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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
        FINANCIAL ASPECTS OF INTERNET GAMING: GOOD GAMBLE OR BAD BET?

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 12, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-34

                    U.S. GOVERNMENT PRINTING OFFICE
74-100 PS                   WASHINGTON :  2001

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Texas                 JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director

              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Ohio, Vice Chairman        LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              JAY INSLEE, Washington
ROBERT W. NEY, Texas                 JANICE D. SCHAKOWSKY, Illinois
CHRISTOPHER COX, California          DENNIS MOORE, Kansas
DAVE WELDON, Florida                 STEPHANIE TUBBS JONES, Ohio
WALTER B. JONES, North Carolina      MICHAEL CAPUANO, Massachusetts
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
ERIC CANTOR, Virginia                WILLIAM LACY CLAY, Missouri
PATRICK J. TIBERI, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 12, 2001................................................     1
Appendix:
    July 12, 2001................................................    37

                               WITNESSES
                        Thursday, July 12, 2001

Avioli, Gregory C., Deputy Commissioner, Chief Operating Officer, 
  National Thoroughbred Racing Association.......................    30
Fahrenkopf, Frank J., Jr., President and CEO, American Gaming 
  Association....................................................    16
Kyle, Penelope W., President, North American Association of State 
  and Provincial Lotteries; Executive Director, Virginia Lottery.    29
Lorenz, Valerie C., Ph.D., Executive Director, President of the 
  Board, Compulsive Gambling Center, Inc.........................    15
MacCarthy, Mark, Senior Vice President, Public Policy, Visa 
  U.S.A., Inc....................................................    25
Saum, William S., Director of Agent, Gambling and Amateurism 
  Activities, National Collegiate Athletic Association...........    23
Schneider, Sue, Chairman, Interactive Gaming Council.............    27
Sinclair, Sebastian, Vice President, Christiansen Capital 
  Advisors, LLC..................................................    11
Suarez, John Peter, Director, Division of Gaming Enforcement, New 
  Jersey Department of Law and Public Safety.....................     9
Whyte, Keith S., Executive Director, National Council on Problem 
  Gambling.......................................................    13

                                APPENDIX

Prepared statements:
    Kelly, Hon. Sue W............................................    38
    Oxley, Hon. Michael G........................................    51
    Gutierrez, Hon. Luis V.......................................    60
    Leach, Hon. James A..........................................    53
    Avioli, Gregory C............................................   190
    Fahrenkopf, Frank J., Jr.....................................   137
    Kyle, Penelope W.............................................   185
    Lorenz, Valerie C............................................   123
    MacCarthy, Mark..............................................   155
    Saum, William S..............................................   146
    Schneider, Sue...............................................   169
    Sinclair, Sebastian..........................................    84
    Suarez, John Peter...........................................    61
    Whyte, Keith S. (with attachments)...........................   109
              Additional Material Submitted for the Record

                                                                   Page
Kelly, Hon. Sue W.:
    University of Santa Clara, Department of Communication, 
      ``Real World Reporting,'' Spring, 2001.....................    41
Fahrenkopf, Frank J., Jr.:
    Written response to questions from Hon. Luis V. Gutierrez....   143
    Written response to questions from Hon. Sue W. Kelly.........   145
Kyle, Penelope W.:
    Written response to questions from Hon. Luis V. Gutierrez....   187
    Written response to questions from Hon. Sue W. Kelly.........   188
Lorenz, Valerie C.:
    Written response to questions from Hon. Luis V. Gutierrez....   127
MacCarthy, Mark:
    Written response to questions from Hon. Luis V. Gutierrez....   166
    Written response to questions from Hon. Sue W. Kelly.........   167
Saum, William S.:
    Written response to questions from Hon. Luis V. Gutierrez....   149
    Written response to questions from Hon. Sue W. Kelly.........   152
Schneider, Sue:
    Written response to questions from Hon. Luis V. Gutierrez....   181
    Written response to questions from Hon. Sue W. Kelly.........   184
Sinclair, Sebastian:
    Written response to questions from Hon. Sue W. Kelly.........   105
Suarez, John Peter:
    Written response to questions from Hon. Luis V. Gutierrez....    77
    Written response to questions from Hon. Sue W. Kelly.........    80
Whyte, Keith S.:
    Written response to questions from Hon. Luis V. Gutierrez....   115
Australian Registered Bookmakers' Advisory Council, prepared 
  statement......................................................   198

                 FINANCIAL ASPECTS OF INTERNET GAMING:

                        GOOD GAMBLE OR BAD BET?

                              ----------                              

                        THURSDAY, JULY 12, 2001

             U.S. House of Representatives,
      Subcommittee on Oversight and Investigations,
                           Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:10 p.m. in 
room 2128, Rayburn House Office Building, Hon. Sue W. Kelly, 
[chairwoman of the subcommittee], presiding.
    Present: Chairwoman Kelly; Representatives Fossella, Oxley, 
Cantor, Tiberi, Gutierrez, Inslee, Crowley, Clay and LaFalce.
    Also Present: Representatives Leach and Goodlatte.
    Chairwoman Kelly. This hearing of the Subcommittee on 
Oversight and Investigations will come to order. Without 
objection, all Members' opening statements will be made part of 
the record.
    We convene here today to listen to testimony from two 
panels of distinguished witnesses about a timely but 
controversial topic: gambling on the internet. In a few short 
years, the internet gambling industry has exploded. According 
to an internet gambling committee of the National Association 
of Attorneys General, there were less than 25 sites on the web 
in the mid-1990s.
    Today, Bear Stearns, one of the Nation's leading securities 
firms, estimates that there are between 1,200 and 1,400 e-
gaming websites. Bear Stearns projects that as this industry 
continues to grow, such internet sites could generate an 
estimated $5 billion in revenues by 2003. That figure 
approximates roughly one-half of last year's casino earnings in 
the State of Nevada.
    Internet gambling presents a complex set of legal, 
financial, technical and social challenges. On the legal front, 
it is believed that most forms of interstate internet gambling 
are prohibited by Federal law under the Interstate Wire Act. 
For years authorities have used the Wire Act to combat illegal 
betting by phone or other wire communications. Now with the 
advent of internet technology, the Wire Act and other related 
provisions of Federal law also stand as a legal obstacle 
against the establishment of internet casinos on U.S. soil.
    The most serious offenders in the internet gambling arena 
are the virtual casinos, operating offshore beyond the reach of 
U.S. law. One estimate puts the number of foreign jurisdictions 
authorizing or tolerating internet gambling at 50. This 
includes not just the well-known bank secrecy jurisdictions of 
the Caribbean, but other countries like Australia.
    The lure of licensing fees and the possibility of sharing 
in gambling receipts is proving to be a powerful incentive to 
enter and get other businesses to enter the internet gambling 
business. Antigua and Barbuda have reportedly licensed more 
than 80 internet gambling websites already. They charge about 
$75,000 to $85,000 as a licensing fee for a sports betting site 
and $100,000 for a virtual casino. A report prepared for the 
South African government as reported by the Bear Stearns study 
revealed that internet gaming revenues could yield up to $140 
million in foreign exchange.
    While internet gambling represents a jackpot for such 
foreign jurisdictions, it's a wheel of misfortune for far too 
many Americans who struggle with gambling addiction and the 
loss of jobs, wrecked marriages and destroyed finances that 
often follow. With the click of a computer mouse, any American 
armed with a credit card can have instant anonymous access to 
round-the-clock gambling from the privacy of their homes. 
Students on college campuses with nearly unchecked access to 
credit cards issued by eager credit card companies have already 
been known to rack up large gambling debts.
    As we will hear today, all of the social hazards associated 
with the problem of gambling at the brick-and-mortar sites are 
of equal if not greater concern when it comes to online 
gambling. Furthermore, internet gambling poses a serious 
problem to our youth. In the areas in which gambling is legal, 
strict laws have been enacted to ensure our children are 
prohibited from participating.
    In many homes where children are far more computer literate 
than parents, what possibly is going to stop a child from 
placing a bet with their parents' credit card? Since our 
society has made a conscious decision to keep children from 
this activity, we need to think about taking steps to ensure 
that online casinos do not victimize our children. The issue of 
what we can do to protect children from these sites will be one 
of my first questions for our panelists today.
    In addition to the social problems associated with internet 
gambling, U.S. authorities warn that internet gaming offers a 
powerful vehicle for laundering funds from illicit forces as 
well for evading taxes. The use of credit cards and the 
placement of sites offshore make locating the relevant parties, 
gathering information for the necessary evidence, and 
prosecuting those parties difficult, if not impossible.
    In closing, let me say that the purpose of the hearing 
today is one of oversight. It will help us assess what has 
happened in the internet gambling arena since Congress examined 
the issue last year. It's my intent, however, not to stop at 
oversight, but to work with the legislative subcommittees under 
this subcommittee to support appropriate legislative action in 
the months ahead.
    Internet gambling can no longer simply be left to random 
events and foreign jurisdictions. It's time for Congress to 
address these issues and identify an appropriate public policy 
response.
    I would like to let the Members of the subcommittee and the 
witnesses before us know today that it is my intention to 
enforce the 5-minute rule, and I would appreciate your 
cooperation in this. At this time, I am going to recognize Mr. 
LaFalce.
    [The prepared statement of Hon. Sue W. Kelly can be found 
on page 38 in the appendix.]
    Mr. LaFalce. I thank the Chairlady, and I commend her for 
holding what I consider to be an extremely important hearing.
    I hope that this hearing marks what will be only the first 
step in this Congress to address the very serious social 
problems sometimes associated with the expansion of gambling 
throughout our country and the recurring reliance on gambling 
in some areas as an economic development tool. I have been 
concerned for many years with the expansion of high-stakes 
gambling and was the first House sponsor of legislation that 
called for the creation of a national commission to study the 
impact of the spread of gambling on individuals, families and 
communities.
    I was joined at that time by Congressman Frank Wolf, and 
especially with his leadership in the following Congress, the 
95th Congress, we were able to obtain passage of that 
legislation.
    Gambling has become too widespread a phenomenon in American 
society to eliminate it. We must instead focus our efforts on 
ways to mitigate its potential adverse consequences on 
America's families and communities. Gambling can provide a tool 
for concentrating public and private investment and consumer 
spending to promote economic growth, so long as it is 
restricted to a very limited number of jurisdictions. But when 
it expands virtually everywhere, this ability to concentrate 
economic resources is lost, eliminated. And this is one of the 
particular problems associated with internet gambling.
    The potential negative aspects of gambling such as 
excessive debt, bankruptcy, broken families, alcoholism, and 
other problems will be felt in communities in every part of our 
Nation without the affected communities realizing any economic 
benefit or any additional tax revenues to help offset these 
added social costs. In many instances, the economic benefits of 
internet gambling go solely to website operators halfway around 
the world.
    I recognize there is a wide variation of opinion within the 
Financial Services Committee and the Congress on the merits of 
internet gambling in particular and gambling in general. But I 
believe and very strongly that internet gambling represents a 
threat to many of the most vulnerable segments of our 
population, especially young people who know the medium so well 
and who are so active in its use.
    A dormitory room with one student, one laptop and one or a 
dozen credit cards can become a virtual casino. And that is 
true of any room in any building in America or in any country 
in the world or any place in the world. All you have to do is 
take your palm wireless out of your pocket and you can engage 
in gambling anywhere in the world. And how does society benefit 
from that?
    The national commission recommended that Congress act to 
prohibit wire transfers and other payments to known internet 
gambling sites. I'm glad that our Subcommittee is examining 
this issue, and I hope it will lead to legislation putting the 
commission's recommendation on this subject into statute.
    But we shouldn't limit our inquiry to this one area. The 
commission also recommended that we prohibit the placing of 
credit and debit card machines and other electronic payment 
devices in the immediate vicinity of gambling activities. The 
commission found that the migration of ATMs and credit card 
machines inside the casino has been a significant factor in the 
dramatic increase in problem and pathological gambling. I 
believe our subcommittee should examine this issue and enact 
legislation to carry out this other recommendation of the 
national commission.
    In the last Congress I introduced such a bill, H.R. 2811. 
In the near future, perhaps next week, I will reintroduce that 
legislation and also legislation similar to the bill that I 
cosponsored with Congressman Leach in the last Congress to 
prohibit the use of credit cards and other payment systems to 
place bets over the internet, but without provisions adopted in 
the Banking Committee last year that I believe substantially 
weakened its effectiveness.
    I look forward to hearing the testimony of all the 
witnesses. But I am particularly pleased to welcome Dr. Valerie 
Lorenz, the Executive Director of the Compulsive Gambling 
Center, who is an expert in the treatment of compulsive 
gambling. Dr. Lorenz has first-hand knowledge of the harm 
created by internet gambling in the lives of individuals.
    Madam Chairwoman, again I thank you.
    Chairwoman Kelly. Thank you very much, Mr. LaFalce.
    We turn next to Mr. Cantor.
    Mr. Cantor. Thank you, Madam Chairwoman. First of all, I 
would like to compliment you and the staff and certainly 
Congressman Goodlatte, who has worked long and hard on the 
issues surrounding the internet and gambling. But I would also 
like to take this opportunity, Madam Chairwoman, to thank the 
staff for the quality of the panelists here before us today. 
One in particular, who is a personal friend of mine, Ms. Penny 
Kyle, who is here on behalf of the National Association of 
State and Provincial Lotteries. She is the Executive Director 
of the Virginia Lottery and a personal friend. She has been in 
that position at the Lottery for about 7 years in Virginia. It 
was quite a coup when then-Governor, now Senator George Allen, 
asked Penny to serve our commonwealth, because she has quite a 
reputation both in business and government circles. So we felt 
very fortunate and very lucky to have her in State government 
making her contribution to the greater good of the 
commonwealth.
    Penny, welcome, and thanks for being here. And I yield 
back, Madam Chairwoman.
    Chairwoman Kelly. Thank you very much, Mr. Crowley. We are 
going to hear from Ms. Kyle in the second panel and we are glad 
you are here, Ms. Kyle. Next we turn to my colleague, Mr. 
Crowley.
    Mr. Crowley. Thank you, Chairwoman Kelly, for having this 
hearing today. I want to thank the panels before us. As the 
former Chairman of the Racing and Wagering Committee--that's a 
great name for a committee, isn't it?--in the State legislature 
in New York, I come to the Congress with some background on 
some of the issues that we are going to be talking about today.
    Let me just state that I am a supporter of legalized 
gambling and would oppose any legislation that would hinder the 
operations of gaming, whether they be by Native Americans such 
as the Oneidas in New York or by government entities or by 
limiting gambling for OTB in New York State or racing in New 
York State and elsewhere throughout our Nation where wagering 
is currently legal. If conducted fairly with adequate public 
safeguards and by legal adults, I think gaming should be just 
that--a game--and for leisure.
    That is not to downplay the suffering, as has been 
mentioned, of those who suffer from excessive gambling and 
addictions caused by gambling, but I don't think we should rush 
to judgment on a legal and regulated industry because of some 
tragic examples. In my home State of New York, we have a very 
well regulated and maintained gaming system which provides 
hundreds of millions of dollars annually back to the people of 
the State of New York. And I am very interested in hearing the 
testimony today.
    But I would hope that the subcommittee draw a distinction 
between and a difference between internet gaming, which I do 
have concerns for, and the policing of that potential industry, 
and I have fears, as was mentioned by Mr. LaFalce, for our 
young and most vulnerable in terms of this new form of gaming. 
But to draw a distinction between internet gambling and the 
simulcasting of horseracing throughout the country, an industry 
in New York State which employs anywhere between 20 directly 
and 60 thousand people indirectly in the State of New York, the 
horseracing industry does. And I would hate to see anything 
done that would diminish that industry in the State of New 
York. And I would yield back the balance of my time.
    Chairwoman Kelly. Thank you very much, Mr. Crowley.
    Next we turn to a gentleman who is not a Member of the 
Subcommittee, but certainly a strong Member of our committee 
and has a very strong interest in this issue, Mr. Leach.
    Mr. Leach. Well, thank you, Sue. And I want to express my 
personal appreciation for your leadership on the issue. I have 
a long statement I would like to ask simply to place in the 
record.
    Chairwoman Kelly. So moved.
    Mr. Leach. And very quickly, just a couple of observations.
    Mr. LaFalce. Jim, could you speak up a bit more? I have 
difficulty hearing you.
    Mr. Leach. It's my mother's fault, John.
    [Laughter.]
    Mr. Leach. Anyway, by way of observations, the Chair and 
Mr. LaFalce have outlined some of the social implications of 
this. I would only stress that these implications go far beyond 
simply the participants in what could be an exponential 
increase in gambling, because intermediaries have to pick up 
the cost for losses. Those intermediaries are financial 
institutions and credit card companies, and they make higher 
fees for everybody else.
    I was a little distressed to read in the testimony we are 
about to receive that one of America's principal credit card 
companies thinks this will be too onersome to implement a law 
that addresses a settlement mechanism. And all I can say is, it 
would be a lot more difficult to take care of the losses that 
are likely to arise for these credit card companies. In fact, 
in my time in the Congress, I would go so far as to say that 
the conclusion of that testimony understands the vested 
interest of the industry that it represents less than any 
testimony I have ever seen.
    Having said that, it strikes me that this subcommittee has 
a special jurisdiction, because we have the most sensible 
approach to enforcement. And the settlement mechanism is the 
only effective enforcement mechanism I know of for the internet 
issue. Congressman Goodlatte has helped lead this Congress in 
looking at new approaches to this issue, and I want to tip my 
hat to his efforts. But this subcommittee's jurisdiction is 
very profound on the settlement mechanism issues. And if anyone 
knows of a better, more effective enforcement mechanism is, I 
am open to hear about it.
    But I would only stress that the approaches that this 
subcommittee can deal with, and I have reintroduced legislation 
we introduced last year that passed this committee virtually 
unanimously, and I might say to the gentleman from New York 
that it made a very clear distinction between existing kinds of 
legal gambling enterprises and other kinds of enterprises that 
aren't legal. But we have an absolute utter obligation to look 
at this issue on a timely basis, and that means before it gets 
out of hand. And if one looks at the growth of this industry, 
it is getting out of hand, and we should act as quickly as 
possible.
    I thank the Chair, and I'm sorry I took more time than I 
intended.
    [The prepared statement of Hon. James A. Leach can be found 
on page 190 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Leach.
    We turn now to Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much. I apologize for the 
delay. Good afternoon, Chairwoman Kelly and thank you for 
holding what as I understand is a very important hearing. Today 
we are joined by a great number of experts who will share with 
us their knowledge and expertise in the area of internet 
gambling. I hope that with the information and expertise 
gathered here today, we would be able to better address the 
issues concerning the rise of the internet gambling industry.
    Approximately one million Americans gamble online every 
day, and about 4.5 million Americans, about 5 percent of those 
with access to the internet, have gambled online at least once. 
Given the substantial number of people directly and indirectly 
affected by the future of internet gambling, it is our job to 
guarantee that there are solid laws, secure technology, and 
high-quality products in place.
    Although most States allow some form of gambling 
activities, many States seek to prohibit online gambling 
because of the various problems associated with these. These 
include greater potential for fraud, increase in gambling 
addictions, protections of State tax revenues and children's 
easy access to gambling sites. I am particularly concerned 
about the ease with which children can access cyber casinos. In 
addition, we need to invest in prevention and treatment 
programs that will help gambling addicts and their families 
from devastating impacts of this problem.
    As you can see from my opening statement, I am ready to 
listen to all parties involved, and I look forward to hearing 
the testimonies so that I can make further decisions. Thank you 
so much.
    Chairwoman Kelly. Thank you very much, Mr. Gutierrez.
    We turn now to the Chairman of the committee, Mr. Oxley.
    Mr. Oxley. Thank you, Madam Chairwoman. I want to commend 
you for calling today's hearing on a topic of utmost concern, 
the financial aspects of internet gambling. While it may seem a 
good gamble for those who engage in it, experience shows that 
it is often a bad bet in the end.
    Today's hearing is intended to get the lay of the land. We 
will learn from an economist's viewpoint how internet gambling 
has grown in recent years. We'll learn from the State law 
enforcement perspective what power the States have to stop 
illicit gambling on the web and what means are being taken by 
criminals to evade those efforts.
    We'll hear from those in the trenches, the psychologists 
and counselors who on a daily basis see the devastation caused 
by an unregulated industry operating in an unforgiving medium.
    We'll hear from the big players in this big game of 
chance--the large casinos, the State lotteries and the racing 
industry. And we'll hear from the software providers, the 
enablers, without whose expertise and acumen internet gambling 
could not exist. And we'll hear from perhaps the most 
vulnerable population, college athletics, whose contests become 
fair game for gambling on the internet, whose athletes are 
potentially compromised by the allure of cash payments, payouts 
for throwing games or shaving points, and whose students, your 
kids and my kinds, are potentially victims of a too easy, 
snake-in-the-garden enticement of big winnings that often 
results in financial losses that will trail them and their 
families for years.
    As a matter of fact, just a couple of weeks ago we had a 
visit from a number of prominent NCAA coaches discussing the 
problems that have developed over the gambling issue and point 
shaving and the concerns that they raise. We had everybody from 
Bo Schembechler, the former football coach at Michigan and my 
alma mater, Miami University, as well as John Calipari, Lou 
Holtz, and many, many others.
    Finally, we'll hear from the credit card companies, whose 
products are in most cases the instruments by which internet 
gambling takes place. I am pleased to see that my full 
committee colleague and former Chairman of the Banking and 
Financial Services Committee, Mr. Leach, is in attendance, and 
I look forward to his questions and comments on this particular 
issue, since he has had enormous leadership and foresight in 
this area over a number of years.
    The internet to many conjures up the images of the Wild 
West; the frontier; new, unconquered horizons; seemingly 
unlimited potential. To those holding such a view, gambling is 
just part of the tableau. But instead of Gus and Tex sitting at 
the back table at the Dead Eye Saloon, engaged in a high-stakes 
game of seven-card stud, we've got little Jimmy sitting at the 
family computer maxing out mom's credit card. trying to beat 
the spread on the Ohio State-Iowa game as posted by a virtual 
casino based in the Netherlands Antilles. Tex and Gus's card 
game often ended in a little ``disagreement,'' best settled at 
ten paces in the middle of Main Street. Little Jimmy's losing 
football bet may result in financial hardship for his family, 
possible criminal prosecution, and maybe a month without 
Dawson's Creek for little Jimmy.
    If little Jimmy is truly a child, allowed free ability to 
gamble by some fly by-night casino in the Caribbean or 
elsewhere overseas, then we have much cause to be concerned. If 
he is instead Big Jim, with his pocket full of sports lines, 
wallet full of MasterCards and Visa cards and access to the 
casinos of the world through the internet without having to 
step away from the comfort of his own living room, we have the 
potential for disaster. Families can be ruined, savings can be 
lost. In a very real sense, we've gone from ``High Noon'' to 
``Wasting Away in Margaritaville.''
    I look forward to the testimony this afternoon and to 
continuing dialogue as we tread this thorny but necessary path 
toward a solution to a troubling and growing threat to our 
Nation's financial markets and its families.
    Madam Chairwoman, again I commend you and look forward to 
the testimony as this subcommittee completes its first step 
toward reining in this wild bronco called internet gambling.
    Chairwoman Kelly. Thank you very much, Mr. Chairman.
    Mr. Tiberi, have you got a statement?
    [No response.]
    Chairwoman Kelly. Mr. Inslee, do you have an opening 
statement?
    [No response.]
    Chairwoman Kelly. All right. Then I'd like to ask unanimous 
consent. We have with us a Member who is not a Member of our 
committee but who has a very strong interest in this issue, 
Congressman Goodlatte. And Mr. Goodlatte, have you any opening 
statement?
    Mr. Goodlatte. Madam Chairwoman, I just want to thank you 
for holding this hearing and second to thank you and the other 
Members of the subcommittee for your indulgence in allowing me 
to participate today. This is an issue that I have a great deal 
of interest in, introduced legislation in the last Congress 
which received the vote of 61 percent of the Members of the 
House. A companion bill introduced by Senator Kyl in the Senate 
has passed the Senate on two occasions. And so this year we 
want to work very closely with your subcommittee and your 
concerns regarding the financial instruments used here to 
formulate legislation which will be passed and address this 
problem.
    It's a serious problem of literally billions of dollars 
being sucked out of our economy by hundreds of illegal, 
unregulated, untaxed, offshore entities that are causing 
problems in communities just as if the community, had a casino 
in their downtown, all of the problems that come, family 
problems, criminal problems, addiction problems, bankruptcy, 
all of those things occur with this just as if you had the 
problem right in your community.
    So we as a country have an obligation to address this 
problem, and I thank you for your leadership in holding this 
hearing today to get us started on the information we need.
    Chairwoman Kelly. Thank you very much, Mr. Goodlatte.
    Mr. Fossella, did you have an opening statement?
    Mr. Fossella. I'm still trying to digest what Chairman 
Oxley said.
    [Laughter.]
    Mr. Fossella. So I don't have a statement.
    Chairwoman Kelly. Thank you very much. If there are no more 
opening statements, let's begin with our first panel. We'll 
begin first with Mr. John Peter Suarez, the Director of the 
Division of Gaming Enforcement for the New Jersey Department of 
Law and Public Safety, who has recently brought suit against 
three offshore casinos, focusing on their billboard advertising 
and targeting of minors.
    Next we have Mr. Sebastian Sinclair, Vice President of 
Christiansen Capital Advisors. He is an economist who will 
discuss the money involved in internet gambling and the 
increasing number of internet gambling sites and give his view 
of where things are going in the future.
    Then we will hear from Mr. Keith Whyte, the Executive 
Director of the National Council on Problem Gambling 
Incorporated, who represents counselors who deal with problem 
gambling, including internet gambling.
    Next we will listen to Dr. Valerie Lorenz, the Executive 
Director of the Compulsive Gambling Center, who is a 
psychologist who treats compulsive gamblers, including internet 
gamblers.
    Finally, we have Mr. Frank Fahrenkopf, President and CEO of 
the American Gaming Association, which represents casinos, who 
will share their perspectives on these issues.
    I want to thank all of you for taking time out of your busy 
schedules to join us here today to share your thoughts on this 
important issue. Without objection, your written statements 
will be made a part of the record. You will each be recognized 
in turn for a 5-minute summary of your testimony. Thank you 
very much. And we'll begin with you, Mr. Suarez.

 STATEMENT OF JOHN PETER SUAREZ, DIRECTOR, DIVISION OF GAMING 
  ENFORCEMENT, NEW JERSEY DEPARTMENT OF LAW AND PUBLIC SAFETY

    Mr. Suarez. Thank you, Madam Chairwoman and Members of the 
subcommittee. I appreciate very much the opportunity to speak 
to you today about internet gaming.
    Before addressing directly internet gaming, I would like to 
give you a brief synopsis of gaming as it exists in New Jersey 
today. Gaming was first legalized in New Jersey in 1977, and we 
opened our first casino shortly thereafter in 1978. Since that 
time, 12 casinos have opened in New Jersey, and those 12 
casinos employ roughly 50,000 people in our State. Those 12 
casinos generated $4.4 billion in revenue last year and 
received over 34 million visitors, making it by some accounts 
one of the most popular destination resorts in the United 
States. The internet could change all of that.
    By our estimates, and Madam Chairwoman, you alluded to 
this, there are well over 1,000 internet sites located 
predominately in offshore locales such as Antigua, the 
Netherlands Antilles or other Caribbean countries. The typical 
internet casino, though quote/unquote ``licensed'' by the host 
country faces none of the regulatory scrutiny that is typically 
associated with land-based casinos. Indeed, it is our view that 
many of the operators of offshore casinos seek out 
jurisdictions with the lowest common denominator of regulatory 
scrutiny, moving their operations from places where they are 
not subject to strict Government oversight.
    The risks of unregulated internet gaming, or rather poorly 
regulated internet gaming, should be clear to every Member of 
this subcommittee: No meaningful limitation on participation by 
underage gamblers or problem gamblers. No assurance as to the 
integrity of the operators or the game or to the fact that 
payouts will actually be received. The concerns regarding 
money-laundering. Protection against security breaches, 
hacking, and information oridentity theft, to name some of the 
more salient concerns.
    From an economic standpoint internet gaming as it exists 
today fails to provide any positive benefit to the United 
States in the form of income taxes or taxes or jobs. In 
addition to those concerns, from New Jersey's perspective, the 
fundamental problem with internet gaming is that it is a 
violation of New Jersey's Constitution. Our Constitution 
requires any form of gambling to be specifically approved by 
the people by a vote in a referendum. The question of internet 
gambling has never been put to the people of New Jersey and 
therefore represents a violation of our Constitution and our 
civil and criminal laws.
    Faced with this industry, New Jersey has instituted legal 
proceedings against three internet operators to stop them from 
soliciting or accepting wagers in New Jersey. In June of this 
year, the Division of Gaming Enforcement, the agency of which I 
am the director, took the unusual step of filing civil 
complaints against three internet casinos that were operating 
and advertising in New Jersey. These three were identified 
because of their billboard advertising and because of the ease 
with which we could wager.
    Two of the sites offered sports book and casino-style 
games. The third offered just casino-style games. All three 
accepted wagers from 15-, 16- and 17-year-old children without 
any screening mechanism whatsoever. In our action, we have 
asked the courts to enjoin these casinos from accepting wagers 
from New Jersey residents and to recover funds lost by our 
citizens.
    Although we fully believe that our cases can and will be 
won, they will present some difficult issues for the courts to 
address, and those issues will take time. One of those issues 
that I would like to touch on briefly is the question of 
jurisdiction. As many of you Members know, many of the offshore 
operators contend that since they operate in an offshore locale 
where they are legally entitled to operate and the wagers are 
processed in that offshore locale, they do not have any 
concerns nor does the States or the Federal Government have any 
jurisdiction over them. This argument is quite simply nonsense.
    And as far back as 1953, New Jersey Supreme Court 
recognized that a wager takes place both where the call is made 
and where the call is received. That theory of jurisdiction has 
been applied in just about every case that's been asked to 
address internet gaming in the United States. That is the same 
as the policy of the Department of Justice and has always been 
that case.
    Once we defeat claims about jurisdiction, however, we must 
deal with the difficulty of processing or proceeding in a civil 
context. In the time that it takes us to proceed, more casinos 
will open up, more wagers will be accepted, more money will be 
lost.
    Before I mention the legislation and sum up, I would like 
to say that in testifying today, I do not intend to advocate 
for or against a referendum in New Jersey. I do intend, 
however, to be advocating that some action must be taken. There 
are obviously two choices facing the States and the Federal 
Government: They are prohibition or regulation. Obviously, 
regulation can and could be done along the models at land-based 
casinos. Prohibition along the lines of the Leach-Kyl-Goodlatte 
provisions that simply declare credit card debts or other 
transactions that are a result of illegal internet wagering can 
and will be enforced if that legislation is passed.
    I submit to you that something can be done. The time to do 
something is now. Because this is, from New Jersey's 
perspective, a far too important issue to be decided by 
inaction. And I do not believe that the mistaken belief in the 
impossibility of enforcing a prohibition should be the basis 
from which a rational decision about internet gaming should be 
made.
    Thank you for the opportunity for speaking to you today, 
and I am available for questions if you have any.
    [The prepared statement of John Peter Suarez can be found 
on page 61 in the appendix.]
    Chairwoman Kelly. Thank you, Mr. Suarez.
    Mr. Sinclair.

 STATEMENT OF SEBASTIAN SINCLAIR, VICE PRESIDENT, CHRISTIANSEN 
                        CAPITAL ADVISERS

    Mr. Sinclair. Good afternoon. To answer your first 
question, which was whether internet gambling is a good gamble 
or a bad bet, I'm sorry. I don't have the answer to that.
    This is an intractable problem that has imperfect 
solutions. As Mr. Suarez mentioned, we have the option of 
prohibition versus regulation. There is no magic bullet here. 
But let's look at the state of the industry as it exists now. 
We estimate that $2.2 billion was spent globally on internet 
gambling last year.
    The interesting aspect of that is that the majority of that 
came from U.S. citizens. And in keeping with the theme that 
we're talking about here today, another majority of that, about 
$1 billion, was probably bet on sports, which based upon the 
Cohen case, which probably appears several times in the written 
testimony, is illegal in this country. Of that $1 billion that 
was bet on sports, about $700 to $800 million probably came 
from U.S. residents. This is what would be a prohibited 
activity in this country, based upon the Cohen case.
    Now let's look at what the Cohen case tells us. Mr. Cohen 
was convicted of violating the Wire Wager Act. It is currently 
on appeal. Most legal scholars who are familiar with the Wire 
Wager Act don't expect him to win that appeal. So while the 
Cohen case was a legal victory, it was a practical failure. And 
it was a practical failure for two reasons. One, Mr. Cohen 
voluntarily came to the United States to stand trial. And two, 
his company, World Sports Exchange, is still operating and is 
still taking bets from U.S. citizens.
    Now as we move into the option of prohibition versus 
regulation, in my perspective as an analyst and looking back at 
history, we have been relatively unsuccessful in the past at 
legislating away demand. In previous eras we used to be able to 
do it by restricting supply. As some of the Members mentioned 
today, gambling has expanded in this country to the point where 
today it is now a $61.4 billion business.
    Stopping supply is difficult in the Digital Age. It is 
difficult, as some of the legislation has proposed, to block 
access to gambling sites. As we'll get into a little further 
on, choking financial transactions, which seems to be the 
legislative frontrunner and probably the reason why we're here 
today, has enforcement problems as well.
    The first thing that we need to talk about is that you can 
argue whether gambling is right or wrong, moral or immoral, but 
the fact is it's pervasive. I don't know the local area very 
well, but I imagine that I don't have to walk very far to buy a 
DC. lottery ticket. Eighty miles from here to the East, I can 
play the slot machines at Dover Downs or at Harrington Raceway. 
And Washington, DC. is not unique. In any other location in 
this country, I could probably make similar statements.
    So the question is, how do we un-ring that bell? Through 
sucessive expansion we have created demand for a product that 
is today available in an unregulated environment.
    So then we move on to the enforcement problem. Speaking 
specifically to the credit card issues that we're talking about 
here today, I see two problems with that in terms of 
enforcement. One is getting foreign countries and banks to 
devote time and resources to what is a legal activity in their 
jurisdictions. The United Kingdom and Australia actively seek 
bets from U.S. citizens. In fact, legislation was just passed 
in Australia that allows them to do so.
    The second problem, and I see that as more of a real 
problem, because maybe the Government will be successful at 
getting foreign-based banks to stop processing those 
transactions. This other problem is the PayPal problem. The 
third-party transaction processors. PayPal is a company that 
uses digital cash. You can set up an account with wire 
transfer, check, or credit card, and you can use that digital 
cash at any site. I call it the PayPal problem, because that's 
probably one third-party processor that you're familiar with. 
But in the very near future, if this legislation, as I see it, 
were to pass, it would create a whole new illegal industry, and 
that's third-party internet gambling processors located in 
offshore jurisdictions.
    So let's explore the other option, regulation in a legal 
context. The medium of the internet lends itself to regulation. 
Let me give you a quick example. The Western European model of 
legalizing internet gambling is to restrict it to the Nation in 
which it is located. And there are very good ways to do that. 
One way that is being proposed and actually being utilized is a 
proprietary dialer that will only dial seven digits from where 
you are. It works. It's 100 percent effective. The technology 
has been approved by the Nevada Gaming Control Board, and it 
effectively restricts access to gambling sites from one 
location. Conversely, it's very difficult to restrict gambling 
sites from coming in. And I'm out of time.
    Chairwoman Kelly. You can sum up if you want.
    Mr. Sinclair. OK. Real quickly.
    Chairwoman Kelly. OK. That's enough.
    [Laughter.]
    Chairwoman Kelly. Just kidding.
    Mr. Sinclair. In conclusion, I've been following this 
industry for a long time, and I can understand the fears 
associated with gambling and the spread of gambling. But I am 
always reminded of the old adage to keep your friends close and 
your enemies even closer. Gambling is a product like alcohol 
that is dangerous to some. There are very real dangers 
associated with gambling. But it's my belief that sweeping this 
activity under the rug and handing it to criminals will do more 
to exacerbate problem gambling than to help it.
    [The prepared statement of Sebastian Sinclair can be found 
on page 84 in the appendix.]
    Chairwoman Kelly. Thank you, Mr. Sinclair.
    Mr. Whyte.

   STATEMENT OF KEITH S. WHYTE, EXECUTIVE DIRECTOR, NATIONAL 
                  COUNCIL ON PROBLEM GAMBLING

    Mr. Whyte. I would like to thank the Chair and the Members 
of the subcommittee for the opportunity to testify on behalf of 
the National Council on Problem Gambling, the Nation's oldest 
and largest organization dedicated to addressing problem 
gambling issues.
    Since 1972, we have worked with Federal, tribal, State and 
local governments, the gaming industry and other non-profits to 
address problem gambling. The mission of the National Council 
is to increase public awareness of problem gambling, to ensure 
the availability of treatment for problem gamblers and their 
families, and to encourage programs for research and 
prevention.
    We have consistently maintained a position of neutrality on 
gambling, arguing neither for nor against it. We currently have 
33 State affiliates throughout the Nation, and numerous 
corporate and individual members. We are the leading United 
States experts on problem gambling treatment, prevention, 
research, and education.
    Pathological gambling is a mental health disorder. I've 
attached the standard criteria from the American Psychiatric 
Association to my testimony. Prevalence-wise, about 1 percent 
of the U.S. adult population would meet criteria for 
pathological gambling in a given year. Another 2 to 3 percent 
would meet criteria for problem gambling, which is the less 
severe but certainly folks that are experiencing problems 
relating to their wagering.
    Now 2 to 3 percent doesn't sound like a lot. In real terms, 
that translates to 11 million Americans that are facing 
problems with their gambling each year.
    As several Members have noted, not surprisingly, problem 
gamblers suffer from a high rate of financial debt, suicide, 
mental health problems and other physical disorders, and 
bankruptcy are all associated with problem gambling.
    Gambling on the internet is a relatively new issue, and I 
would like to present a little bit of evidence that we have. 
Unfortunately, the research in this area has lagged behind the 
public policy debate. A recent study in Oregon shows that of 14 
forms of gambling, legal and illegal gambling, only one has 
grown between 1997 and 2000. That is internet gambling. If you 
average it out, the growth rate in percentage terms, it's 91 
percent a year.
    And although internet gambling has been growing rapidly, as 
many of you have noted, legalized gambling in the U.S. 
participation-wise has stayed relatively the same. Anywhere 
from 75 percent to 80 percent of U.S. adults will place a bet 
at at least one point in their lifetime. And I think that's a 
significant number for the subcommittee to recall in that 
legalized gambling and gambling participation is in essence 
ubiquitous throughout the United States.
    As Chairwoman Kelly and Representative LaFalce have noted, 
a particular area of concern is the intersection of three 
trends: Access of adolescents to the internet, access of 
adolescents to credit, and the propensity of adolescents to bet 
on existing areas. Surveys show that participation by 
adolescents is sky high. Over 40 percent have played card games 
for money in the past year. Thirty-two percent have bet on 
games of skill such as pool or golf. Thirty-one percent have 
bet on sports, and 30 percent have bet on the lottery. It is 
significant to note that not only are all four of these 
activities illegal for adolescents in the United States, but 
these surveys were based on telephone surveys from home. So we 
can anticipate that the adolescent at home answering these 
questions is possibly going to underestimate their involvement.
    Furthermore, youth have access to credit. A Consumer 
Federation of America survey found that over 70 percent of 
undergraduates have at least one credit card. We certainly know 
that this same population has enormous access to the internet. 
We are increasingly concerned that this cluster of trends is 
going to result in a lot more internet gambling among 
adolescents.
    I took a sample of 18 calls from our nationwide help line 
that we have received over the past 4 months. Significantly, 
four of those 18 callers to our help line were students between 
the ages of 18 and 25. I have reproduced the statistics on my 
chart at the end of my testimony, which I would encourage you 
to examine. It is important to note that this survey is neither 
representative of callers to our help line nor of problem 
gamblers in the United States, nor of gamblers anywhere else. 
It's an extraordinarily small sample, only about 2 percent of 
our intakes.
    But what we'd like to make sure that this subcommittee has 
a perspective of is the enormous damage that is already 
occurring from internet gambling and from legalized gambling in 
the United States. The primary concern of the National Council 
on Problem Gambling is not so much the increased accessibility 
of the internet, but the fact that even for people that have 
problems with legal gambling in the United States, there is 
simply nowhere for them to go. All 18 of those callers to our 
help line have an 80 percent of being denied insurance coverage 
for their gambling addiction. There are only 15 States that 
provide any sort of services for people with gambling problems.
    We would encourage the subcommittee, as you are wrestling 
with the difficult issue of internet gambling, to realize that 
problem gambling extends beyond the internet to those who 
already are gambling on legal activities in the United States. 
But we thank you very much for the opportunity to testify, and 
we will be happy to answer any questions.
    [The prepared statement of Keith S. Whyte can be found on 
page 109 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Whyte.
    Dr. Lorenz.

    STATEMENT OF VALERIE LORENZ, Ph.D., EXECUTIVE DIRECTOR, 
        COMPULSIVE GAMBLING CENTER, INC., BALTIMORE, MD

    Ms. Lorenz. Thank you for permitting me to testify as well.
    Chairwoman Kelly. Excuse me, Doctor, would you please pull 
that microphone closer and raise it so that we can hear what 
you're saying? Thank you.
    Ms. Lorenz. Thank you. First of all, I would like to thank 
this subcommittee for permitting me to testify as well. 
Briefly, I have been in the field of compulsive gambling for 
nearly 30 years, and in that time, I have seen gambling 
increase from the State of Nevada, which had pervasive 
gambling, to now all forms of gambling in virtually every State 
except three, all the way up to the internet. We have indeed 
become a Nation of gamblers.
    I was asked to respond to four specific questions: ``What 
impact has the internet had on the problem of underage and 
pathological gambling?'' Well, that's an interesting question, 
but it is hard to quantify, because there is no hard data. We 
have not had the research monies to really respond to that 
question in a scientific way. I can tell you, though, that as 
legalized gambling has increased, so has the number of 
compulsive gamblers.
    To add to the figures that we see in various studies which 
state anywhere from 1.5 to 5 percent of the people of the 
American adults are compulsive gamblers, depending on the 
amount of gambling in a particular State, we also have those 
people who are considered problem gamblers, those who do not 
yet meet the criteria of gambling addiction but who are on the 
verge of that addiction if they continue to gamble.
    The largest increase that we see among compulsive gamblers 
are the teenagers, the young people, those in their early 
twenties, and our senior citizens. The question is, what is the 
impact of compulsive gambling? One needs to remember that 
gambling is an addiction, and just like alcoholism, gambling 
addiction will continue into future generations. This is not 
only the gambling itself, but also the impact of compulsive 
gambling. It will continue into future generations. That is the 
nature of addictions.
    Compulsive gambling leads to financial ruin, severe 
indebtedness, and to bankruptcies, to poor work productivity 
and terminations, to broken homes, broken families and lost 
homes, to health problems and other addictions, not just among 
the gamblers but also among the gamblers' families.
    It has a frightening suicide rate. And crimes which in the 
past were non-violent financial crimes, have now expanded to 
crimes of violence, including homicide.
    We have a larger population of senior citizens than we have 
ever had before in our country. Usually on a monthly basis, 
these seniors will take a bus to the casinos or buy daily 
lottery tickets. Now we are proposing that they stay at home 
and gamble over their TV and computers. In short, they can lose 
everything they have ever worked for, lose it in their own 
living rooms with no chance of financial recovery, or in many 
instances, survival.
    For the first time in our country, we have an entire 
generation growing up with Government's message that gambling 
is OK. This young group of people has been schooled on 
computers. Many have their own laptops. They can log onto AOL, 
pull up Pogo, where half the 40 choices of games are gambling 
games. It is this young population that now is being hooked. It 
is so easy to forget the time spent on a computer and not to 
realize how much money has been put on a credit card. All these 
tools are products of gambling.
    According to the Internet Gaming Council, a trade 
association, it has tracked 1,400 websites that invite people 
to gamble. Internet gambling would increase this number 
dramatically if it were to be legalized.
    Second question: ``What technical obstacles stand in the 
way of these issues? Regulation?'' I would say there is no way 
to regulate gambling on the internet on one's computer or 
television. Quote: ``It's not just feasible for law enforcement 
to monitor what people are doing in their living rooms with 
their computers,'' says John Glogau, Special Counsel to Florida 
Attorney General Bob Butterworth. Does this country really want 
citizens who can gamble away their savings on the internet?
    The third question was, ``What steps has the National 
Council on Problem Gambling taken to date to curb the abuses 
associated with internet gambling?'' Mr. Keith Whyte told you 
some of those things. I don't know the whole question. I 
resigned from the National Council due to philosophical 
differences many years ago. I do know that there is a strong 
cooperation of the National Council with the casino industry.
    The fourth question was, ``What recommendations do you have 
for this subcommittee on steps Federal and State authorities 
should take to address internet gambling?'' First of all, I 
would recommend, as also recommended by the National Gambling 
Impact Study Commission, putting a moratorium on all expansion 
of legalized gambling, including internet gambling.
    Chairwoman Kelly. Dr. Lorenz, if you could sum up, please, 
we would appreciate it.
    Dr. Lorenz. Thank you. I further recommend that the 
governments and Congress address all the issues and public 
policy relative to legalized gambling and compulsive gambling, 
recognize the escalation of gambling addictions, provide the 
funds through top-level administrative support just as you've 
done with alcoholism and drug addiction. Fight compulsive 
gambling, don't condone it. I would be happy to answer any 
questions.
    [The prepared statement of Dr. Valerie Lorenz can be found 
on page 123 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    We turn now to Mr. Frank Fahrenkopf, Jr. We appreciate your 
being here, sir.

STATEMENT OF FRANK FAHRENKOPF, JR., PRESIDENT AND CEO, AMERICAN 
                       GAMING ASSOCIATION

    Mr. Fahrenkopf. Thank you, Madam Chairwoman. The American 
Gaming Association is the national trade association of the 
commercial casino industry. Our members are the companies with 
household names to many, such as Harrah's, MGM Mirage, Mandalay 
Resort Group, Park Place Entertainment. We operate land-based 
and riverboat casinos in 11 States across the country.
    Consideration of questions about internet gambling we 
believe must be viewed in light of the nature of gaming and how 
decisions about public policy issues concerning legal wagering 
have been handled ever since the founding of this Republic and 
we believe should be continued to be resolved that way in the 
future.
    As the National Gambling Impact Study Commission reaffirmed 
in its final report in 1999, except for certain limited areas, 
such as internet gambling and Native American gaming, States, 
not the Federal Government, should decide whether to permit 
legal wagers by persons within their States, and if so, how to 
license those in the wagering business and how to tax and 
regulate their operations.
    Our major concern with internet gambling as it exists today 
is that it allows offshore websites that accept bets and wagers 
to frustrate important State policies, including restrictions 
on the availability of gaming within each State. Similarly, 
unregulated internet gaming that exists today allows an 
unlicensed, untaxed, unsupervised operator to engage in 
wagering that is otherwise subject to stringent Federal and 
State regulatory controls. These controls are vital to preserve 
the honesty, integrity and fairness that those in the gaming 
industry today have worked so hard for so long to bring about.
    The importance of this concern cannot be overstated. As the 
U.S. Department of Justice has stated before Congress on 
several occasions, the law should treat physical world activity 
and cyber activity over the internet in the same manner, 
whether it comes to gambling or otherwise. As the Justice 
Department pointed out in testimony to the Senate Indian 
Affairs Committee in 1999, and I quote, ``If activity is 
prohibited in the physical world but not on the internet, the 
internet will become a safe haven for that criminal activity'', 
unquote.
    In addition to State level restrictions on where legal 
wagering may take place, and extensive licensure and regulation 
of those who engage in the business of taking legal wagers, 
there are important Federal requirements applicable to 
commercial casinos and other forms of legal wagering in this 
country. For example, U.S. commercial casinos are subject to 
Federal corporate taxation. Publicly traded companies comply 
with financial disclosure and other Securities and Exchange 
Commission rules. Casinos file information reports on larger 
winnings with the IRS and withhold Federal taxes on certain 
winnings.
    And casinos, very importantly, adhere to anti-money-
laundering statutes and regulations administered by the U.S. 
Treasury Department's FINCEN Division. By contrast, those 
engaged in the business of illegal internet wagering in the 
U.S. from offshore are not subject to U.S. law enforcement 
jurisdiction on these important matters of public 
administration.
    Now while the AGA could support appropriately drafted 
legislation to update Federal statutes to preserve the 
traditional policy of State regulation, any changes to Federal 
or State laws in the pursuit of making internet gambling 
illegal need not and should not be drawn so broadly as to lump 
the use of technology within otherwise legal limits in the same 
prohibited status as those who are doing so outside State law.
    This position is consistent with the policy of the Wire 
Communications Act, which since the 1960s permits the use of 
the wires for wagers and information, assisting in the placing 
of wagers, where the transactions are entirely intrastate or 
between States in which the wagering in question is legal.
    In other words, there is a difference between using 
technology to circumvent Federal and State restrictions and 
regulations as is done today by those operating offshore 
internet gambling sites, and the use of technology by licensed 
operators to more efficiently deliver their services where, to 
whom, and under what conditions they are authorized by Federal 
and State law to do so.
    There are clearly understandable enforcement concerns that 
this subcommittee must deal with. But it is important also to 
point out that the commercial casino industry has been at the 
forefront of tackling the difficult problem of pathological 
gambling that some of the other witnesses have testified to. 
The National Gambling Impact Study Commission actually 
commended our industry for its work in being the primary funder 
of research on this disorder. And I ask you to go back and look 
at that Commission report. A lot of people have been throwing 
things around like bankruptcy and crime and suicide and 
divorce. That's not the findings of the National Gambling 
Impact Study Commission, except to that 1 percent of the 
population who are defined as compulsive and pathological 
gamblers.
    The position of the AGA is that we continue to oppose 
unregulated internet gambling, because we believe the 
technology does not currently exist to prevent underage 
gambling, to protect against pathological gambling, and to 
permit the strict regulation and law enforcement oversight 
required for integrity.
    Thank you very much, Madam Chairwoman.
    [The prepared statement of Frank Fahrenkopf can be found on 
page 137 in the appendix.]
    Chairwoman Kelly. Thank you very much. And thank you for 
staying within the time limit.
    I want to just ask a couple of questions. We are going to 
ask a few questions, then we are going to go vote. We will come 
back to finish.
    Mr. Suarez, as I understand it, during your investigation 
of offshore internet gambling, 15- and 17-year-old kids were 
able to set up accounts and place bets from computers in New 
Jersey. Is there anything we can do to prevent minors from 
having access to an offshore casino?
    Mr. Suarez. Madam Chairwoman, we were able to have those 
underage kids gamble. And the real obligation to do that 
screening really falls on the operators themselves. In these 
cases that we had, we had the children enter their correct 
birth dates. And on two of the sites, they were told--the site 
reported back that they were underage, and changing only the 
age description in the field, the child simply said, ``I'm 
21'', and he was allowed to wager and place wagers on those 
games.
    In the other circumstance, we were actually just told, 
don't come in if you're under 18, and we clicked on the screen, 
``I agree that I am over 18'', and we got right in. There is 
nothing except for the technology that may permit parents to 
screen certain ISPs or certain home pages that could be done. 
But the operators can simply avoid that by identifying their 
screen in a different way.
    The screening software, the nanny software, requires 
cooperation from the operator and the parents.
    Chairwoman Kelly. Thank you. I just want to follow up with 
one question about the fact that law enforcement authorities 
have talked with me and raised some concerns about the 
potential for money laundering and other financial crimes in 
connection with internet gambling. Can you explain how internet 
gambling lends itself to money laundering?
    Mr. Suarez. Probably the easiest way that we can see it is 
that there is no guarantee on the side of the house, the 
internet casino, that they are complying with the reporting 
requirements of Federal law, be that for cash deposits, cash 
transactions, or the movement of money to and from other 
accounts that may be offshore through to the accounts 
themselves.
    The most common way that an internet casino pays a wager is 
that they can credit up to the amount that a person originally 
put down, then they send a check in the mail. And so there is 
no way that we in the United States can track how many 
transactions, where the money is coming from, any paper trail 
that we can go to to these internet sites, because we simply 
don't have the ability to capture the information or to 
guarantee that those casino sites, internet sites, are properly 
capturing information that they would be required to capture 
were they a land-based operator.
    Chairwoman Kelly. Thank you very much. Dr. Lorenz, I would 
like to know if you would be willing to share with us, in 
generalities if necessary, any cases that you have worked with 
involving internet gambling.
    Dr. Lorenz. Yes, Madam Chairwoman, I can tell you of a 
current case. This is a police officer who served very 
commendably in a nearby county, a very large county, also very 
large police department. He had a very stressful job, and he 
went to gambling on the internet in order to relieve that 
stress.
    I had hoped to bring him here today, but he is facing legal 
charges, and his attorney suggested it was not a good idea at 
this time. You can imagine that this police officer is 
extremely embarrassed because the men he worked with for 30 
years now have to arrest him and take him to prison.
    I have a paper here. We have our patients fill out a 
sentence completion form. Let me just read some of the 
sentences that he completed. ``I think gamblers are''--and he 
says, ``sick people who haven't realized their sickness.'' And 
that is very true.
    ``I am fearful of my future until I get help.'' This is a 
man who for 30 years was a police officer. ``I am not going to 
commit suicide,'' although he had tried, and the last thing 
that stopped him is that his fellow officers would find him.
    ``Most people don't know that I tried to stop gambling many 
times.''
    Question five: ``The most unusual experience I have ever 
had while gambling,'' was using other people's money. He stole 
over $100,000 from his police department.
    Question six: ``People who see me when I am gambling think 
I am just playing on the internet.''
    Chairwoman Kelly. Thank you, Dr. Lorenz. I appreciate that.
    Dr. Lorenz. One more question? One more statement?
    Chairwoman Kelly. I've run out of time. I appreciate it. I 
am going to turn to Mr. Gutierrez, and if you would like to 
continue this, please do.
    Mr. Gutierrez. Sure. I just have a couple of questions to 
Mr. Peter Suarez, John Peter Suarez.
    In Mr. Fahrenkopf's written testimony, he basically says 
that he's not concerned about internet gambling in terms of 
competition from internet gambling because he cites that they 
go for the hotels and all the excitement and everything else 
that goes along with gambling.
    However, you have mentioned in your remarks that the rise 
of internet gambling could threaten the success and reduce 
revenues of those strictly regulated casinos in Atlantic City. 
Could you explain the difference?
    Mr. Suarez. New Jersey's gaming market is unique in that 
gaming in New Jersey is limited to the city of Atlantic City 
and cannot take place anyplace else. So if you want to gamble, 
you must come to Atlantic City to one of the 12 licensed 
casinos, unlike Nevada, where gaming is pervasive throughout 
the State. I don't want to speak for Mr. Fahrenkopf, but I 
believe that is the distinction in that the operators in New 
Jersey have committed substantial resources and investment in 
developing Atlantic City.
    And for a patron who ordinarily would drive down the 
parkway or the Atlantic City Expressway to come, if they could 
avoid that by simply logging on, then I think by all accounts, 
we don't know the extent of the impact, but I think we all 
recognize that there would be a negative impact in the gaming 
market in New Jersey.
    Mr. Fahrenkopf. Mr. Gutierrez, the average stay in Atlantic 
City is something like 10 hours. The average stay in Las Vegas 
is 3 days.
    Mr. Gutierrez. OK.
    Back to Mr. Suarez. If prohibition of internet gaming was 
chosen as the course of action by the State or Federal 
Government, how could this prohibition be enforced?
    Mr. Suarez. The prohibition would have to be accompanied by 
the tools that you have identified, which is, as the National 
Gambling Impact Study Commission recommended, to simply make 
wagers that are placed over the internet and the obligations 
associated with those uncollectible in the United States. That 
simple declaration of policy and laws to that effect would 
render I think the profitability of internet gaming--it would 
render it virtually unprofitable if an operator could not 
effectively come to the United States and try to collect that 
debt, because that debt is unenforceable in the courts in the 
United States.
    Mr. Gutierrez. And following up with Sebastian Sinclair, if 
prohibition as you've emphasized throughout your written 
statement, would be very hard to enforce, and you suggested, 
quote, ``may be a poor policy choice for internet gaming'', 
then what would be the right, foolproof choice for the 
Government to protect individuals interested in internet 
gaming.
    Mr. Sinclair. Well, I think I answered that when I stated 
that there is no foolproof answer as I see it.
    This legislation assumes a debt-based transaction. Credit 
cards are not the medium for this industry, and they never will 
be, because gambling debts already are uncollectible in a great 
portion of the First World, the State of Michigan, for 
instance. You'll simply be pushing it to different mediums of 
exchange.
    Now the way I see it, as I said before, keep your friends 
close and your enemies even closer; there is no good answer, 
but there is a lesser of two evils. And I think a real concern 
and a real problem that is associated with gambling is problem 
and pathological gambling as we've heard about a lot on this 
subcommittee.
    But it is my opinion and my belief that by trying to 
prohibit this activity in a way very similar to the Volstead 
Act, the cure will be worse than the disease. You can't 
legislate away demand, and on the internet, it's difficult to 
legislate away supply. You're going to hand this industry to 
suppliers who aren't concerned about problem and pathological 
gambling, and it's going to maintain.
    Mr. Gutierrez. Well, we don't want to gamble any more with 
the time we have to go vote. I think we have 4 minutes and 
we're both pretty healthy and swift, but let's get over there 
to vote. We'll be right back. Thank you.
    Chairwoman Kelly. Thank you. We will take a 10-minute break 
and resume.
    [Recess.]
    Chairwoman Kelly. Thank you very much. I apologize for such 
a long delay. May we have our witnesses back?
    I understand Mr. Fahrenkopf had to leave. We will have to 
give him some written questions. But since I have completed my 
questions, with unanimous consent, Mr. Leach, would you like to 
open your line of questioning?
    Mr. Leach. I don't have exactly any questions for the 
panel, but I would like to read a very brief long sentence or 
two sentences, because it relates to some things that have been 
said with regard to several of the comments about the 
possibility that third party intermediaries such as PayPal may 
obviate the effectiveness of legislation like H.R. 556 that 
makes it illegal to use financial instruments for illegal 
internet transactions. Let me be clear that H.R. 556 also makes 
it illegal to use the proceeds of credit or to extend credit on 
behalf of any other person or to use the proceeds of any 
financial transaction for illegal gambling.
    What this means is that third party intermediaries like 
PayPal would be captured under the enforcement mechanisms of 
the Act. Now PayPal kinds of transactions would be treated the 
same as direct credit card transactions. And I just want to 
stress that this particular kind of effort to get around the 
prohibitions of the Act, I don't think, would be very 
effective.
    Second, several people have asked me something about my 
opening statement that related to the Visa testimony to come. 
And we are going to be under some very awkward time constraints 
on some voting. So let me just make it clear what I was getting 
at. I am nothing less than astonished that a credit card 
company, of all kinds of companies, would testify that it 
objects to these kinds of payment mechanism approaches. Because 
what is at issue here for credit card companies is not simply 
the legal subtleties of how you comply, but the fact if you 
don't have this situation, you are going to massively increase 
the number of bankruptcies in America. You are going to 
massively increase the number of credit card indebtedness, and 
nothing could be less advantageous to the vested interest of a 
credit card issuer. And so it is my personal view that of 
testimony I have read, I have never seen testimony that is less 
in the vested interest of the party that is projecting it.
    And having said that, I would also say, I am absolutely 
astonished at the lack of interest to date of the financial 
intermediary community. And by that I mean America's banks, 
America's savings and loans, America's insurance industry. 
Every single one of these industries has a spectacular interest 
in not seeing the problems in American society that are 
beginning to evidence themselves.
    I cannot think of a higher priority for the American 
banking industry than legislation of this nature. And it is 
just extraordinary the silence that has greeted it, both in the 
last Congress and this Congress. And I think that the American 
Bankers Association, the Independent Bankers Association, the 
insurance industry have really got to look at these 
circumstances and come to a conclusion what's in the best 
interest of American society and what's in the best interest of 
the financial well being of American civic life. And I think we 
have to be very concerned.
    When the Chair reads a statistic that says that a million 
people gamble a day, I would stress in a society of about 300 
million people, that that isn't 1 million people one day and 
another million people the next, it is a million people that 
repeat and repeat and repeat. And given the odds that exist in 
gambling, the greater the amount of volume of gambling, the 
greater certainty is of the greater the loss. The odds are 
against the public. And I think it's an absolute duty of the 
United States Congress to say that the public ought to be 
protected from odd circumstance that are stacked against it.
    And I want to say to this panel, I am very appreciative of 
the testimony of many of you who are deeper into this subject 
than I have ever been and have seen first-hand results of a 
very deep nature.
    But my concern, Madam Chairwoman, is that the horse is out 
of the barn. The question is, can we get it back in? And if we 
don't get it back in, what kind of wagon it's going to be 
dragging with us in the years ahead. And I think it's up to the 
United States to lead. I think it's up to the United States to 
lead for ourselves and in the international community with 
approaches of this nature. And I don't know any other approach 
other than payment mechanism approaches that are effective on 
enforcement and that can be replicated easier in other 
countries in the world. And that is why to me it is so 
important.
    Beyond that, I don't have any questions for this panel, 
because this panel has been so forthcoming and direct and 
thoughtful in their presentations to the subcommittee. And I 
want to thank you very much, Madam Chairwoman.
    Chairwoman Kelly. I thank you, Mr. Leach.
    There are obviously no more questions for this panel, and I 
really thank you for your indulgence for the long wait that we 
had. It was unexpected. Since there are no more questions for 
the panel, the Chair notes that some Members may have 
additional questions, and they may wish to submit those in 
writing. Without objection, the hearing record is going to 
remain open for 30 days for Members to submit written questions 
and witnesses to place their responses in the record.
    Oh, Mr. Goodlatte, you just got here? Do you have--all 
right. Thank you.
    I want to again thank this panel for their time and 
patience with us. The first panel is excused with the 
Subcommittee's grateful, grateful gratitude. And we are going 
to take just a quick break so that we can have the second panel 
take their seats. Thank you all very much.
    [Recess.]
    Chairwoman Kelly. For our second panel, we are very 
grateful that Mr. Bill Saum could join us. He is the Director 
of Agent Gambling and Amateurism Activities for the National 
Collegiate Athletic Association. He is going to discuss the 
effect of internet gambling on amateur sports, the integrity of 
the games, and the athletes.
    Next we are going to hear from Mr. Mark MacCarthy, the 
Senior Vice President of Public Policy for Visa U.S.A., 
Incorporated, who will discuss the challenges to the credit 
card industry with internet gambling and the accompanying 
credit card use.
    Then we are going to hear from Ms. Sue Schneider. She is 
the Chairman of the Interactive Gaming Council, which 
represents manufacturers and licensers of software used to 
enable internet gambling to function.
    Then we are going to have Ms. Penny Kyle, the Executive 
Director of the Virginia Lottery and the President of the 
National Association of State and Provincial Lotteries. She 
will share with us the perspective of the State lotteries.
    And finally, we will hear from Mr. Greg Avioli, the Deputy 
Commissioner of the National Thoroughbred Racing Association, 
who will share with us the perspectives of the horseracing 
industry.
    I want to thank all of you for taking time out of your 
schedules to be here with us today and to share your thoughts 
with us, and I certainly do thank you for your patience in 
waiting to appear on this panel. Let us begin with you, Mr. 
Saum.

STATEMENT OF BILL SAUM, DIRECTOR, AGENT GAMBLING AND AMATEURISM 
      ACTIVITIES, NATIONAL COLLEGIATE ATHLETIC ASSOCIATION

    Mr. Saum. Madam Chairwoman and Members of the Subcommittee, 
thank you for the opportunity to testify on behalf of the 
National Collegiate Athletic Association and to share with you 
our concerns related to the growth and impact of sports 
gambling on the internet.
    The NCAA is a membership organization consisting of nearly 
1,000 universities and colleges and is devoted to the 
regulation and promotion of intercollegiate athletics for over 
300,000 male and female student-athletes.
    Though the growth of internet gambling has seemingly 
sprouted overnight, this is not a new issue for the NCAA. For 
the past 4 years, we have worked with House and Senate sponsors 
in an effort to adopt legislation that would in part ensure 
that all sports gambling on the internet is prohibited in this 
country. Why? The answer is quite simple. When people place 
wagers on college games, there is always the potential that the 
integrity of the context may be jeopardized and the welfare of 
the student-athletes may be threatened. For example, many of 
you are aware of the recent point-shaving scandals on the 
campuses of Northwestern University and Arizona State 
University. While these cases occurred before the rise of the 
internet gambling industry, the impact of these sports gambling 
incidents must not be minimized. Many, many dollars were 
wagered on these games. The result? Several of the student-
athletes involved were indicted and sentenced to time in a 
Federal prison. Coaches and teammates were betrayed, and the 
two schools have seen their reputations tarnished. It is clear 
that sports gambling is not a victimless crime and that the 
potential for similar incidents to occur has increased now that 
sports bets can be placed on the internet.
    Perhaps the most frustrating aspect of internet gambling is 
that while we all acknowledge the wondrous benefits of the 
internet age, it also has presented some significant 
challenges. Today this new communications medium, the internet, 
allows online gambling operators to circumvent existing U.S. 
laws aimed at prohibiting sports gambling. This is why we 
believe that new Federal legislation is needed to address the 
rapidly transforming world of gambling in cyberspace.
    As you listen today to witnesses arguing the pros and cons 
of internet gambling, please do not overlook the potentially 
harmful impact of this activity on young people. A growing 
consensus of research reveals that the rates of pathological 
and problem gambling among college students are three times 
higher than the adult population. This fact surely did not go 
unnoticed when the National Gambling Impact Study Commission 
recommended a Federal ban on internet gambling in June of 1999.
    Just 4 years ago, when the NCAA became involved in the 
legislative effort to ban internet gambling, there were only 
four dozen internet gambling sites. Now there are 1,4000 unique 
internet gambling websites. Today college students are perhaps 
the most wired group of individuals in the United States. They 
can surf the web in their school library, in the computer lab, 
or in the privacy of their dorm room. The emergence of internet 
gambling enables students to wager behind closed doors, 
anonymously, and with the guarantee of privacy. Furthermore, 
the ease and accessibility of internet sports gambling creates 
the potential for student-athletes to place wagers over the 
internet and then attempt to influence the outcome of the 
contest while participating on the court or playing field.
    If left unchecked, the growth of internet gambling could be 
fueled by college students. Today college students are armed 
with the means to gamble on the internet. A year 2000 study by 
Nellie Mae indicates that 78 percent of college students have 
credit cards. Thirty-two percent have four or more, and that 
the average debt for these undergraduates is approximately 
$2,750 per card.
    In my position as the NCAA Director of Agent, Gambling and 
Amateurism Activities, I have seen how students are falling 
victim to the lure of internet sports gambling. Offshore 
operators continue to implement aggressive marketing tactics. 
There are billboards promoting internet gambling sites across 
the country. Student-athletes continue to complain about 
receiving unsolicited e-mails for sports gambling websites. And 
there have been reports of individuals passing out flyers 
touting internet gambling opportunities at fraternity houses.
    I have spoken with students who have lost thousands of 
dollars on the internet. In fact, last year at a congressional 
hearing, we played a videotape account of a college student who 
in just 3 months lost $10,000 gambling over the internet. 
Please be assured that this is not a unique experience. We have 
heard from others with similar stories.
    Finally, our staff is beginning to process NCAA rule 
violation cases involving internet sports gambling. On the 
legislative front, the past four years have been marked by 
frustration. Those supporting efforts to adopt the legislation 
have come very close to achieving their goal, but in the end 
have been thwarted by aggressive and well-financed opposition. 
The real challenge in crafting legislation----
    Chairwoman Kelly. Mr. Saum, you have run out of time. Can 
you summarize, please?
    Mr. Saum. Yes. The real challenge in crafting legislation 
that will not only address the problems associated with 
internet gambling but also provide an effective enforcement 
mechanism will have an impact on these offshore operations. The 
NCAA urges the Subcommittee and Congress to not let this 
opportunity slip away, and thoughtful legislation may be 
successful in significantly curtailing this growth and 
popularity of internet gambling in this country. Thank you.
    [The prepared statement of Bill Saum can be found on page 
146 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    Mr. MacCarthy.

   STATEMENT OF MARK MacCARTHY, SENIOR VICE PRESIDENT PUBLIC 
                    POLICY, VISA U.S.A. INC.

    Mr. MacCarthy. Thank you, Chairwoman Kelly and Members of 
the Subcommittee.
    The Visa Payment System is the largest consumer payment 
system in the world. The over one billion Visa cards issued by 
our 21,000 members are accepted at over 20 million locations.
    Chairwoman Kelly. Mr. MacCarthy, can you pull that 
microphone a little more closely to you, please?
    Mr. MacCarthy. Is that better?
    Chairwoman Kelly. Thank you. Much better.
    Mr. MacCarthy. The over one billion Visa cards issued by 
our 21,000 members are accepted at over 20 million locations to 
buy over $1.8 trillion worth of goods and services every year. 
In the U.S. alone, cardholders use Visa cards to buy over $90 
billion worth of goods and services.
    Visa recognizes that internet gambling can raise important 
social issues, especially access by problem and underage 
gamblers. Also, while internet gambling represents only a 
negligible part of our total transactions, it imposes 
disproportionate legal and operating risks for Visa and for its 
members.
    So Visa has taken steps to address internet gambling. Visa 
card issuers must advise cardholders that internet gambling may 
be illegal in their jurisdiction and that Visa cards should 
only be used for legal transactions.
    Visa also cooperates with law enforcement agencies in their 
efforts to prosecute illegal domestic internet gambling 
operations. And Visa has taken steps to enable card issuers to 
block potentially illegal internet gambling transactions.
    Visa requires internet gaming merchants to use a 
combination of codes that tells the card issuer that a 
transaction is likely to be an internet gambling transaction, 
and this allows a card issuer to deny authorization for these 
transactions. The sheer volume of transactions that Visa 
handles requires it to rely on this merchant code. The Visa 
operating system operates at a pace of 35.5 billion 
transactions per year. Visa processes an average of 2,500 
messages per second and has a peak capacity of 4,000 messages 
per second.
    Our coding system has limitations. For it to work, 
merchants must accurately code transactions. Visa merchants are 
required to properly code, and there are penalties for failures 
to do so, but there are obvious incentives for unscrupulous 
internet gambling merchants, to try to hide from Visa and from 
its members.
    Coding only informs card issuers that the transaction is 
likely an internet gambling transaction. It does not tell us 
whether the transaction is illegal. For example, U.S. 
cardholders visit foreign countries where internet gambling is 
authorized and where the use of credit cards to pay for online 
gambling is entirely legal. Online gamblers often use 
electronic cash for auctions, online purchases or for internet 
gambling. The coding system that Visa uses would not capture 
these transactions as internet gambling transactions.
    We believe that partly as a result of these efforts, these 
alternative forms of payment are becoming a payment system of 
choice for internet gambling. I was pleased to notice that 
other witnesses have made this same point in their testimony.
    Under current law, it is impossible to determine quickly 
and efficiently whether a particular internet gambling 
transaction is illegal. Part of the problem is ascertaining 
exactly where a cardholder originates the transaction.
    Going forward, we believe that the responsibility for 
illegal acts should be placed squarely on the shoulders of the 
illegal actors themselves--the gamblers and the casinos that 
engage in illegal gambling operations. Making payment systems 
responsible for policing internet gambling does not provide a 
practical and effective solution for this complex social 
problem. And it is hard for us to see how Congress can address 
payment systems and internet gambling without clarifying the 
underlying legal landscape. A law that makes all internet 
gambling illegal would be hard for us to enforce and would 
raise significant cross-border jurisdictional issues.
    But the fundamental point is that if policymakers declare 
internet gambling illegal, unscrupulous merchants will simply 
stop coding their transactions accurately, and we will have no 
way of knowing which transactions are internet gambling ones. 
Conversely, a more complex law that allows for multiple 
exceptions for a ban on internet gambling, such as allowing 
internet gambling on an intrastate basis or permitting certain 
types of gambling, such as parimutuel betting, would be 
impossible for us to enforce. No coding system could possibly 
reflect all these variations.
    Thank you for the opportunity to testify before you today, 
and I would be happy to answer any questions.
    [The prepared statement of Mark MacCarthy can be found on 
page 155 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. MacCarthy. You 
have certainly given us some food for thought.
    Ms. Schneider.

   STATEMENT OF SUE SCHNEIDER, CHAIRMAN, INTERACTIVE GAMING 
                            COUNCIL

    Ms. Schneider. Madam Chairwoman and Members of the 
subcommittee, I have served as the Chairman of Interactive 
Gaming Council since its formation in 1996, and I would like to 
applaud you for holding this hearing to learn more about this 
very complex subject and to really educate yourselves about the 
public policy issues that are opened here. It is a situation 
where it is very complex. It is international in nature and can 
be very complicated.
    The IGC itself is a not-for-profit trade association with 
over 100 member companies from around the world. These are 
companies that are operators, software suppliers, e-commerce 
providers, or like my own company, we provide information 
services.
    The mission of the organization is to provide a forum for 
what we consider to be the legitimate participants in the 
industry to work toward uniform standards for those 
participants on an intergovernmental basis and to provide a 
unified voice to advocate for the interests of both the members 
and the consumers who enjoy our services.
    I have included in the appendix some things that I think 
you might find of interest: A Code of Conduct, Responsible 
Gaming Guidelines, and most recently, a Seal of Approval 
program that has been adopted by the IGC, and members are 
beginning to participate in that.
    We feel that neither governments nor consumers will 
tolerate an industry that doesn't extend adequate protections 
to its consumers, and I think that's something where we agree 
with policymakers, is how do you extend those protections? I 
can tell you from having worked with an information publication 
that was consumer-oriented, consumers are concerned about two 
things: Are the games fair? Is their betting fair, and will 
they get paid? And those are the common things that they are 
most concerned about. And it is something that again takes 
international exposure and cooperation here.
    What we are not are an association of members who set up 
shop, take off with the dollars and run. And quite frankly, 
there have been very few instances of that in an industry 
that's been having the kind of growth that has existed over the 
last few years.
    We are also not unaware of and not insensitive to the 
issues of underage or problem gambling. And quite frankly, some 
of the technology that exists allows for the kind of tracking 
of that, particularly when it comes to some of the issues of 
compulsive gambling, loss limits, self-exclusionary type of 
things, a variety of things like that, which we can get into 
more in the question-and-answer session if you would like to 
learn more about that.
    As we mentioned, there are at least 54 jurisdictions around 
the world that offer sanctioned internet gambling in some way, 
and we have included that list in there also. Countries such as 
Great Britain and South Africa are now exploring regulatory 
structures. And again, we work with the international body of 
gaming regulators to look at baseline standards so that there 
is some consistency there.
    As you are likely aware, Nevada, for example, and even New 
Jersey have had legislation introduced, and Nevada passed to 
allow for regulatory structure if they can be guaranteed that 
certain controls are in place.
    I have added some information on the size of the industry 
and again, I think Sebastian covered that quite a bit, so I'll 
move by that.
    But I do want to say again to reiterate that the demand is 
within the U.S. in terms of the market for these services. And 
I think what that does is really make the public policy issues 
even more of a challenge. But among those, we feel that both 
the State versus Federal oversight, those tensions on who does 
have oversight of this, is something that needs to be openly 
discussed. Looking at the location of where the gambling 
transaction takes place and the jurisdictional issues there, 
and again, trying to get some harmonization of regulations.
    I think the whole issue of the financial transactions is 
something that we have to look at very carefully. Do you want 
to be a chokepoint and really put out to the international 
world that that sort of thing happens. I know there's a lot of 
inconsistencies to a certain extent when you look at like the 
French Yahoo case that some of you may be familiar with. Some 
of those kind of issues, you get into that interplay of trying 
to control a medium that has been set up to not be controlled. 
And those are the kind of concerns that I think are of essence 
as you look at using financial transactions as a control point.
    And as you have also heard, that the whole issue of coming 
up with more anonymous e-cash services as a result of those 
kind of restrictions are something that will probably be a 
reality there.
    I do want to mention that there are two things that I would 
ask that you keep in mind. One, as we've mentioned before, the 
Volstead Act, and trying to curb demand in that regard when you 
have some people, a number of people in America that are 
looking at that as an opportunity for an entertainment that 
they want to take advantage of. And I think the other thing to 
look at is how Las Vegas has evolved. It started out, you know, 
you talk about the Wild West. That was the Wild West there, and 
it has now evolved through a regulatory structure that has been 
I think a benefit to consumers, and that's what we want to 
advocate for.
    Thank you very much.
    [The prepared statement of Sue Schneider can be found on 
page 169 in the appendix.]
    Chairwoman Kelly. Thank you very much, Ms. Schneider. I 
apologize for cutting you off and cutting you short on your 
testimony, but you know your written testimony is already a 
part of the record, and we will be asking questions.
    Ms. Kyle.

  STATEMENT OF PENELOPE W. KYLE, EXECUTIVE DIRECTOR, VIRGINIA 
     LOTTERY; PRESIDENT, NATIONAL ASSOCIATION OF STATE AND 
                      PROVINCIAL LOTTERIES

    Ms. Kyle. Good afternoon, Madam Chairwoman, Congressman 
Leach and Congressman Goodlatte. My name is Penny Kyle, and I 
am serving this year as the President of the North American 
Association of State and Provincial Lotteries. This is the 
group that represents every U.S. lottery, of which there are 
now 39; the six provincial lotteries of Canada, the National 
Lottery of Mexico, and the lotteries in the Virgin Islands, 
Puerto Rico, and Jamaica.
    I am here today, first of all, to tell you that the 39 U.S. 
lottery directors actively support what this subcommittee is 
trying to do. We think that the issue of addressing illegal and 
unregulated internet wagering needs to be undertaken, and we 
applaud your efforts.
    As State lottery directors, our members operate under some 
of the most stringent legal and security standards in the 
world. And we do this because as State governments, we believe 
it is in our best interest if we are to maintain the high level 
of public trust that we currently have with our citizens in our 
various jurisdictions.
    Therefore, your efforts to outlaw illegal internet 
operations are welcomed and supported by those of us who 
currently adhere to the legal wagering rules.
    It should be noted that this organization has not taken a 
for or against position regarding the sale of lottery tickets 
on the internet. We feel this is a position that must be taken 
by each of the individual States to determine the forms of 
regulating its own gaming as well as the methods that are 
offered in that State.
    My goal in appearing before your subcommittee today is to 
make one key point to you. That is that NASPL cannot support 
any internet legislation that would preempt the right of the 
Nation's governors and State legislators to either prohibit, 
authorize, or regulate gaming within their own borders.
    Since the inception of the first modern lottery in New 
Hampshire in 1964, State meeting governments have had the right 
to authorize and regulate their State lotteries. They write 
billions of dollars for good causes, such as education, the 
environment, and senior citizen programs.
    We stand by the statement made by the National Governors' 
Association, and I quote as follows:
    ``States possess the authority to regulate gambling within 
their own borders and must continue to be allowed to do so. An 
incursion into this area with respect to on-line gambling would 
establish a dangerous precedent with respect to gambling in 
general as well as broader principles of State sovereignty.''
    It should be noted that there are several State lottery 
members of NASPL who are opposed to offering State lottery 
products over the internet. These States feel very strongly 
about this issue and would oppose any attempt to authorize any 
such games.
    On the other hand, there are some NASPL State lottery 
members who feel that there may come a time in the future when 
it is appropriate to offer such games. I make this point, 
Madame Chairwoman, to illustrate an important common theme 
among our membership. All of us may not agree on the value or 
the appropriateness of offering lottery products on the 
internet, but we are united in the belief that it is clearly 
each State's right to authorize and regulate its own lottery 
and the methods of selling its own lottery products.
    In conclusion, I would ask that this subcommittee and other 
relevant congressional committees, while addressing the issue 
of illegal and unregulated internet gaming, please respect the 
historical right of States to authorize and regulate gaming 
within their own boundaries.
    I thank you again for allowing me to represent the views of 
the North American Lottery Industry.
    [The prepared statement of Penelope W. Kyle can be found on 
page 185 in the appendix.]
    Chairwoman Kelly. Thank you very much, Ms. Kyle.
    Mr. Avioli.

 STATEMENT OF GREGORY C. AVIOLI, DEPUTY COMMISSIONER, NATIONAL 
                THOROUGHBRED RACING ASSOCIATION

    Mr. Avioli. Thank you, Madame Chair.
    I'm testifying today on behalf of the National Thoroughbred 
Racing Association which is the national organizing body for 
the sport of thoroughbred racing, which represents the 
interests of racetracks, owners, and breeders. Horseracing and 
breeding in the United States is a major agri-business. It 
currently employs nearly 500,000 full time employees and has an 
annual economic impact of over $34 billion on the U.S. economy.
    Wagering on horseracing is permitted in 43 States and 
generates over $500 million each year in State and local taxes. 
Racing is also a very popular spectator sport, with over 30 
million fans coming to the races last year and that's second 
only to major league baseball.
    Prior to 1970, wagering was only available to patrons who 
were live at the racetrack. In 1970, the New York Legislature 
authorized off-track wagering. Since that time, all 43 racing 
States have authorized the tracks in those States to send 
pictures of their races to other States. That's a process known 
as simulcasting.
    As part of the growth of simulcasting, racing improved its 
product by starting a process known as ``common pooling'' where 
they would combine many betting pools in one or more 
jurisdictions. This process uses sophisticated computer 
networks and now relies heavily on the internet to transmit the 
information.
    Another technological advance for racing over the last few 
decades was the development of advanced deposit or account 
wagering where a person can set up an account with a licensed 
facility and then wager from another location. Currently, 11 
States have authorized this account wagering.
    I bring this up because racing's use of modern technology 
I've just described has allowed the racing industry, and the 
$34 billion agri-business it supports, to survive in a very 
competitive gaming environment.
    As a statistic, about 50 years ago, racing had 100 percent 
of the legal gaming market in the United States. As we sit here 
today, it's less than 5 percent. Throughout history, the 
prohibition or legalization and regulation of gaming has been 
primarily left to the States and not to the Federal Government. 
In this regard, wagering has been regulated on the State level 
for 75 years.
    In 1978, the State regulation of horseracing was 
supplemented by the Federal Government in a very specific way 
with the passage of the Interstate Horseracing Act of 1978. In 
that Act, Congress stated in its congressional findings that it 
is the policy of Congress to regulate interstate commerce with 
respect to wagering on horseracing in order to further the 
horseracing and legal off-track betting industries in the 
United States.
    Just last year, Congress amended the Interstate Horseracing 
Act to clarify that interstate simulcasting and account 
wagering can be conducted via telephone or other electronic 
means which would include the internet where lawful in the 
States involved. This was just in the last Congress.
    Again, similar to the other speakers you've heard today, 
our industry feels very strongly that the regulation of all 
forms of gaming is essential to protect the public and assure 
compliance with applicable laws. We are adamantly opposed to 
any unregulated gambling whether via the internet or any other 
medium.
    In the last decade, the internet has been used by offshore 
unregulated entities who have pirated money from licensed 
racetracks in the United States. These operations are able to 
offer more attractive betting propositions because they don't 
pay U.S. taxes and they don't pay the revenue shares that 
currently go back to support racing and purses in this country.
    It's been estimated that this year, as much as $750 million 
of what otherwise would be a total of $15 billion will be 
wagered offshore. That is a $750 million gaming loss to the 
licensed industry in the United States.
    In light of the posed threat to our industry from internet 
gambling, we have supported a number of congressional 
initiatives in the last few years to curb illegal internet 
gambling. We've worked closely with Congressman Goodlatte last 
year. As a result of participating in the legislative process, 
however, we are aware that any legislation dealing with this 
issue will have very technical legal issues, and we are 
concerned that imprecisely or improperly drafted legislation 
could have an unintended effect.
    For example, some legislation last year, without intending 
it, would have outlawed the legal business of simulcasting, 
which had nothing to do with the internet, but because 
computers that were included in the definition of the internet 
are used in simulcasting, that bill would have, on its face, 
outlawed the core business that we have today.
    That's a good ending point.
    [Laughter.]
    [The prepared statement of Gregory C. Avioli can be found 
on page 190 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    I'm going to ask one question very quickly.
    I would like to ask Mr. Saum about whether or not you are 
aware of a study that was done by the student journalists at 
Santa Clara University that came up with numerous instances of 
students racking up huge credit debts gambling. Some of this 
apparently was done on the internet.
    I have here a story that the students wrote, and I'm going 
to request that it be made a part of the hearing record.
    [The information referred to can be found on page 41 in the 
appendix.]
    Chairwoman Kelly. Are you aware of this and would you like 
to elaborate on that?
    Mr. Saum. Yes, ma'am, we are aware of it. We've been in 
communication with a few of the authors of this article, and 
it's fascinating from the stance that they actually began as a 
report for one of their classes, they began by sharing some of 
their own stories, and then they went out and started 
interviewing other students in the Silicon Valley area. From 
one student, they expanded it to other students, and the 
stories that they heard were rather alarming. They heard the 
stories of the easy access to the internet, the easy access 
using their credit cards. When they maxed out their credit 
cards, they were given new credit cards and from there the debt 
rose to the level of thousands of dollars. And several of the 
kids were in the tens of thousands of dollars area.
    Chairwoman Kelly. Thank you very much.
    I want to know, I have one other question here. Mr. Suarez 
indicated--and this is a question for Ms. Schneider--Mr. Suarez 
indicated that 15- and 17-year olds were able to access 
offshore internet gambling sites during an investigation that 
they conducted. Yet, I see that one of the items in your Code 
of Conduct says that members will institute controls that 
require customers to affirm that they are of lawful age in 
their jurisdiction, and that they will institute reasonable 
measures to corroborate that information. It sounds like some 
of the offshore sites are not complying with your code.
    My question really is whether or not there is any way to 
design software in such a way that you're going to be able to 
exclude money laundering and kids from using the site. These 
people who are non-compliant, are they members of your IGC?
    Ms. Schneider. The three they had targeted are not members. 
This is the problem with a voluntary trade association, quite 
frankly, is you can't get 100 percent of the people in. That's 
why regulation is an optimal solution in that regard.
    In terms of what you can do in terms of underage gambling, 
what a number of operators do is go through kind of a vetting 
process. When you open an account, they can require and do 
require copies of passports or birth certificates or that sort 
of thing, to be able to get a sense of documentation of the age 
of that particular player.
    Down the road, there are things coming now in terms of 
biometric encryption tools to make sure that the person that 
established the account is indeed the person that's playing. So 
you do have a situation there where there are technological 
tools that are being developed now that will assist with that.
    Mr. Leach. [Presiding] Thank you very much.
    Mr. Goodlatte, do you have any questions?
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Ms. Schneider, let me follow up on that question. Are you 
saying that everyone of your 100-member organizations presently 
requires submission of some kind of documentation, like 
passports or birth certificates, before they will allow anybody 
to obtain membership or whatever you require, each one of those 
organizations requires to bet on-line?
    Ms. Schneider. I'm not saying that. Number one, not a 
hundred of the members are all operators.
    Mr. Goodlatte. Of the ones that are operators.
    Ms. Schneider. I can't say with any certainty. I think you 
have the same problem in the hearing that came up last year 
with the racing industry in terms of whether they were all 
compliant with taking wagers only from those 8 States.
    When you have a volunteer association, you can't do it. 
It's something we would hope for.
    Mr. Goodlatte. Have you checked on that?
    Ms. Schneider. Have we checked on it? We know that the 
leading ones that do a big volume do have those kind of 
controls in place.
    Mr. Goodlatte. If you are capable of doing that to screen 
out people who are minors, you would similarly, from the same 
information provided to you, have the ability to screen out 
people who are placing those bets from the United States or who 
are United States citizens.
    Do any of those organizations do that? Do any of them 
attempt to not engage in illegal gaming in the United States 
which I think virtually every legal scholar that I'm aware of 
believes it is illegal to do in the United States under the 
current law, to say nothing of any law we might introduce now.
    Under current law, I know some individuals have been 
prosecuted for that very violation. Do any one of the members 
of your organization screen out United States citizens because 
they know that it's against the law to engage in that activity 
in the United States?
    Ms. Schneider. Of the operators that are out there, they 
each take into account, from their legal counsel, who'll 
they'll take play from. Yes, we do have some that won't take 
any play from the U.S. We have some that take play from the 
U.S. We have some that take play from the U.S. States that have 
passed explicit laws that prohibit internet gambling, so it's a 
company-by-company decision in terms of how they handle that.
    Mr. Goodlatte. Whether or not they break the law?
    Ms. Schneider. Sir, with all due respect, if the law was 
that clear, and there is case law that says otherwise in some 
of the jurisdictions, I don't think we would be here having 
these discussions if it was that crystal clear. It's clearly an 
area that's still in need of clarification.
    Mr. Goodlatte. Let me ask you this. Would your organization 
exclude from membership those organizations who violated the 
law if there were a new law that was passed that said very 
clearly that you cannot engage in this activity on the internet 
with those who are placing these bets from the United States?
    Ms. Schneider. That's a process that we would have to go 
through in terms of making that kind of clarification. Again, 
these are international companies that are operating, you know, 
for all the talk about it's an unregulated environment, I have 
a feeling that your colleagues in some States in Australia 
would take umbrage at that, because it is a highly regulated 
jurisdiction there.
    So you get into those kind of multi-jurisdictional concerns 
that I addressed before. That's the biggest challenge with 
this. And I think we have to be forthcoming.
    Mr. Goodlatte. The law is very clear in the United States, 
one of the two parties to it. It's against the law in the 
United States. That is the issue that concerns Ms. Kyle sitting 
next to you, your member organizations are without paying any 
U.S. taxes, without complying with any kind of regulatory 
scheme, as the gentleman from New Jersey Gaming Commission 
testified, in violation of the laws of the United States as 
they exist right now.
    We do need to beef up those laws. We do need to make them 
even clearer than they are now. We do need to give law 
enforcement new remedies to deal with the problem.
    But the fact of the matter is whether there are different 
laws in other countries, or around the world, the law in the 
United States is that you can't do this. Nonetheless, 
organizations that are members of your trade association are 
engaged in that activity.
    Let me ask Mr. MacCarthy a question.
    When you have folks who fraudulently or falsely code their 
credit card information, what do you do when you find one 
that's brought to your attention?
    Mr. MacCarthy. We have a general rule that our merchants 
must properly code the transactions.
    Mr. Goodlatte. If a merchant doesn't properly code, what do 
you do?
    Mr. MacCarthy. If it's brought to our attention, we have a 
process whereby we investigate, we tell the bank that works 
directly with the merchant about the problem, and we instruct 
that bank to take steps to correct it, to instruct the merchant 
in the process of correctly coding. If that doesn't work, then 
there's a process of fines. And if the infraction persists over 
an indefinite period of time--the exact number of months is not 
prescribed--then we have the capacity to separate that merchant 
from the system.
    Mr. Goodlatte. Wouldn't you have the same capacity to do 
that for merchants who engaged in the activity I just described 
with relation to members of Ms. Schneider's organization and 
others that are offering these services that are doing so 
illegally in the United States?
    Mr. MacCarthy. If the circumstance you are describing is an 
offshore internet gambling merchant who improperly codes his 
transactions, does not use the code for gaming, does not use 
the code for electronic commerce, and puts transactions into 
our system that potentially put our issuers at risk for 
business expenses and for legal expenses and other risks, we 
would take steps to try to make sure that that merchant 
properly coded and put the transactions into our system in a 
fashion that allowed our member issuers to block those 
transactions if they so decided.
    Mr. Goodlatte. If Mr. Suarez, the Director of the Division 
of Gaming Enforcement in New Jersey, presented evidence to you 
that his investigators had found that a company in Antigua or 
any of a host of other countries around the world were offering 
gaming services in New Jersey, and they got under a 
hypothetical law, a law that I hope Mr. Leach will be able to 
pursue in the law in the near future, but if they were to bring 
you a court order that said that they were engaged in that 
activity in New Jersey or Virginia or any other of the 50 
States that banned this activity or just under Federal law, you 
would be able to take steps to cut them off from the use of 
Visa cards.
    Mr. MacCarthy. Let me go back and reconstruct the example, 
if I may. If it's an internet gambling operation and it's 
actually operating in New Jersey or in Virginia.
    Mr. Goodlatte. Let's say it's in Antigua and the bettor is 
in New Jersey. Suarez, as an investigator, happens to be doing 
an undercover operation.
    Mr. MacCarthy. Let's start with a U.S. example. If that 
were the case, because operating an internet gambling operation 
in New Jersey or Virginia, or in almost all the States except 
perhaps Nevada, since that is illegal, we would take steps 
immediately working through the merchant's bank to cut that 
internet gambling merchant off from our payment system and we 
would inform law enforcement officers right away. We do that 
under current law. We work very cooperatively with law 
enforcement people in that area.
    And the other circumstance that you described, where law 
enforcement officials or any other people brought to our 
attention the fact that a particular offshore internet gambling 
merchant was improperly coding the transactions and expressed 
the view that that was contrary to U.S. law, we would work 
cooperatively with the law enforcement entity. We would 
immediately instruct the merchant bank to take steps to ensure 
that that internet gambling merchant properly coded the 
transactions.
    Mr. Goodlatte. In other words, what we are attempting to 
accomplish could be accomplished.
    Mr. MacCarthy. If the internet gambling merchant then 
continued to insert into the stream of transactions all and 
only properly coded transactions, then we would accomplish the 
objective of giving our people the capacity to block those kind 
of transactions if they so choose. That's under current law.
    If the internet gambling operation decided, instead of 
cooperation with us and law enforcement entities, decided that 
they would simply stop processing transactions in any fashion 
and vanished entirely from our system, we would have no way of 
knowing where they might resurface, and so it would be very 
difficult to follow them.
    But insofar as they maintain the contact with our acquiring 
merchant, we would be able to work with them to make sure that 
they properly coded.
    Mr. Goodlatte. I assume these organizations have a desire 
to live off of the trade name they develop and therefore to 
just disappear and resurface poses some problems for them, 
especially if they're going to continue to use a legitimate 
means of collecting funds like Visa or another legitimate 
business institution.
    Thank you, Mr. Chairman. I've abused my amount of time 
here.
    Mr. Leach. Thank you very much, Mr. Goodlatte. We are all 
very appreciative of what you've been attempting to do.
    We do have a problem with votes on the floor. This is a 
very complicated day and very complicated legislation. In fact, 
it's so complicated, we are apparently tied up in process 
knots.
    But I want to thank this panel very much. Let me say, 
procedurally, that all of your full statements will be placed 
in the record without objection.
    Without objection, Members will have 30 days to submit 
written questions and responses if that's possible from the 
panels.
    I just personally would like to say we would also be very 
appreciative of any precision and recommendations of changes to 
legislation that may be offered by Members of the subcommittee 
that you become aware of.
    Certainly, approaches of Mr. Goodlatte, I hope that you 
feel free to talk with Bob about and those pieces of 
legislation that may be offered in this panel, most 
particularly HR 556, but I think there may be others as well.
    With that, let me say we are very appreciative of your 
coming before us and we thank you for your time and your effort 
and we hope it will continue.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 5:20 p.m., the hearing was adjourned.]

                            A P P E N D I X

                             July 12, 2001

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