utility in terms of, for example, enhancing mathematical skills or negotiation skills. In fact, John Von 

Neumann—— 

Mr. SMITH. Let me stop you there. I will take your word for that. 

I want to ask one more question before we have to leave. 

Ms. DUKE. Okay. 

Mr. SMITH. In the last James Bond movie called Casino 

Royale—— 

Ms. DUKE. Yes. 

Mr. SMITH [continuing]. James Bond draws an inside straight 

flush. What are the odds of that occurring? [Laughter.] 

Ms. DUKE. An inside straight flush will happen with one card to 

come 2 percent of the time, but that doesn’t mean that it is a game 

of luck. It means that 98 percent of the time, he wouldn’t have had 

that, and it frankly shouldn’t have been involved in that hand, and 

a good player knows that because we play with an edge and we 

constantly get ourselves into mathematical—— 

Mr. SMITH. I am not questioning your skill at all. So it is 2 percent on an inside straight flush. 

Ms. DUKE. Right. 

Mr. SMITH. What about a royal flush? 

59 

Ms. DUKE. Well, a royal flush will happen about one in every 

6,000 or so hands, but you can use any cards from your hand whatsoever in Texas Hold’em. It is different for different games. 

Mr. SMITH. Mr. Chairman, I think we are getting free tutoring 

today. 

Ms. DUKE. But the fact that I know those statistics shows that 

it is a game of skill, even in the short run, even in one hand or 

one turn of the card. 

Mr. SMITH. Okay. Thank you, Ms. Duke. 

I yield back the balance of my time. 

Mr. CONYERS. The Committee will stand in recess for a while. 

We hope that we can have our guests go back to the room there, 

because your discussions among each other are very important. 

They help us in flushing out some of these very complex questions. 

So let us stand recess until the votes are taken. 

[Recess.] 

Mr. CONYERS. Excuse the voting necessities of the Committee. 

The Chair recognizes the gentleman from Florida, Bob Wexler. 

Mr. WEXLER. Thank you very much, Mr. Chairman. I first want 

to thank the Chairman for holding what I think is an extremely 

compelling and illuminating hearing. I particularly found Ms. 

Duke’s testimony with respect to the personal freedom aspect of 

what we are talking about today to be especially important; the 

professor’s testimony regarding the trade and economic implications of the unlawful Internet Enforcement Gaming Act to be extremely important; and I found equally compelling the testimony 

from the Department of Justice, from Ms. Hanaway, equally compelling because of its sweeping nature. Mr. McClusky’s citation of 

the moral aspects and the grave toll that gambling takes I think 

is also worthy of some examination. 

If I could, Mr. Chairman, just to take a step back, just to give 

people a sense of the environment in which we operate. More 

Americans watch professional poker on television than watch NBA 

basketball. So more Americans are watching Ms. Duke and her colleagues play poker than are watching Shaquille O’Neal and 

Dwayne Wade. That is how popular poker is in America. More 

Americans are watching poker than watch baseball in the United 

States. 

The fact of the matter is, poker has been played for decades in 

the White House. It has been played in the halls of Congress. And 

don’t get me wrong, I am all for it, and I suspect it has been played 

at the Supreme Court, and more importantly it is played in millions of kitchens across America and millions of dining rooms 

across America. 

The fact is, poker is America’s pastime game, and it is a game 

of skill. That is the venue in which we operate, except that the last 

thing that the last Congress did with the now-minority when it was 

a majority, was to say that playing poker on the venue of the 21st 

century, the Internet, would be illegal, and that it needs to stop. 

That is why we are here, Mr. Chairman. And let us talk about 

some of the supposed declarations. The very distinguished Ranking 

Member talked about the fact that we have a prohibition of Internet gambling. We do not have a prohibition of Internet gambling. 

We do not prohibit betting on horses on the Internet. We do not 

60 

prohibit betting on lotteries on the Internet. We don’t prohibit betting on fantasy sports on the Internet. 

To Mr. McClusky, I would respectfully suggest, and I respect 

your morals, I certainly do. You have every right to believe as you 

do. And I respect that. But I find it hard intellectually to understand why it is moral to bet on a horse running around a track, 

but if it is a dog, if it is a greyhound running around the track 

somehow it is immoral, according to this Congress. I don’t get the 

distinction. 

Mr. MCCLUSKY. If you would like to introduce legislation to ban 

horse racing, FRC would be glad to look at that. 

Mr. WEXLER. Well, what I would like to do is actually have legislation that treats all gambling the same. Either we prohibit it all 

because we are morally so offended, or we let it all be up to the 

personal freedom of Americans to decide. But to cherry-pick as a 

Congress is what I find particularly intellectually dishonest. 

I guess my question would be respectfully to Ms. Hanaway. I 

found your response to the Chairman’s question interesting—the 

question regarding horse racing. It would be interesting if you 

weren’t in the Department of Justice, if you were at the Treasury, 

it might be interesting; if you were just a private citizen, it might 

be interesting. 

But we do not, at least as I understand it, we don’t prohibit the 

betting of horse wagering on the Internet, yet you testify that it is 

the Department of Justice’s position that all forms of Internet gambling are prohibited. But you tell the Chairman that horse tracks 

are not subject to any of the activities of the Department of Justice. 

Your testimony is that the statute applies to both sporting events 

and other forms of gambling. But yet, that seems to ignore what 

was the Fifth Circuit decision, if I understand it correctly, understanding that Missouri is only an authority, but not a controlling 

authority in your jurisdiction. But if I understand the state of the 

law is that it is only sport betting that is specifically prohibited by 

the current state of the law, and yet you tell us the Department 

of Justice takes the position that all forms of Internet gambling are 

prohibited. 

Why aren’t we, if that is the case, prosecuting every lottery director in America? Why aren’t we prosecuting everybody who shows 

up at an off-track horse-betting establishment in America? Why 

aren’t we prosecuting every fantasy sports outlet in America? Don’t 

get me wrong. I don’t want that to happen. But you are the Department of Justice. This is the state of the law. Please tell me, where 

do I have it wrong? 

Ms. HANAWAY. Thank you for your question, Congressman. Let 

us start with I think something either that you mis-heard or I misstated. And that is that whether we as a Department believe that 

placing bets over the Internet on horse racing is illegal. We do believe and take the position that it is illegal. We have prosecuted 

cases. Horse racing betting is a portion of the current prosecution 

we are doing against BetonSports. It was also the primary means 

of betting and wagering in a prosecution done in the Southern District of New York. The name of the case was the United States v. 

Uvari. 

61 

With respect to the Fifth Circuit case, that is the one case that 

has held that 18 U.S.C. Section 1084 does not apply to poker wagers. That was litigation between private parties. The United 

States was not a party to that case. We have consistently taken the 

position that poker is covered by that statute, but also importantly 

by two other statutes that were not litigated in that case: 18 U.S.C. 

1952 and 1955. At least one magistrate judge in the Eastern District of Missouri has said we are correct in that interpretation of 

the Wire Act, including section 1084. 

Mr. WEXLER. If I may, Mr. Chairman, has the Department of 

Justice shut down a single e-lottery system in the United States? 

And if you haven’t, why not? 

Ms. HANAWAY. Congressman, I don’t know that I can answer 

your question. I don’t know if in fact the Department has done that 

anywhere. I would be happy to get more information to follow up 

with submitting an answer in writing. 

Mr. WEXLER. The beauty of the Department of Justice’s position, 

as you enunciate it, which is all forms of Internet gambling are 

prohibited, means there is no gray area. Shut it all down. So when 

we see selective enforcement, that is what suggests a very untoward result in some of our minds. That is what appears to be the 

state of the law. This idea that we prohibit Internet gambling is 

a fallacy. People are legally doing it millions of times every day in 

America. 

If I could close, Mr. Chairman. Mr. Smith earlier and Mr. Goodlatte as well make I think some very valid points on the issue of 

underage gambling. It is a serious problem. I think we all take it 

extremely seriously. Mr. Colopy I think gave excellent testimony in 

terms of how it can be avoided. 

The irony is, the irony with respect to the state of the law as we 

see it, is that there is more likely an over-usage of younger people 

now using off-site gambling sites and underground poker sites because we in fact have prohibited it and not required that poker 

sites have this type of technology. That is the terrible irony involved. More kids are going to gamble that shouldn’t be because of 

this legislation, and we have the responsible way to stop it. 

And also with respect to habitual gamblers, the Internet is actually the savior because everything is documented. With a simple 

look at who is doing what on the Internet, you can figure out who 

are the problem gamblers, prohibit them from gambling, and get 

them help. You put it underground, you do it off-shore, they are 

going to lose the same amount of money, if not more, and you won’t 

get them any help, and none of it goes taxed. 

Mr. CONYERS. Thank you very much. 

The Chair recognizes the gentleman from North Carolina, the 

senior Member of the Judiciary Committee, Howard Coble. 

Mr. COBLE. Thank you, Mr. Chairman. 

It is good to have you all with us. Mr. Chairman, some years ago, 

Merle Haggard, a country balladeer, recorded a song entitled ‘‘The 

Kentucky Gambler.’’ And the concluding lyrics were these words: 

‘‘But a gambler loses much more than he wins.’’ Now, Ms. Duke 

would be an exception to that, but I would be inclined to think that 

the number of losers far exceeds the number of exceptions. 

62 

Ms. Hanaway, Internet gambling cases are complicated for several reasons, not the least of which is because most of the facts 

deal with electronic transactions. If the law was changed and Internet gambling became regulated, how would this impact your ability 

to investigate and prosecute Internet gambling cases? 

Ms. HANAWAY. Congressman, you are absolutely correct that 

these are very complex cases. Each of these cases, like BetonSports 

or NetTeller, in each of those the defendants were gigantic organizations. We heard testimony earlier from Congressman Goodlatte 

that the prosecution of NetTeller alone closed down the payment 

of $6 billion a year—that is $6 billion with a ‘‘b.’’ In BetonSports, 

we alleged that it was $1 billion per year being bet. 

So whether these prosecutions involve illegal gambling or legal 

gambling, we are still talking about a magnitude of transactions 

that will require enormous amounts of investigation and I am not 

certain that a change in the law other than bringing some of those 

records on-shore would make a significant difference in those prosecutions. 

Mr. COBLE. Thank you for that. 

Professor, would the United States have jurisdiction to prosecute 

an off-shore gambling website? 

Mr. WEILER. I have to answer, it depends, complicated rules 

about extraterritorial jurisdiction. Just as we would not like some 

far away country to prosecute legal activity in our country, other 

countries do not like us to prosecute what is legal activity in their 

countries. So there are complicated rules about that. 

But Congressman, the burden of my testimony was not the jurisdictional issue, because simply saying that under the commitment 

the United States took within the World Trade Organization, the 

activity which is being prosecuted is protected. It should not be 

prosecuted independently of the jurisdictional issue. I am sorry I 

can’t answer more fully. 

Mr. COBLE. That is good enough. Thank you, sir. 

Mr. McClusky, Internet gambling is regulated and permitted in 

Europe. What impact has this had upon their society, if you know? 

Mr. MCCLUSKY. The study I cited in my testimony was a British 

study where it is regulated, and it showed that even under regulation that online addiction to gambling online has risen just as 

much as it has become popular over there. So even regulation has 

not helped those who have become addicted online. 

Mr. COBLE. Professor, let me come back to you again. I think you 

may have touched on this earlier. Trade has had an enormous impact upon the district I represent and upon other districts as well, 

some good, some bad. I represent several industries that rely very 

obviously on international trade. What impact will the WTO decisions have and what industries will be affected, if you know? 

Mr. WEILER. Each decision of the WTO is germane to the industry at hand. I will give you an example. The United States brought 

a case against Japan which was discriminating in the way they 

taxed alcohol. They found an ingenious scheme that had a low tax 

on Japanese alcohol and a high tax on our bourbon, et cetera. 

The United States representative in the WTO very, very forcefully said to Japan, ‘‘You undertook when you signed onto the WTO 

that decisions of the appellate body should be complied with unconVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6601 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
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ditionally. Please comply.’’ And Japan complied. I think it is in the 

interest of this country that the decisions of the appellate body of 

the WTO on which there is always an American judge, should be 

complied with when we win and when we lose. 

Mr. COBLE. Mr. Chairman, if I may ask one more quick question 

to the U.S. attorney, Ms. Hanaway. 

Ms. Hanaway, have any Internet gambling sites been linked to 

money laundering? I don’t know the answer. I am wondering if that 

has come across your desk. 

Ms. HANAWAY. There have been some cases, Congressman, that 

have been linked to money laundering, but it has been to date 

within the context of laundering proceeds of gambling. It hasn’t 

been proceeds from other illegal activities that were laundered 

through these Internet gambling companies. 

Mr. COBLE. I see my time has expired. 

Mr. Chairman, I yield back. Thank you. 

Mr. CONYERS. You are welcome. 

The Chairman of the Crime Subcommittee, Bobby Scott of Virginia. 

Mr. SCOTT. Thank you very much. 

Ms. Duke, you are representing the Poker Players Alliance. We 

have heard today a suggestion that online gambling can lead to 

bankruptcy, divorce, domestic violence, child abuse, crime and imprisonment, and raising children who are at an increased risk of 

smoking, drinking, drug use and becoming pathological gamblers. 

Can you comment on that, especially pointing out what most people gamble in an average Friday night poker game? 

Ms. DUKE. Absolutely. I appreciate the question. Since some 

Members of the Committee feel that bringing up anecdotal evidence is important in determining legislation, I would like to point 

out that none of my four children smoke or drink; none of them 

play poker or have any interest in playing poker whatsoever, or engage in any other forms of gambling. So far, I am not bankrupt, 

and I certainly don’t abuse my children. So I guess that I am the 

piece of counter-evidence that you can now base the legislation on. 

But most people who gamble online, it has been determined, 

spend $10 a week doing so, which where I live wouldn’t even get 

you into a movie. These are these people’s recreational dollars, and 

I feel that they should be able to choose to spend those recreational 

dollars and discretionary money as they so please. 

We can find anecdotal evidence of people harming their families, 

again as I said before, from any activity that you might engage in, 

and not just activities that we seek to regulate like, for example, 

alcohol, but activities that we seek not to regulate like shopping, 

for example. 

One would hope that because anecdotally we have people making 

very bad decisions for which Internet gambling is certainly not the 

cause, but a symptom of the issues in those families that we 

wouldn’t be legislating on that. At least I would hope that. That 

is my understanding of how the law works, so I certainly appreciate the opportunity to be able to re-state those beliefs. 

Mr. SCOTT. Thank you. 

Ms. Hanaway, we have heard a lot about the prohibition against 

Internet gambling. Isn’t it true that Internet gambling in the FedVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
64 

eral code, it is not illegal to gamble on the Internet? It is illegal 

to run a gambling operation? 

Ms. HANAWAY. It is illegal to engage in the business of taking 

bets or wagers. 

Mr. SCOTT. But not illegal—there is no prohibition against gambling on the Internet? 

Ms. HANAWAY. That is correct. 

Mr. SCOTT. Okay. Now, if the site is located outside of the jurisdiction of the United States, particularly in some low country that 

we don’t have diplomatic relations with, how would you restrict 

someone’s ability to gamble on that Internet site under present 

law? 

Ms. HANAWAY. Well, the position that we have taken is that they 

are using wires that are contained within the United States to either transmit the funds or to transmit the information upon which 

they are placing the bets. 

Mr. SCOTT. And how would you get jurisdiction? How would you 

prosecute the case? 

Ms. HANAWAY. Well, the best example I can give you is the case 

that is in our own jurisdiction, which is BetonSports, where the 

corporation subjected itself to our jurisdiction, even though it was 

a corporation domiciled in Great Britain. 

Mr. SCOTT. That is a country we have good diplomatic relations 

with. How about a country we do not have diplomatic relations 

with? Is there any way to reach them effectively with the Internet? 

Ms. HANAWAY. It makes it much more difficult. 

Mr. SCOTT. Ms. Abend, how would a bank know that a specific 

transaction involves unlawful Internet gambling if the payee is an 

escrow account or a hotel that has a casino and online gaming? 

Ms. ABEND. Congressman, thank you for your question as regards the various types of payment systems that can be used and 

the specific example I think that you are talking about. In the 

event that, for example, under our current proposed rule, someone 

was to use a credit card to make some kind of deposit, the proposed 

rule outlines policies and procedures that are reasonably designed. 

As one of the non-exclusionary examples in that—— 

Mr. SCOTT. How would a bank know what the purpose of the 

transaction was? How would the bank know that it is unlawful 

Internet gambling, if all they have is the payee’s name? 

Ms. ABEND. Well, in the example that you are providing to me, 

Congressman, the merchant account agreement with the credit 

card company is required to have due diligence processes and procedures to know the kind of activity that that business that they 

are creating that merchant account agreement with is in, what 

kind of activity they are conducting. In the example that you are 

using, if it is for the purpose that that account is being used for 

the purpose of unlawful Internet gambling, then—— 

Mr. SCOTT. How would the bank know, if it is a hotel in Monte 

Carlo? 

Ms. ABEND. Congressman, as part of the requirements for credit 

cards, credit card companies when a bank establishes a merchant 

account agreement, that is a financial institution, with a business 

for them to be able to process credit card payments, there is a due 

65 

diligence requirement for them to be able to know whether or not 

it is processing illegal online gambling. 

Mr. SCOTT. But if it is a hotel in Monte Carlo, they could have 

hotel expenses. That is not illegal. 

Ms. ABEND. Congressman, you raise a very good point. 

Mr. SCOTT. It could be legal casino transactions. 

Ms. ABEND. Congressman, you raise a very good point. It is 

something that the Treasury in consultation with the Department 

of Justice and the Federal Reserve Board spent a lot of time focusing on during our deliberations—the idea that payments could be 

commingled for lawful or unlawful activity. And so what we did in 

our proposed rule is we outlined what we think are reasonably designed policies and procedures for them to monitor whether those 

types of accounts are being used for illegal activity. 

Mr. SCOTT. Do you have any jurisdiction over foreign banks if 

somebody were to open a bank account in a foreign bank? Would 

you have any jurisdiction over that? 

Ms. ABEND. Congressman, to the extent that the financial institution is overseas, the statute does not provide authority for us. 

Mr. SCOTT. Mr. Chairman, if I could ask one question to Mr. 

Colopy. You can verify age. Can you technologically verify location, 

where the person is located as they are gambling on the Internet? 

Mr. COLOPY. Yes. In most cases, yes. 

Mr. SCOTT. So if a State were to legalize it, you could technologically ascertain that they were in fact in Nevada? 

Mr. COLOPY. Yes. For example, right now the New York state lottery, it does not sell tickets beyond its borders. We process for 

them, and those are verified. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. CONYERS. Thank you very much. 

The Chair recognizes acting Ranking Member, Bob Goodlatte of 

Virginia. 

Mr. GOODLATTE. Thank you, Mr. Chairman. There are a lot of 

things that need to be touched on here. 

First, I would like to suggest that while this is a wonderful panel 

and everybody has made a good contribution, you might want to 

consider having an entire panel of State attorneys general and governors. The reason I suggest that is that that is really what the 

heart of this issue is all about. What the Federal Government has 

generally done has been related to helping the States enforce their 

laws. 

Ms. Duke has correctly noted that our Federal law, which is over 

40 years old, the Wire Act, is out of date. Mr. Wexler incorrectly 

noted that last year we passed legislation—I wish you were here 

to hear this—but that we passed legislation last year to correct 

that. I wish that we had. This Committee worked very hard on that 

legislation. We passed it out, and as has been already noted, it 

passed the House by an overwhelming margin. But I went to the 

Senate and pleaded with the Senators to take that. They only took 

the financial services portion of the bill. 

So all of this discussion about what the Congress has done recently needs to focus on the fact that the only thing that Congress 

has done—here he is—the only thing that Congress has done is to 

pass legislation related to the transfer of funds. We have changed 

66 

no laws related to what is lawful and what is not lawful for gambling. 

Now, in the United States, other than horse racing, which I will 

be happy to discuss, there are no activities operating outside of 

States where Internet gambling is taking place. The reason for that 

is very simple. If the State of New York sells lottery tickets over 

the line in Connecticut, they will hear from the Connecticut attorney general. Oh, and you know what? They have already heard 

from the Connecticut attorney general, who has challenged what 

New York is doing, because the technology is far from perfect. 

MySpace, on a totally different issue, was asked to address this 

issue of keeping minors from being exposed to people of other ages 

on MySpace sites. And as of yesterday, when we contacted 

MySpace, they again told us that it was impossible to verify the 

age of their users with accuracy. Yes, there are ograms that do 

this, and I know Aristotle is a leader in that area, but at the Financial Services Committee hearing there was another witness 

who testified that these technologies have error rates upwards of 

20 percent to 30 percent. 

And when it comes to determining location, the problem is even 

greater. The reason is that with a hand-held device, you simply do 

not know where that person is at all times. If they want to pass 

that device on to somebody in another State to participate in this, 

that is something that I don’t know that the technology can 

counter. 

So what we are left with, then, is what we have always had with 

regard to gambling. And that is that this is primarily something 

that is regulated by the States. The reason why very few States 

have attempted to do anything online is because they can be sued 

and indeed prosecuted by neighboring States. Utah, which has no 

legal gambling, sits next to Nevada, which has all manner of legal 

gambling. There are no Nevada businesses that are engaged in 

this. 

So this then takes us to the WTO situation that Professor Weiler 

complains about. That goes back almost 20 years to the negotiations for the Uruguay Round of the WTO. And the language is a 

very obscure phrase called ‘‘other recreational services.’’ Isn’t that 

correct, Professor Weiler? The language that was the basis for Antigua bringing a case against the United States—I will yield to you 

in a minute, Professor Weiler. Let me lay this out and then you can 

respond, if the Chairman will allow me. 

Other recreational services—the determination was made that 

that encompassed gambling. Now, at that time, there was no Internet gambling that anybody contemplated, and most, not all, but 

most people involved with those negotiations, and certainly the current representatives of U.S. trade, have maintained that it was 

never our intention to take something that is primarily regulated 

by the States and trade it away internationally. But nonetheless, 

as Professor Weiler has correctly noted, the dispute resolution 

panel determined that ‘‘other recreational services’’ encompassed 

gambling and that the United States was in violation of the trade 

agreement. 

So given the quandary that we have, so then on the appeal it 

was determined that because there is horse racing that takes place 

67 

in the United States, betting online, and the Justice Department 

for whatever reason has chosen not to begin any direct prosecutions in that area, although Ms. Hanaway correctly notes that it is 

a part of some of the other prosecutions they have been involved 

with, that issue remains unresolved. 

And so, the U.S. trade representative, without action by the Justice Department, is forced to deal with the fact that, as correctly 

noted, that there is this one activity going on in the United States. 

Mr. WEXLER. Would the gentleman yield? 

Mr. GOODLATTE. No, let me finish, and then I am going to yield 

to Mr. Weiler, and then I will be happy to take the matter further. 

So the U.S. trade representative, given the fact that this is widely regarded in the United States, even the Chairman noted at the 

outset, as a morals issue, and not something to be dealt with in 

terms of international trade, determined to withdraw it. Now, 

when you withdraw something from the WTO, that is not a small 

matter by any means. So when you do that, you then have a determination made of what kind of damages should be paid to do that. 

Well, one of the things that I hope they look at is the fact that 

nobody contemplated the dramatic explosion of Internet gambling 

when that agreement was made many, many years ago. So certainly, people who entered into the agreement were not seriously 

harmed by that. 

And secondly, you should look to what it is that they are being 

denied the opportunity to do. Horse racing—I don’t see Antigua 

saying that they have big plans to engage in horse racing. No, it 

is casino gambling. It is poker. It is all of these others things that 

they are engaged in. 

So that process has to work its way through, and they are now 

in the process of discussing this. Many of the countries have settled 

with the United States, but the European Union has not and Antigua has not. I think it is very important that the Congress not 

interfere with that process as it works its way through and as it 

is resolved. 

I think it is also important that the Congress not interfere with 

the fact that we have just now written regulations that relate to 

a new mechanism for enforcement in terms of the transfer of these 

monies outside of the country. But that is what is in my opinion 

the crux of this matter, what the States’ interests are and how our 

government will resolve this difference with the WTO. 

Now, Mr. Weiler, my time has expired, but if the Chairman will 

allow, I certainly hope that he will feel free to respond. 

Mr. WEXLER. Mr. Chairman, could I just add 30 seconds to Mr. 

Goodlatte’s point, which was raised as to the state of the law in reference to my legislation and so forth, if I may? 

Mr. Goodlatte says that the bill that was previously passed didn’t 

in effect change the state of the law. I introduced H.R. 2610, which 

would permit Americans to play games of skill like poker, backgammon, mahjong, online as I believe they have every right to do. 

The issue is, contrary respectfully to what Mr. Goodlatte says, is 

the Department of Justice is with us today, and the Department 

of Justice is saying that the Wire Act, which the controlling case 

says should only apply to sports betting, not poker, the Wire Act 

68 

is not supposed to be applied to poker under the Fifth Circuit case, 

the Department of Justice tells us, ‘‘Oh, no, it does.’’ 

So that is where I would respectfully differ with your statement 

as to the law. 

Mr. GOODLATTE. Well, reclaiming my time, don’t forget what the 

primary emphasis of my remarks was that you also have 50 State 

laws. And when you go online, and Utah doesn’t want any gambling in Utah, there is not, notwithstanding Mr. Colopy’s claim, 

any State that has so far determined that it is going to offer these 

services online because they do not have the confidence that they 

can keep it from going from one State to another. 

I am opposed to having a Federal gaming commission. I think 48 

out of 50 State attorneys general would agree with me on that 

point. That is at the crux of this matter. Is the Federal Government suddenly going to move into the regulation of gambling or 

not? They have the Wire Act. I would join with you. In fact, at one 

time I did join with you to attempt to modernize the Wire Act, because I think it should be, but primarily as a tool to help the States 

regulate and enforce their gaming laws, not to get the Federal Government in as the final arbiter of what is legal and what is not 

legal in the United States. 

Mr. Weiler? Professor Weiler? 

If you will permit, Mr. Chairman? 

Mr. WEILER. Thank you, Mr. Chairman. 

Thank you, Mr. Goodlatte. 

I want to remind the Committee that I really express no opinion 

on the desirability otherwise of gambling as such. I just want 

to—— 

Mr. CONYERS. It is okay if you want to. [Laughter.] 

Mr. WEILER. I don’t. But I want to clarify the position of the 

WTO. The phrase in question is ‘‘recreational, cultural and sporting 

services.’’ And that was found to cover remote betting. It is not 20 

years ago, Congressman. It is from back in 1995. 

Now, there are two areas where probably you and I will eventually agree to disagree. Let us assume that the United States indeed 

found that it gave a commitment that it discovered later that it 

covered something that it did not want covered—remote betting. It 

goes before the dispute settlement, which it itself set up and supports, and it loses. And it goes to appeal and it loses. And it is illegal. And it signed onto an agreement which says that once the appellate body speaks, the members will comply unconditionally. 

One thing that is troubling me, and I think may trouble this 

Committee, and is troubling many people around the world is why 

in the face of that are these criminal prosecutions continuing? Once 

you resolve the issue for the future, you criminalize it, but when 

individuals are engaged in activities that the United States has 

held to have committed to be free, that is what is troubling. We 

have a self-interest in that, because what we do today might be 

done to our citizens tomorrow. 

Mr. GOODLATTE. Professor Weiler, would your answer be the 

same if it were cocaine from Colombia? If it were shoulder-fired 

missiles from another country? If the mistake we made that allowed the importation of an unlawful product in the United 

States—— 

69 

Mr. WEILER. But that is exactly the point I make in my written 

testimony, Congressman. Sometimes on vital national interests like 

national security, we come against an international obligation. We 

are seeing it. You know what I am talking about. And we say because it is a vital national interest, our own existence, we are very 

sorry, we just have to follow our national interest. 

But this is not national security. And we should be sparing. We 

are the most powerful state in the world. We must be sparing when 

we violate international legal obligations. This is not cocaine. There 

is no vital national interest. That is the first point. 

The second point is the WTO was hospitable to the moral argument. The appellate body under article 14 of the GATS, it says 

public morality is an excuse, a legitimate excuse. What they could 

not understand is how the United States could come in and say we 

want a justification to prohibit remote betting from WTO members, 

when in the United States, I read from the ruling, it has been 

found that there is substantial and even prominent businesses with 

collectively thousands of employees and apparently tens of thousands of clients paying taxes or generating revenue for government, 

having traded openly for up to 30 years and in some cases even operating television channels. The evidence regarding the suppliers 

demonstrates the existence of a flourishing remote account wagering industry in horse racing in the United States, operating in ostensibly legality. The United States did not—— 

Mr. GOODLATTE. That is why the United States withdrew from 

the provision because we have not been able to pass legislation that 

clarifies this, or to have it resolved in our courts. Barring that, the 

most sensible thing to do was what the U.S. trade representative 

did do, which was to withdraw the provision from the agreement. 

Mr. WEILER. Understood. But with respect, Congressman, that is 

indeed why they are doing it, but I wanted to explain why nobody 

in the WTO bought the moral argument, the cocaine argument, because if a country said it is immoral to do this kind of remote betting, but not another kind, it simply was not persuasive. And the 

way the withdrawal is being perceived, they are withdrawing so 

they can continue to engage in protectionism, to protect a domestic 

industry which is allowed to remotely wager and not allow an outside supplier. 

So I understand that on this you and I will probably agree to disagree, but those are the two issues which a lot of people find troubling and are risky for our long-term interests in the world trade 

arena. 

Mr. CONYERS. The Committee will stand in recess. 

Ms. JACKSON LEE. Mr. Chairman, can I just get a quick question 

in, because I will not be able to return? I really would appreciate 

it. 

Mr. CONYERS. Absolutely not. I am sorry, with all due respect to 

my esteemed colleague, but we have how many minutes left? 

Ms. JACKSON LEE. We have 3 minutes, but we have a bunch of 

minutes. 

Mr. CONYERS. The leader just lectured us about closing off the 

vote. 

We will stand in recess. You are welcome to go back into the 

Committee room and debate or discuss among the witnesses what 

70 

your final advice is going to be for us this afternoon when we return. 

[Recess.] 

Mr. CONYERS. The Committee will come to order. 

The Chair recognizes the distinguished gentlelady from Texas, 

Sheila Jackson Lee. 

Ms. JACKSON LEE. Thank you very much, Mr. Chairman. 

I thank the witnesses. For those whose testimony I have not 

heard, I apologize for being in a number of hearings as Members 

tend to be. 

I did hear the discourse with the distinguished gentleman, and 

I am attempting to find your name, because I don’t think you were 

sitting in the appropriate seat, but I think you are now. At a fairly 

high pitch, which I think is appropriate, you spoke about this in 

the context of national security, particularly as it relates to our 

trade agreements. 

I frankly believe you have made a very valuable point, because 

many of us who have taken issue with the WTO have really fought 

around issues of survival, whether or not it was the survival of the 

Caribbean as it relates to the banana trade, taking a different perspective for them to survive, or whether it was around issues that 

truly relate to national security, international travel. We really 

have stood our ground and in that instance been in conflict with, 

for example, the WTO. 

But you raise an important point as to whether this raises to this 

level of prominence. So my line of questioning goes along those 

lines, because I am trying to find a reasoned position here. My good 

friend from Virginia, who is not here, knows that at one point I 

found merit in his arguments. 

I have since had a different perspective because I think there is 

such a debate over the use of the Internet and online activities that 

you do have to begin to distinguish life or death matters or matters 

of high morality, if you will, that have a general embrace by most 

of America, such as the enticing of children over the Internet for 

sexual activities. I don’t think there is vast disagreement on that 

issue. Most of us would go to the line, if you will, on eliminating 

that practice. 

On the other hand, when you speak about gambling, you have 

the old nightmares of addressing the question of the most vulnerable, and particularly sometimes in my community, that are the 

victims. But they are the victims possibly of the lottery and a number of other enticing activities. So it is a social responsibility, 

maybe a faith-based responsibility, to be able to address those concerns so that people can responsibly manage their concerns. 

But in this instance, and I raise my question first to Ms. Duke, 

because I do think that the Frank bill, the Barney Frank bill, is 

reasonable. My question to you very directly is, with your degrees 

and your choices, help me understand, and my time is short, so let 

me just say quickly, whether or not this bar on your practice or 

your avocation is effective? And whether or not since this bill has 

occurred, whether you have seen an increase in your membership? 

And whether or not we are really getting where we want to get 

with this ban, as opposed to it being a ban on livelihood, income 

and opportunity? 

71 

Ms. Duke? 

Ms. DUKE. Thank you for the opportunity to answer your question. The fact is that people are engaging playing poker online regardless of whether the UIGEA exists. All we are doing is having 

them engage on it with foreign operators and foreign payment processors. 

So believe me, it was difficult to get money online before, regardless of this legislation. PayPal ceased to allow money transfers to 

be made somewhere around 2002, I believe, 2001 or 2002. It was 

pretty early in the process. Credit cards have denied gaming transactions when they are coded for gaming transactions for a very 

long time. So people have always had to sue off-shore payment 

processors. 

Now, NetTeller, to be sure, has been shut down, but there are 

lots of other payment processors out there that people can use. So 

in a regulated environment, we would be much better served—— 

Ms. JACKSON LEE. Such as the Frank bill? 

Ms. DUKE. Such as the Frank bill, in order to determine people 

who should be—— 

Ms. JACKSON LEE. What about the morality question? I am sorry 

my time is so short, but what about the morality question? 

Ms. DUKE. Sure. The issue that I have on the morality question, 

meaning no disrespect to Mr. Goodlatte, is that I personally, as an 

American, am very offended that we would take a morality stance 

on gambling. It is legal in 48 States. I don’t understand why it 

would be more immoral to gamble on the Internet than it would 

be to walk into the Bellagio in Las Vegas and gamble there. If we 

allow it to be legal in 48 States, I hardly think that this country 

can take a moral stance on gambling. To pull the morals card as 

it relates to the Internet is just a new—— 

Ms. JACKSON LEE. But you would welcome regulations so that 

scoundrels could not be involved in it? 

Ms. DUKE. I don’t think that children should be gambling online. 

My children do not gamble online. I would welcome regulations because I feel that the government would then be able to give me 

much greater support in enforcing those rules in my household. If 

I had support from this government, knowing that the sites that 

were offering gambling in this country were forced to use the kinds 

of technology that Mr. Colopy has discussed, and that I discussed 

in regards to a technology like SNARE, I would feel much more 

comfortable about my children being on the Internet. 

Ms. JACKSON LEE. Mr. Chairman, would you indulge me an additional minute for the Justice Department representative to answer 

this question? I ask unanimous consent. Thank you, and forgive me 

for interrupting you, Ms. Duke. My time is short. But I do want 

to acknowledge—— 

Ms. DUKE. I appreciate the time that you gave me. Thank you. 

Ms. JACKSON LEE. Thank you. 

I do want to acknowledge a letter from the Virgin Islands to express both the detailed way in which they handle their gambling, 

and the very difficult position we put them in if we were to continue in the way that we are continuing with this bar. But to the 

Department, have you gone after—what kind of prosecutions have 

72 

you engaged in to get the scoundrels off of poker playing or Internet gambling? 

If we had not had this bar, would this be an issue that you would 

be out championing? Do you have a Department staffed up with a 

task force that is going after these scoundrels, the alleged scoundrels, if this is such a horrible act? What kind of work are you 

doing to weed out these individuals? And what kind of work were 

you doing before this law came into place? 

Ms. HANAWAY. Congresswoman, I have cited several cases today, 

including the United States v. NetTeller or the United States v. 

Uvari, the United States v. BetonSports, that are prosecutions 

under the law that existed before the UIGEA. So those are prosecutions primarily under the Wire Act. 

Ms. JACKSON LEE. And under what mindset? What were you operating under at that time? 

Ms. HANAWAY. Under the Wire Act that was passed in the 

1960’s, and updates to it. 

Ms. JACKSON LEE. And you saw the value? What was the problem that you were trying to go after? 

Ms. HANAWAY. Illegal Internet gambling, the fact that those companies were violating the laws as they existed. 

Ms. JACKSON LEE. But you could not—basically, it was just a 

Plain Jane law. You were not seeing major cartels or scandals or 

people dying and being in shoot-outs. 

Ms. HANAWAY. Well, there was a great deal of money being 

transmitted outside of the United States. The allegations in 

BetonSports—— 

Ms. JACKSON LEE. So if this law that Mr. Frank has is in place, 

that would stop the money going outside the United States, would 

it not? Would it not? 

Ms. HANAWAY. I can’t say that it would with certainty, because—— 

Ms. JACKSON LEE. But his framework is to prevent money from 

going outside the United States and regulate them. 

Ms. HANAWAY. Right now, all of these companies are violating 

the laws of the United States—— 

Ms. JACKSON LEE. But the laws might change. 

Ms. HANAWAY [continuing]. By taking those bets. 

Ms. JACKSON LEE. Right. But if the laws were changed? 

Ms. HANAWAY. And they are off-shore. I don’t know that making 

it legal for those others to operate on-shore in the U.S. would make 

them disappear overnight. I can’t say with any degree of certainty 

that they would stop violating the law. They are violating the law 

today. 

Ms. JACKSON LEE. But a regulation would at least put a population who would abide by the law and give you the opportunity 

with our task force or your go-getters to be able to know who are 

the bad guys, and you would still have a framework for sending 

money back to the United States. You would abide by the law, 

though, would you not? 

Ms. HANAWAY. Of course. We would enforce the law. 

Ms. JACKSON LEE. I thank you, Mr. Chairman. 

I yield back. 

Mr. CONYERS. I thank the gentlelady. 

73 

And the Chair recognizes Steve Cohen of Tennessee, one of our 

newer Members, but highly concerned. He has been here at the 

hearing almost all day. 

Mr. COHEN. Thank you, thank you, Mr. Chairman. 

First, I would like to ask the panel, does anybody know the countries in Europe where they have permitted Internet gambling? Mr. 

Colopy, do you know? Any other countries other than the U.K? 

Mr. COLOPY. There are several. I couldn’t list them for you. 

Mr. COHEN. Does anybody else know which countries they are? 

Ms. Duke? 

Ms. DUKE. I may be mistaken. I just want to say that, but I believe that the U.K., Germany, Sweden, Finland—— 

Mr. COHEN. That is enough. Does anybody know if there have 

been any studies in any of those countries other than England? Nobody knows of any studies. Does anybody know if divorce, bankruptcies, suicides, mass exoduses, scurvy have occurred in those 

countries other than England? 

Ms. DUKE. Actually, the rate that those have occurred in England is quite low. The U.K. gambling prevalence study which was 

just completed, the last study was completed in 1999, which was 

at the front edge of Internet gambling when it wasn’t particularly 

prevalent. 

Mr. COHEN. Thank you, Ms. Duke. Do you have a study to rely 

on? 

Ms. DUKE. The U.K. gambling prevalence study. 

Mr. COHEN. Is that the same study Mr. McClusky, you cited? 

Mr. MCCLUSKY. Yes, it is. 

Mr. COHEN. And you said that it cited that there was a low 

amount of addiction or high-use for people playing the lottery and 

horse racing, et cetera, but higher for Internet gambling? Is that 

correct? 

Mr. MCCLUSKY. That is correct. 

Mr. COHEN. But when Congressman Wexler asked you something 

about horse racing, you said that you would look into prohibiting 

horse racing. So you really think horse racing is wrong, too, and 

you should look into making that illegal? 

Mr. MCCLUSKY. That would be something I said that we would 

be willing to talk with Mr. Wexler if he was serious about including 

such an exemption, if he was afraid that it was going to—— 

Mr. COHEN. Do you think that horse racing and dog racing and 

lotteries should be legal in the United States? 

Mr. MCCLUSKY. Are you asking me? 

Mr. COHEN. Yes, you personally. 

Mr. MCCLUSKY. The Family Research Council does believe that 

such things should be illegal. 

Mr. COHEN. Should be legal? 

Mr. MCCLUSKY. Should be illegal. 

Mr. COHEN. Should be illegal. So it is really not the Internet you 

are against. It is gambling in general. Is that right? 

Mr. MCCLUSKY. Yes, that would be true, or at least unrestricted 

gambling such as we have with the Internet or other. 

Mr. COHEN. But the lottery is restricted. You can’t play if you are 

a child. Same thing with horse racing. But you are against that, 

are you not? 

74 

Mr. MCCLUSKY. Yes. 

Mr. COHEN. So restricted or unrestricted, you are against it? 

Mr. MCCLUSKY. Yes. 

Mr. COHEN. Is there any fun that you are for? 

Mr. MCCLUSKY. Any what? 

Mr. COHEN. Fun. 

Mr. MCCLUSKY. Well, we are for this, and this seems like a lot 

of fun. 

Mr. COHEN. Hearings? Good, good. [Laughter.] 

Let me ask Ms. Hanaway a question. Were you in Missouri when 

they had the referendums on lottery and casino gaming? 

Ms. HANAWAY. I was. 

Mr. COHEN. And was it predicted there that all these awful 

things would occur? That the river would go all the way back to 

Cairo, that the Cardinals would leave, and that Busch Stadium 

would no longer exist? 

Ms. HANAWAY. There were some predictions that it would have 

ill-effects, but none of those precisely as you describe. 

Mr. COHEN. They talked about divorce rates going up, that bankruptcies would increase, all those kind of things, didn’t they? 

Ms. HANAWAY. I believe so. 

Mr. COHEN. That is the standard litany. I sponsored and passed 

the lottery in Tennessee. They said all those things would occur. 

None of them occurred. In fact, what happened is we have raised 

$1 billion for education, and the most avaricious group tried to get 

into the lottery program to get scholarships were the faith-based 

schools, who wanted more money for the private than the public, 

or equal to, when they at first were only going to be half as much. 

And then they wanted exemption after exemption for home 

schoolers, for people on missions, which I went ahead with and 

agreed with, and said ‘‘fine, no problem, they are kids and they are 

fine.’’ But there was a little bit of hypocrisy because they were so 

much against it, and then they were the first people at the trough. 

And that is a problem that I think Mr. McClusky your group has, 

when you come and you predict the end of the earth and it doesn’t 

occur, then the next time it is a little bit like Chicken Little, you 

know, the sky is still up there and that is a problem. 

Mr. MCCLUSKY. I couldn’t speak for Tennessee, but in most 

States where they have pushed for a lottery under the guise that 

it would promote for education, that has simply just not happened. 

Mr. COHEN. I understand that in most States. Tennessee is different. We followed the Georgia model. It is all the new revenue 

with the scholarships. It is to after-school programs. It is to beforeschool programs. It has been a great success. It is all monies they 

wouldn’t otherwise have. So that is that case. 

Let me ask you this. Who did that study in Europe you are talking about, in England? Do you know who did the study? 

Mr. MCCLUSKY. It was published by the National Center for Social Research. 

Mr. COHEN. Is that a private group or public group? 

Mr. MCCLUSKY. Actually, I am not sure about that. 

Mr. COHEN. Okay. You have to always look at who does the 

study and who they are being paid for or by. Is anybody familiar 

with the lines that they publish in the newspaper of what the 

75 

point-spreads are on the basketball games and the football games? 

Do you think there is any booking going on in America? I mean, 

they don’t put that in for recreational activity. There are some people looking at it. 

Let me ask Ms. Abend, did the Department of Treasury ever do 

an estimate on how much revenue the IRS could realize if we had 

chosen to license and regulate Internet gaming from the beginning, 

how much money we could have brought into the United States? 

Has there been a study at either Treasury or somebody at Justice on how much money could be raised for schools and health care 

and other issues like that if we regulated this? 

Ms. ABEND. Not that I am aware of. 

Mr. COHEN. Okay. What would be wrong—to the panel—what 

would be wrong with a simple study? What is wrong with a study? 

Mr. McClusky, what is wrong with a study? 

Mr. MCCLUSKY. Well, it would depend on what the study was 

calling for. As I mentioned before in my testimony, Congress already called for a study back in 1999 and released that study. 

Mr. COHEN. Was that Fahrenkopf? What was his name? What 

was that study on? 

Mr. MCCLUSKY. It was on gambling, except it also included Internet. It looked at Internet gambling. 

Mr. COHEN. I think I know that study. The deck was stacked. No 

offense, Ms. Duke. It does happen. 

Ms. Abend, would the Department of Justice provide the Treasury Department with written comments or input prior to the release of the regulations that have developed? 

Ms. ABEND. Congressman, yes. 

Mr. COHEN. Would you be willing to provide us with a copy of 

those? 

Ms. ABEND. Congressman, I will be happy to meet with you and 

your staff and work with you on that. 

Mr. COHEN. Well, let me defer to Chairman Conyers. If you 

would meet with Chairman Conyers and his staff, because he has 

the power of contempt. If you don’t bring them, you will be brought 

in and be flogged. [Laughter.] 

Thank you, though. Thank you. I appreciate your bringing them 

in. 

I think my time is up, and with that, thank you, Mr. Chairman. 

Mr. CONYERS. Thank you very much. 

Trent Franks, the gentleman from Arizona, the Ranking Member 

on the Constitution Committee. 

Mr. FRANKS. Well, thank you, Mr. Chairman. 

First, Mr. Chairman, I think that Ms. Hanaway and Mr. 

McClusky have pretty much articulated my perspective both legally 

and in policy terms of the subject that we are talking about today. 

I think with all of the citing of statistics, that most people understand in their heart no matter how intellectually good they are at 

presenting a statistical analysis, that gambling in general in our 

republic has tended to damage the lives of people. That certainly 

has been our experience in Arizona, especially on some of the reservations where they have had wide-scale casino gambling. It has 

been a negative impact on people. 

76 

When you look at Las Vegas, you see some mighty nice hotels 

and some beautiful lights. Something is paying for that, and I 

would suggest that it is the disparate proportion of the winners 

and losers. Gambling essentially produces one thing, and that is 

the loss on the part of someone. That is the only way that it survives as an industry is by someone else’s loss. 

As far as it producing much for society, other than what some 

might point to as entertainment, even though there might be some 

ancillary jobs created, the overall productivity of gambling is the 

loss and the negative impact on someone’s life. 

As far as America, the professor indicated somehow our reputation has been damaged because we did what we could to protect 

our families and children from the effect of gambling, somehow I 

think we will survive it. 

With that, Mr. Chairman, I would like to yield to Mr. Goodlatte 

for the remainder of my time. 

Mr. GOODLATTE. I thank the gentleman for yielding. 

I would like to revisit this issue with regard to the States. Ms. 

Duke, did I hear you correctly say that you felt that the residents 

of each individual State should have the right to determine what 

kind of gambling they want to have in their State? 

Ms. DUKE. You incorrectly heard me. 

Mr. GOODLATTE. What is your position on that? 

Ms. DUKE. My position is that for anyone to take a moral stance 

as far as the WTO is concerned on gambling, to me is hypocritical. 

That would only imply that there is a difference as far as the morality of gambling on the Internet versus gambling in an actual casino, and the fact that in 48 States gambling in some form or other 

is completely legal. I would assume, then, if you are taking the 

moral stance, Mr. Goodlatte, that you are planning to be on gambling in any form whatsoever and illegalize it across the country 

in order to remain consistent in your opinion. 

Mr. GOODLATTE. No. My opinion is consistent that each State 

should be able to determine what form of gambling should be allowed. 

Ms. DUKE. Absolutely. I agree. 

Mr. GOODLATTE. Well, that is what I was trying to get at. Well, 

that being the case, then, how does that square for the people of 

Utah with the WTO decision? Should they change their lives to 

allow gambling online in Utah? 

Ms. DUKE. Mr. Frank’s bill includes an opt-out for individual 

States. So for individual States where gambling is illegal, they 

could opt out of the Frank bill or not, if it gets passed into law, 

and not offer Internet gaming in those States, and we would still 

be compliant with the WTO. Now, certainly if all 50 States pass 

those laws, we would still be in compliance with the WTO, but that 

is not the case right now. 

Mr. GOODLATTE. Sure, it is not. That is the whole point of the 

legislation that was passed, to enable individual States to enforce 

their laws regarding the laws that they have in those States. 

Ms. DUKE. But I would respectfully submit that they would be 

able to do that under Mr. Frank’s legislation as well. 

77 

Mr. GOODLATTE. Except that you would be creating a Federal 

regulatory system which would tax the gambling in all those States 

that did not choose to opt out of that. 

Ms. DUKE. Absolutely, but in those States where it would already 

be legal, and rightly so we should tax it because we should be getting the revenue from it as opposed to having the revenue go offshore. 

Mr. GOODLATTE. And what about the States where you cannot 

determine whether or not somebody is actually in that State when 

they place that bet? 

Ms. DUKE. Well, we have very good software, and MySpace actually has not talked to, for example, Iovation, which offers the 

SNARE software, and if they did, they would feel much more comfortable in terms of being able to verify where somebody was from. 

There is absolutely software out there, whether MySpace has explored those thoroughly or not is not particularly germane to 

whether the software exists. 

Mr. GOODLATTE. Well, certainly we can continue that debate. 

Ms. DUKE. Absolutely. 

Mr. GOODLATTE. The legislation that the Congress did not pass 

last year would have allowed the States to continue to regulate 

gambling within those States. But the fact of the matter is, that 

is the current law as it exists today, and very few States have attempted to do anything like that. New York may be the only exception to that. 

Ms. DUKE. But under a regulatory environment, the sites would 

be forced to use those kinds of software and would be actually 

much more effective in terms of getting people in place where it is 

not legal to gamble—— 

Mr. GOODLATTE. Why shouldn’t the State—— 

Ms. DUKE [continuing]. Or minors for that matter. 

Mr. GOODLATTE. Why shouldn’t the State make that decision, 

Ms. Duke? 

Ms. DUKE. Well, it wouldn’t be about the State, though. 

Mr. GOODLATTE. That is right. That is the whole crux of the debate isn’t it? It is about whether States have the right to do this 

or the Federal Government has the right to do this. 

Ms. DUKE. Gambling sites that were offering services in America 

would be forced to use the software in terms of verification of location and majority. In a regulated environment, we will be more effective at getting people who are in States where it is illegal not 

to gamble, and frankly getting minors because the sites will be 

forced to use this software. 

It doesn’t have to do with the States. It has to do with the people 

offering the services. It is not the State that determines whether 

someone can buy alcohol. It is the liquor store, because they are 

forced to verify by a form as an ID, and this would be exactly the 

same thing, except using the extremely advanced software technology that we have at our fingertips now, and that Mr. Colopy has 

testified about. 

Mr. GOODLATTE. Ms. Duke, let me interrupt you. The point here 

is not whether or not the States can or should do that. We don’t 

disagree with you on that point. The question is whether the Federal Government should set up a Federal regulatory system that it 

78 

has never done before which would enable it to impose taxes to derive revenues that have been the province of the States. 

Some States said ‘‘we don’t want those revenues; we want to 

have no gambling in our State.’’ Utah and Hawaii have chosen to 

do that. Others States like mine have said, well, we will have limited forms of gambling, but we don’t want any casinos in our State. 

Each State ought to have the right to do that, and you agree with 

me on that point. So why not leave the regulation to the States? 

Ms. DUKE. But Mr. Frank agrees with that as well. 

Mr. GOODLATTE. Sure, but he sets up a Federal Government 

commission, and if anybody believes ‘‘we are from the Federal Government and we are here to help you, and all we are going to do 

is help the States out in terms of having a Federal system that enables the Federal Government to engage in taxation, that enables 

the Federal Government to engage in overriding the decisions of 

the States on those,’’ I hate to disabuse you. 

Ms. DUKE. But the Federal Government under the UIGEA will 

do exactly that because it has been clearly stated that the banks 

are going to over-block and not allow people who are in States 

where what they are engaging in is legal engage in that activity. 

Mr. GOODLATTE. Only where the activity is in violation of State 

law or it goes across State borders. Absolutely. 

Ms. DUKE. They have said very clearly that they would overblock. They are already blocking bridge transactions and test transactions. 

Mr. GOODLATTE. Mr. Chairman? 

Ms. DUKE. They are conservative institutions. You are asking 

them to interpret the law, but they will interpret it in a way that 

will cause them to over-block, and you are asking, indeed, the Federal Government to tell the banks to say what you can and cannot 

do in a State where a—— 

Mr. GOODLATTE. That is because none of these offshore sites, and 

every single one of the sites that we are talking about here are outside the United States. Every single one of them is engaged in activities that are not regulated by the States, and in fact couldn’t 

be regulated by the States. 

So the fact of the matter is that the effort that we have made 

in the Congress to clarify the right of the States, like Tennessee, 

to have the kind of gambling they want to have in Tennessee, as 

long as they keep it confined within their borders and do not allow 

minors to participate, is permissible. That was permissible under 

the bill that passed through this Committee, passed the House of 

Representatives, but was not taken up by the United States Senate. 

What we don’t need is to have the Federal Government go beyond that and usurp the power of the States by saying that we are 

going to have a Federal gaming commission to regulate gambling 

on the Internet. 

Ms. DUKE. Then I would like to hear why you supported a bill 

like the UIGEA that allowed interstate betting like horse racing 

and fantasy sports. 

Mr. GOODLATTE. Well, first of all, fantasy sports I have not heard 

anybody claim is a form of betting. Now, the fact of the matter is— 

I am serious. 

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Ms. DUKE. I am sorry. Yes, it is. 

Mr. GOODLATTE. We allow minors to participate in those programs. You have all said to me that it is a very great concern, and 

I agree with you it is a great concern that we not allow minors to 

engage in gambling, but nobody has said we should stop minors 

from participating in fantasy sports. So I think there is a very clear 

difference there than what you have just described. 

But the fact of the matter is that I would like to have a ban on 

all interstate transactions with regard to betting. I would support 

any legislation that did that, but I will also support any legislation 

that goes as far as I can possibly take it to go, and that is exactly 

what the legislation we passed is. But the UIGEA takes no position 

whatsoever on what is legal and what is illegal. 

It simply is a new tool for enforcement that is being utilized by 

the Justice Department, the Treasury Department and I am sure 

many, many State government agencies who are concerned about 

the loss of revenues that they have when this money starts going 

outside of the country, as it had been doing, and much of it has 

been curtailed because of the enforcement that the Justice Department has done and State law enforcement entities have done to 

make sure that they can continue to enforce their State laws. 

Mr. CONYERS. The Chair recognizes for the few minutes we have 

remaining the gentleman from Tennessee, Steve Cohen. 

Mr. COHEN. Thank you, Mr. Chairman. 

First, I would like to, if there is any misunderstanding with Ms. 

Abend, I didn’t mean to suggest in any way you would be like Harriet Miers and not comply, but I would appreciate it if you would 

give to the Chairman and also give to me copies of that study. That 

would be appreciated. I would like to have it as well. Thank you. 

Let me ask Mr. Colopy, you have in England the ability to stop 

minors from playing on the Internet? 

Mr. COLOPY. Yes, and here. 

Mr. COHEN. And do you know that study? Do you know any fallacies in that study? Or is the system not working? 

Mr. COLOPY. Let me clarify. In the U.K. where gaming is legal, 

yes, we are one of the age verification systems used. I think we had 

a principal on that. 

Mr. COHEN. And if Mr. McClusky’s study is correct, is there a 

problem with the verification system? Or could the study be—— 

Mr. COLOPY. There is no problem with the effectiveness of it, and 

that is the only thing I can address. Aristotle takes no position on 

the merits or demerits of Internet gambling or gaming. What we 

are here to address is to knock out the fallacy that children cannot 

be protected online, as was incorrectly suggested earlier. 

Mr. COHEN. I know when we had the lottery in Tennessee, they 

brought up a study and they said that children were gambling and 

all these different things. And once we got the study, we found out 

they were gambling on flipping, on marbles, different things that 

had nothing to do with the lottery. So it really wasn’t relevant. 

Do you have the ability—like if I have a laptop and I go to Montana and I wanted to bet on something in Montana—to know that 

I was a Tennessean and to tax me in Tennessee? How do you do 

that? 

80 

Mr. COLOPY. In my statement, thanks to some very intelligent 

engineers, I have described in layman’s language what the IP location does. I can’t elaborate on it more than that, but would be 

happy to provide you with much more information. 

Mr. COHEN. I am beyond a layman. The IP location, is that 

where I live or where my laptop is? 

Mr. COLOPY. It is connected to your Internet address. 

Mr. COHEN. My Internet, so that is where I am domiciled. Could 

I get an Internet address somewhere other than where I live? 

Could I get an IP in Arkansas or in West Memphis if I lived in 

Memphis? 

Mr. COLOPY. Well, if you use multiple ones, unless the system 

were allowed to, you would be anchored to the one you originally 

registered with. The other thing to remember is, it is anchored to 

your legally registered address because it has to be a real person. 

We are talking about verification. We are talking about measurement against public records data, so you couldn’t reinvent yourself 

in multiple locations. 

Mr. COHEN. Okay. I would yield back the remainder of my time 

and thank the Chairman for allowing me. 

Mr. CONYERS. I yield to the gentleman from Virginia for insertions into the record. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

I would just ask that the letter of the National Association of Attorneys General, signed by 48 attorneys general and dated March 

21, 2006 pertaining to the legislation that the Congress addressed 

last year, along with a more recent letter signed by the Attorney 

General of Maryland and the Attorney General of Florida, dated 

September 28 of this year, be put in the record, along with a letter 

dated May 31 of this year from all of the major sports organizations—NFL, major league baseball, NBA, NHL, and the NCAA— 

also be put in the record. 

Mr. CONYERS. Without objection, so ordered. 

[The information referred to follows:] 

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Mr. GOODLATTE. Thank you. 

Mr. CONYERS. Could I ask Professor Weiler on a closing question. 

As you know, Philippe Sands has written about the reckless, the 

lawless world. Familiar? It takes the issue that our government 

has been in reckless disregard of many of our treaties, conventions, 

protocols, ranging from anti-nuclear to environmental to torture. 

There has been a great discussion about how we try to get back on 

track in a more cooperative spirit since we are one of the most, if 

not the most influential nation in the family of nations and global 

organizations. 

Can you comment about that tendency and how that dereliction 

of international responsibility fits into our discussion about Internet gambling and the WTO decision? 

Mr. WEILER. Thank you, Mr. Chairman. 

Could I just make one tiny comment on the discussion before? 

We didn’t discuss a lot, and it would merit discussion on the States’ 

rights issue that Mr. Goodlatte raised. It would be interesting to 

explore whether one gave States rights and the technology exists 

for off-shore WTO members to just offer Internet remote betting in 

the States that allowed it, what would be the position of the Justice 

Department? 

Now, to your question, Mr. Chairman. I am a realist. If my wife 

is giving birth, I would drive through a red traffic light and violate 

the law. I can see circumstances where any State, including the 

United States, might drive through a red traffic light because their 

wife was giving birth. 

But because of the prominence of this country, and because we 

lead by example, we lead by example, we should be very, very circumspect in all situations when we decide to disregard the multilateral system, to disregard our international legal obligations. 

I do not believe that our legitimate interest in regulating the 

hazards that come with Internet gambling, even though today we 

do it in a way that is discriminatory, are such as to justify disobeying, disregarding and violate our international legal obligation. 

It has a cascading effect. 

Yes, the gentleman was right. We will survive it, but when it becomes a cumulative effect, where the impression around the world 

is that the United States, which preaches the importance of the 

international system and international law, but when it comes to 

its own interests replaces might with right, then we should really 

be very careful. 

So Mr. Goodlatte has said, we withdraw our commitment. There 

is a procedure for that under article 21 with the GATS. Let the 

procedure run its course, but why, Mr. Goodlatte, and why, Mr. 

Conyers, would we continue, for example, to prosecute individuals 

until we have withdrawn our commitment? That is what doesn’t 

make sense to me. And why should we instead of trying to comply 

with an obligation, we will just withdraw an obligation. Again, if 

we lead by example, that is not the kind of example which a country like the United States should lead with. 

Thank you, Mr. Chairman. 

Mr. CONYERS. If you have any further papers or treatises or articles that you may have written about this, because this is an overarching consideration for not only the Judiciary Committee, but the 

91 

Foreign Affairs Committee. This is a very large issue that too frequently we have recently noticed that our government has a tendency to walk away, to disengage, to write itself out. Of course, that 

habit becomes catching with other countries. If we are doing it, 

why shouldn’t they? 

So on this note, I thank you all for a very challenging hearing. 

We are thinking now about following Mr. Goodlatte’s suggestion of 

getting attorneys general of the States, as well as governors and 

others to weigh in on this, because they have to understand that 

it is not only their State, but our national laws and our international obligations. 

Now, we have heard about the States’ rights implications of this 

legislation. It is clear that there are some that would like to keep 

the Federal Government out. And there are others who may not 

have thought clearly about the international aspects as well. All 

three of these come together on a very fascinating subject. I am so 

happy that you were all able to spend as much time with us today. 

I can assure you this record will be read and re-read by many 

different people with different points of view. We are obligated and 

indebted to you for your contribution. Thank you so very much. 

The Committee stands adjourned. 

[Whereupon, at 2:08 p.m., the Committee was adjourned.] 

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A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE JIM MCDERMOTT, A REPRESENTATIVE IN

CONGRESS, FROM THE STATE OF WASHINGTON

Mr. Chairman, thank you for the opportunity to submit written testimony at this 

hearing. As you are aware, I introduced legislation earlier this year, H.R. 2607, 

which would provide for the taxation of licensed Internet gambling in the U.S. I introduced this bill not because I am a proponent of Internet gambling—I am not— 

but because I am not blind to the fact that people will continue to gamble online 

regardless of any prohibition against it. I therefore believe that the only appropriate, reasoned response is to regulate Internet gambling, so consumers are afforded certain protections and so revenue that would otherwise flow to foreign jurisdictions stays here in the U.S. 

My legislation would ensure that for any Internet gambling that occurs in the 

U.S., all taxes due under federal and state law will be collected—it is a complement 

to legislation introduced by House Financial Services Chairman Barney Frank (DMA), which would establish a regulatory regime for licensed Internet gambling. It 

requires all corporate and personal withholding taxes be collected, but does not impose any additional taxes on U.S. residents. In recent weeks, we have shaped some 

policy improvements to the legislation that would allow us to provide greater protections against tax cheating relating to online gambling, and thereby increase muchneeded revenue. As amended, my legislation, would: 

• Impose a fee equal to 2% of deposits placed during the prior 30 days with or 

on behalf of a licensee for the purposes of wagering. 

• Impose a .25% wagering tax on all authorized online gambling (and a 2% wagering tax on all unauthorized online gambling. 

• Impose 30% withholding on withdrawals of net winnings by non-U.S. persons. 

• Authorize 50 states and DC to impose indirect taxes on licensees with respect 

to wagers placed by persons within their jurisdictions. 

• Require licensees’ senior management to reside in the U.S. and computer 

equipment to be located in the U.S., thereby maximizing availability of corporate taxes. 

To be clear, most of the revenues generated would come from taxes required 

under existing law that we currently lose because of a misguided belief that we can 

actually stop Internet gambling. Specifically, these are not new taxes, but rather 

taxes on existing activity that is currently unregulated, unsupervised, and underground. The exception is that my legislation also imposes a fee equal to 2% of deposits placed with a licensed gambling operator. This fee would be paid by the operator, 

not the individual gambler, and it would help level the playing field for land-based 

casinos that are concerned about Internet gambling affecting their business. Obviously, the overhead for a land-based casino is greater than that of an online casino, 

but the 2% fee on Internet gambling sites only helps narrow that gap. The provision 

does not, nor is it intended to, impose any new tax on the operations of land-based 

casinos. To do so would violate the very purpose of the provision as an equalizer 

between the land-based and the online industries. 

In putting together my legislation, I reviewed various studies and estimates on 

the amount of Internet gambling that occurs in the U.S. to estimate how much revenue my bill might provide when combined with the proposal by Chairman Frank. 

In addition, it is my understanding that a private sector analysis was performed to 

estimate the revenues that would be generated through regulating Internet gambling in the U.S. by adopting legislation based on Chairman Frank’s bill and my 

current proposal. This analysis preliminarily estimates that regulating Internet 

94 

gambling would generate between about $3.1 billion to $15.2 billion in federal 

revenues during its first five years, and between about $8.7 billion to $42.8 billion 

over its first ten years. In fact, assuming that states permit the same gambling activities online as they currently do offline, and assuming the sports leagues opt-out 

entirely, my proposal would raise about $6.3 billion over five years and $17.6 billion over ten years. 

Because the estimates are based on both bills, and Chairman Frank’s bill permits 

individual states and sports leagues to prohibit any Internet gambling, the lower 

number would reflect a situation in which sports leagues and most states opted-out 

of the system. The higher number would reflect a situation without opt-outs. Notably, the single largest component of the revenues—more than 50% of the total— 

would be generated from individuals reporting gambling winnings not captured 

under the current prohibition regime. The 2% fee on deposits and the 0.25% wager 

tax would each constitute slightly less than 22% of the total, and the corporate tax 

on operators would constitute an average of about 5% of the total. 

Even under the most conservative estimates, licensing and regulating Internet 

gambling—and collecting the taxes that are due—will provide much-needed revenue 

to the U.S. Treasury. This is money we are currently losing to other jurisdictions, 

for no other reason than some of my colleagues think we can actually stop people 

from gambling online. It is money we will continue to lose if we ignore the fact that 

if grown adults in America want to gamble online, they can and they will. 

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LETTER FROM THE HONORABLE MITCHELL E. DANIELS, JR., GOVERNOR, STATE OF

INDIANA, DATED NOVEMBER 9, 2007 


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PREPARED STATEMENT OF THE HONORABLE L. ERROL CORT, MINISTER OF FINANCE

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PREPARED STATEMENT OF CRAIG POUNCEY, PARTNER, 

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1 Currently Internet Service Providers (ISPs) are very often able to provide this service retrospectively in response to authorised requests from law enforcement and security agencies. HowContinued 

PREPARED STATEMENT OF JOHN LYONS, GROUP SECURITY ADVISOR, UC GROUP

Mr. Chairman and Members of the Committee: 

My name is John Lyons. I am Group Security Advisor to the British payments 

services provider UC Group, where I am responsible to the Board for advising on 

all matters relating to risk and security and for relations with law enforcement 

agencies. 

I am also Coordinator for the Corporate Executive Programme, an organisation 

comprising some of the world’s largest global enterprises including Intel, HSBC, 

Diageo and Mitsubishi UFJ—established by FIRST (the Forum of Incident Response 

& Security Teams to provide advice upon the implementation of global risk strategies). During my time as an employee of the UK government I served as the UK’s 

Crime Reduction Coordinator at the National Hi Tech Crime Unit (NHTCU). 

I am pleased to provide the Committee this written testimony to address the issue 

of online wagering from a security and law enforcement agency perspective relating 

to the security and integrity of online financial systems. 

SUMMARY

The question has been raised whether the prohibition of Internet gambling is necessary to protect consumers from various risks linked to Internet gambling, in particular, the risks of compulsive gambling, underage gambling, money laundering 

and fraud. 

As the Committee considers whether the current U.S. regime of prohibition is 

being effectively enforced, it should also consider the fact that there exist technological solutions today which could be adopted to bring a very high degree of safe 

and secure practice/s to online financial transactions, including those relating to 

Internet gambling. Such solutions will protect not only the consumers but also the 

integrity of the financial infrastructure that they are using to facilitate Internet 

gambling transactions today. 

Implementation of such solutions is not only possible in connection with regulating Internet gambling, but is necessary in the broader context of the online payments system. Indeed, if we fail to act promptly to strengthen our ability to secure 

online financial systems, we face the prospect of organised crime and terrorism gaining more and more funding from innocent consumers—whilst banks and credit card 

schemes positioned in the middle, act as unwitting facilitators. 

INTERNET GAMBLING REGULATION PROMOTES INTERNET SECURITY

There is a pressing need to respond proactively before customer confidence is diminished irretrievably, the integrity of the financial systems is challenged and before governments, legislators and regulators are forced to react to mitigate the potential damage by bringing the online financial industry into line. This threat pertains to all sectors utilizing online financial transactions and not just to the Internet 

gambling industry. Many informed sources and experts in this arena take the view 

that we are presently losing the battle in the online space to organised criminal and 

terrorist groups (sometimes referred to as ‘non-state actors’) and to hostile foreign 

governments. Ironically, the very steps needed to create a secure regime that protects consumers in the area of Internet gambling are needed in any case to protect 

the Internet overall from this array of threats. 

The basic principles of actions that need to be taken to protect the payments system generally, and to provide for consumer protections in the area of Internet gambling, are by now well documented. They include: 

Authentication and Identity Management—proving beyond reasonable 

doubt that the person conducting the transaction is who they purport to be. 

Authorization—proving that the identified person is the authorized user of the 

credit/debit card or other financial instrument being used in the transaction. 

Age Verification—a second layer of security and process sitting behind the 

items mentioned above, and which may require persons to verify their date of 

birth before access can be granted to goods and/or services online. 

User Location—certain services offered online may require that a user’s location is identified. In some cases this might merely mean by country, but in 

other cases the service may require location verification to county/state level or 

better.1 Often, the various obstacles which can be placed in the way of techVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00109 Fmt 6601 Sfmt 6621 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
106 

ever, real time analysis is what is needed and ISPs should be invited to provide solutions for 

commercial use. 

nically verifying location data cause concern to many. However, the online merchant, operator and financial services company, can, based on the level of transactional risk involved and the nature of the service, decide to decline the transaction in cases where the location cannot satisfactorily be confirmed (for whatever reason). 

Data Sharing on Criminal Activity—every company in the online financial 

transaction chain holds data relating to criminal activity and attempted activity. Sharing this data throughout the financial ‘supply chain’ would provide increased levels of assurance in authorizing online transactions whilst providing 

a significant weapon in the fight against online fraud. In addition, the ability 

to provide industry reporting of such criminal activity to government and to law 

enforcement and security agencies would significantly enhance their ability to 

prevent and investigate online crime. 

Two Factor Authentication—The operators involved in certain high risk categories of online transaction, such as travel, gambling, electrical goods and 

international transactions, could provide their online customers with a second 

tier authentication token to provide increased levels of assurance and security. 

Distributed in a secure way to users, this would provide a high degree of certainty of identity, authority and age. Indeed, one might ask why the issuing 

banks which provide credit and debit cards for use online, do not offer this service now. 

REGULATION AND ENFORCEMENT

Currently, law enforcement agencies benefit from the open interaction they have 

with financial services companies and payment providers who provide services to a 

broad range of e-commerce merchants. A flow of information and intelligence exists 

from many of these companies, which provides law enforcement with a greater understanding of the nature of new criminal modus operandi in online transactions. 

In cases where law enforcement agencies choose to investigate online criminality, 

having the ability as law enforcement officers to sit down and meet with all regulated Internet gambling companies and their payment service providers, banks and 

credit card companies provide an enormous boost to the ability to fight e-crime. 

AN EXAMPLE OF REGULATION AND ENFORCEMENT WORKING

Whilst serving as the UK’s Crime Reduction Coordinator at the National Hi Tech 

Crime Unit (NHTCU), now a part of the UK’s Serious Organised Crime Agency 

(SOCA), I had responsibility, inter alia, for ensuring that law enforcement, the financial industry and online businesses worked closely together in the fight against 

e-crime. During the period 2003 to 2004, organised crime groups based in Russia, 

were orchestrating sophisticated Distributed Denial of Service (DDOS) attacks 

against Internet gambling companies. These attacks, using netbots—thousands of 

compromised PCs with broadband connections around the world—brought down 

many Internet gambling companies. In essence, they were taken off the Internet 

and rendered unable to function. 

In some cases, these DDOS attacks succeeded in taking hundreds of other businesses off the Internet, because they were connected to the same Internet Service 

Provider. 

Once these attacks had succeeded, the organised crime group, made contact with 

the Internet gambling companies demanding various payments before the attack 

would be terminated. This was nothing less than extortion. 

In the face of this organised crime onslaught, a number of Internet gambling companies called on the assistance of the NHTCU. 

The NHTCU subsequently held a round table meeting with 19 Internet gambling 

companies represented by their CEOs, Chief Technology Officers and in some cases 

with their finance chiefs. 

The companies were encouraged not to pay up—since by doing so, they would almost certainly have broken money laundering laws and assisted criminal activity. 

From the meeting, NHTCU assembled a wealth of evidence and technical data, 

launched an investigation and subsequently worked for many months with law enforcement officials in Latvia, Lithuania, Belarus and then Russia—where the UK 

Foreign Secretary of the day discussed with the Russian President, Mr Putin, the 

need for law enforcement cooperation—which was successfully secured. 

107 

By contrast, many unregulated Internet gambling companies in off shore locations 

were also subjected to DDOS attacks—they simply paid up and continued to do so 

in the face of further attacks, thus facilitating the success of organized crime. 

During the subsequent investigation, which has since come to a successful conclusion, the NHTCU discovered a huge amount of material and evidence to not only 

assist the DDOS/Extortion investigation, but which also provided evidence that 

these same organised criminal groups were behind a vast global network of other 

online criminal activities. These included ‘‘phishing’’ attacks against the USA, Canada, Australia and the UK. It included evidence of massive credit card theft and 

fraud, the sale of technical exploits and malicious code online to the highest bidders, 

the control of netbot armies comprising tens of thousands of compromised PCs and 

servers, the counterfeiting of national identity documents and driving licences, online paedophilia, website defacement—the list was endless, the organisation was superb! The same organised crime groups were involved in many of these activities, 

and no doubt continue to be so. 

NEGATIVE CONSEQUENCES OF PROHIBITION

My point is Mr Chairman, without the ability to reach out, meet, discuss and 

share information with legitimately regulated companies trading in Internet gambling, law enforcement will find it hugely difficult to bring satisfactory resolutions 

to investigations. Without regulation of Internet gambling businesses, they will find 

it enormously difficult to introduce preventative measures to block criminal activities before they succeed. 

Without putting in place a robust regulatory regime which introduces the safeguards outlined earlier in my testimony, the entire online sector (not only Internet 

gambling operations) will continue to be at the mercy of organised criminal groups 

and will continue to be a source of terrorist funding. In short, if you regulate an 

industry and thereby establish security standards, you are able to protect that industry, the consumers who use it, and the infrastructure it uses at the same time. 

Thus, the regulation of Internet gambling not only has a protective impact on consumers engaging in the gambling activities, but on the Internet itself, just as putting security standards in place for financial institutions and the payments system 

strengthens a wide array of online protections. 

In my opinion, prohibition of Internet gambling in the USA creates a substantial 

risk of having huge amounts of U.S. persons’ currency getting into the hands of 

criminal groups. Such groups move into unregulated markets, and a prohibition 

model is in practice just that—a market that is not regulated in practice, because 

there are no standards that govern it. Operators taking bets from U.S. persons must 

today operate in the shadows, and that means in the absence of oversight. The result is that unscrupulous alternative payment mechanisms hooked up with unregulated Internet gambling sites off-shore are filling their pockets with untaxed earnings. Located in the shadows, these operators are able to avoid meaningful US enforcement. Publicly traded Internet gambling companies, regulated by internationally recognized regulators, are no longer doing Internet gambling business with the 

United States. Their hidden counterparts operating where they cannot be seen continue to do so. The passage of the Unlawful Internet Gambling Enforcement Act 

2006 thus has had the unintended consequence of helping those over whom the U.S. 

has the least information, the least oversight and the least capacity to control. 

ADDRESSING THE SOCIAL PROBLEMS

Underage gambling, compulsive gambling, involvement of organized crime, money 

laundering and fraud are areas of public concern and are not unique to the United 

States but faced by a multitude of jurisdictions. Many jurisdictions, including the 

United Kingdom, have legalized Internet gambling. They have not done so by turning a blind eye to these concerns. Rather they have instituted a regulatory regime 

whose purpose is to ensure that technology and processes are employed to protect 

consumers and financial institutions. As other nations have found, these risks can 

be countered and contained, if those institutions operating Internet gambling payment gateways choose to adopt, or are required to adopt, technological systems and 

processes specifically designed to address each of these problems. The strength of 

such a system is complemented by the strength of the controls and vigilant oversight of the financial institutions. 

OPERATOR ENFORCEMENT SUPPLEMENTING GOVERNMENT ENFORCEMENT

In a prohibition regime, the government has to do all the enforcement, a task that 

is in practice impossible to achieve. In a regulatory regime, the operator becomes 

the primary mechanism by which enforcement is undertaken. 

108 

In a regulated regime, all consumers wishing to participate in this activity need 

to establish a player account with a licensed operator. During the registration process the player’s identity must be verified. Stringent ‘‘Know Your Customer’’ (KYC) 

requirements need to be satisfied to confirm the identity, age and residence of the 

player. When a registered player logs on to participate in the activity, their identity 

is again verified using a unique identifier generated during the registration process. 

Additionally, the location of the participant is also checked. Only one account is permitted per player and no payments are made without full verification of the identity 

of the player. 

The operator must also comply with best practices as they relate to responsible 

gambling measures. These practices include setting player bet limits (individual bet 

and capped cumulative loss), permitting a player to exclude them self from participating in play, whether at that site or on a broader industry level, and providing 

players with access to information about their activity. 

Technology and processes exist to restrict customers by location For example, the 

system used by UC Group in Europe allows for the exclusion of customers based 

on their location in the event that a jurisdiction chooses to opt out. The individual’s 

location can be identified using IP Geolocation technology. This involves matching 

the customer’s IP address to a specific state and in some cases a specific city or 

town. This technology is provided by a number of 3rd parties. The accuracy of one 

of these systems has been independently verified by PricewaterhouseCoopers as 

99.9% accurate on a country level and 95% accurate on a state level. 

This accuracy can be further enhanced by considering IP location together with 

both the registration information provided by the customer, the address to which 

a payment card is registered and the location of the bank that has issued the payment card. 

Technology and processes exist to address the risk of underage gambling. Such 

a system incorporates a number of barriers to prevent abuse by underage persons. 

The first barrier is at the merchant’s website, which must have appropriate age 

verification mechanisms in place to qualify for services from the operator. The next 

barrier is provided by the card issuance rules in place for financial institutions. 

A key part of addressing the underage gambling risk is the KYC checks undertaken at the point of consumer registration with the merchant. 

KYC requires that the organization know whom it is in fact dealing with. In order 

to satisfy this requirement, the customer is asked for a range of information, including Name, Address, Date of Birth, Telephone Number and information not easily 

available such as Social Security or Passport Number. This information is then compared to multiple databases to confirm the accuracy and validity. If the customer 

fails this validation they are unable to open an account. These services are today 

provided across many industries. 

Additional KYC checks performed include checking that the registered address of 

the telephone number matches the details supplied, and that the customer is in fact 

able to answer the telephone and confirm these details. 

Credit card companies typically do not issue credit cards to minors. Nevertheless, 

minors may validly have access to debit or sponsored cards. In these cases, the 

Issuer will be aware of the cardholder’s age and is able to decline the transactions 

flagged as Internet gambling at the time of authorization. 

An additional control ensuring use by the legitimate cardholder is provided by the 

financial institutions and the card schemes through a requirement, at an increasing 

number of sites, to enter a password before completing an online transaction. 

A final impediment to underage usage goes to the heart of this type of system. 

The underage consumer cannot receive any winnings, as they are not the authorized 

owner of the card. 

Enforcement and compliance with regulations cannot be perfect and requires continuous improvement and enhancement, but this can readily happen in a regulated 

regime where operators, regulators, and law enforcement work over time to 

strengthen the integrity of the industry subject to regulation. 

This is even true with regard to addressing the risk of compulsive gambling. It 

is an issue that remains a significant challenge. The solutions are complex and require all participants in this industry to work together in a cooperative way with 

a combination of education, technology and oversight (parental and/or government). 

The approach required to effectively combat this requires transparency and involvement from various stakeholders. 

A good online system offers a number of opportunities to address compulsive gambling on the Internet that are as good as, if not better than, those available for 

bricks and mortar gambling. 

First, payment card holders can be offered the possibility to restrict their ability 

to gamble on the Internet by way of applying to be excluded via a self-exclusion proVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00112 Fmt 6601 Sfmt 6621 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
109 

gram. Land-based casinos in the United States already maintain self-exclusion programs but the effect of such a program is normally limited to one casino and subject 

to the ‘‘human error’’ of individuals in attempting to physically identify excluded 

persons. When self-exclusion from Internet gambling is put into effect via the payments system, it becomes impossible for the person concerned to participate in any 

gambling on the Internet that uses traditional card payments through the payment 

processor. Furthermore, individuals may fix limits on the amounts they can spend 

on Internet gambling. Increasing such limits is typically subject to cooling off periods after which the individual would need to reconfirm that he or she effectively 

wants to increase the spending limit. The ideal solution is for a global self-exclusion 

database to be established and access made available to all financial transaction 

processors and licensed operators, providing for a broader blocking capability. 

Second, an integrity system prohibits individuals from registering more than one 

payment card to pay for Internet gambling transactions. This would prevent individuals from running up excessive debts by using multiple cards. Similarly players are 

restricted to only the one account with a licensed operator. 

Third, it is relatively simple for a properly designed Internet gambling system to 

detect an unusual increase in an individual’s spending on Internet gambling. This 

makes it possible to monitor compulsive gambling much more closely than in the 

case of traditional forms of gambling where the casinos, lotteries and racetracks normally do not know the identity, or the spending pattern, of most of their customers. 

Fourth, as mentioned above the customer’s identity can be verified using 3rd 

party KYC systems. Once the information has been validated, it can be checked 

against various databases of compulsive gambling. In the event that a customer is 

found to be present in these databases, the registration can be rejected or the customer investigated. 

All of these kinds of controls make it easier for an enforcement agency, such as 

the Department of Justice, to protect U.S. consumers, because in such cases, a regulator sets standards, auditors audit them, and a rogue operator can be dealt with 

as a rogue, an exception to the norm, rather than the norm. 

In summary, the most safe and secure way to protect US Citizens who wish to 

wager online is to regulate the industry, give law enforcement the opportunity to 

work with US licensed operators and payment service providers and implement the 

measures outlined earlier in my testimony. I commend to the Judiciary Committee, 

as an alternative to prohibition, a regulatory structure for dealing with the issue, 

such as Chairman Frank’s H.R. 2046 initiative, the Internet Gambling Regulation 

& Enforcement Act 2007, or a similar approach. 

I thank the Chairman and Committee Members for the opportunity to submit this 

testimony. 

f 

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PREPARED STATEMENT OF NAOTAKA MATSUKATA, PH.D., SENIOR POLICY ADVISOR, 

ALSTON & BIRD, LLP 


7B-1.eps
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PREPARED STATEMENT OF I. NELSON ROSE, PROFESSOR OF LAW, 

WHITTIER LAW SCHOOL

The federal government has issued proposed regulations to enforce the ban on 

money transfers for unlawful Internet gambling transactions. The most important 

thing to understand is that legally nothing has changed. And nothing will, for many, 

many months. 

Given the impossible job of enforcing an unworkable law, regulators punted, 

issuing proposed regulations that tell banks, credit card companies, e-wallets and 

other payment processors, basically, ‘‘You take care of it.’’ 

Because the regulations will expressly put the burden on money transmitters to 

avoid illegal gambling, financial institutions will increase their restrictions on all 

gaming, even clearly legal bets. 

The proposed regs are the result of a bill rammed Congress through last year by 

the failed politician, then-Senate Majority Leader Bill Frist (R-TN). Frist attached 

his Unlawful Internet Gambling Enforcement Act to the SAFE PORTS Act. He refused to let Democrats even read the bill. If they didn’t like it, they could vote 

against port security. 

A good indication of how quickly the law was written is that it does not even have 

a good acronym. Since UIGEA is unpronounceable, I’ll call it Prohibition 2.0. 

Prohibition 2.0 is often characterized as outlawing Internet gambling in the U.S. 

It actually does only two things. It creates a new crime: being a gambling business 

that accepts money for unlawful transactions. And it requires that new regulations 

be written by the Secretary of the Treasury and Governors of the Federal Reserve 

Board, in consultation with the Attorney General, meaning the Department of Justice (‘‘DOJ’’). 

What it does not do is make it a crime to merely make bets on the Internet. It 

doesn’t directly restrict players from sending or receiving money. It doesn’t spell out 

what forms of gambling are ‘‘unlawful.’’ Specifically, it does not do what the federal 

Department of Justice (‘‘DOJ’’) wanted, which was to ‘‘clarify’’ that the Wire Act covers Internet casinos, lotteries and poker. 

The new crime it creates is greatly limited. Only gambling businesses can be convicted, not players. Bizarrely, for a law designed to prevent money transfers, the 

financial institutions involved in those transfers, including banks, credit card companies and e-wallets, are expressly defined as not being gambling businesses and 

so cannot be convicted of this new crime. 

Although a felony, the new crime turns out to be much less than it seems. I have 

argued (see http:www.GamblingAndTheLaw.com/columns/2006lact.htm ) that the 

Act requires that the gambling already be illegal under some other federal or state 

law. There has been some discussion that Prohibition 2.0 greatly expanded the 

reach of anti-gambling laws, to cover overseas operators who were not violating any 

American law. The comments accompanying the proposed regulations make it clear 

that the federal agencies, including, most importantly, the DOJ, agree with my 

analysis. Here’s their discussion of whether the government should draw up a list 

of websites conducting illegal gambling: 

The Act does not comprehensively or clearly define which activities are lawful 

and which are unlawful, but rather relies on underlying substantive law. In 

order to compile a list of businesses engaged in unlawful Internet gambling 

under the Act, the Agencies would have to formally interpret the various Federal and State gambling laws in order to determine whether the activities of 

each business that appears to conduct some type of gambling-related function 

are unlawful under those statutes. 

The regulations were supposed to be promulgated by mid-June. The agencies have 

finally issued proposed regulations, four months late. The general public now has 

until December 12 to make comments. The agencies will then make changes in the 

proposed regs. The final versions will then be published, supposedly giving everyone 

six months to set up their procedures. 

This is not going to happen. 

It took ten months just to draw up the proposed regs. The delay was caused not 

only by having to enforce an unenforceable law, requiring all payment processors 

to identify and block all unlawful gambling transactions. The other problem is that 

the three agencies have conflicting goals. The DOJ wants all internet gambling outlawed; Treasury, including the IRS, does not really want it outlawed, it wants to 

tax it; and Ben S. Bernanke, Chair of the Federal Reserve Board, expressly stated 

that he opposes any new regulations that would put U.S. banks at a competitive 

disadvantage with their foreign competitors. 

It looks like the Treasury and the Board won most of the fights. 

114 

The proposed regs put the burden entirely on payment processors to come up with 

procedures for identifying and blocking restricted money transfers. But this can’t be 

done in six months. In fact, it can’t be done at all. 

The problem is defining ‘‘unlawful Internet gambling.’’ Even the DOJ admits that 

some forms of online wagers are perfectly legal. For example, I can sit in my home 

in Encino, and, using my credit card, make bets by computer with a California licensed racebook. The system is called Advanced Deposit Wagering (‘‘ADW’’), since 

I have to fund my legal bookie account in advance. Congress, in December 2000, 

amended the Interstate Horseracing Act (‘‘IHA’’) to make it legal for ADW on horse 

races, so long as the bets and races were legal under state laws. 

And here’s an example of why it is impossible to know what is an unlawful gambling transactions. The DOJ agrees that I can make ADW bets with a California 

licensed bookie on races held here or in any of the 20 other states that have legalized ADW. But everyone else who has read the IHA, including state racing commissions, believes it is perfectly legal for me to set up my ADW with a licensed bookie 

in another state. So, how is a credit card processor supposed to handle my request 

to fund an ADW in Oregon? 

Everyone agrees that I could not make online bets on horseraces if I were in 

Utah. So payment processors would have to have cyber-border software to ensure 

that I don’t try to make a bet with my laptop from Salt Lake City. How else will 

a credit card company or my California bank know not to transfer the money even 

to a California licensed horsebook? 

And what about poker? California has had legal cardrooms since the Gold Rush. 

But 157 years of bad cases and obscure statutes make it a crime to participate, as 

a player, in any poker game where the pot is raked more than five times. If the 

state’s laws apply to online poker—a big if—how many payment processors even 

know what it means to rake a pot five times? 

There is, of course, something bizarre about requiring financial institutions to 

identify and block only unlawful Internet gambling transactions. There is no similar 

law dealing with importing cocaine or selling child pornography. But, it was clear 

from the day Prohibition 2.0 passed that there would be loopholes for banks. 

Banks do not now read the face of paper checks. Requiring all banks to read 40 

billion paper checks each year would cost the industry billions of dollars. Banks lobbied Frist. He added a provision to the Act, allowing Treasury and the Board to decide when it would not be ‘‘reasonably practical’’ to i.d. and block transactions. The 

DOJ was given no say. So, almost all paper checks are exempt. 

In fact, almost all financial transactions are exempt. The agencies were worried 

about trying to regulate foreign companies. So, it is clear that the regulations apply 

only to U.S. payment processors. There are some requirements that American financial institutions make inquiries of their foreign partners. But those restrictions will 

be easy to get around, since an overseas automated clearing house, like its American counterpart, has no way of knowing what transmitted funds are used for. 

Significantly, almost everyone involved in the transfer of money is exempt from 

the requirements of identifying and blocking ‘‘restricted transactions.’’ Players are 

always exempt, whether they are sending money by check or wire, using their credit 

or debit cards, or getting paid. But all financial intermediaries are also exempt. 

The federal agencies understood that it would be impossible for the institutions 

that transfer trillions of dollars a day around the globe to identify any single transaction. The systems work because the intermediaries know what they need to know 

and no more: that the bank wiring the funds actually has those funds and the bank 

requesting the funds is who it says it is. Trying to get any more information, such 

as whether the wire is for funds to be used for gambling, would cause the entire 

system to slow down to the point that it would collapse. 

Similar thinking went into the other exemptions. The regs ‘‘exempt all participants in the Automated clearing house systems, check collection systems, and wire 

transfer systems, except for the participant that possesses the customer relationship 

with the Internet gambling business.’’ So, only if an online gaming company is the 

customer of an American bank will the bank have to ask questions. U.S. financial 

institutions are supposed to ask foreign payment service providers if the cross-border funds are going to an illegal gambling operator. But what sort of answer do you 

think they’ll get? 

More importantly, the regs expressly recognize that there is no way the federal 

government can tell in advance whether a particular transactions involves unlawful 

gambling. More than once, the federal agencies expressly turned down the idea of 

coming up with a list of web operators operating illegal gambling. Banks, being basically conservative, wanted the list so that they would simply not do business with 

those companies. But even the DOJ acknowledges, as it has to, that not every online 

wager is illegal. 

115 

So the regs put the burden on the credit card companies, banks, e-wallets and 

other payment processors to come up with their own procedures for checking on 

whether money is being transferred for unlawful Internet gambling. And there is 

no way to do that. 

Even remote sports betting is sometimes legal, for example intra-state in Nevada. 

Are bets made with foreign licensed Internet casinos ‘‘unlawful gambling transactions?’’ Show me the state or federal law that you think make them illegal and 

I will show you the reasons why that law may not apply. 

Even when we have a clear statute, there is disagreement. The DOJ believes the 

Interstate Horseracing Act only allows patrons to bet from their home with 

horsebooks in their own states. Everyone else, including the World Trade Organization, believes that Act allows cross-border bets. What should a payment processor 

do? 

The answer shows what will happen. Banks and credit card companies can only 

get into trouble if they permit a transaction that turns out to involve unlawful gambling. They face no penalties for refusing to transfer funds for legal gambling. So, 

all major American financial institutions will refuse to transfer funds from their patrons to any company that they know is involved with online gaming. 

This will open the door to foreign financial operators. Expect to see many more 

patron solicitations for overseas credit cards and bank accounts. 

The proposed regs have so many exceptions that, when they do finally get officially promulgated, Americans will still be able to make bets on the Internet. In the 

worst case, players can always reload or receive their winnings by paper check. 

But there are more loopholes. The regs also clearly do not directly cover financial 

institutions in other countries. So, anyone who uses a credit card issued by a foreign 

bank should encounter no trouble. If I send a check from Bank of America to pay 

off my Hong Kong issued Visa, neither the B of A nor the Hong Kong bank are required to ask whether I’m using the card for gambling. 

American payment processors are required to check out payments going in and 

out of the country. So, a U.S. clearing house is supposed to have procedures in place 

to check that the money it is forwarding is not used for unlawful gambling. This 

might be possible if the funds went directly to an online operator or even the operator’s bank. But what if the money went to a foreign clearing house, that cannot possibly know what the funds are used for? 

That is the good news for players. The bad news is that we are dealing with 

banks and other financial institutions that are basically conservative. Also, the DOJ 

has been waging a war of intimidation on both operators and payment processors— 

Neteller joined PayPal and credit card companies in voluntarily barring all gaming 

transactions. 

The proposed regs make it clear that payment processors should not block money 

transfers for legal gambling. They specifically note that some Internet wagers have 

been declared legal under Prohibition 2.0. These include not only interstate horseracing, but all forms of gambling, including poker, if done correctly and conducted 

entirely within a single state or on tribal land. 

But there is no real downside in telling bank customers and credit card holders 

that they cannot send any funds to any gambling site. The only thing the banks 

lose are possibly some customers. But allowing patrons to send funds to a gaming 

site that turns out to involve an unlawful transaction opens the banks to fines and 

other government punishments. So, all large U.S. payment processors are going to 

take the least risky path and block all gambling transactions, even ones that are 

indisputably legal. There is no law forcing them to transmit funds for legal gambling. 

But, in the end, Prohibition 2.0 and its regulations will be as successful in preventing people from gambling and playing poker online as the first Prohibition was 

in preventing people from drinking. 

f 

PREPARED STATEMENT OF RICHARD WINNING, PRESIDENT, THE AMERICAN

GREYHOUND TRUCK OPERATORS ASSOCIATION

Mr. Chairman, thank you for agreeing to submit these comments for the record. 

As President of The American Greyhound Track Operators Association (AGTOA), 

I want to highlight the areas of concern raised by the proposed regulation put forth 

by the Department of Treasury and the Federal Reserve Board, titled ‘‘Prohibition 

On Funding Of Unlawful Internet Gambling’’. Below I will highlight areas of concern that the proposed regulation raises including: 

• Preventing Over-Blocking of Legal Pari-Mutuel Transactions 

116 

• Improving Liability Protection Provisions 

• Providing Greater Clarity Reduces Regulatory Burden 

Congressional intent is quite clear that legal state licensed and regulated parimutuel transactions should be permitted, however, the proposed regulation is far 

more hazy. The vagueness of the proposed regulation will harm the pari-mutuel industry by incentivizing over-blocking over par-mutual wagers and cause burdensome 

regulations where none need exist. 

THE AMERICAN GREYHOUND TRACK OPERATORS ASSOCIATION (AGTOA)

The AGTOA was formed in April 1946, and is a non-profit corporation composed 

of the owners and operators of 36 greyhound tracks located throughout the United 

States. Membership is open to all lawfully licensed greyhound racetracks, whether 

they be individuals, partnerships or corporations. 

Like horse racing, greyhound racing is recognized as one of the nation’s largest 

spectator sports. Greyhound racing is legal in 16 states including: Alabama, Arizona, Arkansas, Colorado, Connecticut, Florida, Iowa, Kansas, Massachusetts, New 

Hampshire, Oregon, Rhode Island, South Dakota, Texas, West Virginia and Wisconsin. Further, greyhound racing (as does horse racing) relies upon State authorized pari-mutuel internet and account wagering to facilitate the making of bets or 

wagers on State sanctioned races. 

PREVENTING OVER-BLOCKING OF LEGAL PARI-MUTUEL TRANSACTIONS

The AGTOA would like to make clear that Congressional intent of the Unlawful 

Internet Gambling Enforcement Act of 2006 (UIGEA) is to ‘‘ensure that transactions 

in connection with any activity excluded from the Act’s definition of ‘unlawful internet gambling’ ’’ are not ‘‘blocked or otherwise prevented or prohibited by the’’ the 

Proposed Regulation. Moreover, the statute states that the regulation should not be 

implemented as to ‘‘alter, limit, or extend Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.’’ 

While the proposed regulation notes these facts, it also contains many drafting contradictions which will lead to over-blocking of legal transactions. 

Section 5(c) of the Proposed Regulation currently protects only designated payment system participants who over-block legal transactions while ‘‘reasonably’’ attempting to comply with the regulations. As noted, however, the Proposed Regulations must not be implemented as to ‘‘alter, limit, or extend Federal or State law 

or Tribal-State compact prohibiting, permitting, or regulating gambling within the 

United States.’’ This drafting contradiction provides liability protection for overblocking legal transactions in violation of the Act and wrongly incentivises overblocking. Moreover, it does not provide sufficient clarity or protection to the banking 

and financial community who wish to create polices and procedures or otherwise 

process the same pari-mutuel transactions. Put another way, to be consistent with 

Congressional intent, there needs to be regulatory parity between those that err on 

the side of processing legal transactions versus those who over-block. 

Congress affirmed that the pari-mutuel industry should be exempt, since it is licensed and regulated by the States. Congress not only stated that the regulated entities permit processing of lawful transactions within the Interstate Horseracing 

Act, Congress also included that the internet gaming provisions do not change the 

legality of transactions for dog racing as well. ‘‘For instance, if the use of the Internet in connection with dog racing is approved by state regulatory agencies and does 

not violate any Federal law, then it is allowed under the new sections 5362(10)(A) 

of title 31,’’ (152 Cong. Rec. H8026–04 (Sept. 29, 2006) (legislative history submitted 

by Sen. Leach). 

The statute also notes that the regulation should not impact state laws. Pari-mutuel betting, account wagering, simulcasting and common pool wagering all use the 

Internet, and many states have noted this fact. New York sanctions internet parimutuel wagering, regulate the gambling activity through their respective State 

agencies and authorities, and use the internet to reconcile the merged betting pool 

to facilitate and promote the efficacy of the transactions. Likewise, pari-mutuel account wagering is entirely legal and regulated in many States, including, but not 

limited to: California, Kentucky, Louisiana, New Jersey, Oregon, and Pennsylvania. 

All of these transactions involve use of the internet, and are authorized and regulated without regard to whether the race meet is a horse race or dog race, and all 

of these transactions are in jeopardy. 

All of these lawful transactions could be in danger because the Proposed Regulation offered by the Administration fails to mirror Congressional language that clearly asserts that legal pari-mutuel wagering is permitted under the UIGEA. We are 

117 

not the only organization to read the proposed regulations this way. In the attached 

comment letter from the Kansas Bankers Association to the Federal Reserve Board, 

the state association also believes that the over-blocking provisions permit ‘‘institutions to decide to completely avoid processing any gambling transactions and thereby avoid the potential liability presented by this proposal.’’ (See attached comment 

letter from Kansas Bankers Association, October 24, 2007) 

The intentional lack of clarity caused by the failure to accurately define ‘‘unlawful’’ gambling activity raises a question about the Proposed Regulation’s fairness. 

Principles of fundamental fairness require that the Proposed Regulation be sufficiently clear that a person of common intelligence need not guess at its meaning 

and application. Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858 (1983). 

As drafted, lawful activity under Federal (e.g., the IHA) and State law (permitting 

pari-mutuel transactions) is just as likely to be blocked as permitted because a person is left to guess as to whether lawful interstate pari-mutuel wagering is, under 

the Proposed Regulation, illegal. 

The Proposed Regulation intentionally refrains from defining illegal or legal gambling activity. On the one hand, nothing in the Proposed Regulation requires or is 

intended to suggest that credit card companies, banks and internet payment processors which already handle internet wagers must or should block or otherwise prevent or prohibit any transaction that is not Unlawful Internet gambling. On the 

other hand, internet and phone account-based pari-mutuel wagering are defacto designated as illegal and will be blocked because the Proposed Regulation does not explain that unrestricted transactions include pari-mutuel wagering and are therefore 

not unlawful internet gambling. 

The regulation must follow Congressional intent and expressly denote that legal 

state transactions, such as those in the pari-mutuel industry, are exempt from the 

Act. These transactions should not be blocked. Otherwise, the position of the Kansas 

Bankers Association to consciously over-block will be implemented by financial institutions across the country. This could be the death knell for the entire pari-mutuel 

wagering industry in the United States, including greyhound racing, an outcome 

that Congress did not intend nor desire. 

IMPROVING LIABILITY PROTECTION PROVISIONS

The Act’s stated purpose is not intended to change the legality of any gamblingrelated activity in the United States. As drafted, however, the Proposed Regulation 

only offers liability protection to designated payment system participants who overblock legal transactions. The Administration provided no meaningful guidance or 

protection to the banking and financial community who wish to avoid over-blocking 

by creating polices and procedures to process legal State law sanctioned pari-mutuel 

transactions. By merely extending liability protection to those who over-block in violation of the Act, the Administration wrongly incentivises designated payment system participants to create policies and procedures which will cause in the wholesale 

prohibition of legal pari-mutuel activity. In turn, the Proposed Regulation effectively 

encourages a regulatory scheme resulting in legal activity being re-defined as illegal. 

The Proposed Regulation needs to be corrected to state that designated payment 

system participants who follow the Act and process transactions involving State 

sanctioned and regulated pari-mutuel wagering are immune from liability in the 

same way as participants who over-block those same transactions in violation of the 

Act. 

PROVIDING GREATER CLARITY REDUCES REGULATORY BURDENS

The Proposed Regulation presents vagueness concerns, and if left unchanged, the 

Proposed Regulation will be implemented in such a way as to go against Congressional intent; create significant fairness, vagueness and overbreadth concerns; and 

unduly burden those covered by the Proposed Regulation’s compliance regime. 

Greater clarification must be provided as to what is ‘‘unlawful internet gambling’’ 

to ensure that legal pari-mutuel transactions are protected as Congress expects. The 

Act makes abundantly clear that the placing of an internet bet or wager that is lawful under Federal or State law is not ‘‘unlawful’’. Yet, under the Proposed Regulation, a payment processor has no way of knowing whether legal pari-mutuel transactions made over the internet are ‘‘unlawful’’ or permissible. 

The Administration has the ‘‘responsibility to state with ascertainable certainty 

what is meant by the standards’’ in a rule and ‘‘to give sufficient guidance to those 

who enforce . . . , to those who are subject to civil penalties, or to those courts who 

may be charged to interpret and apply the standards.’’ Georgia Pacific Corp. v. 

OSHRC, 25 F.3d 999, 1005–1006, (11th Cir.1994); accord, S.G. Loewendick & Sons, 

Inc. v. Reich, 70 F.3d 1291, 1297 (D.C. Cir.1995). The Proposed Regulation fails to 

118 

accomplish this. As currently written, the regulation requires designated payment 

system participants (including financial transaction providers such as credit card 

companies, banks and money transmittal businesses, such as PayPal) to fashion 

policies and procedures to comply with the Proposed Regulation in the face of definitional ambiguity (Proposed Regulation at §§ 5–6). 

Moreover, the drafting ambiguity created by the Administration makes compliance an onerous and unduly burdensome task. Under section § 5(a) of the Proposed 

Regulation, participants in designated non-exempt payment systems (which includes 

financial transaction providers) can (1) simply rely on established written policies 

and procedures of the payment systems which are reasonably designed to identify, 

block, and otherwise prevent restricted transactions; or (2) establish and comply 

with their own written policies and procedures that are reasonably designed to accomplish the same thing. In other words, the Administrations causes participants 

to create policies to block illegal transactions, but does not encourage them to create 

policies to permit legal transactions, such as those in the pari-mutuel industry. 

When presented with a choice of processing pari-mutuel transactions in the face 

of an ambiguous regulation, payment systems participants will in all likelihood 

avoid processing such transactions. For example, participants could decide that the 

financial benefit of handling the transaction is outweighed by the expense of guessing wrong that pari-mutuel wagering is permitted under the Act in violation of the 

Proposed Regulation. Again, we are already seeing this in the attached letter from 

the Kansas Bankers Association. By providing clarifications that legal internet parimutuel gambling is lawful (or not expressly unlawful), the drafters will conform the 

Proposed Regulation to Congress’s intent to not alter the landscape of legal gambling. 

Moreover, clarifying the regulations in this fashion would reduce the burdens 

placed on designated payment system participants, who would be able to rely on a 

more fulsome definition of unlawful internet gambling to craft written policies and 

procedures which do not inadvertently block legal pari-mutuel transactions. In 

drafting any rule, the Administration should structure it so that the regulated party 

is given a reasonable opportunity to bring its conduct into conformity with the agency’s policy judgments or view of the law. It is not enough for the agency to describe 

its regulatory goals or regulatory objectives. The agency should give the regulated 

persons guidelines by which to measure their performance against the agency’s or 

Congress’ objectives. (Atlas Copco, Inc. v. EPA, 642 F.2d 458, 465 (D.C. Cir.1979) 

The proposed regulation fails on this account and greater guidance would lower the 

burden places on payment processors. 

Furthermore, industries need enhanced examples in any regulation to ensure that 

payment processors clearly understand the breadth of the regulation. One example 

that payment system participants could do is create procedures that are ‘‘reasonably 

designed’’ to not block permitted transactions. The creation of a merchant category 

code (‘‘MCC’’) for State sanctioned and regulated internet pari-mutuel betting would 

be one option. With respect to credit card systems, the Proposed Regulation states 

that MCC codes accompanying a credit card transaction authorization request can 

be used by payment system participants to separate restricted from unrestricted 

transactions, however, according to a December 2002 GAO Report titled: ‘‘INTERNET GAMBLING: An Overview of the Issues,’’ many banks use the same coding for 

pari-mutuel wagering on horses over the Internet and for other types of on-line 

gambling, such as online casinos and sports betting. This problem is the result of 

current limitations in credit card coding programs. The creation of a unique transaction code would still allow the credit card issuers to reject payment for unlawful 

on-line gambling activities’’, while accepting lawful internet wagers. 

If the Administration proactively suggests that creating a MCC for state sanctioned and authorized pari-mutuel betting are ‘‘reasonably designed’’ to block restricted unlawful transactions, it will not only comply with the Act, but it will also 

follow suite with Congressional intent and provide greater clarity to the regulated 

industries. 

CONCLUSION

There are several areas of the proposed regulation that are negatively impacting 

the pari-mutuel industry, many of which are in direct opposition to stated Congressional intent. With regards to the greyhound racing industry, and the pari-mutuel 

industry as a whole, the regulation should be modified to clearly state that Congressional intent was that State sanctioned and regulated pari-mutuel wagering are immune from liability under the UIGEA. Such a drafting change would add much 

needed clarity to the Proposed Regulation and prevent over-blocking of legal transactions. Moreover, providing examples of how regulated entities can protect legal 

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transactions, such as those in the greyhound racing industry, would remove the unintended negative impact that the proposed regulation would create. These small 

and simples changes would significantly reduce compliance burdens, protect against 

over-blocking, and allow credit card issuers to create policies and procedures which 

reject payments for unlawful on-line gambling activities, while accepting internet 

and account wagers on pari-mutuel races. 

We commend the House Judiciary Committee for its oversight of this regulation, 

and Congress’s past efforts to protect the legal state licensed and sanctioned wagering within the pari-mutuel industries. Any regulation must follow Congressional intent and the Act and protect protections to those industries that would be unduly 

harmed from over-blocking. 

f 

PREPARED STATEMENT OF STEVE LIPSCOMB, CHIEF EXECUTIVE OFFICER, 

PRESIDENT AND FOUNDER, WPT ENTERPRISES, INC. 

Mr. Chairman and Members of the Committee: 

My name is Steve Lipscomb. I am the Founder of the World Poker Tour and WPT 

Enterprises (WPTE) and currently serve as Chief Executive Officer and President 

of the company. 

WHO WE ARE AND WHY WPT OPINION SHOULD MATTER: 

In October of 2001, I wrote a business plan with a mission statement ‘‘To transform poker into a televised mainstream sports sensation.’’ At that time, poker rooms 

were closing across the country, the industry was in decline and mainstream celebrity poker players did not exist. Televised poker was poorly conceived, poorly shot 

and relegated to graveyard time slots on ESPN. And, no one was watching . . . 

Legendary entrepreneur, Lyle Berman, and his company, Lakes Entertainment, 

believed in that business plan and funded the World Poker Tour in December 2001. 

The best destination casinos in the country (Bellagio, Foxwoods, etc.) signed onto 

the Tour in early 2002 and the first episode aired in prime time on the Travel Channel on March 30th, 2003. The effect was immediate and lasting. In the first season, 

the WPT became the highest rated show in Travel Channel history. When ESPN 

was unable to make a deal to broadcast the WPT in 2002, they re-instated coverage 

of the World Series of Poker (which had lapsed for three years). And, in 2003, ESPN 

copied the WPT Television Format when it filmed and captured no-name Chris Moneymaker winning 2.5 million dollars at the Main Event of the World Series of Poker 

(now known as ‘‘the Moneymaker effect’’). 

It took a full eight months to edit the first WPT television show and create the 

WPT Television format—with interactive graphics that track player’s hole cards and 

‘‘live-fiction’’ that makes the shows feel like the event is happening when it is broadcast. The result has been a global poker phenomenon—with ESPN, NBC, Fox 

Sports, Bravo, GSN and numerous international broadcasters copying the WPT Television Format to touch millions of viewers and create a multi-billion dollar poker 

industry. 

WHY WE ARE HERE: 

I am submitting testimony today because no one seems to be talking about the 

remarkable inequities facing legitimate companies in the poker marketplace. The 

policies of Congress and the Justice Department have combined to create the business equivalent of a perfect storm—rewarding bad behavior and suffocating legitimate U.S. companies that play by the rules. There simply could not be a more inequitable result than the status quo. The Justice Department is on record saying 

that online poker is illegal in the United States under the Wire Act. Yet, to date, 

there has been no enforcement of that stance, nor a disavowment of that position. 

The practical effect has been to freeze out legitimate U.S. companies like MGM, 

Harrah’s and the WPT that choose to respect the stated DOJ position—while rewarding international companies that are willing to take advantage of the lack of 

enforcement and dismiss or disregard the United States Justice Department. 

A year ago, Congress passed the Unlawful Internet Gambling Enforcement Act 

(UIGEA). However, to date, there has been no ‘‘enforcement’’ under the Enforcement 

Act. And, that has simply made things worse, not better. Large companies that 

managed to go public in the United Kingdom prior to UIGEA, left the U.S. market 

when the law passed—leaving only companies that were willing to fly in the face 

of BOTH the Justice Department AND the United States Congress. And, those companies are making millions of dollars every day in the U.S. market. They are using 

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that money to create and give away every product or service that legitimate companies like WPTE and Harrah’s might offer—all as loss leaders for their online gaming business. This process is undermining the entire marketplace. WPTE investors 

have lost over $300 million dollars in market cap over the last two years as a result 

of these inequities, while companies that ignore the U.S. authorities have watched 

their valuations grow into the billions. 

An unfortunate side effect is that vulnerable groups that Congress may be trying 

to protect (children, gambling addicts, etc.) are simply not being protected. It remains easy to play poker online for money in the United States. People simply face 

having to play on less and less reputable sites. As UIGEA makes it more and more 

difficult to get money into online poker sites, the sites that are willing to find vendors to unencrypt credit cards or charge credit card transactions deceptively or 

fraudulently under various misleading merchant codes will prevail in the marketplace. This certainly cannot be the intended result. 

WHAT WE CARE ABOUT: 

We at the World Poker Tour want a level playing field. We believe that poker 

should be viewed as a game of skill—and that poker players should be allowed to 

play poker online anytime they like. We believe that online poker in the United 

States should be specifically allowed, taxed and regulated. What we do not want to 

see is this process ending in compromise or deadlock that extends the status quo— 

or goes back to the pre-UIGEA status quo. If legitimate U.S. companies continue 

to be excluded from the market out of fear of the United States Justice Department 

position, while their competitors march forward unabated, the legitimate companies 

will simply cease to exist. 

These hearings and this process have a lot of input from the current online poker 

sites. They should have a voice. But, their incentives need to be understood. Today 

they exist in a marketplace that does not allow MGM, Harrah’s, WPTE, Yahoo, 

Google or others to compete with them—and they pay absolutely no tax. The best 

possible outcome for them would be for nothing to change . . . for as long as they 

can possibly convince Congress to dance. Because every day . . . they make millions. 

CONCLUSION: 

We are proud to be a part of the global poker phenomenon. To date we have 

crowned 79 WPT Poker-Made-Millionaires, given away over 300 million dollars in 

prize money and helped make dozens of poker players into household names across 

the country. The American public has embraced poker as a legitimate sport and 

flocked to the internet to play that sport against other online players around the 

world. We appreciate the Committee’s attempts to resolve these issues and hope a 

solution can be found to make it possible for U.S. online poker players to play safely 

in a regulated environment with services offered by U.S. and international websites. 

On behalf of WPT Enterprises, Inc., I want to thank you for inviting my testimony. We are committed to working with Congress on these matters and will provide whatever support you and your staff may request. 

f 

PREPARED STATEMENT OF HARLAN W. GOODSON, 

PRESIDENT, INTERACTIVE SKILL GAMES ASSOCIATION

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

submit written testimony on behalf of the Interactive Skill Games Association 

(‘‘ISGA’’). We appreciate the Committee examining the important issues surrounding the Unlawful Internet Gambling Enforcement Act (‘‘UIGEA’’), and are 

grateful for your willingness to consider the views of the interactive skill games industry. 

ISGA is a trade association created to help shape the growth of the North American interactive skill games sector in compliance with Federal and state law, and 

to promote public understanding of the sector. A skill game is a contest that is won 

by the person who plays most skillfully. Well-known skill games include chess and 

trivia quizzes. They also include competitions in popular casual games, like 

Bejeweled, Scrabble Cubes and Tetris, in which players compete against other players for cash and prizes. More broadly, they include tournaments that appeal to 

many adults in the United States and abroad, and range from arcade-style games 

that may appeal to younger adults, to word or trivia games that may appeal to older 

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adults. All of the leading Internet sites, including AOL, MSN, Yahoo! and hundreds 

of other popular Web destinations, offer skill games on their sites. 

In contrast to games of chance, no person can expect to win a skill competition 

by mere random moves or solely as a result of one or more favorable chance events. 

Instead, skill competitions are based upon the fact that all participants begin on a 

level playing field and it is the one who plays with the greatest degree of skill who 

prevails in the end. For example, a two-person solitaire competition, which may be 

structured much like a duplicate bridge tournament, is distinguished from a game 

of chance because both players will receive a deck with an identical sequence of 

cards, thereby requiring the player’s skill to determine the winner of a game. 

Chance is not the determining factor in skill games because skill involves: (a) the 

exercise of quickness or acuteness of sense perceptions; (b) intellect; (c) keenness of 

discernment or penetration with soundness of judgment; and/or (d) the ability to see 

what is relevant and significant. Playing and practicing skill games assists in the 

development of these skill sets. Ultimately, the player’s skill, and not chance or 

other fortuitous circumstances, is the determining factor in the outcome of skill competitions. 

Skill games have significant social value. Skill competitions like spelling bees 

have long been used to teach valuable skills to children and adults. There is also 

scientific support for the benefits of skill games. For example, a June 2003 study 

published in the New England Journal of Medicine found a significantly lower cumulative risk of dementia for elderly persons who play skill games compared to 

those who do not. This study appears consistent with the reduction of the risk of 

Alzheimer’s. In another study, researchers at Case Western Reserve Medical School 

in Cleveland compared the leisure time activities of more than 550 people, nearly 

200 of whom went on to develop Alzheimer’s. The study found that ‘‘those who had 

engaged in stimulating activities throughout their life—everything from reading, 

doing crossword puzzles, and playing bridge, chess, or board games to visiting 

friends, practicing a musical instrument, and bicycling—were 21⁄2 times less likely 

to get Alzheimer’s.’’ 

Interactive skill games are played competitively between individuals, not against 

the ‘‘House’’ or a ‘‘bank’’, and so the operator has no incentive to make the games 

particularly hard, other than for the enjoyment of the player. Players typically participate in a community experience, competing with each other in small structured 

tournaments where the winner takes the pot. Skill game operators act as impartial 

tournament hosts. They have no vested interest in the outcome of each competition. 

Interactive skill games companies are growing quickly in number and size and include companies based in the United States as well as companies owned and operated by multinational media corporations. Building and maintaining skill sites involves many highly skilled individuals including game developers, graphic artists, 

computer programmers, animators, system analysts, accountants, and many other 

employees. To pay their employees and add value for customers, skill games companies need to have revenue which is typically generated by collecting user fees. These 

fees are typically modest as competition tends to set pricing. The most common 

method is to invite persons to compete in a tournament or competition for a small 

fee with a cash or merchandise prize. This is akin to local bowling tournaments, 

spelling bees, baking contests or cheerleading competitions, where competitors pay 

a small entrance fee to enter and have the opportunity to win prizes. The entry fees 

defray the cost of hosting the competitions and furnishing prizes. The most common 

skill game tournaments involving 2–3 players have typical entry fees of approximately $2.00 for a game that will generally last from three to five minutes with an 

average prize of about $6.00. 

For several years, the interactive skill games industry has steadily grown to serve 

millions of Americans. These players are not persons who you will read about in 

the media as either having won millions (like the latest state lottery winners) or 

who suffer devastating losses because of a gambling problem. The skill games players are simply everyday folks who enjoy entertaining themselves by participating in 

challenging skill competitions. According to industry surveys, two-thirds of the players frequenting skill games sites are women, with more than half between the ages 

of 25 and 54. Additionally, most of the players are married, and many have children. The players are drawn to skill games competitions for the challenge of competing against other players of equal ability, and also the mental escape associated 

with being engrossed in their favorite word, card or arcade games. Yet, the skill 

games industry has been drawn into a debate that is not pertinent to its industry 

but where the fallout from the debate and related federal government action threaten its very existence. 

The debate over the social ills some people associate with gambling resulted in 

the passage of the UIGEA. The ISGA believes that the proposed regulations impleVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00125 Fmt 6601 Sfmt 6621 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
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menting UIGEA will have a profound negative impact on this legal and socially beneficial past time which is not, and should not be considered, gambling. UIGEA was 

enacted in response to the growth of the Internet gambling industry. That it never 

was intended to apply to pure skill games just because they can be played over the 

Internet is evident by legislative history. Yet, contrary to congressional intent in 

passing UIGEA, proposed federal regulations could unduly restrict the lawful skill 

games industry. 

Under UIGEA, two agencies, the Board of Governors of the Federal Reserve System and Departmental Offices and the Department of the Treasury (collectively the 

‘‘Agencies’’), had a nine-month period (until July 2007) to propose rules (in consultation with the Department of Justice) to implement applicable provisions of UIGEA. 

Specifically, these regulations were intended to provide guidance to the payment 

systems used by credit card companies, banks, payment networks including electronic fund transfers (‘‘EFT’’), stored value or money transmitting services, EFT terminal operators, and money transfer businesses (hereinafter, the financial transaction providers, or ‘‘FTPs’’) to: (a) identify and code restricted transactions; and (b) 

block the restricted transactions. 

Restricted transactions are those transactions through which a gambling business 

accepts funds directly or indirectly from a player in connection with unlawful Internet gambling. UIGEA defines ‘‘unlawful Internet gambling’’ as ‘‘to place, receive, or 

otherwise knowingly transmit a bet or wager by any means which involves the use, 

at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or state law in the state in which the bet or wager is initiated, received, or otherwise made.’’ 

None of these definitions has any application to skill games. Simply, UIGEA was 

not intended to block lawful gaming transactions such as skill games. The proposed 

Agency rules, however, do not attempt to distinguish lawful skill competitions from 

illegal gambling games. The proposed regulatory solution as it relates to distinguishing legal and illegal gambling transaction is to shift the burden to particular 

FTPs in the financial transaction chain, with no guidance and only downside regulatory liability. Consequently, the regulations, as written, place the entire burden 

as to what are ‘‘lawful’’ or ‘‘unlawful’’ transactions on the FTPs. 

The proposed Agency rules require certain FTPs to establish policies and procedures to terminate relationships with others who they think may have any connection with unlawful Internet gambling. By not defining ‘‘unlawful Internet gambling’’ 

the FTPs are left to simply apply whichever standards they decide to adopt. Some 

have indicated that they will terminate any relationship with those who offer competitions for prizes because the cost of doing due diligence to assure that the competitions are skill-based is too high. This results in shifting the fundamental purpose of the rulemaking under UIGEA to the FTPs to make policy and procedural 

decisions central to implementing UIGEA. 

The Agencies have justified the refusal to establish procedures to ensure that 

legal gambling transactions are not blocked by claiming that ‘‘UIGEA does not provide the Agencies with the authority to require designated payment systems or participants in these systems to process any gambling transactions, including those excluded from the UIGEA’s definition of unlawful gambling if a system or participant 

decides for business reasons not to process such transactions.’’ Yet, the primary 

business reason for terminating business with skill-based companies is that the failure to adopt clear standards in the rulemaking process creates due diligence costs 

that can be avoided by simply excluding service to the lawful skill games industry. 

Most financial institutions want no part of the expense associated with this monumental undertaking and lack the necessary knowledge to conduct such an investigation into the legality of different Internet activities (whether it be illegal versus 

legal gambling or illegal gambling versus legal skill competitions). Therefore, their 

natural inclination is not to engage in any reasoned analysis to distinguish between 

a lawful industry like that represented by ISGA, but to assume that all transactions 

involving prizes are restricted and to ban any contact with the financial institutions’ 

counterparts that deal in any way with sites that allow persons to win anything. 

For instance, as the commentary in the proposed regulations already notes: ‘‘payment system operators have indicated that, for business reasons, they have decided 

to avoid processing any gambling transactions, even if lawful. . . .’’ This is the natural inclination not only for lawful gambling transactions but also lawful skill contests and competitions. The skill games industry is already experiencing significant 

instances of financial institutions engaging in this reasoning. 

The debate surrounding Internet gambling is not our debate, yet the consequences 

of the proposed remedy profoundly impact our business, our customers and our employees. Defining lawful skill games is not a difficult challenge. For example, the 

UIGEA contains an exception for fantasy sports. Without debating the relative merVerDate Aug 31 2005 13:33 Sep 29, 2008 Jkt 000000 PO 00000 Frm 00126 Fmt 6601 Sfmt 6621 H:\WORK\FULL\111407\38867.000 HJUD1 PsN: DOUGA
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its of the skill aspects of fantasy sports versus, for example, chess, the exemption 

shows that carefully drafted definitions can easily protect the skill games industry 

without compromising the intent of UIGEA. 

A great disservice is being done to millions of Americans who play skill games, 

to the companies and their investors that have built the legal skill games industry 

and to the thousands of skilled workers who earn a living in this vibrant industry. 

We urge Congress to carefully review this issue and further clarify to the Federal 

Reserve Board and the Department of Treasury that they have an affirmative obligation to protect innocent industries from collateral damage resulting from the 

Internet gambling debate. 

Mr. Chairman and Members of the Committee, thank you again for the opportunity to present ISGA’s views on these important issues. I am available to discuss 

these issues further with Members and staff of the Committee. 

Æ