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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 

SECOND SESSION 

JULY 21, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–146 

( 

(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: 

July 21, 2010 ..................................................................................................... 1 

Appendix: 

July 21, 2010 ..................................................................................................... 35 

WITNESSES 

WEDNESDAY, JULY 21, 2010 

Duke, Annie, professional poker player, on behalf of the Poker Players Alliance ....................................................................................................................... 6 

Fagan, Michael K., law enforcement/anti-terrorism consultant .......................... 8 

Malerba, Hon. Lynn, Tribal Chairwoman, the Mohegan Tribe ........................... 10 

Malkasian, Tom, Vice Chairman and Director of Strategic Planning, Commerce Casino ........................................................................................................ 12 

Williams, Edwin, President and Chief Executive Officer, Discovery Federal 

Credit Union, on behalf of the Credit Union National Association (CUNA) ... 14 

APPENDIX 

Prepared statements: 

Paul, Hon. Ron .................................................................................................. 36 

Duke, Annie ...................................................................................................... 37 

Fagan, Michael K. ............................................................................................ 41 

Malerba, Hon. Lynn ......................................................................................... 48 

Malkasian, Tom ................................................................................................ 53 

Williams, Edwin ............................................................................................... 57 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bachus, Hon. Spencer: 

Written statement from Americans for Tax Reform ...................................... 62 

Letter dated July 20, 2010, to Hon. Sander M. Levin and Hon. Dave 

Camp from: John W. Suthers, Colorado Attorney General; Douglas 

F. Gansler, Maryland Attorney General; and Bill McCollum, Florida 

Attorney General .......................................................................................... 63 

Letter from the Chamber of Commerce of the United States of America ... 65 

Letter from Concerned Women for America ................................................... 67 

Letter from the U.S. Department of Justice, Federal Bureau of Investigation, dated November 13, 2009 .................................................................... 69 

Letter to Hon. Jon Kyl from Treasury Secretary Geithner, dated February 

2, 2010 ............................................................................................................ 72 

Letter to House and Senate Leadership from various family groups, dated 

July 20, 2010 ................................................................................................. 73 

Letter to Chairman Frank from the Financial Services Roundtable ........... 75 

Letter from the National Association of Federal Credit Unions .................. 77 

Article from msnbc.com, dated September 18, 2008 ...................................... 78 

Article from the Vancouver Sun, dated July 20, 2010 .................................. 86 

(1) 

H.R. 2267, THE INTERNET GAMBLING 

REGULATION, CONSUMER PROTECTION, 

AND ENFORCEMENT ACT 

Wednesday, July 21, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 2:30 p.m., in room 

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

Members present: Representatives Frank, Waters, Sherman, 

Moore of Kansas, Clay, McCarthy of New York, Baca, Green, 

Cleaver, Hodes, Wilson, Perlmutter, Carson, Speier, Adler, Kosmas, 

Himes, Peters; Bachus, Paul, Biggert, Hensarling, Campbell, Bachmann, Marchant, Posey, Jenkins, Lee, and Lance. 

The CHAIRMAN. The hearing will come to order. I apologize. Obviously, we were put back by the White House statement and then 

by the votes, and I want to get right to it so we can get this done 

before the votes. 

We have 10 minutes for opening statements. I will take 4 minutes for myself and waive them, so we will have 6 minutes left. I 

have 3 members who will get 2 minutes each. I recognize the ranking member for 5 minutes. 

Mr. BACHUS. Thank you, Mr. Chairman. I would like to submit 

my full statement for the record. 

The CHAIRMAN. Without objection, anything anybody wants to 

submit will be made a part of the record. 

Mr. BACHUS. And also, before we start the time, I would ask 

unanimous consent to— 

The CHAIRMAN. I just said anything anybody wants to insert can 

be inserted. 

Mr. BACHUS. Okay, great. 

The CHAIRMAN. So let’s not waste any more time. Go ahead. 

Mr. BACHUS. Thank you, Mr. Chairman. The timing of today’s 

hearing on Chairman Frank’s proposal, legalized gambling over the 

Internet, strikes some of us as ironic, to say the least. After all the 

talk during the last year about shutting down the casinos on Wall 

Street, it makes no sense to me why we would be taking steps to 

open casinos in every home, dorm room, library, iPod, BlackBerry, 

iPad, and computer in America, many of which belong to minors. 

This morning, President Obama signed legislation, and proponents claim it will protect consumers from unwise financial decisions and predatory practices by financial institutions. This afterVerDate Nov 24 2008 18:22 Nov 17, 2010 Jkt 061850 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\61850.TXT TERRIE
2 

noon, the committee will consider the merits of a bill that will 

fleece Americans by reversing current restrictions on Internet gambling, which is perhaps the ultimate example of Americans making 

unwise and harmful financial choices. It seems that the Democrats’ 

solicitude for the well-being and protection of American consumers 

has its limits. 

Since this Congress took action in 2006 to address the scourge 

of Internet gambling, criminal offshore gaming interests have been 

relentless in their campaign to repeal the law, or at least undermine it. In many quarters, they were the second or third leading 

lobbying group in Washington in dollars spent. Lots of these groups 

have innocuous names like, ‘‘The Safe and Secure Internet Gambling Initiative.’’ But in spite of their names, these are large corporate interests that are protecting the bottom line at the expense 

of addiction and destruction of our youth and our homes and communities. 

That is why it makes no sense to me how the same Democrats 

who claim they are protecting consumers by further regulating 

Wall Street can say with a straight face that unleashing Internet 

gambling will keep kids from becoming Internet gamblers. 

Now, regarding the potential for tax revenue, H.R. 2267 provides 

a restrictive opt-out mechanism through which the States may decline to participate in the Federal licensing system. However, the 

Joint Committee on Taxation’s most expansive—4 different estimates, $42 billion, is based on discarding even these State opt-out 

rights in favor of complete Federal preemption. The estimate that 

is most closely based on the text of Frank and McDermott’s bill to 

regulate and tax the Internet indicate they will generate just $10 

billion in Federal revenue. That wouldn’t even pay for half of the 

funding needed for Chairman Frank’s so-called Wall Street Reform 

bill. 

This rush to embrace Internet casino gambling seems at least 

partially motivated by the Majority’s desperate search for more revenue to pay for an ever-bigger Federal Government. I ask my colleagues, ‘‘How does raking in cash from gambling addicts differ 

from taking a cut from the heroin sold to drug addicts?’’ Is the logic 

that if we don’t, someone else will? 

I’m sorry, but the Federal Government should not take advantage of our youth, the weak and the vulnerable, in the name of new 

revenues to cover more government spending. Considering that the 

social and economic harm done to American families and to young 

people in particular from unlawful Internet gambling is well documented, I ask, is passing new legislation to create a Federal right 

to gamble that has never existed in our country’s history, and 

Internet gambling taxes for more spending really worth it? 

Mr. Chairman, I strongly urge opposition of this bill. I yield back 

the balance of my time. 

I actually do have additional time, so I do want to say one other 

thing. If we were to tell our young people that they should not 

smoke or drink, and then we put a bottle of whiskey or a pack or 

a carton of cigarettes in their room, they might get a mixed message. And if this Congress continues to hope that our youth will not 

become addicted to gambling, there is no reason for us to pose the 

efforts that this bill does to allow Internet gambling on every comVerDate Nov 24 2008 18:22 Nov 17, 2010 Jkt 061850 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\61850.TXT TERRIE
3 

puter in every dorm room and in every bedroom of our youth. It 

simply makes no sense. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from California, Mr. Sherman, is 

recognized for 2 minutes. 

Mr. SHERMAN. Thank you. In the past I have opposed this, saying you should have to leave your house to lose your house. I am 

re-evaluating. The two strongest arguments for the bill are contradictory, and yet they may both be true. 

One is that our technology is so weak that we can’t prevent 

Americans from gambling on sites in Antigua, so we might as well 

try to regulate and tax it. 

The second argument is that our technology is so strong that, 

after the passage of this bill, we will use technological methods to 

make sure that those States that have opted out will not have their 

residents on these gambling sites, and that minors will be prevented from gambling. 

I do think there are two aspects of the bill that would deserve 

improvement. One is a simple technical fix, and that is if we’re 

going to give States 180 days to opt out, it should be 180 legislative 

days, according to that State’s legislative calendar. 

The second is that I would want to prevent the bad actors, the 

ones that are violating our law today, from benefitting from this 

bill. First, those who are violating our law shouldn’t benefit from 

the new law. Second, these entities have proven they can tap into 

the American market while providing zero American jobs. 

And, finally, we are going to rely on those who operate these 

sites to keep minors off, to respect State opt-out. And those entities 

that have proven that they can build a large and profitable business by defying and violating U.S. law should not be invited to play 

a role where they are going to have to act as policemen. We don’t 

want the former criminals to be deputized as cops. I yield back. 

The CHAIRMAN. The gentleman from Texas, Mr. Hensarling, for 

2 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. First, I question the 

priorities of our committee, as we are here today. I know the ink 

is barely dry on the Fin Reg bill, but weighing in at over 2,000 

pages, several hundred different rulemakings and studies, it seems 

to me that what we ought to be doing—and I am not trying to relitigate the bill—is working to ensure that we can remove the 

greatest amount of uncertainty in the quickest amount of time, 

since uncertainty is the greatest impediment to job growth today. 

So, I question that priority. Clearly, this is a committee that, in 

the past, has already rolled the dice on the Government-Sponsored 

Enterprises. And yet, that clearly is not a priority, as we have 

prioritized Internet gambling over doing something about the Government-Sponsored Enterprises. 

The second point I would like to make is I understand the proponents have talked about the possibility of new revenues. To the 

extent those new revenues were actually used to reduce the deficit, 

I might be inclined to take a very careful look at support. But I’m 

afraid that simply new revenues to grow new government programs 

is, frankly, not terribly appealing to me. 

4 

I have heard those who have argued that this is a matter of personal freedom. And, you know what? I would tend to agree with 

that argument if the cost associated with Internet gambling was internalized to that individual. But, unfortunately, given the social 

welfare state that has been created, the fact that we are a bail-out 

nation—I have seen many compelling studies from the Federal Reserve, talking about the incidents of bankruptcy linked to proximity 

of gambling casinos, and homelessness in Australia associated with 

the activity—I am not convinced that this could be internalized to 

the individual. 

And so, yes, I do believe freedom includes the freedom to do 

things we disagree with, but not at the cost of society. 

The CHAIRMAN. The gentleman from Indiana, Mr. Carson, for 2 

minutes. 

Mr. CARSON. Thank you, Mr. Chairman. As a former law enforcement official, I am sensitive to the needs of protecting our citizens 

from the potential harms of gambling. However, I also see the economic benefits of the gaming industry. 

In order to protect our citizens, while opening the door to billions 

of dollars in potential revenue, a licensing and regulatory framework must be established to legitimize and control the Internet 

gaming industry. A ban on Internet gaming does not work. It has 

pushed the industry underground, leaving consumers completely 

unprotected. 

Here in the United States, we have the largest percentage of 

Internet poker players worldwide. This highlights our need to have 

a rational approach towards an industry that is not going away. 

I support a bill which establishes regulations over the gaming industry, and has protections against underage gambling, compulsive 

gambling, identity theft, and fraud. This new bill would include 

vetting potential licensees, which will ensure the safety and soundness of Internet gaming sites and high standards to prevent fraud 

and abuse of customers. This bill gives the people the personal 

freedom to gamble, and also generates revenues for our Nation. 

Consumers falling victim to financial fraud is one of the reasons 

why I introduced the Financial Literacy Act. This legislation helps 

community organizations to provide better financial education to 

young adults. It’s clear that young adults may not understand the 

addictive nature of Internet gaming, which can cause reckless 

spending and debt, if not monitored. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. The gentleman from California, Mr. Campbell, 

for 11⁄2 minutes. 

Mr. CAMPBELL. Thank you, Mr. Chairman. I don’t gamble. I don’t 

particularly like it. In poker, I always forget there is a straight and 

a flush, and which is which, and what is better than the other, and 

I forget all the time, which is why all my friends ask me to play 

with them. 

But freedom is not about legislating what I like to do and making illegal what I don’t. Freedom is about allowing Americans to do 

what they want to do. And Americans clearly want to gamble on 

the Internet. They are doing it now. They are doing it illegally with 

sites that are from overseas, and poker players are banding—lawabiding citizens are banding together as poker players to play in 

5 

what is now an illegal activity, not unlike the people who made 

stills and drinking during the age of Prohibition. 

There is no reason that we need to make all those law-abiding 

citizens into criminals. We can do this, we can legalize Internet 

gambling, and provide those people freedom, but also provide them 

protection, consumer protections that they are not currently getting 

on Internet sites that are overseas, protections that let them know 

how much of the winning is going to be paid out, how random numbers are generated, all kinds of things to protect those consumers 

who are not currently being protected. 

We can provide economic growth in this country by making sure 

that these legal gambling operations are located and sited here, 

rather than seeing that economic growth go somewhere else. And, 

in fact, maybe we will attract foreigners to American sites to actually bring something back to this country. 

And it has been mentioned we can also raise a little tax revenue 

without raising taxes. I yield back. 

The CHAIRMAN. The gentleman’s time has expired. The Republican side has 11⁄2 minutes left. The gentleman from Alabama seeks 

to be recognized for the remaining 11⁄2 minutes. 

Mr. BACHUS. Thank you, Mr. Chairman. Mr. Chairman, I want 

to share four letters that I have from the Administration, and from 

attorneys general across the country. 

The first letter is from Tim Geithner. And in it he urges us to 

go ahead and implement the Unlawful Internet Gambling Enforcement Act. Of course, what your bill does is vitiates that. He also 

says that it’s the position of the Department of the Treasury—and 

I would think that means the Administration—that no further extension of the compliance date set for June 1, 2010, is warranted. 

He said, ‘‘I believe that regulation is appropriate,’’ and that’s the 

regulation that the chairman wants to repeal, ‘‘and will be cost-effectively carried out to enforce the purpose of the Unlawful Internet Gambling Enforcement Act,’’ and that is to stop these criminal 

enterprises from operating. 

Third, he says, ‘‘I believe the enforcement of the law will assist 

the United States in fighting the financing of illicit enterprises that 

threaten national security.’’ So, at least we have from the Secretary 

of the Treasury a letter that says these sites are a threat to national security, which we shouldn’t dismiss lightly. 

We also have a letter— 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. BACHUS. Thank you. 

The CHAIRMAN. I will recognize myself now for 30 seconds just 

to read from a letter from the Financial Services Roundtable: ‘‘We 

support your efforts to bring greater clarity;’’ and ‘‘We strongly support your efforts to create a licensing and regulation regime.’’ 

I should say that people in the financial industry are overwhelmingly supportive of this, because of the enormous burden the chosen form of regulation puts on them. They have to monitor—I will 

give myself another 45 seconds—they are given the enormous burden of trying to decide what payment was for what. And it’s a great 

burden on credit unions and on banks. They are overwhelmingly 

opposed to it. 

6 

The Chamber of Commerce of the United States of America supports H.R. 2267. They have significant concerns with its regulatory 

implementation. We hear a lot of complaints about regulatory burden, unless it’s in the service of some people’s particular view that 

they would like to impose on other people, in terms of their own 

personal moral code. And the Chamber strongly supports this bill. 

And then another—not always my ally—Grover Norquist—I 

guess I’ll trade you for Tim Geithner; we’ll work that out on this 

bill—‘‘On behalf of Americans for Tax Reform, I write to express 

this organization’s support for H.R. 2267. These are people who believe in individual freedom and choice, and the right of people to 

make their own decisions.’’ 

And finally, the National Association of Federal Credit Unions 

wanted to be on record here. And we also have, of course, a witness 

from the Credit Union National Administration. 

With that, we are going to turn to the witnesses. And I will call 

on the gentleman from New Hampshire to introduce the first witness. 

Mr. HODES. Thank you, Chairman Frank. And thanks for holding 

this hearing. We have been trying to tackle the issue of online 

gambling since I joined the committee in 2007. And I am confident 

we are going to find a solution of where we find the right balance 

between appropriate regulation and consumer protection in making 

sure that personal freedoms are not infringed upon. 

I want to introduce one of the witnesses who is testifying today 

on behalf of the Poker Players Alliance, Ms. Annie Duke. Annie is 

a well-known poker player, not just in my hometown and in my 

district, where she was born and raised in Concord, New Hampshire, but across the country and around the world. Annie’s family 

is well-known in New Hampshire. Her father, Richard Lederer, 

taught at St. Paul’s school in Concord, and her brother, Howard 

Lederer, is also a famous poker player. She’s an accomplished player, has an extraordinary background in education, and has been 

advocating for regulating online poker for many years, so I look forward to hearing from her and the rest of the panel on this important legislation. 

The CHAIRMAN. We will begin with Ms. Duke. One of our colleagues wants to make another introduction, but we will begin with 

Ms. Duke. 

Thank you for being here. You may proceed. 

STATEMENT OF ANNIE DUKE, PROFESSIONAL POKER PLAYER, 

ON BEHALF OF THE POKER PLAYERS ALLIANCE 

Ms. DUKE. Chairman Frank, Ranking Member Bachus, and 

members of the committee, I would like to thank you for this opportunity to testify regarding H.R. 2267, the Internet Gambling 

Regulation, Consumer Protection, and Enforcement Act. 

My name is Annie Duke, and I am a professional poker player. 

In fact, I have just returned from the World Series of Poker in Las 

Vegas, which is now the third most watched sporting event in the 

world. This year’s World Series of Poker experienced a 20 percent 

increase in participants from 2009; much of this growth is driven 

by the popularity of Internet poker here in the United States and 

across the globe. 

7 

I am here today to testify on behalf of the Poker Players Alliance, 

a grassroots organization of 1.2 million people who play poker in 

their homes, in card rooms and casinos, at bars and charitable 

events, and on the Internet. To be sure, the organization was 

founded in response to efforts to prohibit poker playing on the 

Internet, but our organization believes that the medium is irrelevant; our focus is the game. 

As a professional poker player, I am aware of the rich tradition 

this great American game has in Washington politics. Today, such 

Washington leaders as President Obama and Justice Scalia continue that tradition. These leaders and millions of everyday Americans play for recreation and relaxation, for intellectual challenge 

and stimulation, for fun and profit. 

But at stake in this debate is a far more important tradition for 

our country and its government. At its most basic level, the issue 

before this committee is personal freedom—the right of individual 

Americans to do what they want in the privacy of their own homes 

without the intrusion of government. From the writings of John 

Locke and John Stuart Mill, through their application by Jefferson 

and Madison, this country was among the first to embrace the idea 

that there should be distinct limits on the ability of the government 

to control or direct the private affairs of its citizens. 

More than any other value, America is supposed to be about freedom. In fact, it was Ronald Reagan who once said, ‘‘I believe in a 

government that protects us from each other. I do not believe in a 

government that protects us from ourselves.’’ 

I believe that many of those who seek to prohibit Internet gaming and Internet poker are motivated by good intentions: to protect 

the roughly 1 percent of people who are subject to pathological 

gambling; and to prevent minor children from gambling online. But 

the good news here is that public policy need not decide between 

respecting individual freedoms and protecting vulnerable populations in the context of Internet poker. Both of these goals are best 

served by appropriate licensing and regulation, and this is exactly 

what H.R. 2267 proposes. 

To be clear, H.R. 2267 is not a bill that expands Internet gambling in America. It simply provides the appropriate government 

safeguards to an industry that currently exists and continues to 

grow and thrive. American poker players are not content with a 

system where they are limited to play on offshore sites regulated 

by foreign governments. They want to play on sites licensed in the 

United States, which will provide even greater consumer protections for the player and yield badly-needed tax revenue for State 

and Federal Governments. 

Under a U.S.-regulated system, an authorized licensee would be 

required to have technologies in place to: prevent minors from playing; identify and restrict problem gamblers; and keep people in optout States from playing online. Further, regulation would eliminate 

any concerns about money laundering. Through regulation, a licensed site would be required to adopt the same stringent and effective anti-money laundering measures as banks have in place 

today. 

As a mother of four, I am acutely aware of the need to protect 

children on the Internet. Interestingly, the current law provides no 

8 

consumer protection whatsoever. The UIGEA does not keep a single child off an Internet gaming site, nor does it provide any protections for problem gamblers, or mechanisms to prevent fraud and 

abuse. It only regulates banks, not those who operate the games. 

H.R. 2267 corrects this untenable posture, and puts us in the 

greatest position to protect consumers, minors, and vulnerable populations. 

Mr. Chairman, I would like to close with the point I started with: 

this issue is about personal liberty and personal responsibility—the 

freedom to do what you want in the privacy of your own home. I 

suspect that some on this committee support freedom, except where 

individuals would use that freedom to make what they believe to 

be bad choices. ‘‘Freedom to make good choices’’ is an Orwellian 

term for tyranny—the governments of China, Cuba, and Iran all 

support the freedom of their citizens to make choices that their 

governments perceive as good. 

For those whose religious or moral beliefs hold gaming as abhorrent, I fully support their right to live by those beliefs. I support 

their right to choose to not gamble. What I do not support, and 

what this committee and this Congress should not tolerate, are 

laws that seek to prevent responsible adults from playing a game 

we find stimulating, challenging, and entertaining. 

H.R. 2267 provides this freedom in a safe and regulated environment and I urge everyone on this committee to support this commonsense policy. However you might feel about gambling on the 

Internet, I would suggest that gambling with freedom is far more 

risky. 

Mr. Chairman and members of the committee, I thank you for 

this opportunity to address you today, and I look forward to the 

testimony of my fellow panelists and the opportunity to engage 

with you during the question-and-answer period. 

[The prepared statement of Ms. Duke can be found on page 37 

of the appendix.] 

The CHAIRMAN. Thank you. 

Next, we have Mr. Michael Fagan. 

STATEMENT OF MICHAEL K. FAGAN, LAW ENFORCEMENT/ 

ANTI-TERRORISM CONSULTANT 

Mr. FAGAN. Good afternoon, Chairman Frank, Ranking Member 

Bachus, and your fellow honorable Representatives and committee 

staff. I am Mike Fagan, a thorn between two roses here. I’m a private citizen representing no one but myself. I have served as a career prosecutor for 30 years. From 1996 to 2008, I probably had as 

much or more involvement as anyone in investigation and prosecution proceedings concerning Internet-based gambling. 

Given my responsibilities, I frequently had occasion to reflect 

upon the growth and variety of means of gambling in the United 

States. I have no religious, moral, or philosophical attitude against 

gambling, nor some Libertarian or pseudo-Libertarian attitude in 

favor of legalizing Internet gambling. 

Before Congress takes the extreme step of refuting and jettisoning our national history and tradition of letting local and State 

governments decide what vices will be prohibited or permitted and 

at what levels, Congress should first direct and fund the DepartVerDate Nov 24 2008 18:22 Nov 17, 2010 Jkt 061850 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\61850.TXT TERRIE
9 

ment of Justice and/or the State attorneys general to enable a coordinated, systematic task force approach to enforcing existing laws 

prohibiting and taxing such conduct. 

And on that last point, taxing, offshore online casinos and sports 

books doing business in the United States sometimes say, ‘‘Gee, we 

want to pay taxes in the United States; just legalize us.’’ But 

they’re already subject to the wagering excise tax, yet not a one of 

them, to my knowledge, has ever voluntarily forwarded a penny of 

this tax to the United States. 

Instead, they’re now trying to get this committee and Congress 

to legalize remote control gambling, and to set tax rates extraordinarily favorable to them, as compared to the much higher tax 

rates that are applicable, for example, to brick-and-mortar casinos 

and to race tracks and riverboat gaming. Such an approach is consistent, in my experience, with the corner cutters and sharp operators in the Internet gambling world who were often associated, in 

my experience, with organized crime groups, or mimicked their 

ways. 

The deeper our investigation would go into these operations, we 

could count on finding additional criminality, or at least predatory 

behavior, outright fraud, threats, coercive tactics, point shaving, 

cash payments to steer athletes to certain agents or programs, illegal drug use and distribution, the investment in and operation of 

illegal online pharmacies, sophisticated money laundering, tax evasion—equivalent to the techniques used by drug lords—and terrorist financing opportunities. All these things were present in investigations that I oversaw. 

On that last point, I cannot comment on specifics in the United 

States, but a British publication, ‘‘Policing,’’ noted this past February that the United Kingdom’s security services are running 23 

ongoing investigations into the exploitation of gambling Web sites 

to finance terrorism. 

Legalizing and regulating Internet gambling in the United States 

would do nothing to limit that risk. And, by increasing the total 

number of avenues to move and hide and disguise money, it actually increases the risk, enabling, for example, these sites to serve 

the same functions as hawalas. The cost of legalization, regulation, 

and taxation simply do not outweigh these many negatives. 

A $43 billion figure in expected revenues put before the committee is not based in reality. There will be far smaller figures, 

based on the opt-outs, if this bill would be passed. The far smaller 

revenues, of course, will be offset by losses in taxes from jobs. Particularly cruel will be the loss of jobs for Native Americans in their 

casinos. No satisfactory requirement exists in the bill for the operators to be based in the United States completely and entirely. 

There will be outsourcing of elements of these offshore casinos—or 

authorized casinos, should the bill be passed. 

There will be no means of effective law enforcement for these offshore elements of the online casinos. The bill has no mandate for 

adequate employee background checks, nor for regular and meaningful certifications of the equipment and software and of the suppliers, to ensure honesty and integrity in the business. 

Astonishingly, no bar exists in the bill, as proposed, to keep out 

those who have purposely disregarded Federal law. This puts at a 

10 

huge disadvantage those in the United States who have operated 

their land-based gambling business in compliance with the law. It’s 

like if you legalized illegal drugs, and turned over the business to 

the Cali Cartel or Colombian or Mexican drug lords. What message 

does that send to the business community? Years of compliance 

bring you a stab in the back, delivered to you by your government. 

The bill provides insufficient assurance of effective regulation. Indeed, if legalized, Internet gambling, by its speed, nature, size, and 

scope will preclude effective and affordable regulation. You will 

never find the needle in an electronic haystack, given the volume 

of transactions. 

The bill, simply put, is the fertilizer for the creation of networks 

of misery. A pathological or problem gambler doesn’t just hurt himself. Internet gambling promises to increase the rate of pathological 

problem gambling, and I certainly would dispute Ms. Duke’s cite of 

1 percent on that figure. 

The bill also portends a fundamental change in government relations between Federal and State Governments, and the everyday 

lives of our citizens. Prepare your constituents, if you pass this bill, 

for intense and aggressive and inescapable advertising and marketing ploys which, over time, do change behaviors. We have not 

even tested fairly— 

The CHAIRMAN. Mr. Fagan, your time is expiring. 

Mr. FAGAN. Thank you. 

[The prepared statement of Mr. Fagan can be found on page 41 

of the appendix.] 

The CHAIRMAN. Does the gentleman from Connecticut have an 

introduction to make? 

Mr. HIMES. Yes, Mr. Chairman. 

The CHAIRMAN. The gentleman from Connecticut is recognized. 

Mr. HIMES. Thank you, Mr. Chairman. 

It’s a pleasure to introduce Mohegan Tribe Chairwoman Lynn 

Malerba to testify before the committee today. She is Tribal Chairwoman of the Mohegan Tribe, and will be inducted on August 15th 

to be Chief of the Tribe, the first female Chief of the Tribe in 300 

years of that Tribe’s history. 

In her position, the Chairwoman oversees approximately 1,800 

tribal members, and the operations of the Tribe’s casino at the Mohegan Sun, which has been an important contributor to the Connecticut economy. She has a background as a director of health and 

human services for the Tribe, and a background in nursing. 

Most importantly, Mr. Chairman, she is an inheritor of a long 

tradition of this Tribe of what they call the ‘‘Mohegan Way,’’ which 

is hundreds of years of cooperation with the Federal Government 

in a constructive way. And, therefore, it’s a pleasure to welcome the 

Chairwoman and I anticipate her testimony. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Ms. Malerba, please go ahead. 

STATEMENT OF THE HONORABLE LYNN MALERBA, TRIBAL 

CHAIRWOMAN, THE MOHEGAN TRIBE 

Ms. MALERBA. Good afternoon, Chairman Frank, Ranking Member Bachus, and members of the committee, and Congressman 

Himes. Again, my name is Lynn Malerba, Chairwoman of the MoVerDate Nov 24 2008 18:22 Nov 17, 2010 Jkt 061850 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\61850.TXT TERRIE
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hegan Tribe. It is a great honor to be with you today to present 

testimony on H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act. 

As you have heard, our Tribe has a philosophy known as the 

‘‘Mohegan Way,’’ which stresses cooperation, rather than conflict, 

when the Tribe is faced with a difficult decision or problem. This 

tradition started with our great leader, Sachem Uncas, who sought 

to protect our Tribe’s sovereignty, traditions, and people in the face 

of European colonization, disease, and new technologies previously 

unknown to our people. 

Chairman Frank, since the day you introduced H.R. 2267, you 

have shown your great respect for tribal sovereignty by actively 

seeking the input of Tribes in your legislation to ensure that we 

are treated fairly. In doing so, your actions have shown that you 

have a desire for cooperation, rather than conflict, in the spirit of 

the Mohegan Way. 

In response to your invitation to cooperation, the Mohegan Tribe 

has joined forces with a coalition of other leading gaming Tribes 

from Connecticut to California, in order to work with you and your 

staff in addressing the issue of Internet gaming. Our goal is to 

make suggestions on how to further improve H.R. 2267 to ensure 

all Tribes may reap the benefits of Internet gaming if they choose 

to do so. Our coalition includes the Mississippi Band of Choctaw, 

the Barona Band of Mission Indians from California, and all member Tribes of the California Tribal Business Alliance. 

Indian gaming has been the biggest single economic development 

success story in tribal history. Since the enactment of the Indian 

Gaming Regulatory Act in 1988, Tribes have opened 419 gaming 

facilities across 28 States, creating half-a-million new jobs. These 

tribal casinos are currently generating nearly $27 billion in muchneeded revenue, which is used to fund urgent tribal priorities such 

as housing, health care for our elders, and education for our youth. 

Our tribal coalition has been part of the success story of Indian 

gaming, individually running some of the largest tribal casinos in 

the United States. We have extensive experience in regulating 

gaming activities, protecting consumers, and exercising our sovereign rights as tribal nations, which gives us unique insight into 

the impacts of H.R. 2267 on tribal gaming. 

While the Mohegan Tribe and our coalition partners agree that 

your vision can work—regulating Internet gaming, if done properly—many are still forming their opinions, and we respect their 

rights as sovereigns to do so. The National Indian Gaming Association and United South and Eastern Tribes are currently undertaking a comprehensive study of those issues involved. 

However, I believe there is universal agreement among all Tribes 

that if Internet gaming were to be permitted, Indian Tribes must 

have the ability to participate on a level playing field with other 

gaming interests, and have tax parities with any State government 

that may choose to participate. And the gains that we have made 

as tribal nations under IGRA must not be endangered. 

After studying H.R. 2267 and applying our experience in running 

successful tribal gaming operations, it is our opinion that the bill 

can be further enhanced from its current form. I have provided 

12 

written testimony, and I have gone into significant detail on those 

improvements, which I wish to highlight here. 

The most important improvement, from our perspective, is a provision that makes it clear that tribal governments and tribal gaming facilities should be clearly authorized to operate Internet gaming sites. The licensing standards should be modified to ensure application to a tribal government or its designated tribal agency or 

entity operating the site. 

The issue of limitations under the Indian Gaming Regulatory Act 

on acceptance of wagers by Tribes from persons not on reservation 

lands must be addressed to ensure that Tribes operating government gaming operations can accept Internet wagers from persons 

both on and off their reservation, as long as they are in a location 

that has not otherwise opted out. Otherwise, there would be no 

support for H.R. 2267 from the Tribes. 

We suggest you extend the exclusion from IGRA to Tribal State 

gaming compacts, pursuant to IGRA. As you are aware, IGRA requires that Tribes and States must enter into a compact for any 

type of class three gaming house bank games which are offered by 

the Tribe. 

A provision needs to be added that clarifies that all games offered would be exempt from IGRA under compacting provisions allowing Tribes to compete on a level playing field with non-tribal 

competitors, and pay the same Federal tax. Adding this measure 

would ensure that no conflicts would occur between States and 

Tribes under existing compacts. 

The tribal nations respectfully request meaningful consultation 

before this statute is enacted on how best to regulate Internet gaming. We are experts in this field, and we believe that we can provide you expertise in how best to regulate the games. 

We also urge further restrictions on certain overseas competitors. 

All Tribes and commercial casinos in the United States have strictly complied with current laws. We believe fairness dictates that 

H.R. 2267 be modified in regard to licensing of foreign operators to 

require some period of lawful operations under license by a reputable foreign government as a prerequisite for seeking licensure 

on the same footing as U.S. applicants. 

We support enhancements to the licensing and regulatory provisions, such as requiring that all Internet gaming facilities be licensed in the United States. 

Again, I appreciate the opportunity to testify today. The rest of 

my comments are included in my written testimony. 

[The prepared statement of Chairwoman Malerba can be found 

on page 48 of the appendix.] 

The CHAIRMAN. Next, Tom Malkasian, vice chairman and director of strategic planning for Commerce Casino. 

STATEMENT OF TOM MALKASIAN, VICE CHAIRMAN AND 

DIRECTOR OF STRATEGIC PLANNING, COMMERCE CASINO 

Mr. MALKASIAN. Thank you. Good afternoon, Chairman Frank, 

Ranking Member Bachus, and members of the Financial Services 

Committee. It is a pleasure to be here today to offer my testimony 

on H.R. 2267. My name is Tom Malkasian, and I am an owner, a 

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13 

merce Casino, located in Los Angeles, California. The Commerce 

Casino is the world’s largest poker casino, with over 243 licensed 

gaming tables, and over 2,600 employees. 

Our coalition of poker clubs and sovereign Indian nations in California support some legalization of Internet gaming. We believe 

limited forms of online poker can provide safe play for our patrons 

and tax revenues to the jurisdictions in which we operate, but only 

if the legislation is done the right way. 

Therefore, it is with regret that I must testify in strong opposition to H.R. 2267 as currently written, and urge members of the 

committee to vote against it, because the legislation is fundamentally flawed and unsound. 

H.R. 2267 and its companion bill, H.R. 4976 are based on false 

revenue assumptions that: would require the removal of the right 

of any State or Tribe to opt out of the bill in order to achieve the 

advertised tax revenues of $42 billion over 10 years; contain no 

legal regulation, licensing, or controls on Internet gaming; override 

current State and tribal gaming laws; violate exclusive tribal gaming rights in many States; enshrine arbitrary and unfair tax inequities into law, including unprecedented direct Federal tax on Indian tribal governments; endanger the flow of commercial and tribal gaming revenue to local, State, and Federal Governments; and 

brazenly reward illegal foreign operators by locking in unprecedented market advantages that can undermine and destabilize the 

land-based American gaming industry. 

I am a numbers guy. I have learned that no matter how good the 

numbers sound when an idea is being promoted, if the details don’t 

support the numbers, the plan won’t work. This is the case in H.R. 

2267. 

Supporters are misleading members to believe that a significant 

amount of tax revenue will be raised by the bill, when those revenue estimates are not based on language currently in the bill, and 

would require removal of the ability of States and Tribes to opt out. 

H.R. 2267 supporters cite the congressional Joint Committee on 

Taxation study that provides 3 scenarios that forecast tax revenues 

in the $10 billion to $14 billion range over 10 years, and a fourth 

scenario that projected $42 billion over a 10-year period. Even the 

lowest revenue estimate assumes that all Internet gaming facilities 

licensed under the bill would be required to be located in the 

United States. But that requirement does not exist in H.R. 2267. 

The highest revenue scenario of $42 billion also assumes no State 

or Tribe would be permitted to opt out. 

You can either have State opt-out provisions or you can hope to 

have $42 billion in Federal tax revenue, but you can’t have both. 

To accomplish this, you must take away the right of each and every 

State and every one of the 564 Indian Tribes to opt out of Internet 

gaming, and require they must participate in the Federal system. 

The attorneys general of Maryland, Florida, Indiana, Colorado, and 

Virginia have already condemned this potential Federal takeover of 

their gaming laws. 

H.R. 2267 allows licensing for companies which have been taking 

bets illegally from U.S. residents for years, giving a ‘‘get-out-of-jailfree card’’ of sorts to criminals who will have a huge competitive 

advantage over the U.S. companies who followed the law. 

14 

Let me illustrate how absurd this is. If Congress were to decide 

to legalize marijuana, certainly no one would suggest that permits 

be sold to sell marijuana to the drug cartels, since they have the 

most money and experience in marketing and distributing the 

product. Illegal foreign site operators should be deemed ineligible 

to ever be licensed or considered for a license. 

Let me turn now to a significant lack of regulatory oversight. 

Meaningful regulation requires that all gaming facilities be open 24 

hours a day, 7 days a week, 365 days a year, and allow access to 

the investigators. In this bill, those sites don’t have to be in the 

United States. Therefore, it would be impossible for them to regulate. 

Astonishingly, under H.R. 2267, 5 employees of the Internet 

gaming operation must be licensed. Vendors are not required to be 

licensed at all, leaving a huge loophole where operations could be 

penetrated by cheats and criminals. Every employee and most vendors of the Commerce Casino, no matter their position, must undergo background checks for licensing. H.R. 2267 has no requirements that all licensing certification, software, and games be protected. 

The rest of my testimony has been submitted. I thank you for the 

opportunity to be here today. 

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

53 of the appendix.] 

The CHAIRMAN. Next, Mr. Ed Williams, who is president and 

chief executive officer of Discovery Federal Credit Union. And he 

is testifying on behalf of the Credit Union National Association, 

CUNA. 

STATEMENT OF EDWIN WILLIAMS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DISCOVERY FEDERAL CREDIT UNION, 

ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 

(CUNA) 

Mr. WILLIAMS. Mr. Chairman, Ranking Member Bachus, and 

members of the Financial Services Committee, thank you very 

much for the opportunity to testify at today’s hearing on behalf of 

the Credit Union National Association. 

My name is Ed Williams, and I am president and CEO of Discovery Federal Credit Union in Reading, Pennsylvania. With total 

assets of approximately $130 million, Discovery Federal Credit 

Union serves 10,500 members in the community of Berks County, 

Pennsylvania. 

I am also a member of CUNA’s board of directors. CUNA, of 

course, does not condone any illegal activity. However, the Unlawful Internet Gambling Enforcement Act and its implementing regulations represent an inappropriate and unreasonable compliance 

burden which causes us great concern. In short, the law makes 

credit unions and other financial institutions liable if transactions 

with illegal Internet gambling providers are approved, but does not 

provide us with a definition of ‘‘unlawful Internet gambling,’’ much 

less lists of the illegal Internet gambling providers. 

Even if credit unions were not struggling to comply with an everincreasing regulatory burden, which they are, it is unreasonable to 

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15 

tory institutions, many of which are small, without giving them the 

means necessary to determine which transactions are illegal. 

Treasury and the Federal Reserve have concluded that they cannot 

track who these entities are, and leave this burden to the private 

sector. 

We are thankful that the regulatory regime promulgated by the 

Fed and Treasury did take steps toward reducing the burden that 

my credit union faces in complying with UIGEA. But it has not removed the liability that we or our service providers face if we are 

wrong. And we continue to be exposed to reputation risks if we 

block members’ transactions that are legal, and ought to be approved. 

UIGEA rules put the onus on depository institutions serving nonconsumer account holders, to ensure that those entities are not operating in violation of UIGEA. This generally involves asking the 

new non-consumer credit union members about Internet gambling 

during the account opening process and, when necessary, obtaining 

a certification from the member that they are not engaging in illegal Internet gambling activity. 

To ensure compliance with respect to blocking transactions, we 

rely on policies and procedures developed by the various payment 

card system operators. Transactions that receive a certain code are 

blocked from payment. At my credit union, the number of transactions that are blocked is no more than a handful per month. The 

process, unfortunately, catches some false positives: transactions 

which should not have been blocked, because they were not illegal 

Internet gambling transactions, notwithstanding the code assigned 

by the payment card network. 

We believe that part of the solution to the compliance problem 

credit unions face could be the enactment of legislation like H.R. 

2267, which would require Internet gambling businesses to be licensed. By registering these businesses, the legislation provides 

safe harbor for financial institutions to make payments to these 

federally registered sites without any risk of violating UIGEA. H.R. 

2267 promotes regulatory simplicity, while assisting financial institutions’ compliance with UIGEA. 

Although H.R. 2267 is a step in the right direction, we would like 

to work with you, Mr. Chairman, to strengthen the bill’s safe harbor provisions. Specifically, we ask Congress to direct the Departments of Treasury and Justice to develop and maintain a list of illegal Internet gambling providers and provide safe harbors to financial institutions which use both lists when determining whether 

a transaction should be blocked. The existence of both lists will 

make your bill stronger, because it will provide even more incentive 

for Internet gambling providers to register, and it will allow credit 

unions to be certain whether a transaction should be paid or 

blocked. 

Credit unions are already burdened with heavy policing mandates and limited resources. Our compliance responsibilities under 

BSA and OFAC rules are extraordinary. 

We do not think that UIGEA can be fairly implemented without 

creating a list similar to what OFAC publishes to tell financial institutions who are the bad guys. We know that the Treasury and 

the Fed gave significant consideration to the development and 

16 

maintenance of a list of unlawful Internet gambling providers during the UIGEA rulemaking. They concluded that such a list would 

not be effective or efficient. However, if the Federal Government is 

unable to know which entities are illegal Internet gambling businesses, how in the world are depository institutions like mine expected to know? 

Mr. Chairman, your legislation takes a step in the right direction, and would add a degree of certainty to credit union compliance with UIGEA. We appreciate your tireless effort on this issue. 

Nevertheless, we continue to maintain that if the government decides certain gambling is illegal, and mandates that financial institutions police the illegal activity, the government should have the 

responsibility to produce a list of bad actors and provide safe harbors to depository institutions that use the list, including a provision mandating such a list would strengthen your legislation. 

Thank you very much for the opportunity to testify at today’s 

hearing. I am pleased to answer any questions a member of the 

committee may have. 

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

57 of the appendix.] 

The CHAIRMAN. I will now recognize myself. The gentleman from 

California, Mr. Baca, had an opening statement, and the timing 

was such he wasn’t able to do it. So I will now yield 2 minutes of 

my 5 minutes for an opening statement to the gentleman from 

California. That will not come out of his 5 minutes, but out of 

mine. 

The gentleman from California is recognized for 2 minutes. 

Mr. BACA. Thank you very much, Mr. Chairman, and thank you, 

Mr. Ranking Member, for holding this hearing. And I want to 

thank the witnesses for being here, as well. 

This bill before us attempts to set up a Federal regulatory system of Internet gaming, where providers can obtain a license, accept wagers, and be taxed on the revenue. 

However, I believe the only thing that this bill will do is to create 

problems for California and our recovering economy. In fact, the 

bill, if passed as it stands, threatens to close 22,000 jobs created 

in California casinos, jeopardize approximately $455 million the 

California State Government gains from gaming revenue, violates 

tribal sovereignty, and breaks compacts made with the States, 

growth, jobs, and revenue for offshore companies not here at home. 

It allows offshore companies to continue to operate in places where 

a strong regulatory presence is absent, almost impossible oversight. 

This violates tribal sovereignty. Instead of placing these economies in severe distress, economies that already are some of the 

poorest in our Nation, this bill also does nothing to protect the 

American jobs. Brick-and-mortar casinos are a constant source of 

American jobs. At a time when America needs jobs, we should be 

building these consistent sources, not trying to tear them down. 

In my home State of California, the unemployment is about 12.3 

percent. Providing assistance to offshore companies won’t help. It 

will outsource jobs, and hurt over 22,000 people employed by California casinos. 

The safeguards put in place by this bill will do nothing to block 

fraud or prevent problem gaming. At a time when we just passed 

17 

regulatory reform to increase accountability and oversight, we are 

now considering a bill that does little to ensure either of these 

things. 

The scope of gaming that is allowed under this bill will open up 

gaming to children. Problem gamblers will be able to have access 

to gaming on their laptops, iPhones, BlackBerrys, iPads, and other 

devices. 

I urge my colleagues to vote against this bill. 

The CHAIRMAN. I will take part of my remaining time to say this 

is an interesting coalition. We are seeing opposition to this bill consists partly of people who think gambling is terrible, and partly of 

people who think it’s so wonderful that they don’t want anybody to 

be able to compete with them in offering it. I think that is why Mr. 

Norquist and the Chamber of Commerce, believers in free enterprises—which I include myself—disagree with both aspects. 

Let me say one of the great mistakes is when people say, ‘‘You’re 

approving gambling.’’ Look, the world ought to be divided into—in 

the United States, a free country—three categories: things that 

harm other people; things that are damaging; and things that are 

made illegal. Some things—a small number, which are really very 

helpful, and you try to encourage them—tax exemptions and other 

ways. And the great majority of human activity ought to be none 

of our business. 

The gentleman from Alabama said people will make unwise 

choices. Anybody who looks at the members of this body are going 

to think that at least half of the people made unwise choices. People made unwise choices, either for us or for them. Unwise choices 

are part of freedom. 

And so, this notion that—and the notion that it can lead to addiction, it is the death of freedom if you say that because some minority of adults will abuse something, you prohibit it. You would 

go after video games. There is a serious problem of video game addiction with college students. What we have is—the gentleman has 

that. But let me ask the gentleman—I would yield to the gentleman—some California Tribes going to be competing with that, or 

are they going to be okay? Because if the California Tribes are in 

the video game business, that might affect how the bill went 

through. 

Mr. BACA. If it impacts our children, then it won’t— 

The CHAIRMAN. Children, yes. You can protect children. But this 

is not a protection of children. This is a ban on all activity. And 

that is not an effective way to protect children. 

People said, ‘‘You’re going to put this on the Internet.’’ You can 

buy a lot of things on the Internet that I assume you wouldn’t want 

8- and 9- and 12-year-olds to have. There is sexual material, there 

is alcohol, there are other things. This notion that you protect children—first of all, the poor children are a stalking horse here. The 

poor children here are being used by people who don’t like gambling, and I don’t understand this. 

In some cases, it’s religious. Apparently, some people see in the 

Bible a prohibition against gambling, although there was apparently a footnote that exempts bingo. Some of my liberal friends 

don’t like it because it’s tacky. I have friends who are for letting 

people smoke marijuana and read whatever they want in terms of 

18 

literature, and do other things that I certainly wouldn’t want to do 

but wouldn’t prohibit anybody else from doing, but they draw the 

line at gambling, I think, because it’s like kind of a cultural problem. So, let’s let people do what they want. 

Now, people will talk about the regulatory scheme. I would be for 

less regulation. I would be for letting people do what they want, 

but we do have these concerns raised. And we are prepared to 

make some of the changes that people have talked about, Ms. 

Malerba and others. But it fundamentally comes down to this: Do 

we stop adults from engaging in a particular activity, either at the 

request of competitors or at the request of busybodies? And I hope 

the answer will be ‘‘no.’’ 

The gentleman from Alabama is now recognized. 

Mr. BACHUS. Thank you, Mr. Chairman. Mr. Fagan, I would like 

to call your attention to an article that was published in the Vancouver Sun just yesterday, and submit the story for the record. The 

story says the solicitor general of that Canadian province we referred to, that they are now allowing Internet gambling in Canada, 

and he says he’s concerned about the potential for organized crime 

to misuse online gambling after revelations that the BC Lotteries 

Corporation had been fined $670,000 by a Federal agency that 

tracks money laundering and terrorist financing. 

Now, that’s a State-operated lottery, or a provincial-operated lottery in Canada. Do you have any comment on that article? He also 

says he’s reviewing more than 1,000 violations by the online casino 

operations of the Federal proceeds of the Crime and Terrorist Financing Act. Particularly in light—Ms. Duke has told us that Canadian Web sites are highly regulated and safe, and that American 

online casinos, with proper technology, can be also. 

Mr. FAGAN. Not having seen the particular article, I can’t comment much about the article. But I do know that—and, again, I 

can’t comment on material I know from grand jury information or 

from classified investigations—but I do know in North America, including Canada, there have been investigations that directly center 

on the misuse of Internet gambling sites for terrorist financing purposes, and that no amount of regulation will stop that. As I said 

in my testimony, the amount—limiting the number of avenues by 

which terrorists can move funds makes sense, from my point of 

view. 

And this so-called freedom argument in favor of allowing this 

kind of Internet gambling more freely, and the comparison of the 

present ban to, say, liquor prohibition, just doesn’t hold up. In the 

1920’s era liquor prohibition, the government was then taking 

away something people already had, which was difficult to duplicate in quality on an individual basis. A prohibition of Internet 

gambling, however, takes nothing away from people which they 

previously legitimately had. The Wire Wager Act has prohibited 

this kind of telephone wire-based gambling for approximately 50 

years, and it supplements even older State laws. 

Moreover, Internet gambling is not difficult to duplicate in quality on an individual basis, as there are plenty of outlets, formal and 

informal, for gambling. Ms. Duke can gamble in many places: in 

her home; in casinos; and in all sorts of places. She just can’t do 

19 

it on the Internet, so long as the Internet is—the gambling information crosses State lines or foreign— 

Mr. BACHUS. All right, let me ask you this. I would also like to 

submit for the record, without objection, an MSNBC story that was 

published, actually 2 years ago, detailing crimes that 

UltimateBet.com had made. This dealt with a $75 million fraud. 

And I know, Ms. Duke, you are affiliated with YouBet.com, is that 

correct? 

Ms. DUKE. I am affiliated with UltimateBet.net, which is a free 

play site. But they do offer games— 

Mr. BACHUS. Which is a— 

Ms. DUKE. —on .com, yes. 

Mr. BACHUS. Yes, on Ultimate— 

Ms. DUKE. And it was $22 million. The site self-regulated and refunded all the money to its customers. I would prefer to have something like H.R. 2267 so that the government could oversee that regulation. I think that the customers of that site were lucky that they 

were playing on a site under a new management that behaved in 

an honest way and refunded them. 

Mr. BACHUS. But— 

Ms. DUKE. But the individual—and it was one individual—who 

perpetrated the crime and breached the software has not been 

prosecuted because, unfortunately, there is no jurisdiction to do so. 

Mr. BACHUS. All right, let me say this. I think you’re right, $22 

billion is what it turned out— 

Ms. DUKE. $22 million, not— 

Mr. BACHUS. $22 million, I’m sorry. Now, the third— 

Ms. DUKE. All of which was refunded. 

Mr. BACHUS. The last thing I would like to say is there has been 

some testimony today that we have an organization, the Safe and 

Secure Internet Gambling Initiative, which will help ensure that 

offshore corporate interests operate these sites in a safe manner. 

We went to the headquarters of that institution, and here is the 

headquarters. It’s a UPS drop box. And what State is that in? In 

Washington, D.C. So this is the institute that testimony has been 

is going to regulate— 

The CHAIRMAN. The gentleman’s time has expired. The gentlewoman from California. 

Ms. WATERS. Thank you very much, Mr. Chairman. I really have 

no questions for this panel. I came here today to listen and to learn 

and to welcome some of those here in the audience and on the 

panel from the Los Angeles area. And I am anxious to know more 

about the issues. 

So I will yield back the balance of my time. I yield back. 

The CHAIRMAN. The gentlewoman from Illinois. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

Ms. Duke, what is the definition of a poker player versus someone who is gaming? 

Ms. DUKE. Poker is a game that is played between individuals, 

not against the house. It is a game of skill. It is been determined 

by that in pretty much every court decision. In fact, the reason why 

the Commerce Club exists is because California recognizes that 

card games, which are games of skill, are different than other types 

of gaming. 

20 

So things like slot machines and those kinds of activities are 

handled by the Indian Tribes in California. But places like the 

Commerce Club can exist because poker is different. 

Mrs. BIGGERT. Do you think that there should be different regulations for that because of the difference in the definition? 

Ms. DUKE. Games of skill are definitely treated differently legislatively. And in fact, the majority of the offshore sites that are offering poker in the United States right now have very strong legal 

opinions and lots of concurring opinions that they aren’t actually 

breaking any laws because poker is a game of skill. 

That being said, I personally think that adults should be able to 

do what they want when it doesn’t cause direct harm to anybody. 

So I personally think that everything should be okay. But poker is 

definitely a different kind of game because it doesn’t go under 

games of chance. And most of the statutes for basically a predominance of skill as part of the determination of that. 

Mrs. BIGGERT. I have seen you all play out in Las Vegas, and it 

certainly attracts an awful lot of people. There are an awful lot of 

people who like the skill. 

Ms. DUKE. There are a lot of fans, and the game is growing quite 

a bit. And it has been thriving even since the passage of UIGEA, 

which is one of the reasons why I think we need regulation, because it hasn’t actually done anything to decrease the number of 

people engaging in this activity online. 

In fact, the year that UIGEA passed, the main event of the 

World Series of Poker had about 2,000 people in it, and this year, 

it had 7,300 people in it. It has grown tremendously despite the 

fact that legislation had passed. 

So I think we need to regulate it and recognize that this is something that Americans want to engage in, and it is a game of skill. 

Mr. BACHUS. Would the gentlelady yield for just a comment? 

Mrs. BIGGERT. Yes. 

Mr. BACHUS. The reason that it hasn’t done any good is because 

it was only implemented this last month, June, June of 2010, because the Internet gambling industry stalled it off for 2 years. And 

it won’t do any good until we stop the payment of money. And that 

is why the chairman has offered his bill to stop our efforts. 

Mrs. BIGGERT. Reclaiming my time, when you are competing at 

a table, do you play all over the world? You are in different areas, 

so— 

Ms. DUKE. Yes. 

Mrs. BIGGERT. Are you able to determine if any players were 

communicating or working together? Are there people who really 

try and defraud others at this game of skill? 

Ms. DUKE. Are you talking about in brick-and-mortar or on the 

Internet? 

Mrs. BIGGERT. No. I am talking about the brick-and-mortar. 

Ms. DUKE. In the brick-and-mortar, it is extremely difficult and 

there is no recourse if you do suspect it because they have no way 

to mine the data, to look at what the transactions at that table 

were. So even if they did suspect that people were colluding, they 

wouldn’t be able to do anything about it. 

That is actually a place where playing on the Internet is safer 

because it is much easier to spot collusion because they can mine 

21 

all of the data transactions. So any hand that you have played with 

any individual, they can look at—when you suspect an individual, 

they can look at every single hand that person has played and look 

at who they tend to play with and those kinds of things, and then 

they can actually look and see exactly how much money every individual on the site lost to that individual or the consortium. 

So, I know in the past, from playing for 15 years, that there have 

definitely been cases of cheaters being caught in casinos, and I 

have never seen a penny refunded to the players who were affected; whereas online, in every single case that I know of, every 

single penny has been refunded because they can refund it. 

Mrs. BIGGERT. Do these sites check every game all the time? Is 

this something that is continuous? 

Ms. DUKE. Yes. They have software in place that basically looks 

at the distributions. And this is in fact something that Ultimate 

Bet has implemented. So they are looking at the distributions of 

win/loss rates in the players. 

They are also always checking the random number generation to 

see that the correct distribution of hands being dealt is right for 

what random number generation would be so that they can flag 

any time that something is too many standard deviations away 

from the mean to do an investigation. And they have different levels of alerts. 

So these sites are actually in some ways more secure than playing in a brick-and-mortar casino. 

Mrs. BIGGERT. Do you know how many people that takes, to look 

at that? 

Ms. DUKE. A huge security department, and it is a big one. But 

a lot of it is handled by software. 

The CHAIRMAN. Time has expired. 

The gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Mr. Sherman from California. Yes. 

The CHAIRMAN. I didn’t say the Tribes from California. I said the 

gentleman. 

Mr. SHERMAN. Yes. Mr. Malkasian has said that you believe that 

those who have been acting illegally should be prevented from getting licensed under this bill. Do you think we can have faith in 

those who have been operating illegally to pay their taxes and keep 

minors off the site, if they have had this history of violating U.S. 

law up until now? 

Mr. MALKASIAN. Absolutely not. I don’t believe that they will follow the law. Why would they? 

Mr. SHERMAN. That was known as an easy question. Yes. 

It has been suggested that perhaps we limit licenses to those entities that provide a majority of their jobs to people here in the 

United States and our U.S. entities. I don’t know if any of the witnesses, and I am looking here, has looked at this from a WTO 

standpoint. Can we limit those who are licensed to those who are 

providing most of their jobs here? I will have to research that one 

myself. 

Now, Mr. Malkasian, you have said that you could support Internet gaming, presumably, if it was limited to U.S.-based entities 

that have, of course, not violated U.S. law in the past. What other 

requirements would you want to see in the bill? 

22 

Mr. MALKASIAN. One moment, please. 

If done properly, with the proper safeguards, which include: real 

regulation in the law stating the requirement that all operations be 

located in the United States; permanently barring all illegal site 

operators, overseas site operators, or local operators from ever 

being licensed; creating stiff penalties for individuals gaming on 

unlicensed sites and their operators; respecting States’ rights; and 

changing the State opt-out to an opt-in provision that allows a vote 

of the legislature rather than a decision by the governor. 

Mr. SHERMAN. Let me now go to Mr. Fagan. Do we have the 

technological capacity—will the sites have the technological capacity, is it reasonable for us to expect them to have the capacity, to 

be able to keep minors off and to not allow people to play if they 

happen to be sitting in a State that has opted out? 

Mr. FAGAN. The short answer is ‘‘no.’’ While we have technological abilities to attempt— 

Mr. SHERMAN. Can you speak into the microphone, please? 

Mr. FAGAN. And turn it on. Yes. The short answer is no. While 

we have the technological ability to attempt to do those things, 

there are work-arounds for virtually any kind of filter that exists, 

and particularly young people are extremely adept at getting 

around limitations on age, identity, and geographic limitations. 

So I have no confidence that the filtering technology that exists 

now will— 

Mr. SHERMAN. From an anti-terrorism/money laundering perspective, would we be in better shape if all of this Internet gambling was by U.S.-based entities with the money remitted to a U.S. 

source and a U.S. company? 

Mr. FAGAN. If you could limit it that way, you might be in better 

shape. But we can’t limit it that way, as I said. I think the amount 

of— 

Mr. SHERMAN. You could say we could use all of the capacities 

of the Federal Government to block Internet gaming except on sites 

located here in the United States and subject to physical eyeballto-eyeball regulation. 

Mr. FAGAN. The trouble is, we haven’t attempted to enforce 

UIGEA, for example, since it has been delayed. And we have only— 

and then even before UIGEA, we had tools that could fight offshore 

Internet gambling, but the Department of Justice and the States’ 

attorneys general never attempted a coordinated, coherent attack 

on those problems. 

Consequently, when we first started looking at the problem in 

the Eastern District of Missouri, where I was a prosecutor, a Federal prosecutor, in 1996, because Western Union had its operations 

center there and huge amounts of money were identified as moving 

through there, we tried to get help from Washington— 

Mr. SHERMAN. Interrupting briefly, you just seem to be a pessimist on our ability to control this, whether we change the statute 

or we don’t. 

Mr. FAGAN. No, I am not a pessimist. I am saying we have not 

tried sufficiently, using the tools we have, particularly UIGEA, 

which is a wonderful tool, but it has been delayed. So if we give 

some resources or some impetus to a coalition or a task force approach to this, I am confident we can control this problem. 

23 

The CHAIRMAN. Time has expired. 

The gentleman from California, Mr. Campbell. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

Mr. Williams, since you are at the sharp end of the enforcement 

of this under existing law, is it fair to summarize your testimony 

by saying that the enforcement of the existing law is cumbersome 

at best and unenforceable at worst? 

Mr. WILLIAMS. I think that characterizes it very well, Congressman. Our problem with this is that we are trying to block any illegal Internet gambling charges that come through to our credit 

union. The problem we have is we have never been given the resources or a list to compare that against. 

Mr. CAMPBELL. So from the standpoint of the financial services 

industry, who has to participate—that is what this committee is 

here about—we need to change the existing law? 

Mr. WILLIAMS. Correct. We feel that if the licensing did accomplish—or did take place, that at least we could start from a list 

that we can compare transactions against and approve those transactions based upon these are approved by the licensing requirements. 

Mr. CAMPBELL. Thank you. Ms. Duke, how many people play 

poker or watch the World Series of—what is the universe in the 

United States of poker players? 

Ms. DUKE. The estimate is that 70 million people are playing. 

Mr. CAMPBELL. ‘‘Seven zero million?’’ 

Ms. DUKE. Correct. And the industry is growing; it is not going 

to go away. And I don’t think that we should just hide our heads 

in the sand. UIGEA does nothing whatsoever to protect consumers. 

It doesn’t do anything to keep minors offline. It is a banking law. 

Mr. CAMPBELL. And we are talking about more things than 

poker. But 70 million Americans already do this and want to 

play— 

Ms. DUKE. Seventy million Americans— 

Mr. CAMPBELL. —and want to have the option to play with their 

friends online. 

Ms. DUKE. Exactly. And I know, as a mother, I would like good 

government policy to support my wanting to keep my children offline, just as I expect that when they go to a liquor store, they will 

be carded, as an example, which is a government policy. And 

UIGEA does nothing for that. It is simply a banking law. It doesn’t 

do anything to protect consumers or minors. 

Mr. CAMPBELL. And when you talk about that number of people, 

in terms of economic growth, if we can create a legal— 

Ms. DUKE. Yes. 

Mr. CAMPBELL. —controlled, regulated structure for this in the 

United States, as Ms. Malerba and Mr. Malkasian can attest, this 

can be a pretty good business that could employ a lot of people. 

Ms. DUKE. Yes. And actually, it will just build on top of what 

there already is. There was a study done by the Innovation Group 

that was actually commissioned by the Commerce Casino that 

shows that Internet gaming does not stop people from going to 

their local casinos, that it actually doesn’t change that behavior 

whatsoever. 

Mr. CAMPBELL. Right. In the same way movies didn’t stop plays. 

24 

Ms. DUKE. Correct. 

Mr. CAMPBELL. And records didn’t stop concerts because of the 

experience that some people like— 

Ms. DUKE. Correct. And I think that the World Series of Poker 

is a great example of that. Before Internet gaming, the main event 

of the World Series of Poker—so this was in 2000—had about 600 

people entering, in the year 2000. 

Mr. CAMPBELL. Right. 

Ms. DUKE. In the year 2010, which is when this growth online 

has occurred, there are now 7,300 people playing the main event, 

which creates a huge number of jobs. 

Mr. CAMPBELL. Okay. Let me cut you off just so I can get—Ms. 

Malerba, I heard you say that if we could—and I want you to 

know, from somebody who is involved in this bill, that I would be 

committed—that if tribal casinos could participate on an equal 

basis with others, then this is something that you guys can support. Is that correct? 

Ms. MALERBA. We would definitely support that. We do believe 

that there are certain aspects of the regulation that would need to 

certainly be changed. 

Mr. CAMPBELL. Right. 

Ms. MALERBA. But we want to work with the committee to 

change the bill. 

Mr. CAMPBELL. Right. 

Ms. MALERBA. And I think you have to go to online shopping. All 

right? So I shop online at Ann Taylor, and I shop in Ann Taylor’s 

stores, and I do both equally. 

Mr. CAMPBELL. Right. 

Ms. MALERBA. And the places that have embraced online commerce have actually grown their business. So we can hide our 

heads in the sand or we can embrace the industry. It is happening. 

I believe that it can be regulated very, very tightly. And there is 

much more regulation. 

When somebody is gambling at a bricks-and-mortar casino, you 

don’t know—you can’t trace every transaction the way you can online because you have a document online that will trace every 

transaction. 

You know if someone’s gambling habits have changed. There is 

a way to prevent underage gambling. And certainly, there is a way 

to prevent it at a bricks-and-mortar casino. What if the dealer says, 

‘‘They look like they are 21. I guess I am going to let them.’’ 

Mr. CAMPBELL. Right. 

Ms. MALERBA. So you cannot regulate your way to good practices. 

The way—you can regulate, and you need to have strict enforcement of that regulation. But certainly, we embrace the fact that the 

Internet is here to say. And why wouldn’t you want some worldwide funds coming into the United States? I do. 

Mr. CAMPBELL. Thank you, Ms. Malerba. 

Just finally, for Mr. Malkasian, I heard your list of things. I don’t 

know about all of those. But if a bunch of those are in this bill, 

can you support it? 

Mr. MALKASIAN. I would have to go back to the coalition and discuss it with them, personally. I feel that with the proper regulation, online gaming, limited to poker, makes sense. 

25 

Mr. CAMPBELL. Limited to poker? Who said anything about that? 

Mr. MALKASIAN. I understand. That is my position. And I would 

just like to ask—if I may; I know it is not fair—the Innovation 

Group study that I commissioned, we commissioned at the Commerce Casino, didn’t include any study or comments about how 

many employees would be won or lost in bricks-and-mortar casinos. 

The CHAIRMAN. Let me just say now we are going to go vote. Are 

there any members who want to ask questions who have not had— 

[show of hands] 

The CHAIRMAN. All right. I have to go to the Rules Committee. 

I will ask Mr. Moore to come back and preside; we will be gone for 

about 15 or 20 minutes. And any other members who want to ask 

questions, come back. There will be just one more round. 

So I would ask the witnesses to please stay. We will see if we 

can get you a deck of cards to keep you busy while you are here. 

But no money. 

Ms. DUKE. I am all for that. 

The CHAIRMAN. No money. Oh, no. You can’t play. No pros. 

Ms. DUKE. Bring a computer. 

The CHAIRMAN. And we will come back, Mr. Moore, and— 

Mr. BACHUS. Mr. Chairman, can we tell the witnesses that we 

won’t reconvene till at least 4:00, I think? Would that be safe, so 

that they can— 

The CHAIRMAN. They will just have to gamble on that. 

[laughter] 

[recess] 

Mr. MOORE OF KANSAS. [presiding] The hearing will come to 

order. The Chair will next recognize himself for 5 minutes. 

Last December, one of the witnesses testifying on this issue said, 

‘‘After more than a decade analyzing the risks posed by unregulated Internet gambling, it may be ironic, but I have reached the 

conclusion that the best way to protect families and consumers in 

connection with cyber-gambling is by legalizing it, not outlawing it 

entirely.’’ 

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

essentially children, is a top priority for law enforcement officers. 

And it seems that Internet gambling, given the widespread use of 

technology and the Internet today, will happen whether we like it 

or not. 

I am not a gambler. Personally, I don’t care about gambling at 

all. But I recognize there are many responsible adults who do. And 

if we are able to drive this activity into the sunlight through a license regime, as the bill drafted by the chairman will do, we will 

be able to better track and regulate and prevent any fraudulent activity or scams. 

Ms. Duke, do you share this view, or do you have different ideas? 

Ms. DUKE. Yes. The quote that you are referring to is from Parry 

Aftab, and she definitely believes this. One of the budget issues 

that I have with UIGEA is that it actually doesn’t provide any protection for minors or protection for the consumers at all. As I said, 

it is strictly a banking regulation that governs the banks. 

So I would like to see more regulation, forcing these online operators to use majority verification software. Now, most of the reputable operators do do that, and they are licensed by friends of this 

26 

nation like the U.K. and France that do enforce them having majority verification software. But I would like to see my own government supporting my policies, as a mother, and giving me protections to know that my children won’t be gambling online. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. Williams, thank you for your testimony. I have heard from 

credit unions and community banks back in Kansas who share 

your view that their burdens to comply with the current Internet 

gambling law are excessive and unnecessary. And this comes at a 

time when credit unions are already trying to make loans to consumers and small business owners who need financing in order to 

grow and compete during these tough economic times. 

Compliance with the current Internet gambling law appears to 

be getting in the way of that effort. On page 3 of your testimony, 

you say, ‘‘We believe that part of the solution to the compliance 

problem credit unions face could be enactment of legislation like 

H.R. 2267.’’ 

Could you give us an example, Mr. Williams, either at your own 

credit union or stories you may have heard from other credit 

unions, of how the current Internet gambling law is problematic in 

your day-to-day operations during these tough times? And then discuss how H.R. 2267 might help. 

Mr. WILLIAMS. Congressman, what we see currently in my credit 

union specifically— 

Mr. MOORE OF KANSAS. Could you pull your microphone a little 

closer, sir, please? 

Mr. WILLIAMS. I am sorry. 

Mr. MOORE OF KANSAS. That is all right. 

Mr. WILLIAMS. What I see currently in my credit union—I can’t 

really address other credit unions in our area specifically—we have 

a handful of transactions that come through our ACH in a daily 

basis. What we have tended to do is block all those transactions because we don’t have an idea of what is considered legal or illegal 

under the law. 

We chose to block all transactions at that point in time, and then 

from the compliance standpoint, we take an additional step by contacting every one of our members via mail to let them know why 

we block those transactions, in complying with the current regulation. 

We feel that the enactment of H.R. 2267 could lead us to developing, or could lead the Justice Department and Treasury, hopefully, to developing a list of either legal entities or illegal entities 

which then, on the order of an OFAC scan, we can look at on a 

daily basis and compare whatever transactions are coming through 

online against that list that we have from Treasury or from the 

government, and therefore either allow those transactions, if they 

are legal, or stop those transactions if they are illegal. 

Mr. MOORE OF KANSAS. Thank you. The Chair is finished with 

my questions, and I will recognize Mr. Baca for 5 minutes, sir, if 

you have questions. 

Mr. BACA. Yes. Thank you very much, Mr. Chairman. And as I 

stated before, I am against this bill for a combination of different 

reasons. One is it opens up Internet gaming, and then the other, 

27 

the impact it has on the State of California and the amount of jobs 

that could be lost in the State as well. 

My question is for Mr. Fagan. I want to discuss the interaction 

between H.R. 2267 and the Johnson Act. It is my understanding 

that the Johnson Act prohibits the use of gaming devices on Federal land, including Indian reservations. IGRA, however, provides 

an exception to this law. So long as the devices take place on Indian land, I say, take place on Indian land. 

Such activities is conducted under the Tribal-State Compact, 

under the Tribal-State Compact, approved by the Secretary of the 

Interior. Because of this, I have two questions. 

First, would authorization for use of the Internet for gaming proposed turn the computers into the Johnson Act device? 

Second, absent the inclusion of the amendment, would it appear 

that Tribes would remain subject to the restriction under both 

IGRA and the Johnson Act and would be unable to take advantage 

of this law? Is that correct? 

Mr. FAGAN. The second question, I don’t have an answer for you. 

The first question, I believe if not the PC, the computer itself, the 

software itself would be subject to that, the Johnson Act, because 

the software is basically a mechanical gambling device. It moves 

electrons the same way that a gambling device, a slot machine, had 

wheels that rotated. So yes, that would be the answer. 

Mr. BACA. Okay. Then Ms. Malerba, as you know, tribal government and their gaming operations cannot be taxed. Yet tax companion bill H.R. 2267 has a provision for a 2 percent tax—I want 

you to know, a 2 percent tax—to be paid by the operators. In the 

case of tribal government, this would be the first direct tax on 

Tribes. State that, on Tribes, the first step. 

If the tax is imposed, how long is it until someone says that all 

tribal gaming should be federally taxed, to the point to the fact is 

that Internet gaming is already taxed. So all Tribe gaming, should 

they be taxed, then? 

Ms. MALERBA. There are a couple of things. I would say, first of 

all, I have already recommended that H.R. 2267 be exempted from 

IGRA so that Tribes will not violate their tribal compacts. 

In terms of taxing, I think that to say that Tribes are not taxed 

is a fallacy. We all have Tribal-State compacts. We all contribute 

to the State. We all contribute income to our States. As a matter 

of fact, we provide 25 percent of our slot revenues to the State of 

Connecticut. I would love a 2 percent tax on my slots. 

So I don’t see that as any different, whether it is a Tribal-State 

compact or paying a Federal tax. 

Mr. BACA. Would you love it if it means that sovereignty is taken 

away from you and that you lose sovereignty, and all of a sudden— 

Ms. MALERBA. I am saying, and what I have said— 

Mr. BACA. No, would you like it that all of a sudden sovereignty 

is taken away, and now you are taxed, and you no longer have the 

rights on tribal land that you have and the privilege that you have 

at this point; and that you will be taxed and you will have to be 

governed, which means then that you will be playing in the same 

level playing field as everyone else, which means no rights, no government, no council? 

28 

Ms. MALERBA. I think you are using a very, very broad interpretation of that. 

Mr. BACA. It is not broad. It is simple. 

Ms. MALERBA. To do Internet gaming would be to say that we 

are exercising our sovereign right to participate. You don’t have to 

participate as a Tribe. 

Mr. BACA. But once you begin to be taxed and you participate, 

that is where the problem lies. You are now being taxed on tribal 

land. 

Ms. MALERBA. You are exercising your sovereignty. 

Mr. BACA. Which means automatically, then, that you will be 

open. You will be open to doing away with sovereignty at one point 

or another, somewhere along the lines, where everyone says, wait 

a minute. It is no different than a card club, any other casino, any 

other place. 

Ms. MALERBA. So again, I would say you are exercising your sovereignty. And secondly, I understand that California wants to provide for Internet gaming only in California. So does that mean that 

they won’t be providing any taxes to the State of California? 

Mr. BACA. But in California, it is governed, and they are done 

through a compact and an agreement that they have, and there are 

revenues that are paid into the State of California. Here, revenues, 

we don’t where they are going to go. We know they are going to 

be outsourced. They are going to be outside of the State. So we are 

also going to lose jobs, too, as well. 

And this is about jobs. This is about jobs that we have. We are 

now losing so many jobs that have been outsourced out of this 

country. We need more jobs to be created right here. What this 

does is open an opportunity to outsource more jobs out of this area, 

and we should have them right here because what happens right 

now, those jobs are created right here. 

Many people have an opportunity to put food on the table, and 

take care of their families. The procurement, the contracts, the philanthropy that many of these end up doing in our areas would be 

lost because they wouldn’t have the revenue that they are gaining 

right now. 

Mr. MOORE OF KANSAS. The gentleman’s time has expired. 

Ms. MALERBA. Do I have time to comment on that? 

Mr. MOORE OF KANSAS. Very quickly, please. 

Ms. MALERBA. I would say that in Connecticut, we have 8,000 

jobs. We do not believe that participating in Internet gaming is 

going to endanger those jobs in any way. If anything, it will protect 

our— 

Mr. BACA. But I disagree with her. 

Ms. MALERBA. —it will protect our employees. 

And in terms of sovereignty, participating in Internet gaming is 

not going to affect our reservation and our sovereign rights. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. BACA. I think you had better go back and read that. I think 

it will. 

Mr. MOORE OF KANSAS. The Chair next recognizes Ranking 

Member Bachus for 5 minutes of questions, if you have any, sir. 

Mr. BACHUS. Mr. Fagan, you were a Federal prosecutor in Kansas City? Is that right? 

29 

Mr. FAGAN. St. Louis. 

Mr. BACHUS. St. Louis? Okay. I am sorry. You have offered testimony that you believe Internet casino operators will engage in 

predatory behavior. 

Mr. FAGAN. Yes. 

Mr. BACHUS. Would you elaborate on that? 

Mr. FAGAN. The example of—everyone seems to be concerned 

about youth. 

Mr. MOORE OF KANSAS. Would you pull the microphone closer, 

sir? 

Mr. FAGAN. Thank you. Everyone seems to be concerned about 

youth and young people gambling. The Internet operators in my experience—again, practical experience, I am talking about—they 

don’t care that young people are gambling. They will take money 

from anybody. 

But it is not just youth who will be put at risk should this bill 

pass. It is also persons who are alcoholics, sitting at home alone, 

drinking, gambling, and the person on the other end operating the 

Internet casino can’t tell if that person is too drunk or not. A landbased casino operator can look at a guy and say, gee, you are in 

too deep. It is time to stop. But a person running an Internet casino can’t tell that. 

Likewise, the person operating the Internet casino game cannot 

tell if that person who is gambling on the other end is a drug user 

and has gotten high and is gambling away his fortune; if that person is mentally ill or not; if that person is developmentally disabled. How do we stop the developmentally disabled from losing 

their money, which is often government support money, through 

gambling? 

The people could just be depressed. They could be despondent. 

And there is no way for an Internet casino operator to tell that 

about the people they are dealing with; whereas a bricks-and-mortar casino person can tell, and the responsible operators—which 

are most people in the commercial land-based casino industry—can 

tell, and they will stop people who are abusing themselves in some 

way and losing their money. 

Mr. BACHUS. All right. Let me ask you this— 

Mr. CAMPBELL. Will the gentleman yield, or are you going to use 

your whole— 

Mr. BACHUS. No. I am going to use my whole time. 

Mr. CAMPBELL. All right. 

Mr. BACHUS. Is there technology which can identify youth and 

whether someone is a minor? 

Mr. FAGAN. The technology can’t identify youth. It can ask for 

youth to report itself and identify itself and claim that they are 

adults or not, and even—and then they can ask people, to somehow 

verify that. Send in your Social Security number or send me a copy 

of your birth certificate or something like that. 

But anybody who has grown up in America, at some point knows 

somebody who got phony IDs and went out and bought liquor when 

they were too young to buy liquor. And the same thing will happen 

on the Internet. People will steal identities. They will pay people 

to use their identities. They will adopt other peoples’ identities as 

favors. Irresponsible adults will allow youth to adopt identities. 

30 

And so there are plenty of ways that young people who want to 

gamble will get around this. And unfortunately, young people who 

are inexperienced are attracted by the lure of gambling. 

Moreover, the young people are attuned to games. Presently, 

they play video and computer games for points, and they are used 

to winning points. Any parent who has seen their child get that 

glassy stare as they play World of Warcraft or Pac-Man or whatever it might be is concerned and upset by that because the child 

seemingly is addicted. 

Add the lure of money, the promise of winning money to that, 

and in truth, the odds will be against them, they will lose money, 

and it is extremely likely that this kind of abuse and overreaching 

by Internet gambling operators will occur. 

Mr. BACHUS. All right. I guess we call you Chief Malerba. Would 

you consider it, if this law allows companies like Poker Stars and 

what is it, Bodog.com, that have taken bets illegally in the United 

States today, were to get a license to provide Internet gambling 

services, would you feel that was a level playing field? Or are you 

for an exclusion for any company, or the principles of a company, 

who have engaged in illegal Internet gambling activity? 

Ms. MALERBA. I think that all sites should be located in the 

United States. I think all Tribes should be operated by operators 

in the United States. 

In terms of what has happened in the past with the Internet 

gaming operators, I am sure that there are Internet gaming operators offshore that are very legitimate and have been licensed by 

other very legitimate governments. How that plays out in this bill, 

I think, is something for the committee to discuss. 

If somebody was licensed by a legitimate foreign country, does 

that exclude them from then applying for a license here? 

Mr. BACHUS. That is what—my question to you is, your Tribe, 

have they taken a position on whether there should be an explicit 

ban on licenses for any companies that have operated illegally? 

Ms. MALERBA. I think our Tribe is looking at what our options 

are. Should we be an operator ourselves? Should we partner with 

someone? Is there a domestic partner that we should partner with? 

Should there be a tribal coalition? 

So I would say at this point in time, we don’t have a particular 

stance on what that should be. 

Mr. MOORE OF KANSAS. The gentleman’s time has expired. 

The Chair next recognizes Mr. Peters for 5 minutes. 

Mr. PETERS. Thank you, Mr. Chairman. 

Prior to being in Congress, a few years prior to being in Congress, I served as a State lottery commissioner, and ran the Michigan State lottery, so I have experience in gaming operations. I understand the benefits that a legal, regulated gaming operation can 

have. I also understand that there are significant challenges in 

running a legal gaming operation, particularly the responsibilities 

that gaming providers have to not only their players, but also society at large. 

And so I am also concerned about the impact that this may have, 

particularly with younger players, as was mentioned. Mr. Fagan 

mentioned some of the challenges with younger players. 

31 

Ms. Duke, I know that this is an issue that your organization has 

talked about as well. And just maybe if you could give me some 

sense as to what prevents minors now from going online and gaming, and why do you—do you believe that there are some protections? Do you share some of Mr. Fagan’s concerns? Or do you think 

there is a way that we can work additional protections, perhaps? 

Ms. DUKE. First of all, I think that the primary source of preventing minors from going online should be the parents, just as 

that should be the primary source of preventing minors from drinking as well. But I would also like there to be good government policy that supports the policies that I try to enforce in my home. 

Luckily, there is extremely sophisticated majority verification 

software available, and this is for any industry, not just online 

gaming, and many of the online gaming operators are already 

using this since they are, again, licensed by reputable countries 

like the U.K. 

Basically, what that majority verification software does is it just 

makes it very difficult for a minor to get online because they have 

to verify their identity against public records. So this is more than 

just they have to send in a heating bill. They have to do that, too. 

They have to prove where they live. They have to send in identification. But then this software checks what they are saying 

against public records, which are online. 

So this is very sophisticated, many levels deep, to make sure that 

this is who you are. It is identity verification. The government uses 

software like this as well, by the way. So we have to trust that we 

use best practices, and we use the most sophisticated software to 

prevent this. 

And this software is extremely sophisticated, and actually much 

more accurate than somebody looking at somebody’s ID because 

there are very good forged IDs, and those are much easier to come 

by than being able to fool mjry verification software. 

Mr. PETERS. I do believe there are some additional protections 

that we should be using. In addition to that, are there ways that 

we can improve some of the legislation that is being proposed here 

that perhaps has not been considered by the committee? 

Ms. DUKE. I think that any amendment that further promotes 

consumer protection and keeping minors offline I am completely all 

for, even to the point of Mr. Williams having a list of businesses 

that are okay and businesses that you can accept transactions 

from. I think that anything like that can be added to the bill I certainly would be all for because I think revenue is a bonus. 

But the reason why we should really be concerned about this is 

because UIGEA doesn’t provide any consumer protection whatsoever. And I would like to see a bill like H.R. 2267 come in that does 

provide consumer protection. The more we can do to bolster that 

protection, I am all for it. 

Mr. PETERS. So by regulating the Internet gaming, we get additional protection, in your mind? 

Ms. DUKE. Correct, because again, UIGEA is a banking law. This 

doesn’t protect consumers. It doesn’t protect minors. It doesn’t—it 

is not a law that keeps minors offline. It is not a law that keeps 

problem gamblers offline. It is 1 percent of the population, but we 

would still like to keep them offline. 

32 

We need—people are gambling online, and they are gambling online in record numbers. So given that these companies are growing, 

they are licensed by other countries that are perfectly fine with it 

and have very good licensing and regulation systems in place, their 

legal opinion is that certainly in the case of poker, offering poker 

to North Americans is legal as well. 

We know that this is happening. As a government, we should be 

protecting our consumers who are engaging in this activity. And 

the activity is not going away. So I would prefer to see very strong 

consumer protection in this bill. 

Mr. PETERS. Mr. Chairman, I think my time has expired. I yield 

back. 

Mr. MOORE OF KANSAS. I thank the gentleman. And the Chair 

next recognizes, for the last 5 minutes, Mr. Campbell. 

Mr. CAMPBELL. Thank you, Mr. Chairman. And I just wanted to 

add some bits of information to some of what was recently said 

here. 

Mr. Fagan, to a couple of your points, to the issue of the person 

who is, let’s say, temporary incapacitated, using alcohol or something like that, there are technologies out there which engage in 

a series of questions to try and determine if the person is of mental 

capacity or not. 

Those technologies are not, to be frank, fully developed yet to 

where we know they are foolproof. However, I will have an amendment that will be offered to this bill when it is marked up, presumably next week, which includes that we are going to study those 

with the idea that when those technologies become available, we 

can implement those. 

There are technologies available now that were not available 2 

years ago, 3 years ago, or 4 years ago, that now are available that 

we can utilize for various consumer protections in this bill. 

You talked about problem gamblers. I think Ms. Duke made a 

good point that do we keep 70 million people from doing what they 

can because one person or less than 1 percent or 1⁄10 of 1 percent 

have a problem? No. We try and deal with that element that has 

a problem. 

And let me tell you, one of the things that will be in the amendment that I will propose to the bill is a loss limit on a per hour, 

per day, that sort of thing, basis. Now, most bricks-and-mortar casinos do not have such a thing. 

So therefore, we will actually be adding an additional protection 

for the online gambler that the bricks-and-mortar casino gambler 

will not have because we can, because it is very practical to do that 

sort of thing. 

You talked about checking people for their age, and you mentioned that people have fake IDs. And yes, Mr. Fagan, this may 

come as a great shock to you, but around college campuses, there 

are people under 21 years of age who buy alcohol and consume it. 

I have heard that this actually occurs. 

So the point is, nothing we do is foolproof. It is not foolproof in 

a bricks-and-mortar casino. It is not foolproof in a liquor store. And 

it is not going to be foolproof online. But there are technologies— 

alcohol is sold online today, widely, and there are technologies 

33 

available that keep minors, to the best extent we can, from buying 

that alcohol online. And we can employ those technologies. 

And finally—well, not finally; I have one more comment—but relative to licensing, I was a car dealer before I lost my mind and 

went into politics. And you have to get a license to sell cars in California, and if you have done—virtually committed almost any crime 

out there, you can’t get a license to go sell a car. I am not even 

talking about being the dealer. I am talking about selling a car. 

So it is routinely employed in States that there are certain background checks that you have to have to have a license. And this 

should be no different. And so we should have background checks 

and ensure who is there and who is—just as you and your casinos, 

that some of people who run the tables or whatever have to have 

background checks. We can have the same sorts of things, and it 

doesn’t need to be any different. And this is not some great technological barrier that we can’t cross. 

The point is that there are—the Internet moves very fast. And 

there are lots of protections and lots of things that are available 

out there today that were not available 5 years ago. And you know 

what? A year or two or three from now, there will be more that 

aren’t available today. 

And to Mr. Baca’s comment, my colleague from California, referring to the loss of jobs in California, there are a number of things 

we do pretty well in California, and one of them is the Internet. 

I don’t think there is a whole lot of argument from my colleagues 

here, all of whom have fine States that do things, but that we kind 

of do more Internet stuff in California than any other State. And 

that is one of the things we haven’t lost yet to Texas and a few 

other places, due to taxes and whatnot, but that is a different argument. 

But the point is, when I look at my home State of California— 

and I think this is true everywhere—if we can’t in California be a 

major part of developing some of these technologies, developing 

some of these sites for people, putting this stuff together, and creating a ton of jobs, not just in the industry but in the support 

mechanism that supports the industry, then I tell you what, we are 

not doing a very good job in California. And that is our problem, 

not the problem of this bill or this effort. 

So with that, Mr. Chairman, I would yield back. 

Mr. MOORE OF KANSAS. I thank the gentleman. And I want to 

thank the witnesses who have appeared today to testify and answer questions before our committee. I appreciate that very, very 

much. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. Again, thanks to the members, 

and thanks to the witnesses who have appeared today. This hearing is adjourned. 

[Whereupon, at 4:53 p.m., the hearing was adjourned.] 

(35) 

A P P E N D I X 

July 21, 2010 

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