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H.R. 2266, THE REASONABLE PRUDENCE IN 

REGULATION ACT; AND H.R. 2267, THE 

INTERNET GAMBLING REGULATION, CONSUMER 

PROTECTION, AND ENFORCEMENT ACT 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

DECEMBER 3, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–92 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 3, 2009 ............................................................................................. 1 

Appendix: 

December 3, 2009 ............................................................................................. 29 

WITNESSES 

THURSDAY, DECEMBER 3, 2009 

Aftab, Parry, Executive Director, WiredSafety ..................................................... 10 

Brodsky, Michael, Executive Chairman, Youbet.com ........................................... 18 

Dowling, James F., President and Managing Director, Dowling Advisory 

Group .................................................................................................................... 16 

Martin, Hon. Robert, Tribal Chairman, Morongo Band of Mission Indians ....... 9 

Sparrow, Malcolm K., Professor, John F. Kennedy School of Government, 

Harvard University .............................................................................................. 12 

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

The First State Bank, on behalf of the Independent Community Bankers 

of America (ICBA) ................................................................................................ 7 

Whyte, Keith S., Executive Director, National Council on Problem Gambling 

(NCPG) .................................................................................................................. 14 

APPENDIX 

Prepared statements: 

King, Hon. Peter ............................................................................................... 30 

McDermott, Hon. Jim ....................................................................................... 32 

Aftab, Parry ...................................................................................................... 35 

Brodsky, Michael .............................................................................................. 39 

Dowling, James F. ............................................................................................ 44 

Martin, Hon. Robert ......................................................................................... 49 

Sparrow, Malcolm K. ........................................................................................ 53 

Vallandingham, Samuel A. .............................................................................. 156 

Whyte, Keith S. ................................................................................................ 163 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bachus, Hon. Spencer: 

Written responses to questions submitted to Samuel A. Vallandingham ... 166 

Letter from the FBI, dated November 13, 2009 ............................................. 168 

Letter from Concerned Women for America (CWA) ...................................... 171 

Letter from various sports leagues ................................................................. 172 

Letter from Professor John Warren Kindt, with attachments ..................... 174 

Letter from the Coalition Against Gambling in New York ........................... 186 

Letter from CasinoFree PA .............................................................................. 188 

Letter from Stop Predatory Gambling ............................................................ 190 

Letter from Focus on the Family .................................................................... 192 

Letter from Citizens Against Casino Gambling in Erie County ................... 193 

Himes, Hon. Jim: 

‘‘Internet Gambling, Issues & Solutions’’ ....................................................... 195 

Map of 2,048 Global Internet Casino Sites .................................................... 209 

Miscellaneous Members: 

Written statement of the Alderney Gambling Control Commission Channel Islands ..................................................................................................... 212 

Written statement of Marie Alexander, President and CEO, Quova ........... 228 

Page

IV 

Miscellaneous Members—Continued 

Written statement of Jay Cohen, President, Antiguan Online Gaming 

Association ..................................................................................................... 233 

Written statement of Rt Hon David Blunkett MP, Former Home Secretary and Cabinet Member in the United Kingdom ................................. 239 

Written statement of Catania Ehrlich & Suarez, P.C. Law Offices ............. 248 

Written statement of the Credit Union National Association (CUNA) ........ 250 

Written statement of the European Sports Security Association (ESSA) ... 251 

Written statement of Mary Williams, Chief Secretary, Isle of Man Government .......................................................................................................... 253 

Written statement of Francesco Rodano, Head of Remote Gaming, AAMSAutonomous Administration of State Monopolies (Italy’s Gaming Regulatory Body) ................................................................................................... 257 

Written statement of Keith Marsden, Managing Director, 

192business.com ............................................................................................ 262 

Written statement of the National Association of Federal Credit Unions 

(NAFCU) ........................................................................................................ 280 

Written statement of Craig Pouncey, Partner, Herbert Smith LLP (Brussels) ................................................................................................................ 290 

Written statement of Chris Thom, Chairman, Secure Trading Inc. ............ 293 

(1) 

H.R. 2266, THE REASONABLE PRUDENCE 

IN REGULATION ACT; AND H.R. 2267, 

THE INTERNET GAMBLING REGULATION, 

CONSUMER PROTECTION, AND 

ENFORCEMENT ACT 

Thursday, December 3, 2009 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Maloney, Sherman, 

Moore of Kansas, Baca, Green, Cleaver, Perlmutter, Carson, Adler, 

Kosmas, Himes, Peters, Maffei; Bachus, King, Biggert, Capito, 

Campbell, Posey, Jenkins, and Lee. 

The CHAIRMAN. The hearing will come to order. 

I will recognize myself for 5 minutes to say that it is nice to be 

able to think legislatively about things other than the financial crisis which has consumed this committee to a great extent since September of last year, 2008. The question is raised sometimes why 

this committee is the committee that is dealing with the questions 

of gambling. Under a previous chairman, Mr. Leach, the committee 

initiated legislation to deal with the Internet gambling issue by 

controlling the payment method, and so that is why it continues to 

be in our jurisdiction. There are other committees that have jurisdiction over other aspects of this, such as the Wire Act, which does 

not come before us. 

I continue to believe that it is a great mistake for the Congress 

of the United States to tell adults what to do with their own money 

on a voluntary basis. Some adults will spend their money unwisely. 

It is not the business of the Federal Government to prevent them 

legally from doing it. They should be given information, and they 

should be given consumer protections. In cases where an accumulation of bad individual decisions have a systemic impact, and arguably there was an element to that in the subprime crisis, then we 

have to step in. But I think John Stuart Mill got it right in the 

19th Century, when people are making decisions to take actions 

that primarily affect them, they ought to be allowed to do that. 

I am struck by, frankly, what seems to me an inconsistency on 

the part of some of my conservative colleagues who bemoan the 

‘‘nanny state,’’ who talk about limited government, who urge that 

the government ought to stay out of people’s lives, and who also 

2 

argue that the Internet ought to be free of restrictions, but who 

then single out the Internet for restrictions on personal choices to 

be made by individuals. We have been told that this is just a 

screen for, or could be a screen for, terrorists and other activities. 

I am encouraged by the strong support for the legislation repealing this and setting up a regulatory regime instead that comes 

from the ranking Republican and former chairman of the Homeland Security Committee, the gentleman from New York, Mr. King. 

No Member of this House exceeds him in his concern for public 

policies that protect us against terrorism. His advocacy for this, I 

think, is very important. 

I am also glad to have the strong support here of the gentleman 

from Texas, Dr. Paul, who is acting consistently on his opposition 

to government intrusion, unlike others who appear to pick and 

choose. 

It is true that if things are on the Internet, there is the possibility that underaged people can get at them. There are a whole 

range of things on the Internet which we would not like underaged 

people to avail themselves of: the sale of alcoholic beverages, sexoriented material, purchases. People who are underage shouldn’t be 

allowed to freely buy things in the name of the family. 

The notion that because some people will abuse something, you 

prevent everybody from doing it, is as great a threat to the liberty 

of the individual as any philosophy I have ever seen. And it also, 

of course, stops nothing. There are people who gamble to excess, 

there are people who drink to excess, there are people who smoke 

to excess, there are young people who play video games to excess, 

there are people who diet to excess; they do all manner of things 

to excess. And again, in a free society individuals are given information and allowed to make their choices and not prohibited from 

doing it. 

I do remember an argument that was made on the Floor of the 

House by the lead sponsor of the bill, originally the gentleman from 

Iowa, when he said, this Internet gambling adds nothing to the 

GDP, so we can ban it. Well, whether it does or doesn’t is arguable, 

but I have to say the notion that if something does not add to the 

GDP, we have a right to ban it, is chilling and it has negative implications for personal freedom. 

There are large numbers of people in this country who enjoy 

gambling on the Internet. I believe we should do what we can to 

regulate this as you regulate other activities. But the notion that 

this Congress should tell millions of adult Americans that we know 

better than they what they should do with their own money on 

their own time on their own computers seems to me to be a very 

grave error, and I hope that this whole legislation is repealed. 

The CHAIRMAN. The gentleman from Alabama is now recognized 

for how much time? 

Mr. BACHUS. For 10 minutes. 

I thank the chairman. I think, as all of us know, Chairman 

Frank and I have very different views on this, and we approach 

this very differently. He wants to legalize Internet gambling, and 

then he wants to tax it. On the other hand, I believe that Internet 

gambling is and has been and will continue to be a substantial 

threat to our youth, and that any economic benefit from taxing 

3 

Internet gambling would be more than offset by the harm it causes 

our young people. 

And we have had hearing after hearing where experts testified 

as to really what we have as a wave of young Americans who are 

addicted to gambling and the problems that causes, which are in 

many cases heartbreaking. I saw an article in The New York Times 

where one mother wrote a letter to the editor describing the horror 

that had been created from her son whom she basically has lost to 

Internet gambling. 

Internet gambling characteristics are unique. Online players can 

gamble 24-hours-a-day, 7-days-a-week from home. Children may 

play without sufficient age verification, and they can bet with a 

credit card. We have had testimony before that this undercuts a 

player, particularly a young person’s perception of the value of 

cash; that the younger you become engaged in this behavior, the 

more addictive it is. It actually wires the brains of some of our 

young people. It leads to addiction, bankruptcy, and crime. We 

have actually had testimony that one of the most outstanding 

young football players from a Florida university, his whole career 

was ruined, and that career started with Internet gambling at a 

young age. He, in fact, was arrested for burglarizing a business to 

pay for gambling debts. 

Young people are particularly at risk because if you put a computer in a bedroom or a dorm room of a young person, it is a temptation that many fall prey to. It is simply asking too much of young 

people that they resist this temptation. 

The chairman talks about America and what it stands for, and 

one of the things it stands for is not telling adults what they can 

and cannot do. But one thing that America also stands for, and I 

think every society, whether it is American society or any other society, I think one of our number one goals ought to be protecting 

our youth. We certainly do not allow people to come into their bedroom and serve them liquor at a young age or sell them pornography. And the fact that the chairman says, well, you know, you 

can buy pornography on the Internet, you can order liquor on the 

Internet, you ought to be able to allow Internet gambling, I think 

makes no sense whatsoever. 

For more than a decade, the majority of this Congress has 

worked for and voted for legislation to combat illegal Internet gambling. It has always been illegal in the United States, but no one 

could enforce the law because these criminal enterprises operated 

offshore. They operated offshore because that removed them from 

the long arm of not only the Justice Department, but also other law 

enforcement agencies. 

We have had letters from the great majority of attorneys general 

telling us that without some legislation such as the legislation that 

we passed in 2006, they were powerless to stop Internet gambling, 

which was against the law of all their States. And I will remind 

anyone who is interested in this subject that it is the States and 

the people of the States, adults in those States, who have gone to 

the polls or their legislative representatives have passed laws saying that illegal Internet gambling should be stopped. The States 

prohibit it, and the last time I looked, all of them did it through 

a democratic process. 

4 

In a nation of law, it only makes sense to try to put these illegal 

Internet criminal enterprises out of business and not reward them 

as the chairman would do. Congress took a major step towards protecting our youth and stopping this illegal activity with the passage 

of the 2006 Unlawful Internet Gambling Enforcement Act. It is 

that Act that the chairman continues to try to repeal or postpone 

enactment of, and obviously he has allies at the Treasury Department and the Federal Reserve who last week announced that they 

were again delaying implementation of the law another 6 months. 

These regulations should have been finalized and implemented 

more than 2 years ago. This Congress voted; the House voted by 

an overwhelming number, over 330 Members, as I recall, over 

three-fourths of the Congress, to stop illegal Internet gambling. 

And, Mr. Chairman, I think it is time for you, the Treasury, and 

the Fed to stop delaying the will of the great majority of this Congress and the American people. Quit the foot dragging and enforce 

this law. 

The Fed is not here today. The chairman didn’t ask the Fed or 

the Justice Department to come in and defend themselves because 

they really have no defense. It is they who ought to be testifying 

today and not most of the witnesses, many of whose studies are 

funded by the gambling industry or their associations are supported by the gambling industry. 

The absence of the Justice Department and the Federal Reserve 

is particularly egregious in light of a letter I received from the FBI 

earlier this month. Without objection, I would like to submit that 

letter for the record now. 

The CHAIRMAN. Without objection, it is so ordered. 

Mr. BACHUS. In the letter, the FBI warns that technology exists 

to facilitate undetectable manipulation of online poker games. The 

FBI warns that technology can be used in peer-to-peer games to illegally transfer ill-gotten gains from one person to another. The 

FBI, in their letter, rejects claims from vendors who say they can 

validate age and location. 

The witnesses today are going to again testify that technology is 

available to keep minors from gambling on the Internet. The FBI’s 

letter rejects that contention. So the law enforcement agency, the 

Federal law enforcement agency, actually says that these so-called 

protections won’t work. 

Before the UIGEA, offshore Internet casinos were proliferating, raking in more than $6 billion annually from Americans, $6 billion. 

We found out through disclosures that about $40 million of that 

has been spent right here in Washington, D.C., hiring lobbyists. 

One of the first lobbyists they hired was Jack Abramoff. If Congress repeals the law, we will continue to have these online casinos. 

In the next 5 years, Chairman Frank, I feel that if you are successful in creating a Federal right to gamble on the Internet, we 

will create a generation of tens of millions of Americans who from 

their youth will be addicted to Internet gambling and, therefore, 

lifelong problem gamblers. That is a problem for all of us. Gamblers will be able to place bets from their home computers, but also 

from their BlackBerries as they drive home from work, or their 

iPhones as they wait in line at the grocery store. One company has 

5 

already developed an iPhone gambling software and plans to release it whenever the law is reversed. They have announced that. 

I will do everything I can to make sure this never happens. 

In conclusion, Mr. Chairman, supporters of the legalization of 

Internet gambling argue that prohibition has sent Internet gambling underground and left the vulnerable unprotected, but that 

was the case before our law. The vulnerable were unprotected because companies that tap the American market violated our laws 

and our protections. No amount of regulation can begin to protect 

against this particularly predatory and abusive intrusion into 

American homes and the harm it is causing our youth. No approach to blocking Internet gambling will ever be perfect, but what 

we have fashioned is our best hope. 

I yield back the balance of my time. 

The CHAIRMAN. I yield myself my remaining 5 minutes. 

First, when we announced this hearing, a member of the Minority staff said that if we had a hearing, they would ask us for official 

representatives, but I received no such request. If the gentleman 

has a record of a request to me—he often writes me letters and 

asks for hearings. We had one yesterday at his request, but I don’t 

recall a request to me for this one. 

Mr. BACHUS. I supplied that request. Our staff repeatedly, over 

the last week or two, has asked that you call the members of the 

committee here. And I will introduce that for the record. 

The CHAIRMAN. I was surprised. In writing? 

Mr. BACHUS. Yes. 

The CHAIRMAN. We are talking about oral staff-to-staff. 

Mr. BACHUS. Not only that, but e-mail correspondence. 

The CHAIRMAN. We got e-mail correspondence asking as of what 

date? 

Mr. BACHUS. I will get that to you. 

The CHAIRMAN. I haven’t seen it. But I will say this: The gentleman from Alabama, when he was concerned about a hearing, 

asked about one or asked about witnesses, he has never brought 

this up to me. 

Mr. BACHUS. Well— 

The CHAIRMAN. I am sorry, my time. Those are the rules. 

The gentleman said he asked this. We had a hearing yesterday 

at his request, as he noted. We frequently have hearings at the request of the Minority. We have a hearing on covered bonds coming 

up. I sit next to the gentleman. He is very vocal when he has 

things that he cares about, and he never referred that to me. 

Secondly, I do want to say with regard to the delay, the gentleman said they have been dragging their feet for over 2 years. Let 

us be clear that the great bulk of that 2 years was under the Bush 

Administration. After all, it was the Bush Administration that was 

there for most of the time. They did—and here is one of the reasons 

why I think they should have been suspended—issue a midnight 

regulation. President Bush had said towards the end of his term 

that he wasn’t going to issue last-minute regulations, and this one 

was issued at the very last minute just before he went out of office, 

not a practice that ought to be condoned. 

It is also the case that there are two arguments here: one is 

about the law; and the other is about the extraordinary burden it 

6 

imposes on the banking industry. It co-opts them to be the 

antigambling cops. The fact is that overwhelmingly, people in the 

financial industry have said that putting the burden on them to decide what is or isn’t a payment for gambling is a great burden on 

them at a bad time. And in fact, when the testimony came, particularly from the Federal Reserve, the Federal Reserve made it very 

clear that they didn’t think much of this law, they didn’t think— 

not from the standpoint of the morality of gambling or not, but 

from the standpoint of whether or not it was possible in a reasonable way to enforce it. And that is a very big issue here with the 

problems banks now have, and this is for all banks, big banks, little banks. With the problems they now have, imposing this duty on 

them seems to me very odd. 

I also want to say that I was astounded by the gentleman’s prediction that millions of young Americans will become gambling addicts if they can gamble. I have heard hyperbole in my years here. 

The notion that millions of young Americans will become addicts 

is based on absolutely no factual evidence whatsoever. There are 

addicts to gambling, there are addicts to video games, there are addicts to cigarettes, and there are addicts to a lot of things that 

shouldn’t be there. 

And the gentleman said, well, it is in the bedroom the liquor has 

to be delivered. But pornography doesn’t have to be delivered. Pornography can be accessed directly on the Web. There are things 

you can access directly on the Web that we don’t think young people should see. 

And I have to be clear and say I don’t think this is simply about 

protecting young people. That may be the main motivation from 

the gentleman from Alabama. We have a lot of people in this country who think gambling is wrong and want to prevent adults from 

doing it, and that is not something to which we should be giving 

approval. 

And we come back to this general view. Yes, there was a football 

player who became addicted, a woman’s son became addicted, there 

are addictions of various sorts. The notion that you end the legal 

ability of adults to spend their own money on an activity that 

harms no one at all because some minority of people will abuse it 

is a recipe for the destruction of individual freedom, and that is 

what we are talking about. And it is especially done in a way that 

imposes great regulatory burdens. Of all the regulatory burdens we 

have talked about imposing on the financial industry, this one appears to be the greatest. 

So I simply want to reiterate we are talking here about personal 

freedom. And, again, the principle we are adopting—and, by the 

way, it is also the principle of Internet freedom. This would then 

mean it was easier to do things offline than online. 

You also have the argument, by the way, the poker players. I 

think to suggest that the millions of Americans who play poker and 

play poker on the Internet, that they are addicts or about to be addicts or people who are fostering addiction is both inaccurate and 

terribly unfair. So I hope we will go forward with this legislation. 

And now let me call on the gentlewoman from West Virginia, 

who wanted to introduce one of the witnesses. 

7 

Mrs. CAPITO. Thank you, Mr. Chairman. I would like to introduce one of the witnesses, Sam Vallandingham, to the committee 

this morning. He is currently the vice president and chief information officer of First State Bank in Barboursville, West Virginia, and 

he is testifying today on behalf of the Independent Community 

Bankers of America. Sam and his family, their bank, has had a 

presence in West Virginia for over 100 years, and I have had the 

fortunate opportunity to work with Sam over my 9 years in Congress. He is a tireless advocate for community banking in West Virginia and in his local community of Barboursville, and he is a great 

West Virginian. 

Welcome, Sam. 

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

BANK, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA (ICBA) 

Mr. VALLANDINGHAM. Thank you, Mrs. Capito. 

Chairman Frank, Ranking Member Bachus, and members of the 

committee, my name is Sam Vallandingham. I am vice president 

and chief information officer of the 104-year-old First State Bank 

in Barboursville, West Virginia. I am also vice chairman of the payments and technology committee for the Independent Community 

Bankers of America. Barboursville is an historic town of 3,200 people in the far western part of the State near the Kentucky border. 

Our bank employs 58 people at 3 locations and holds close to $214 

million in assets. 

Banking has been in my family for four generations. My greatgrandfather, a Kentucky tobacco farmer, sold his farm to raise capital to start First State Bank. It was said my grandfather came to 

West Virginia in a horse and buggy, and those two were eventually 

sold with the proceeds used to set up the bank. The original charter, dated September 1, 1905, and the certificate of authority still 

hang on the wall in the bank’s main office. 

I am pleased to represent community bankers and ICBA’s 5,000 

members at this important hearing on H.R. 2266, the Reasonable 

Prudence in Regulation Act, and H.R. 2267, the Internet Gambling 

Regulation, Consumer Protection, and Enforcement Act. ICBA commends Chairman Frank for introducing this legislation, which 

would provide greater certainty for all concerned. 

Throughout these deliberations, ICBA has not taken a position 

on the appropriateness of prohibiting Internet gambling. We did, 

however, express our concerns over the burdens that the community banking industry and payment system would face if charged 

with identifying and blocking unlawful Internet gambling payment 

transactions. Payment systems were not designed for this function, 

and such requirements would undermine payment system efficiencies. 

The added burden of monitoring all payment transactions for the 

taint of unlawful Internet gambling would drain finite resources 

currently engaged in complying with antiterrorism, anti-money 

laundering regulations, the plethora of new regulations emerging 

from the financial crisis, and the daily operation of community 

banks to meet the financial needs of their customers and commuVerDate Nov 24 2008 17:14 May 13, 2010 Jkt 056235 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\56235.TXT TERRIE
8 

nities. Therefore, we greatly appreciate your decision to include the 

ICBA-supported provisions granting Treasury and the Federal Reserve authority to exempt certain transactions when transaction 

tracking and blocking is not reasonably practical. 

But the law still requires banks to avoid doing business with unlawful Internet gambling companies. Unfortunately, the law fails to 

define unlawful Internet gambling, which is vitally necessary if 

banks are to comply with the law. As a result, the burden of identifying which entities are engaged in unlawful Internet gambling 

rests solely on financial institutions. Community banks are required to determine whether current or prospective customers are 

in violation of diverse Federal, State, and Indian tribal gaming 

laws. 

Obviously this is not workable. Therefore, ICBA strongly endorses H.R. 2267, the Internet Gambling Regulation, Consumer 

Protection, and Enforcement Act, which establishes a Federal regulatory and enforcement framework for licensing Internet gambling 

operators. The certainty provided by this approach is key to our 

support. ICBA strongly urges the committee and Congress to expeditiously pass H.R. 2267. 

Mr. Chairman, ICBA greatly appreciates your efforts to enact 

this legislation. While you and your colleagues must decide on the 

Nation’s policy for Internet gambling, we hope you can all agree 

that the Nation’s community banks, as well as other participants 

in the payment systems, should not be put in the impossible position of making legal judgments about which individual businesses 

are or are not engaged in unlawful Internet gambling. That would 

create an unnecessary burden and require nongovernmental entities to make decisions that should be made by law enforcement 

agencies and the court system. 

Thank you for my time. 

[The prepared statement of Mr. Vallandingham can be found on 

page 156 of the appendix.] 

The CHAIRMAN. Before going to the next witness, I would like to 

apologize to the ranking member. Apparently on Tuesday afternoon, at 3:40, we did get an e-mail. I was busy with the markup 

on the Financial Services, but that is no excuse for my not having 

paid attention to this, so I apologize. We did get an e-mail. It was 

late Tuesday afternoon, but it was a request that Treasury, the 

Fed, and the Department of Justice should testify today. Obviously, 

it would have been better if it had come out earlier, in the sense 

that you don’t usually give people 1 day’s notice to testify. But I 

was wrong when I said I had not heard from the ranking member. 

Yes, his staff did send an e-mail on Tuesday afternoon at 3:40 asking for those witnesses, so I apologize for my comments. 

Mr. BACHUS. Mr. Chairman? 

The CHAIRMAN. Yes. 

Mr. BACHUS. Let me say this. What that e-mail says is that we 

want to again reiterate that we hope for them to testify. 

The CHAIRMAN. I understand that, but I had no previous 

iteration. 

Mr. BACHUS. Right. And I will say this. I think what maybe we 

can both agree on is that the Treasury and the Fed at some later 

9 

date will come and testify. I think that would be a solution we 

could both agree with. 

The CHAIRMAN. I agree, because they have postponed this for 6 

months, and we will be having a legislative hearing later on as well 

on—we are having one now, but we will. I got the reiteration, I 

didn’t get the iteration, but I will accept it. 

Mr. BACHUS. Thank you. As long as in the next few months, the 

Treasury and the Fed do come up. 

The CHAIRMAN. Let me just say, from my standpoint, the Federal 

Reserve gave one of the best cases against this whole operation I 

have ever heard, so I certainly have no hesitancy in having the 

Federal Reserve repeat that performance. 

Mr. BACHUS. Right. 

The CHAIRMAN. Or reiterate it to you. 

Mr. BACHUS. Thank you. I appreciate it. 

The CHAIRMAN. All right. We will now go back into the regular 

order. Next, we will hear from the Honorable Robert Martin, who 

is tribal chairman of the Morongo Band of Mission Indians. 

STATEMENT OF THE HONORABLE ROBERT MARTIN, TRIBAL 

CHAIRMAN, MORONGO BAND OF MISSION INDIANS 

Mr. MARTIN. Mr. Chairman and members of the committee, 

thank you for providing us with this opportunity to comment on 

H.R. 2266 and H.R. 2267. I ask that my written testimony be made 

a part of the record. 

The CHAIRMAN. Without objection. And we have other statements 

that have been submitted both through the Majority and the Minority, and they will all be made part of the record, so please go 

ahead. 

Mr. MARTIN. My name is Robert Martin, and I am the tribal 

chairman of the Morongo Band of Mission Indians in Riverside 

County, California. I am speaking today on behalf of the members 

of my tribe, my tribal government, and the thousands of people we 

employ. Morongo is a federally recognized Indian tribe comprised 

of about 1,000 members, half of whom live on our 37,000-acre reservation located at the foot of the San Gorgonio Mountains between 

Los Angeles and Palm Springs. 

H.R. 2266 proposes a safe harbor for those currently engaged in 

illegal online gaming from the regulations mandated by the Unlawful Internet Gambling Enforcement Act for 1 year or until H.R. 

2267 can be enacted. H.R. 2267 would authorize and create a licensing regime for the use of the Internet for various forms of online gambling and provides for the regulation of those games. 

We are here today to ask why Congress would want to protect 

foreign illegal operators to the detriment of existing American jobs. 

In summary, we stand in opposition to these bills because the legislation will do nothing but legalize offshore gaming at the expense 

of American jobs. 

The Indian Gaming Regulatory Act of 1988 was enacted to assist 

tribes in the development of reservation jobs. Under the 1988 law, 

tribes were restricted to offer gaming only from Indian lands, and 

enactment of the legislation being considered today will place us at 

a competitive disadvantage relative to all other nongaming interests and current law. The Unlawful Internet Gaming Enforcement 

10 

Act provides a constructive pathway for those who wish to offer 

Internet gaming on a State-by-State basis, and that law should be 

given time to become effective in its own right. 

Mr. Chairman, I am also troubled by the fact that the Treasury 

Department has now granted a 6-month reprieve from the implementation of the 2006 Unlawful Internet Gaming Enforcement Act. 

In a memorandum signed by President Obama on November 5, 

2009, the President declared his commitment to fulfilling the consultation requirement of Executive Order 13175, a directive originally issued by President Clinton on November 6, 2000. Executive 

Order 13175 calls for regular meaningful consultation in collaboration with tribal officials in the development of Federal policy. 

Tribes were not consulted on this extension of our interest in the 

law and were not considered. Jobs are being lost, and capital is 

fleeing our shores every day that the 2000 Act fails to be enforced. Tribes generated $25.9 billion in gross gaming revenues. Tribes also produced another $3.2 billion in gross revenues from related 

resorts, hotels, restaurants, and other lodging or restaurant 

venues. Tribal gaming has created more than 600,000 jobs nationwide. Tribal gaming has delivered $8 billion in Federal taxes and 

saved the government millions more in unemployment and welfare 

payments. 

We have invested in our operations because we have been encouraged by the U.S. Government to do so. By following the law, 

we are now facing unfair competition as a result of the threats of 

these bills. Please allow the current regulatory scheme to work and 

protect that which we have so carefully built. 

Thank you for your consideration of our concerns. 

[The prepared statement of Mr. Martin can be found on page 49 

of the appendix.] 

The CHAIRMAN. Next, is Ms. Parry Aftab, who is executive director of WiredSafety. 

STATEMENT OF PARRY AFTAB, EXECUTIVE DIRECTOR, 

WIREDSAFETY 

Ms. AFTAB. Thank you, Chairman Frank, Ranking Member 

Bachus, and members of the House Committee on Financial Services for giving me the opportunity to testify here today. 

It is interesting as I have heard both opening statements, we 

agree at WiredSafety that children need to be protected. All of us 

are unpaid volunteers in a grassroots organization that is the 

world’s largest and oldest Internet safety organization. I have 

about 16,000 volunteers in 76 countries around the world. We care 

desperately about the issues here. We act as an Internet safety organization and a help group dealing with all digital risks, all demographics and all digital technologies. We were appointed as one of 

the 29 members of the Internet Safety Technical Task Force that 

was run by the Berkman Center at Harvard, and appointed to 

issue a report to 49 of the 50 States attorneys general, and I was 

recently appointed as one of the 24 members of the NTIA working 

group on online safety that was commissioned to render a report 

to Congress in June of this coming year on child safety issues. We 

advise local and Federal and State and international governmental 

agencies and nonprofits. 

11 

Personally, I am an Internet privacy and security lawyer, but I 

haven’t practiced law in a long time since creating the charity and 

donating my time to running it. In 1997, almost 13 years ago, I 

wrote the very first book on Internet safety for parents called, ‘‘The 

Parents Guide to the Internet.’’ My mother made me do it. It contained a chapter that dealt with online gambling. It was called, 

‘‘Are We Raising Riverboat Gamblers?’’ 

Three-and-a-half years after the launch of the Web, we recognized that online gambling was a problem, something parents 

didn’t understand and weren’t sure how to deal with. In 1999, I 

wrote, ‘‘The Parents Guide to Protecting Your Children in Cyberspace’’ for McGraw-Hill that also contained a chapter, and it was 

replicated around the world as the book was rewritten and published in various jurisdictions. 

Most people are aware of the moral arguments against gambling. 

A lot of people are aware of the regulatory and legal issues. Few 

of them understand that this really is a consumer protection problem. That is why I am at this table today. I have been following 

online gaming issues for a very long time. They affect not only children and parents, but there are people who are problem gamblers 

of all ages. We also have senior citizens who get online and may 

be scammed by rogue sites which take their money and make them 

promises and never pay on those bets. And I get e-mails; I get 

about 1,000 e-mails a day from people who come to us for help, and 

many of those are relating to online gambling. 

Now, it is particularly interesting, and I call it ironic, that I am 

sitting here today saying that the only way to protect consumers 

from online gambling risks is by legalizing it. And I never thought 

I would ever say such a thing. But if we don’t legalize it, we can’t 

regulate it. And what I am finding now is that we are acting a bit 

like the ‘‘hear no evil, see no evil,’’ and we have taken an approach 

that the only way to address online gambling, illegal online gambling, is by regulating the money systems, the financial systems. 

And I think that is an important piece of an entire puzzle, but the 

other pieces aren’t there yet. 

I think we need to both approach this from a holistic approach. 

We need to educate parents. We need to provide security software 

tools and parental control tools that are out there. Other countries 

are doing that. We need to make sure that if online gambling sites 

are regulated and licensed, we know who they are, we know who 

is behind them. We can look to a lot of the brick-and-mortar regulatory schemes for making sure that we are dealing with trustworthy people, and their books are open so we know what money 

they are taking in and what money they are paying out to make 

sure that their processes are in place. 

We can make sure that we teach the people who are gambling 

on these sites who are adults that use the latest technology to keep 

out everyone but adults. That means there may be some adults 

who aren’t going to pass those screening tests, but it is a multilayer approach. And this technology has changed dramatically 

since the Children OnLine Protection Act case was first determined 

almost 3 years ago. 

There are lots of different systems that you can put in place 

which, when combined, will keep most of the kids out. Are they 

12 

going to be able to keep a kid out if their father has opened up 

their online gambling account and forgot to close it off? Probably 

not, unless we put a system in place that closes that after the end 

of 15 minutes. Nothing is perfect, but whatever we do is better 

than what we have now. 

We need to make sure that these sites are also using the latest 

methods to keep out malware and spyware, and that they are protecting our data and the personal information that is being given 

to them. 

I do not advocate gambling anywhere; I advocate the protection 

of consumers and families and children. Representative Bachus and 

I are in full alignment, and I have many volunteers in his jurisdiction. We spend a great deal of time protecting children. As a citizen 

and a taxpayer, I would like us to have tax, but that is not why 

I am here. I think that we can put something together if we take 

the great minds in this room and outside and come together with 

something that will be a holistic approach and will look to the rest. 

I thought these things would work. I have been working in this 

area for a long time trying to come up with practical approaches, 

but rather than putting my opinion out there, we commissioned a 

study. It was indeed paid for by gaming interests, but very carefully done so that no one controlled the results. I didn’t, and neither did they. And we turned to one of the most respected law enforcement officials and academics at the JFK Center at Harvard 

and asked him to look at existing regulatory schemes and look at 

all of the 10 risks that we identified and see if there is something 

outside of what I thought would work to put this together. You will 

be hearing from Mr. Sparrow shortly, and he can address those. 

But I think, if working together, we can address these issues, all 

of our common concerns. We can make a difference. And perhaps 

the law that exists right now is an important part of that. I can’t 

opine as to that. I can only tell you we need to do something, because whatever we have right now isn’t enough. 

[The prepared statement of Ms. Aftab can be found on page 35 

of the appendix.] 

Mrs. MALONEY. [presiding] Thank you very much for your testimony today. 

Next, Professor Malcolm Sparrow. 

STATEMENT OF MALCOLM K. SPARROW, PROFESSOR, JOHN F. 

KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY 

Mr. SPARROW. Thank you, Chairman Frank, Ranking Member 

Bachus, and distinguished members of the House Committee on Financial Services. My name is Malcolm Sparrow. I teach regulatory 

and enforcement policy and operational risk control mostly to government regulators at Harvard’s John F. Kennedy School of Government. My background is in regulatory policy and practice rather 

than in any extensive prior knowledge of the gaming industry or 

gambling behavior per se. 

Parry Aftab has described the genesis of the report, and I think 

it is available to committee members, released yesterday. I think 

I should spend just a few minutes saying what the report does and 

what it does not attempt to do. 

13 

Our analysis did not directly address whether online gambling 

should be legalized. In focusing on managing risks associated with 

gambling, we did not weigh moral arguments or religious objections, nor did we examine broadly libertarian arguments in favor 

of allowing adults to engage in pastimes that they may enjoy. Instead we concentrated more narrowly on the obligations of government to protect citizens in general and vulnerable groups of citizens in particular from any unnecessary exposure to harm. We 

sought to: first, identify the specific risks that are associated with 

or perceived to be associated with Internet gambling; second, determine what kinds of regulatory strategies would best control or 

manage those risks; and third, determine what we could say in advance about how effective such strategies might be. 

If you have a copy of my written testimony, the list of 10 appears 

on page 3. I won’t run through it now. It also appears in table 1 

at the back of the testimony, where it makes some comparison between current protections and potential protections under a legalized and regulated regime. As Mr. Bachus commented, $6 billion is currently spent by U.S. 

residents gambling abroad at the moment. The status quo produces 

a situation where many U.S. residents use online gambling services 

despite existing statutory restrictions. The share of the U.S. global 

market is estimated to be between one-third and one-quarter of the 

global trade. 

The net effect of the attempts to prohibit online gambling has instead pushed gambling offshore. Sites are readily available to U.S. 

residents through the essentially borderless medium of the Internet. Some of the foreign sites are well-regulated, such as those 

based in the United Kingdom, Alderney and Gibraltar. And others 

are less well-regulated or completely unregulated, such as those in 

Antigua, Grenada or the Kahnawake Mohawk territory, Canada. 

As a result of the global gaming industry’s adaptations to existing U.S. strategy, the United States finds itself in this position: 

The United States incurs all of the social costs related to U.S. residents gambling online. The United States exercises no jurisdictional control over the gaming sites that serve U.S. residents. The 

United States is unable to offer its own residents who choose to 

gamble on overseas sites any consumer protections or to implement 

any other harm-reducing strategies. And the United States is not 

able to qualify industry participants or even to exclude organized 

criminal groups from competing for the business of U.S.-based customers. 

The net conclusion of this report is that legalization with regulation would provide U.S. authorities the power to grant or deny licenses and to impose significant sanctions on non-compliant licensees. Such licenses would be extremely valuable to site operators. 

Compliance with any regulatory requirements and strict licensing 

conditions that Congress chooses to impose in return for the privilege of a license would therefore become a core business imperative 

for the gaming industry. I have examined the proposed legislation 

and believe it provides an adequate framework within which necessary safeguards could be designed and implemented. 

If the United States decides to legalize and regulate online gambling sites, we would expect that most U.S. resident gamblers 

14 

would be diverted eventually from overseas sites towards reputable 

and trusted domestic operators. In the long run, reputable gambling operations under American control should come to dominate 

online gambling opportunities selected by U.S. residents. And if 

that happens, all categories of risk would be better controlled than 

they are at present, and I believe that U.S. consumers would be 

better protected. 

I am happy to assist the committee in any way that I can. Thank 

you, Mr. Chairman, for the opportunity. 

[The prepared statement of Mr. Sparrow can be found on page 

53 of the appendix.] 

The CHAIRMAN. Thank you. 

Next is Keith Whyte, who is executive director of the National 

Council on Problem Gambling. 

STATEMENT OF KEITH S. WHYTE, EXECUTIVE DIRECTOR, 

NATIONAL COUNCIL ON PROBLEM GAMBLING (NCPG) 

Mr. WHYTE. Chairman Frank, Ranking Member Bachus, and 

members of the committee, thank you for the opportunity to testify 

on these bills. 

The National Council on Problem Gambling is the national advocate for programs and services to assist problem gamblers and 

their families. As the advocate for problem gamblers, NCPG does 

not take a position for or against legalized gambling, but concentrates on the goal of helping those with gambling problems. We 

were founded in 1972 and have a 37-year history of independence 

and neutrality that makes the National Council on Problem Gambling the most objective and incredible voice on problem gambling 

issues. We are a 501(c)(3) not-for-profit corporation, and we do not 

accept any restrictions on our contributions. 

The National Council on Problem Gambling neither supports nor 

opposes H.R. 2266 or H.R. 2267. My purpose here today is to provide a broader perspective on problem gambling to assist the committee in its consideration of these matters, as problem gambling 

frequently comes up in the discussions of both proponents and opponents of the legislation. 

Problem gambling is an important public health disorder characterized by increasing preoccupation with and loss of control over 

gambling, restlessness or irritability when attempting to stop gambling, and/or continued gambling despite serious negative consequences. Approximately 2 million adults, which is 1 percent of 

the population, meet criteria for pathological gambling in a given 

year. An additional 4 to 6 million adults, another 2 to 3 percent, 

plus 500,000 youth between the ages of 12 to 17 show less severe 

but still serious symptoms of a gambling problem in a given year. 

The estimated social cost to families and communities from gambling-related bankruptcy, divorce, crime, and job loss was almost 

$7 billion last year. Problem gamblers also have high rates of other 

health problems and disorders. But regardless of the legality of 

Internet gambling, millions of Americans today right now are experiencing gambling problems devastating themselves, their families, 

and their communities. 

The only research information we have on Internet gambling 

shows that Internet gambling in the United States, Canada, and 

15 

the United Kingdom has the lowest participation rates of any form 

of gambling, whether legal or illegal. 

Internet gamblers are also extremely likely to gamble in multiple 

traditional forms, if you will, to the extent that it appears that 

Internet gambling is an add-on for people already involved in gambling. Internet gamblers who spend significant amounts of time 

and money, while relatively rare, are, of course, more likely to meet 

problem gambling criteria. 

While participation in Internet gambling by U.S. residents appeared to decline after the passage of the Unlawful Internet Gambling Enforcement Act, UIGEA, we did not see a decrease in indicators of gambling problems, such as helpline calls. If you will refer 

to my written testimony, we have a chart of the last 10 years of 

helpline calls to the national helpline number, which is the largest 

problem gambling helpline in the world. There are a number of 

possible explanations, of course, for the continued rise in these statistics, including the fact that our timeframe is too short to see 

what impact UIGEA may or may not have had on rates of problem 

gambling in the United States or rates of help-seeking for problem 

gambling in the United States. 

It is likely that individuals with gambling problems will find the 

Internet attractive for pursuing their addiction. Risk factors for 

gambling problems on the Internet include high speed of play, perceived anonymity, social isolation, and, of course, the use of credit 

or noncash means to finance the gambling, as well as the 24-hour 

access. However, it is important to note many of these factors can 

also be found in more traditional forms of gambling. These factors 

are mutable and are not specific to any one form of gambling or 

one delivery system of gambling. 

The graphical interactive structure of the Internet provides an 

opportunity to create informed consumers with access to a variety 

of information designed to encourage safe choices and to discourage 

unsafe behavior. The technology also exists to allow players and operators to set limits on time wagers, deposits, as well as to exclude 

themselves. These programs can be improved by utilizing the data 

collected by these Web sites to develop profiles of general online 

wager and behavior. 

We urge the committee to add language to require operators as 

a condition of licensure to provide public access to de-identified 

data on player behavior for research purposes. It is important in 

that the gambling regulation is only a small part of a comprehensive solution for underage and problem gambling. A comprehensive 

solution would, of course, include funded programs for prevention, 

education, treatment, enforcement, and research to effectively address the mental health disorder problem gambling. It is regrettable that H.R. 2267 does not contain any funding for such programs. 

We call the committee’s attention to H.R. 2906, the Comprehensive Problem Gambling Act of 2009, which would amend the Public 

Health Service Act to authorize Federal health agencies to address 

problem gambling and would appropriate a total of $71 million over 

5 years for competitive grants to States, tribes, universities, and 

nonprofit organizations for the prevention, treatment, and research 

of problem gambling. We appreciate that Chairman Frank and sevVerDate Nov 24 2008 17:14 May 13, 2010 Jkt 056235 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\56235.TXT TERRIE
16 

eral committee members are cosponsors of the bill, and urge all 

Members to support this groundbreaking legislation as—because, 

as Ranking Member Bachus said, problem gambling is a problem 

for us all. 

There is not a single cent of Federal money that is dedicated to 

the prevention, education, treatment, enforcement or research of 

problem gambling. We believe the most ethical and effective response to problem gambling issues raised by gambling and by 

Internet gambling regardless of the legality is a comprehensive 

public health approach. Problem gambling, like other diseases of 

addiction, will likely never be eliminated, but we can and must 

make better efforts to minimize and mitigate the damage. 

Chairman Frank and members of the committee, thank you for 

the opportunity to testify. 

[The prepared statement of Mr. Whyte can be found on page 163 

of the appendix.] 

The CHAIRMAN. Thank you. 

Next is Jim Dowling, who is representing the Dowling Advisory 

Group. 

STATEMENT OF JAMES F. DOWLING, PRESIDENT AND 

MANAGING DIRECTOR, DOWLING ADVISORY GROUP 

Mr. DOWLING. Good morning. I would like to thank Chairman 

Frank and Ranking Member Bachus for the opportunity to come 

testify here today. My name is Jim Dowling, and I have dedicated 

my entire adult professional life to fighting fraud and anti-money 

laundering and now terrorism financing. 

As a special agent with the Criminal Investigation Division of 

the Internal Revenue Service, I conducted numerous complex fraud 

and money laundering investigations. As an undercover agent, I infiltrated criminal organizations that were laundering money in an 

attempt to take them down and dismantle them. 

Later, as the anti-money laundering advisor to the White House 

Drug Policy Office, I provided anti-money laundering advice to 

ONDCP, Federal law enforcement agencies, Federal regulators, 

and the Intelligence Community. After retiring from government 

service, I now work with financial institutions and casinos to help 

them improve their anti-money laundering and anti-terrorism programs, along with those of casinos and financial institutions. 

I come here today as neither a friend nor a foe of the current legislation pending before this committee. I am here to talk about 

some of the perils from both fraud and anti-money laundering and 

terrorism financing here. 

Under the Unlawful Internet Gaming Enforcement Act, the burden placed upon financial institutions to identify and stop and 

block transactions relating to online gaming associations places 

them in a difficult position. It makes them become the law enforcement agency, and at times, the judge and jury as to what they are 

going to be doing there. 

I understand the reluctance of the Department of Justice to provide them with such a list which would, in effect, be out-of-date as 

soon as that list is published. And that is one of the perils that we 

have regarding Internet gaming. 

17 

As you can see from my written comments on this matter, there 

are wildly exaggerated figures on one side and down to some more 

conservative figures as to how much is involved in Internet gaming. The reason that those figures vary so widely is because it is 

right now illegal and people are reluctant to tell you how much 

they are making. But nonetheless, it is safe to say that there are 

billions of dollars at stake here. 

If you take a look at some of the advisories that have come out 

from the Financial Action Task Force, also known as FATF, it is 

recognized as the global leader and benchmark for all of the governments in the world to identify fraud, money laundering, and terrorism financing. FATF has issued three advisories relating to the 

perils and pitfalls of not only Internet gaming, but gaming in particular in the threats for money laundering and terrorism financing. 

If you look at some of the specifics that they mention in that report, they identify some of the challenges that would be met by 

someone trying to regulate Internet gaming. And some of those 

challenges, I would have to say, are rather significant. 

In addition to that, several years ago, the GAO presented a report to this very committee which talked about the challenges in 

trying to regulate an online gaming industry. Some of those challenges still exist today, but have only become exacerbated because 

of the advances in technology and the perils that would be caused 

because of that. 

In addition to that, FinCEN has recently issued an advisory regarding land-based casinos and some of the challenges that are 

faced there and some of the money laundering threats that would 

come from there. 

If you take a look at land-based casinos, whether they are tribal 

or other types of casinos, they have very good policies and procedures in place regarding customer identification programs which is 

required under 31 CFR Part 103. 

If you take a look at some of those things that casinos do now, 

they have very sophisticated electronic systems that help them 

identify people who are actually conducting the gaming in their institution. That is supplemented by actual foot surveillance that is 

in casinos. And that is usually backed up by a strong compliance 

department which does transactional monitoring to determine what 

the particular gamblers are doing there. 

Supplementing all of those systems is an independent State regulatory agency that each casino has, whether it is tribal or other, 

and those individuals are on the casino floor 24-hours-a-day, 7- 

days-a-week, 365-days-a-year to supplement what the casino’s 

doing to prevent money laundering, terrorism financing, and fraud 

issues in their casinos. This is something that casinos on the Internet would not be allowed to do and could not possibly do. 

If you take a look at the fact that a casino could not do proper 

customer identification and to make a valid determination as to 

who was actually doing the transaction, who is actually doing the 

gambling, it is impossible also for them to conduct an OFAC check, 

which as we know is something that we need to pay particular attention to here in the United States. 

And then the other issue about this— 

18 

The CHAIRMAN. Mr. Dowling, you are over your time, so could 

you wrap it up, please? 

Mr. DOWLING. —would be the regulator being able to regulate 

foreign companies. I would like to thank the committee for the opportunity to testify here today, thank you. 

The CHAIRMAN. Thank you, we can explore those issues further 

in the questions. 

[The prepared statement of Mr. Dowling can be found on page 

44 of the appendix.] 

The CHAIRMAN. Finally, Mr. Michael Brodsky. 

STATEMENT OF MICHAEL BRODSKY, EXECUTIVE CHAIRMAN, 

YOUBET.COM 

Mr. BRODSKY. Good morning, Mr. Chairman, Ranking Member 

Bachus, and members of the committee. My name is Michael 

Brodsky, and I am the executive chairman of Youbet.com. We are 

one the largest legal online wagering companies in the United 

States. Our company operates under the Internet Horse Racing Act 

of 1978, and we only accept wagers on parimutuel horse races. I 

should also note that 2 weeks ago, Youbet and Churchill Downs, 

owner of the Kentucky Derby, announced that Churchill would acquire Youbet, but that deal has not yet closed. I am appearing here 

today solely on been behalf of Youbet.com. 

In my testimony today, I will address the scope and scale of current illegal Internet gambling, discuss why I believe legalization is 

the only plausible solution to this problem, and how technology 

that exists today can be utilized to successfully regulate online 

gambling. But first, Mr. Chairman, I want to thank you for your 

strong support of a rational approach to legalize Internet gambling 

and for holding this hearing today. 

I have long admired your stance on this issue, Mr. Chairman, because you have accurately described it as a question of personal 

freedom and of common sense. You need only look at lottery sales, 

bingo halls, charitable gaming festivals, and parimutuel and casino 

gambling facilities throughout the country to see that legal forms 

of ‘‘brick and mortar’’ wagering are established, accepted, and regulated in our country. Why should most forms of online wagering be 

illegal? 

Illegal Internet gambling in the United States is happening now 

and it is growing. It is a big business involving billions of dollars 

a year, and with the exception of parimutuel horse racing, U.S. 

Internet gambling is all underground, it is untaxed, and it is unregulated. These billions upon billions of dollars are leaving our 

country, totally untaxed with U.S. regulatory authorities having no 

control or knowledge of where their money is going. 

Today’s illegal online gambling is a ‘‘wild west’’ affair. No meaningful curbs on underage gambling, no recourse for misdirected 

funds, no attempts to aid problem gamblers and no tax revenues 

for the United States. As with prohibition, illegal online gambling 

is thriving as an underground economy. The vast majority of the 

people who gamble online are law abiding citizens who want to 

wager on a system that has integrity and security. The only way 

to put any controls on Internet gambling is to legalize it and regulate it. 

19 

At Youbet, we are first and foremost technology people. We understand how to run an E-commerce business, what works and 

what doesn’t. And let’s be clear about this, in this Internet age, trying to maintain a U.S. ban on Internet gambling is a losing proposition. It is virtually impossible to slow it down, much less stop it. 

Other members of our Youbet senior team and I have been executives at leading edge technology companies such as Orbitz, 

Ticketmaster, CareerBuilder and Network Solutions. And we understand how technology can be used to safeguard consumers. 

I understand the concerns about underage gambling. As a parent, I want to see online gambling legalized. Why? Because I want 

it managed. As a society, we can make Internet gambling operators 

subject to U.S. supervision, holding operators accountable. The fact 

is that enacting H.R. 2667 is the most effective way to achieve the 

stated goals of the some of the bill’s harshest critics. 

Today’s out of control Internet gambling situation was made possible by the revolution of technology and it will take technology to 

fix it. Today at Youbet, we use technology that would ensure effective regulation of Internet gambling. The already-existing, totally 

legal, online parimutuel horse racing wagering industry is a U.S.- 

based model of how to provide a responsible, online wagering experience for adults, one that is clean, regulated, and scrupulous about 

both collecting and paying taxes. Youbet.com is a public SarbanesOxley-compliant company that uses the latest technology and vigorously maintains its own Youbet responsible wagering program that 

we have developed over the past 13 years. 

It is designed to prevent underage gambling and to combat problem wagering. This technology enables us to conform to all Federal 

laws and the laws of those States in which we operate, including 

meeting all tax withholding and reporting requirements. 

Regarding money laundering, the proposed legislation has strict 

requirements in order to gain and keep a license. All companies 

will need to have a robust system in place to combat this money 

laundering. Existing technology would allow operators to track and 

monitor for it and licensees would work closely with Federal authorities to combat it. Operators have a tremendous incentive to 

fight vigorously against money laundering, because consumers will 

strongly prefer to do business only with companies they trust, ones 

with safe and secure systems. As an operator, we would run a 

great risk of destroying our own business if there is the slightest 

perception that our systems lack this integrity. I would also add 

that in today’s offshore unregulated world, there is little incentive 

on the part of current illegal operators to detect and deal with 

money laundering. 

The CHAIRMAN. Your time is running out. 

Mr. BRODSKY. Mr. Chairman, Congress today faces a stark either/or public policy choice. We can either legalize and regulate online gambling or allow it to continue to flourish in an offshore black 

market that allows easy access. Thank you for the opportunity to 

testify today, and I look forward to answering any questions. 

[The prepared statement of Mr. Brodsky can be found on page 

39 of the appendix.] 

The CHAIRMAN. I will begin the questioning. 

20 

Mr. Martin, I understand your concern about discrimination and 

let me say that my intention would be, if we do this, to remove any 

restrictions so that if there is an opportunity there, you could be 

fully involved. Now I understand that might involve the Indian 

Gaming Act, which we don’t have jurisdiction over, but it would be 

my intention to work to do that. As I understand it, and as I read 

what the tribe is trying to do, you are not opposed to Internet gambling, you are opposed to a situation in which you are at a competitive disadvantage to others; is that correct? 

Mr. MARTIN. Yes, that is correct. 

The CHAIRMAN. I appreciate that, because the criticisms that 

have been made of Internet gambling, obviously you don’t agree 

with them, in fact, the tribe would like to do Internet gambling and 

I think that is right. So I will just tell you that there is certainly 

nothing conscious in our legislation to discriminate against you. I 

gather it is the effect of existing legislation that might do that, and 

I would work very hard to try and deal with that. 

And I know there are people who deal with the matters of the 

tribes—Congressman Kildee, who is a great friend, and others who 

would be sympathetic. So I would undertake to work them to say 

that whatever was allowed was allowed for you as well as for anybody else. No objection. 

Mr. MARTIN. But that does affect the job issues. 

The CHAIRMAN. If you are able to participate, you want to be able 

to do it and have nobody else do it, is that the issue? 

Mr. MARTIN. Well, no. Our concern is jobs being shipped overseas 

or off the shores. 

The CHAIRMAN. So you have no objection to Internet gambling, 

in fact, you would like to be involved in Internet gambling, the 

tribe would, correct? I gather the tribe has been working to try to 

get Internet gambling made legal. 

Mr. MARTIN. Yes, that is correct in certain forms, yes. 

The CHAIRMAN. So the question is the anti-competitive effect. 

And there was always this issue of whether we can do something 

in a way that—the jobs impact, I agree, is a separate question, but 

I did want to make clear there was no objection to Internet gambling. 

Let me just go down to the question of other legislation. Mr. 

Whyte, there is nothing in this bill that provides funding because 

we don’t have the jurisdiction to provide funding. I am a cosponsor 

of the bill that you mentioned that Mr. Moran of Virginia supports 

and we would be supportive of doing that. Let me ask you, one of 

the problems that people in the banking industry have told us is 

Mr. Brodsky talked about horse racing, and there appears to be a 

difference of opinion as to the extent to which betting on horses 

would be or wouldn’t be covered. Does anyone here have any opinion on what the state of the law is and whether that needs to be 

clarified? 

Let me ask Mr. Vallandingham: Are the banks that you are representing here today clear on what would or would not be prohibited if the law is allowed to take effect? 

Mr. VALLANDINGHAM. In all honestly, in response, Chairman 

Frank, right now we would have the responsibility of determining 

what is legal and what is illegal. If you— 

21 

The CHAIRMAN. What about horse racing and betting on horses, 

is that in your—in the view of the people advising you, is that legal 

or illegal? I gather you can get different opinions depending on 

which Federal agency— 

Mr. VALLANDINGHAM. We do. In the 2006 testimony that I participated in, DOJ said it was illegal. I have no reason to believe 

that it is not legal. But with the license— 

The CHAIRMAN. The Department of Justice said it was illegal? 

Mr. VALLANDINGHAM. At the time, yes. 

The CHAIRMAN. Nothing has been done to change that since then. 

Mr. VALLANDINGHAM. Correct. With the licensing scenario where 

the Treasury would be responsible for deeming who is licensed and 

who isn’t licensed, that takes the onus off the financial institution, 

because we could simply say, you either have a license and we will 

open an account for you or we won’t. 

The CHAIRMAN. Let me ask Mr. Brodsky, we were told Treasury 

said one thing, and Justice said another about the law. To tell private citizens they have to carry out the law when the Federal agencies can’t tell them what it says seems to be a problem. How does 

that affect your operation? 

Mr. BRODSKY. Well, certainly the confusion associated with 

whether or not what we are engaged in is legal adds to the complication of our conducting our business. I will tell you that 88 percent of all the wagers placed on parimutuel handling in the United 

States are transmitted across State lines electronically. 

The CHAIRMAN. And that is illegal according to the Department 

of Justice? 

Mr. BRODSKY. Assuming that interpretation is correct. 

The CHAIRMAN. Well, that is what the Department of Justice 

says. 

Mr. BRODSKY. Eighty-eight percent of the entire parimutuel industry is conducted electronically across State lines. 

The CHAIRMAN. Well, let me say, that is another reason why I 

don’t like the whole wall, but for domain and regulations to impose 

regulations for financial institutions, when that fundamental uncertainty hangs over them, in and of itself, that is the reason for 

the delay. The gentleman from Alabama. 

Mr. BACHUS. Ms. Aftab, you commissioned the study, your organization, and then Professor Sparrow, you conducted the research? 

Mr. SPARROW. Yes, I was part of a team pulled together by the 

Brattle Group who took the job from WiredSafety. 

Mr. BACHUS. Who paid for the study? Did your organization pay 

for it, Ms. Aftab? 

Ms. AFTAB. WiredSafety paid for it and that was funded by the 

Poker Players Association of America and Harris, it was a passthrough direct cost. 

Mr. BACHUS. So the gambling industry paid for the study? 

Ms. AFTAB. They made a donation to WiredSafety and we paid 

for the study, but yes. Also the retain agreement with Brattle 

Group was very clear that there was no influence that was to be 

made by the people funding it. 

Mr. BACHUS. No, no, no, I am just saying that it was paid for by 

the gambling industry. 

22 

Ms. AFTAB. It absolutely was. But our position on this—oh, I am 

sorry. 

Mr. BACHUS. Some of what you concluded, I am looking at a 

study conducted and I am going to introduce it for the record, this 

is a letter I received December 2, 2009, from a coalition of researchers at the University of Illinois, the University of South Carolina, 

Notre Dame, Iowa State, the University of Nevada, Emory University, Baylor, and the University of Pennsylvania, and others and 

they make these conclusions, Professor Sparrow, and I just want to 

know if you would agree with them. This was part of the United 

States international gambling report. 

Are you familiar with that study? Some of their conclusions I am 

going to go with their subtitle conclusions, number 1, new addicted 

pathological gamblers and problem gamblers caused by decriminalizing Internet gambling. The percentages for teens and young 

adults has increased by 200 percent. Do you agree with that? Or 

do you think they were wrong in their conclusion? 

Mr. SPARROW. I don’t have any data either to support or refute 

specific figures of that kind. The experts on gambling addiction 

that we interviewed have reported that addictive gambling rates 

have been holding roughly steady at 1 percent not only in the 

United States, but abroad for quite a long time. 

Mr. BACHUS. I think that Annenberg also said that since of passage of our 2006 Act, that is when they leveled out, right? 

Mr. SPARROW. Well, I believe, I don’t have the reports with me, 

but if I recall, there was a dip shortly after the passage of that. 

Mr. BACHUS. So what we passed did cause a dip? 

Mr. SPARROW. It was in the public mind for a while, and then 

I believe it came back up again. 

Mr. BACHUS. It did, in fact, come back up when the Treasury is 

not enforcing it. Let me say this, number 2, the second conclusion, 

gambling addiction is the fastest growing addiction among young 

people. Do you, Ms. Aftab or Mr. Sparrow or Mr. Whyte, do you 

think this was a correct assumption by that universities? 

Ms. AFTAB. I think Mr. Whyte is probably the best one to address 

that. I am not an expert in other types of addiction. 

Mr. WHYTE. Thank you, we do believe that gambling addiction is 

growing among young people and adults, although the rate still 

seems to be at roughly 5 percent of kids between 12 and 17 would 

meet criteria for at least one gambling problem in a given year. 

Again, the research we have to date seems to show that rate, while 

it does seem to be trending upwards, is still within the same 5 percent rate. It is a serious concern. 

Mr. BACHUS. Right. Now I notice you are the National Council 

for Problem Gambling. 

Mr. WHYTE. Yes, sir. 

Mr. BACHUS. And I think that Harrah’s provided you with your 

initial funding for your online council counseling services; is that 

right? 

Mr. WHYTE. I am not entirely sure. Harrah’s is one of our corporate members, yes. 

Mr. BACHUS. And on their Web site, they talk about how they are 

one of your chief benefactors. 

23 

Mr. WHYTE. They give us $5,000 a year, but yes, you are correct, 

they are certainly a long-term corporate member. 

Mr. BACHUS. Let me ask you this, Internet gambling activities 

exemplify the most dangerous aspects of gambling. Would you 

agree with that? 

Mr. WHYTE. Yes, we think that some of the features of Internet 

gambling, as I mentioned in my testimony, such as a high rate of 

play, use of credit or non-cash, 24-hour access, perceived anonymity, and social isolation are risk factors that are known in the gambling literature in general to be associated with problem gambling. 

Mr. BACHUS. If I could say one final thing. One of their other five 

conclusions was increased legalized gambling increases suicide by 

creating new gambling addicts among adults, young adults and 

teenagers. Is that consistent with what you found? 

Mr. WHYTE. Respectfully, there are many drivers of the suicide 

rates. We have never found a correlation on a national level. On 

an individual level, pathological gamblers are much more likely 

than others to consider and commit suicidal behavior. However, 

they are a small percentage of the population. It is hard to see 

their impact on national suicide rates, which vary greatly by many 

factors. So problem gamblers certainly have major suicidal concerns. 

Mr. BACHUS. Thank you. 

The CHAIRMAN. The gentleman from Kansas. 

Mr. BACHUS. Mr. Chairman, I ask unanimous consent to submit 

items for the record. 

The CHAIRMAN. Without objection, it is so ordered. 

Mr. MOORE OF KANSAS. Ms. Aftab, I note that what you said on 

page 2 of your written testimony, ‘‘After more than a decade analyzing the risks posed by unregulated Internet gambling it may be 

ironic, but I have reached a conclusion that the best way to protect 

the families and consumers in connection with cyber gambling is 

by legalizing it not outlawing it entirely.’’ 

As a former district attorney for 12 years, I know that protecting 

consumers, especially our children, is a top priority for most law 

enforcement officers and I think for people in our country generally. I appreciate your candor. 

Again, I agree with your conclusions, and I think our society is 

very interested in protecting consumers, especially our children, 

however best that can be achieved. It would seem to me that this 

kind of online gambling, given the use of technology and the Internet today will happen, whether we like it or not. Maybe not in this 

country, but in other places around the world. I am not a gambler 

and I really could not care less about gambling; it is not of any interest of to me. But I recognize there are people in this country and 

around the world who do. And if we are able to drive this activity 

into sunlight through a license regime, as the bill drafted by the 

chairman would do, I would think from a law enforcement perspective, we would be better able to keep track of scams and fraudulent 

activities; would you agree or disagree with that? 

Ms. AFTAB. Sir, I am a big fan of the work that you have done 

in law enforcement over the years, and I absolutely agree with you. 

Mr. MOORE OF KANSAS. Thank you. Mr. Vallandingham, thank 

you for your testimony as well. 

24 

Mr. VALLANDINGHAM. Thank you. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. The gentleman from New York. 

Mr. MAFFEI. Thank you, Mr. Chairman. I wanted to just state, 

I have been a cosponsor of this legislation, and I, too, have never 

had any interest particularly in gambling, but it does seem to me 

that some of the difficulties where the gentleman from Alabama’s 

arguments are, not that gambling doesn’t have a lot of destructive 

effects, but what is the solution to that? How do you avoid those 

to the extent possible while still retaining freedom in our society? 

Indeed, we have had experience in our past with banning liquor. 

Certainly, alcohol creates far more destructive effects and yet 

that didn’t work. It wasn’t enforceable and it didn’t work. So now 

we have a system of both selling liquor, it is highly regulated with 

wholesalers, etc., that I also support and think has worked well. 

This is the best analogy I can find to doing the same thing with 

online gambling, bringing it out in the open. 

I did want to ask Mr. Whyte in particular, but anybody who has 

an opinion I would take it. Mr. Whyte, in particular, what are the 

strategies that you would advocate if this were to become law and 

we are able to have these Web sites identify problem gamblers 

sooner? First, how would we identify some of the problem gamblers 

by having this regulation in place? And second, what could we do 

for them? 

Mr. WHYTE. Thank you, Congressman Maffei. I think on your 

first question, how would the regulation be done, it is a little beyond the scope of our experience now, but we would look to the 

United Kingdom, which has had a regulatory system in place for 

a number of years. The rates of problem gambling do not appear 

to have dramatically increased during that time, although there is 

a concern about heavy usage among young males. We would look 

to the United Kingdom’s experience and try to improve upon that, 

but I think the real heart of this and the point of your second question is that there is no public health safety net for problem gamblers right now in the United States. 

There is an immense amount that we need to do right now to 

prevent problem gambling, to educate people who do choose to 

gamble that gambling is an addictive activity, and to treat those 

for whom prevention education does not work. Enforcement is, of 

course, an important part and clearly laws like H.R. 2267 would be 

part of the enforcement efforts. We also need research to close the 

loop and tell us what is working and what is not in the other four 

categories. 

Again, these are principles that are encompassed in H.R. 2906, 

but we would just note that the safety net right now for problem 

gamblers is weak or nonexistent in many States, including New 

York. And whether or not this bill passes, that is where we have 

to start as a public health approach, we have to look at this like 

we look at substance abuse. 

Enforcement plays a role, but prevention, public health, education, and treatment, those are the best ways, especially to prevent youth from developing problems in the first place. 

25 

Ms. AFTAB. And we looked at this in the study, and if Mr. Sparrow would comment a bit, the technology could do a great deal to 

help problem gamblers. 

Mr. SPARROW. If it is useful to you, you will find a section of the 

report, pages 69 through 71, that actually lists a whole different 

set of technologies and approaches that other jurisdictions have 

used and refers to a series of reports that the European Union has 

laid out a set of up to 50 different systems or technologies that can 

be implemented on Web sites to help control it, but the most common ones are links to problem gambling, helplines, and Web sites 

mandated when you enter a site, self-exclusion programs, self-imposed time and money limits and mechanisms to set your own betting limits, rate of loss, etc., etc. 

One of the criticisms of such technologies is that you might have 

to first of all admit that you are a problem gambler before you 

called on any of these for help. But actually many of them can be 

framed without requiring such an admission so that when you first 

register with a site and without any kind of diagnostic or admission required up-front, you can, at that point, set any limits that 

you would choose to apply to all of your sessions. 

Mr. WHYTE. One final note on the identification of problem gamblers, if I may. Internet gambling sites compile a massive amount 

of information. Every interaction is tracked, and these databases 

which are in the billion of transactions now can provide some enormous predictive power for researchers. This is why, following the 

model from the Swiss government, we call on the committee to consider adding a provision that as a condition of licensure, operators 

would make de-identified data publicly available to researchers, because when you comb through billions and billions of records, you 

will find predictive patterns, so you are not relying on the individual, but you are looking at things like time on sites, variation 

in bets, speed between bets. There is almost an unlimited set of parameters that you can apply to over billions of transactions to help 

us develop predictive profiles just as we do with the credit card industry. 

Mr. MAFFEI. Thank you very much. 

Mr. BRODSKY. If I could just add something? 

Mr. MAFFEI. I am out of time, it is up to the chairman. 

The CHAIRMAN. Quickly. 

Mr. BRODSKY. The only comment I would make is we have our 

own real life experience with problem gambling at Youbet. In the 

event, under any circumstance, we are aware that anyone has a 

problem, a gambling problem, we lock them out of our system. 

They are uniquely identified by a Social Security number. 

The CHAIRMAN. We appreciate that, and you can elaborate on 

that in writing. The gentleman from New York, Mr. King. 

Mr. KING. Thank you very much, Mr. Chairman. Let me thank 

you at the outset for your cooperation on this issue and let me also 

express my regret that I was not here for the beginning of the 

hearing, and I have to leave very quickly. I am the ranking member on the Homeland Security Committee, which is right now holding the hearing on the White House crashers. 

Mr. Chairman, it is a hearing in which your talents would be 

ideally suited. It goes from reality TV to the most important conVerDate Nov 24 2008 17:14 May 13, 2010 Jkt 056235 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\56235.TXT TERRIE
26 

stitutional issues, and a debate of separation of powers is going on 

right now. So we need someone who has a flair for expressing a 

point and also is well-versed in the Constitution. And so I have to 

go back, I am not as well-versed in the Constitution and not as 

nuanced as you, but I am giving it my best over there. 

Thank you for scheduling this hearing. And I also want to thank 

Ranking Member Bachus for his forbearance in putting up with me 

over the last several years on this issue. We don’t entirely see eyeto-eye, but he has been a true gentleman in every sense of the 

word. And I will just make a brief statement, it would be inappropriate to come in and ask questions after so much has already gone 

on. 

But Mr. Chairman, we all know that when the Internet gambling 

prohibition was enacted in 2006, many voting for it meant well and 

thought it was the right thing to do, but it certainly has unintended consequences. And that means the purpose of today’s hearings and why I so strongly support H.R. 2266 and H.R. 2267, which 

I believe are essential to correct the situation that has developed. 

By licensing and regulating Internet gambling, it allows Americans to bet online by creating exemptions for operators to license 

and regulators, the Treasury Department would establish these 

regulations and license these Internet operators subject to various 

conditions, including criminal and financial background checks and 

the legislation also would not preempt State or tribal laws prohibiting Internet or sports gaming. All prohibitions are well-intended, 

sometimes they work, sometimes don’t, usually they don’t. 

In this case I don’t believe it is, we are losing revenue and we 

are not achieving the social purpose that was intended. And we can 

go from pragmatic aspect of it of getting revenues that we should 

be having in our government today of actually regulating an industry where many people are involved offshore or the libertarian aspect of my good friend, Mr. Paul, who feels we should not be interfering in people’s personal lives. 

So with that, Mr. Chairman, I certainly strongly support the legislation. When a markup comes, I will certainly support it and vote 

for it. I thank all the witness for being here and I really do regret 

not being able to stay. Again, there is a very intense hearing going 

on, on the other side. 

The CHAIRMAN. Does the gentleman yield? 

Mr. KING. Yes. 

The CHAIRMAN. I appreciate his kind words and I noted in his 

absence as the former Chair and current ranking member on the 

Homeland Security Committee to the extent that there is a concern 

about money laundering, we will be drawing on his expertise, so I 

think many of us are reassured by his being here to participate 

when we put the right safeguards in. 

Mr. KING. Thank you, Mr. Chairman. I appreciate that, and 

again, I agree with you, I see no Homeland Security or terrorist 

threat, however. If anything, regulation makes it less likely that 

there will be any significant threat. With that, I ask to submit my 

entire statement into the record. I yield back the balance of my 

time. 

27 

The CHAIRMAN. Without objection. The gentleman from California, Mr. Sherman. And then I think if we all move quickly, we 

get to Mr. Lee, and then we can go to the vote. 

Mr. SHERMAN. I am a bit more skeptical than others of Internet 

gambling, traditionally we allowed the sovereign to decide what 

gambling goes on within its territory. Like alcohol, we have wet 

counties and dry counties, we have had wet States and dry States. 

If I was a member of a State legislature, I might well be for gambling and alcohol everywhere. As a Federal legislator, I have tended to grow up in a system in which that is decided at a State level. 

And when you are on cyber and tribal lands, at the tribal level. 

We now have a combination of technology, perhaps facilitated by 

Federal law, that will shift that and allow anyone anywhere to 

gamble legally whether the sovereign of that particular locality 

wants them to or not. 

As a matter of practicality, what we have done for most people 

in this country is we have made gambling something you have to 

take a road trip to do. You have to leave your house to lose your 

house. That has been a policy, I guess, and a lot of States have 

found that to be a good one. Now, you will be able to gamble in 

your own home. On the other hand, I am not sure that we can stop 

this anyway. 

With that, I would like to question Chairman Martin. I understand that you are opposing the legislation and Internet gambling 

here at the Federal level, but you are asking the California legislature to legalize online poker and perhaps you want to clarify that 

for us? 

Mr. MARTIN. Well, thank you. Yes, we are, that is correct. We are 

doing that along with several licensed card groups and additionally 

some other tribes are considering coming on board with us in a 

consortium of tribes and it is going to be—since we don’t have— 

that is outside of our compact and that is—so that will be how is 

that actually going to work? That is outside of the Gaming Regulatory Act, that is what I was trying to say. And tribes don’t currently have an exclusive right to online poker in California. So that 

will be looked at outside and the State will just look at it as another vendor, as just another business. 

Mr. SHERMAN. I will ask you a question where I kind of actually 

know the answer. Can you describe what kinds of fixed costs you 

have in operating your operation? I have been there, I have seen 

it and perhaps speak to what the other tribes have in the way of 

fixed costs that the online gambling industry does not have. 

While you are looking at your notes, I will point out that as far 

as I know, no one from Nevada is represented here, but Las Vegas 

is the epicenter of the foreclosure problem. I hope we don’t do anything in the next couple of years that adversely affects what is the 

most struggling part of the country. Chairman Martin? 

Mr. MARTIN. Yes, I have the answer for you here. Congress must 

understand that while, in theory, the Indian Gaming Regulatory 

Act prohibits States from taxing tribes, in practice, States impose 

a tax on tribes under the terms of our tribal State compacts. The 

Morongo case, the tax imposed on us by the State for the privilege 

of securing our compacts is based on a rate of $3 million per month 

28 

irrespective of the volume of business we do. That means every day 

we have to pay the State $100,000. 

Should Congress authorize full-scale Internet gambling to enter 

the marketplace that will bring competitive pressure that was not 

factored into our business decision and will make it very hard for 

us to meet the obligations we have and the business decisions we 

will make—excuse me, I missed that. For us to meet the obligation 

we have to the State. Not to mention our ability to provide for our 

tribal members and services, our outstanding debt obligation. 

Mr. SHERMAN. Mr. Brodsky, you are here from— 

The CHAIRMAN. Your time has expired. 

Mr. SHERMAN. My time has expired. 

The CHAIRMAN. Mr. Lee will ask the last question. 

Mr. LEE. I will be very brief. I apologize that I missed part of 

the hearing. I don’t know if anyone out of the group can give me 

an idea on the online gambling, what percentage is done via credit 

card? Does anybody know what that number is, do you have an 

idea? 

Philosophically, my only point on this issue, because I am not 

here to weigh in on the rights or virtues of whether or not you 

should gamble online, I have my own personal views on that. One 

thing I don’t believe that we should be allowing in Internet gambling is to allow someone to gamble with an unsecured loan, that 

being a credit card. If people choose to gamble their own money, 

that is one issue, philosophically. But when people are allowed to 

use an unsecured loan and ultimately other taxpayers are on the 

hook when they don’t pay, then that is when people get themselves 

into trouble. 

I think if this market was limited strictly to, be it a debit card, 

but when you are allowing credit cards to go, and money you don’t 

have to gamble, that, in my mind, is reckless. And that is the only 

comment I wanted to make sure got put in the record. 

I think that would be an interesting number to know, what percentage of the gambling is done by credit cards. Thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you. Let me ask if any of the members of 

the panel could find—would have information like that, they could 

send it to us. And with that, the hearing is adjourned. We will be 

returning to this subject next year. 

[Whereupon, at 11:37 a.m., the hearing was adjourned.] 

(29) 

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