Hearing of the House Financial Services Committee's Domestic and International Monetary Policy, Trade and Technology Subcommittee: Proposed Regulation to the Unlawful Internet Gambling Enforcement Act (UIGEA)
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REP. SPENCER BACHUS (R-AL): Thank you, Mr. Chairman, for holding this hearing on the regulatory implementation of the Unlawful Internet Gambling Enforcement Act.
The title of this hearing deals with the regulation proposed by Treasury and the Federal Reserve, although I believe also on our minds is Chairman Frank's legislation, H.R. 2046, which would effectively repeal the ban on illegal Internet gambling that we worked so hard to enact. And I believe it, of course, is also material to today's hearing.
And I know several of my colleagues are pushing for the enactment of that legislation, if they cannot -- what I would say, "water down" -- the regulations which have been proposed by the Treasury and the Fed.
I have a letter signed by 45 states' attorney generals which oppose Chairman Frank's H.R. 2046, and also oppose any weakening of regulations to implement the Unlawful Internet Gambling Enforcement Act. I'm just going to read one quote from a letter that they signed.
They said, "H.R. 2046 effectively nationalizes America's gambling laws on the Internet, harmonizing the law for the benefit of foreign gambling operations that were defying our laws for years, at least until the Unlawful Internet Gambling Enforcement Act was enacted. We therefore oppose this new proposal and any other proposals that hinders the rights of the states to prohibit or regulate gambling by their citizens."
I'd like to enter that letter into the record.
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REP. BACHUS: Thank you.
Make no mistake; illegal Internet gambling ruins lives and tears families apart. Study after study has shown that gambling, Internet gambling, is a scourge on our society that leads to addiction, bankruptcy, divorce, crime, and moral decline. Illegal Internet gambling intensifies the devastation wrought by gambling by bringing the casino into the home.
According to a recent study, 74 percent of those who had used the Internet to gamble had become addicting to gambling, and many of these gambling addicts have turned to crime to support their habit.
Research also indicates that in 2006 alone nearly 10 percent of college students gambled online. Indeed, at our Committee's last hearing on this subject, we heard testimony from Greg Hogan, whose son was once the president of his class at Lehigh University, but now sits in a Pennsylvania prison after committing bank robbery in a desperate attempt to erase his Internet gambling debts.
We also heard testimony from the NCAA about several college athletes who had turned to Internet gambling after betting on football games, some of which they were involved in.
But the harm that illegal Internet gambling inflicts on our society extend beyond the personal tragedies of the Hogans or other American families like them. Illegal Internet gambling also jeopardizes the security of our nation. The FBI and the Department of Justice both testified before this Committee that Internet gambling serves as a vehicle to launder the proceeds of illegal activities, helps fund drug trafficking, facilitates tax evasion and, perhaps most frightening of all, can be used to finance terrorism.
To address these harms, this Congress enacted the Unlawful Internet Gambling Enforcement Act of 2006. Since its enactment, illegal Internet gambling among college-age youth has declined from 5.8 percent in 2006 to 1.5 percent in 2007. This is a significant achievement, but any success the Act has had in decreasing the rate of illegal Internet gambling would be short-lived if criminals believe that the Act will not be enforced.
That is why it is critical that the proposed regulations that are the subject of today's hearing be done right and implemented without further delay. In its current form, the regulations that Treasury and the Federal Reserve have proposed require U.S. financial institutions participating in designated payment systems to prevent transactions in connection with unlawful Internet gambling.
This requirement is an essential --
Could I -- unanimous consent, have one more minute? Would that be --
REP. GUTIERREZ: Without objection.
REP. BACHUS: Thank you.
This requirement is an essential first step, but it is worth emphasizing that all forms of payment should be covered, because a single exemption leaves the law suspect to evasion.
The proposed rules provide exemptions for U.S. financial institutions that participate in designated payment systems if the regulators jointly determine it is not reasonably practical for these firms to prevent illegal transactions. This exemption ensures that the financial institutions are not burdened with implementing impossible and unpractical standards, but the rules should make clear that exempted financial institutions that do become aware of restricted transactions should be required to block them.
Thank you again, Mr. Chairman, for holding these hearings and for our witnesses.
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REP. BACHUS: Thank you.
I appreciate our witnesses testifying.
I would like to hand you at this time a letter from the NFL and the Major League Baseball, NBA, the National Hockey League and the NCAA.
MS. ROSEMAN: Than you.
REP. BACHUS: And this letter, I think you've had for about nine months. Have you gone over this letter pretty carefully?
MS. ROSEMAN: Yeah. We have been looking at all the comments we've received. They have raised issues on many aspects of the regulation. And I think one of the things that's very challenging, as we go forward, is the payment system, frankly, isn't well designed to be able to identify this activity. And that's really what is posing a number of challenges to us -- both that and the uncertainty with respect to what forms of Internet gambling should be proscribed by the regulation.
REP. BACHUS: You know, they point out some interesting things. You know, they're telling us that, for instances, you all say you can't assemble a list of bad actors -- that that's impractical. Is that --
MS. ROSEMAN: Well, we have -- in the proposed regulation we didn't explicitly propose a list, but in the supplementary information that accompanying the proposed rule, we did discuss the pros and cons of having such a list, talking about the challenges of developing a list. But then we specifically asked commenters a number of questions with respect to the desirability of having such a list in the final rule.
REP. BACHUS: You know, obviously a list would be of illegal gambling operations -- many of them offshore.
What struck me is that our staff did just a cursory study where in at least five -- but I think as many seven-ten cases -- you have -- you've done that. I guess the more recent are the cross-border flow of monetary instruments -- legislation on that. You didn't have a problem with that.
The currency transaction reporting requirements, you assembled it for that. The Bank Secrecy Act, you did it under that. Any money laundering statutes, you do it under that. You do it under the Terrorist Financing -- you know. And there was not -- there's not a problem there.
Also, you said that it's not practical for ACAs, wire transfer and check system participants to block restricted transactions, except for those by entities that either have a direct relationship with the Internet gambling site or certain international payment.
But in fact, in all these statutes -- and in about 12 others -- you do that.
You see what I'm saying -- so I mean, I'm somewhat mystified as to why --
MS. ROSEMAN: Well, I think --
REP. BACHUS: You understand what I'm saying? I'm just saying that you all do it. There are so many cases where you require an institution to do it. They do it. They said they -- and another thing, Paul Dinsmore's (sp) dead now, but he pointed out that the small banks said they could do this but somehow our largest, most sophisticated financial institutions said they couldn't. That strikes me as incredibly odd.
I'm sorry.
MS. ROSEMAN: One -- in looking at the list idea, what a lot of commentors used as analogy is the OFAC list. I think the one thing that really distinguishes the list here from the OFAC list is the OFAC list talks about particular entities that you shouldn't have transactions with respect to. In this case --
REP. BACHUS: And the NCAA has identified 900 of those.
MS. ROSEMAN: Mm-hmm. But in this case, the restricted -- it's restricted activity, not restricted parties. So even gambling operations would have a combination of payment transactions that would be restricted under this law and others that would not be.
REP. BACHUS: All right, let me dispute that. When you're talking about illegal Internet gambling enterprises that are not licensed to do business in the United States, now how could they possibly -- they're illegal. They're criminal enterprises. They're not authorized to do business in the United States or transact business with --
MS. ROSEMAN: The larger -- the companies that have these businesses may also have other commercial transactions that they conduct that would be totally unrelated to gambling.
REP. BACHUS: Well, I understand that, but --
REP. GUTIERREZ: The time of the gentleman has expired.
REP. BACHUS: -- but if they're doing an illegal enterprise, you -- and other enterprises if they're doing something illegal, they may do something legal but you block them in all these other statutes because -- in fact, you block them because they do that.
REP. GUTIERREZ: Ms. Roseman, answer the gentleman's question and then we will proceed --
MS. ROSEMAN: Yeah.
REP. GUTIERREZ: -- please.
MS. ROSEMAN: I think on the bottom line, we do get a lot of comments about the list. It is something that we are looking at as we develop the final rule. As Valerie mentioned, we haven't come to any final decisions. But we certainly understand the interests of both the financial industry and of -- say, the professional sports league to have certainty with respect with what's lawful and what's unlawful.
REP. BACHUS: Yeah, and I --
MS. ROSEMAN: I understand the objective.
REP. BACHUS: And I guess my point is saying that you can't do something you're doing in 17 other statutes is sort of unusual.
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REP. BACHUS: Thank you. I think a lot of the questions that have been posed would be better answered by the Justice Department. In fact, Ms. Abend you said, I think on two responses, that the Justice Department would be better able to answer those questions.
And for the record, before we adjourn this panel, I'd like to point out that a number of the questions could have been answered by the Justice Department. They would've been the appropriate party. And for that reason I on at least three different occasions strongly urged and requested the committee to invite the Justice Department, but that request was not honored.
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