House Passes the Unlawful Internet Gambling Enforcement Act

Confusion in the Press
There seems to be some confusion in the press regarding what bill just passed in Congress. It has been reported that the "Goodlatte" bill passed in the House. Actually, what is referred to as the Goodlatte Bill, introduced by Rep. Bob Goodlatte, R-Va., is H.R. 4777, which was fraught with problems previously reported by Card Player (http://www.CardPlayer.com/magazine/article/15416). The common name of that bill is the "Internet Gambling Prohibition Act."

Another milder bill was introduced by Rep. Jim Leach, an Iowa Republican. That bill, commonly known as the "Unlawful Internet Gambling Enforcement Act," is H.R. 4411, which basically prohibited credit card companies and financial institutions from sending payment to gaming sites.

The bill that passed was an amended version of H.R. 4411, which is the Leach bill that added some of Goodlatte's proposals. Before this bill becomes law, it must pass both the House and the Senate. Currently, there is no commensurate bill pending in the Senate.

Poker Players are Not at Risk
The first thing to note is that the bill does not prohibit a poker enthusiast from playing online poker. One Democrat introduced such an amendment to demonstrate the hypocrisy of the bill, but the amendment failed. There is no mention of the poker player in the bill nor any penalty associated with playing poker.

H.R. 4411
After almost four hours of debate, the bill passed by a vote of 317-93. In a nutshell, here's the meat of the statute and the predictable problems associated with each section of the bill.

Online gaming sites are prohibited from accepting payment from a U.S. financial institution. Since all online sites are outside of the U.S., our government has no jurisdiction to enforce this part of the law. Simply stated, the U.S. cannot make laws or enforce laws regarding business outside the U.S.

Financial institutions are forbidden from delivering funds to online gaming sites. However, most banks and credit card companies already refuse to send money to offshore sites. Therefore, offshore third-party companies have already been set in motion to handle U.S. financial transactions.

The amended 1961 Wire Act modernizes its language by including the Internet and prohibiting games "predominantly subject to chance." This will be the start of expensive and time-consuming litigation regarding whether poker is predominantly a game of skill or chance.

A burden is placed upon Internet service providers and other technology providers to block access to online gambling sites when requested to do so by a law enforcement agency. This will prove to be an unenforceable nightmare for all involved.

The bill directs the Department of the Treasury and the Federal Reserve to issue regulations outlining policies and procedures that could be used by financial institutions to identify and block gambling-related transactions that are transmitted through their payment systems. If the bill ever becomes law, these entities have 270 days to write such procedures. The implementation is mind-boggling.

The bill contains carve-outs for such things as lotteries, horse racing, and the stock market. Every opponent of the bill criticizes it because while it attempts to legislate morality, it prohibits only certain forms of gambling while allowing others.

As a matter of fact, although the proponents of the bill say that online gaming is destroying the moral fiber of society, the bill allows a state to house an online gaming site for its citizens.

Political Motivation
The bill was clearly politically motivated by Republicans who are worried about losing control in the House after the November election. Last month, House Republican leaders announced that this bill would be part of a 10-part "American Values Agenda," which consists of 10 unrelated pieces of legislation, including a constitutional amendment prohibiting same-sex marriage, tax cuts, a flag-burning law, and extensive restrictions on stem-cell research.

Furthermore, this is a way that our legislators can separate themselves from the now disgraced lobbyist Jack Abramoff, who lobbied against previous versions of this bill by using bribes, fraud, and hundreds of thousands of dollars to assist in the bill's defeat.

The Future Players
As I see it, there are a number of players and organizations to be watching in the near future.

Although Senate leaders have not identified the bill as a top priority, Arizona Republican Jon Kyl has pledged to pursue a similar bill in the Senate.

Frank J. Fahrenkopf Jr., the American Gaming Association president, recently announced that the AGA supports a study of the feasibility of regulating online gaming.

The White House's Office of Management and Budget said that although it supports the House's vote, it has concerns about the bill.

Sam Vallandingham, vice president of the First State Bank in West Virginia, has said, "Our concern is that the added burden of monitoring all payment transactions for the taint of Internet gambling will drain finite resources currently engaged in complying with anti-terrorism, anti-money laundering regulations, and daily operation of our bank."

U.S. Rep. Barney Frank, D-Mass., and U.S. Rep. Ron Paul, R-Texas, continue to vocally oppose the bill: "Prohibition didn't work for alcohol, and it won't work for gambling," Frank said. Paul agreed, adding, "The only thing (prohibition) does is increase the price."

U.S. Rep. Shelley Berkley, D-Nev., offered an amendment that would have eliminated what she called the "hypocritical exemption" by completely banning all forms of Internet gambling. It failed by a vote of 297-114.

My favorite representative, Rep. John Conyers, D-Mich., also offered such an amendment. He called all the exceptions and carve-outs "loopholes as big as a barn door."

The Poker Players Alliance is another group to be watched. Reuters reported that regulating Internet poker instead of banning it could bring the U.S. government $3.3 billion in taxes annually, according to a study by the Poker Players Alliance.

Income taxes on winnings from Internet poker alone - which is estimated to have attracted $60 billion in wagers worldwide in 2005 - could amount to $2.5 billion each year. The study also said that a 1 percent user fee on online poker transactions would generate another $800 million to $1 billion in revenue per year for the U.S. government.

Finally, Rep. Jim Kasper from North Dakota should be watched, as well. I had the pleasure of speaking with him recently. He informed me that he was in contact with AGA President Frank J. Fahrenkopf Jr., discussing possible ramifications of the bill.

Rep. Kasper told me: "I intend to draft the legislation to allow any Internet company located in North Dakota to be able to do business worldwide, not just in North Dakota. If the DOJ or the Congress try to stop us, it is my intention that the state of North Dakota initiate legal proceedings in federal court, to have the courts rule on the constitutional issues. And, I am looking for input and help from the gaming industry in the drafting of the new bills." Rep. Jim Kasper can be reached at [email protected].

In conclusion, I will reiterate what I have predicted every year for about the last 10 years. My prediction is that no law will pass in 2006 banning online gaming. The attempts are more complicated but no more feasible than they have ever been. Online gaming is a $12 billion a year business that is here to stay. Show your support for the right to play online by going to www.cardplayer.com/link/savepoker and sending a letter to your congressmen opposing this legislation.