Internet Gambling
INTERNET GAMBLING -- (Senate - November 16, 2006)
Mr. KYL. Mr. President, I would like to address the recent enactment of the Unlawful Internet Gambling and Enforcement Act of 2006. Due to procedural considerations at the end of the regular session, this law was enacted as title VIII of H.R. 4954, a bill focused on port security. But I want the record to show that I have been working to pass this law for more than 10 years, with the support of many colleagues. Indeed, the Senators serving as conferees for the port security bill accepted including the Internet gambling title, as did the leadership on both sides of the aisle. And this July, the House of Representatives voted 317-93 in favor of a bill containing not only identical enforcement measures to those that were recently enacted, but also including the more controversial Wire Act amendments.
Over the last five Congresses, a stand-alone Internet gambling bill has been passed by at least one Chamber of Congress, every time by overwhelming bipartisan votes. The last time an Internet gambling bill came before the whole Senate, it was passed by unanimous consent. Unfortunately, the Jack Abramoff scandal corrupted the process for that bill in the House of Representatives. Since then, the full Senate has not had the opportunity to vote on more recent legislation repeatedly passed by more than three-quarters of the House. So I greatly appreciate the assistance of the majority leader and the conferees in finally getting this long-overdue law to the President's desk.
The National Association of Attorneys General--NAAG--first approached me in 1995 about the problem of Internet gambling. The State attorneys general were concerned about the evasion and erosion of State laws by gambling websites operating beyond the reach of State law enforcement. I heeded NAAG's request and introduced the first Internet gambling bill late that year to increase Federal enforcement of gambling laws.
Over the next 10 years, Senate and House Committees repeatedly held hearings and markups. We listened to the experts about what types of enforcement would be effective or impractical, and revised the legislation in response. In 1999, the congressionally commissioned National Gambling Impact Study Commission Report recommended that law enforcement target the payment systems to combat illegal offshore gambling, so that is the approach we adopted.
I have worked closely with Representative Jim Leach, former chair of the House Financial Services Committee, a very capable and thoughtful colleague who will be greatly missed in future Congresses. Representative Mike Oxley, who succeeded Mr. Leach as Financial Services chairman a few years ago, Representative Jim Sensenbrenner, chairman of the House Committee on the Judiciary, and Representative Bob Goodlatte, who sponsored the bill scuttled by Jack Abramoff, have all helped shape Internet gambling legislation over the last several years.
Why has Congress been so supportive of Internet gambling legislation for so long? Because offshore operators have been flouting American laws for personal gain. They have been giving Americans the false impression that these activities are legal. They have been profiteering from this. The Federal Government has long given States the right to prohibit or limit gambling activities for the protection of the public, but offshore Web sites have been ignoring and circumventing the State laws. State law enforcement officials and Congress refused to stand idly by as our laws were evaded and eroded.
How could an illegal activity become so pervasive? Knowing that their businesses are illegal in the United States and many other countries, Internet-gambling businesses have set up shop in countries with very few gambling regulations, such as Antigua and Costa Rica. These small countries benefit from the billions of dollars of profit generated by their local gambling operators. So when the United States tries to prosecute a criminal violation of its gambling laws, these countries are not interested in extraditing their wealthiest residents. The United States is thwarted in its efforts to enforce its criminal laws against offshore gambling businesses.
Some say that, instead of trying to enforce the law, we should legalize and regulate online gambling. Why does this approach have so little support in Congress? Because Internet gambling is a scourge to society, leading to addiction and bankruptcy, and enticing young people into a gambling lifestyle.
Internet gambling is highly addictive. Online gambling is available 24/7 from almost any location. Fast and continuous play, often financed by credit, allows online gamblers to rapidly lose tens of thousands of dollars, leading to bankruptcy, family devastation, and criminal activity. It is easy to conceal the addiction because an online gambler does not need to leave home or the office to gamble, and shows no physical signs of addictive behavior like an alcohol or drug addict does.
Various recent studies show that Internet gamblers are two to three times more likely to become addicted than brick-and-mortar gamblers. One study of students at the University of Connecticut found that 74 percent of Internet gamblers were problem or pathological gamblers. The Annenberg Public Policy Center's 2005 National Annenberg Risk Survey of Youth--NARSY--surveyed 900 young people between 14 and 22 and found that 54 percent of youth who gamble online at least once a week are problem gamblers, and that card players exhibit the most symptoms of gambling addiction.
Internet gambling entices young people into a gambling lifestyle. Young people who are accustomed to playing video games for hours on end are particularly likely to be enticed by the games and to lack a realistic perception of the consequences of gambling for money. Conversely, traditional casinos appeal to mature adults: according to a recent survey by the American Gaming Association, 75 percent of casino customers are over 40 years old. Internet gambling appeals to the opposite demographic: at least 70 percent of Internet gamblers are under 40 according to the AGA, and they did not even count the millions of online gamblers who are under 21. Also, Internet gambling appears to be a gateway drug. According to that same survey, Internet gamblers are twice as likely to engage in traditional gambling than the general population. So the rise of online gambling is fertilizing the soil for an explosion of gambling addictions in this country.
The United Kingdom is in the midst of an effort to legalize and regulate online gambling, including efforts to prevent youth and problem gambling. This effort is not going well. A report commissioned by the British Government was issued a few weeks ago. The report admits that
most gambling operators choose jurisdictions where there is very little regulation on their activities. This creates a race to the bottom, where gambling operators in a few countries can offer services that flout the laws of almost every other jurisdiction.
The new law confronts the problem of online gambling in three ways. First, it transforms violations of State gambling laws into a Federal crime as soon as the gambling operator receives money for the transaction. Second, it authorizes Federal and State attorneys general to enjoin persons who enable violations of the law, such as a person running advertisements for illegal Web sites. Third, it requires payment systems to block payments for illegal online gambling.
The new Federal criminal law is already having a positive effect. The publicly traded online gambling companies, who have to answer to financial institutions and other investors, have quickly withdrawn from the U.S. market.
Some Web sites continue to deceive the American public about the legality of online gambling, State and Federal law enforcement are now empowered to enjoin advertising for these illegal websites, and any other support services within their reach. Payment blocking is necessary to reduce Internet gambling and make it clear to the American public that this activity is illegal.
The payment blocking requirements will not become effective until the Treasury Department and the Federal Reserve issue regulations. The statutory deadline for these regulations is August 10, 2007. I urge the Treasury Department and the Federal Reserve to issue these regulations on time, and to make them strong.
Most online gambling websites use third-party offshore payment systems to receive money from U.S. customers, because many U.S. financial institutions have already been blocking payments to these Web sites for years. When a U.S. credit card or bank sends money to one of these services, the U.S. financial institution does not know how the money will be used. On the other hand, the third-party payers know the money in their accounts is being used for online gambling by U.S. customers. Therefore, these third-party payers are knowingly aiding and abetting a criminal act when they send funds from U.S. customer accounts to online gambling companies.
Firepay has appropriately chosen to stop making these illegal payments for American customers, even though it operates out of Ireland. The regulations need to make sure that law-abiding companies such as Firepay are protected, while third-party payers who knowingly aid and abet criminal activity are effectively sanctioned.
I would also note that this law empowers payment systems to make strong efforts to stop the use of their systems for online gambling. To that end, section 5364(d) of the new law protects entities from civil liability for blocking restricted transactions, or if they mistakenly block, prevent, or prohibit legal transactions when attempting, in good faith, to comply with the law. At the same time, section 5364(b)(4) clarifies that the government will attempt to draft the regulations to catch as few legal transactions as possible.
The key is implementing the most effective and efficient enforcement measures that are reasonably possible. We have not sat idly by while unscrupulous operators profiteer from evading our laws and perpetrating fraud on the public. We have worked long and hard to defend the letter and the purpose of State and Federal gambling laws, and now we ask the executive branch to help us finish the job. Strong regulations for payment systems will cut off most fund transfers to offshore online gambling operators and destroy U.S. markets. By drastically reducing the availability of Internet gambling in the U.S., we will reduce new addictions and violations of the law.
This is why, this year, 49 State attorneys general, as well as the National District Attorneys Association, Federal Criminal Investigators, and Fraternal Order of Police wrote in support of this law. These law enforcement groups were not alone. They were joined by extraordinarily diverse groups that are concerned about the effect that online gambling has on society and the rule of law.
First, sports organizations are concerned about preserving the integrity of athletic competitions, and want to protect them from perceptions of corruption or a culture of gambling. This is why the National Football League, National Collegiate Athletic Association, Major League Baseball, National Basketball Association, and National Hockey League all actively supported the law.
Second, financial institutions are concerned about Internet gambling's association with money laundering, uncollectible consumer debt, and use of their systems for criminal activity. This is why the American Bankers Association, America's Community Bankers, and Securities Industry of America, joined by individual companies such as American Express, Citigroup, and PayPal, wrote in support of the law.
Third, religious groups and family welfare groups are concerned about the devastating effects that gambling addiction can have on families. This is why this law was supported by a broad range of civic organizations, from mainline churches such as the United Methodist Church and the National Council of Churches, to coalitions such as the National Coalition Against Gambling Expansion, to conservative family groups such as the Family Research Council and Concerned Women for America.
This is why I am proud that this legislation was finally enacted. As all these diverse groups recognized, online gambling is a threat to civic society for many reasons. Failing to enforce laws that are meant to diminish this threat undermines the rule of law itself. But today we stand ready to reclaim the power to enforce the law, and I ask for the help of the Treasury Department and other executive agencies to secure this victory.
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