House Subcommittee Examines Conyers, Leach Bills

A subcommittee of the U.S. House of Representatives held a hearing today and heard testimony on two very different ways for the U.S. to deal with Internet gambling.

The Subcommittee on Crime, Terrorism and Homeland Security's hearing was on HR 21, the "Unlawful Internet Gambling Funding Prohibition Act," which was proposed by Rep. James Leach, R-Iowa; and HR 1223, the "Internet Gambling Licensing and Regulation Commission Act," which was proposed by Rep. John Conyers, D-Mich.

"Using a laptop at home or a computer in the workplace involves no entertainment or socialization element and lacks the fundamental protections of law and regulation."

- US Rep. James Leach

The Leach bill would prohibit Americans from gambling online by making it illegal for Internet gambling merchants to use any bank instruments to collect payment. Alternatively, the Conyers bill seeks to form a commission to study the feasibility of licensing and regulating Internet gambling.

Leach testified at the hearing, as did John G. Malcolm, the deputy assistant attorney general for the Criminal Division of the Department Justice; Jeffrey Modisett, the former attorney general of Indiana and a lawyer with the firm of Bryan Cave LLP; and William Hornbuckle, the president and CEO of MGM Mirage Online.

Subcommittee Chairman Howard Coble, R-N.C, opened the hearing by reading a short introduction to the subject of the day's testimonies. Calling Internet gambling a "serious and growing problem for our country," he said the most troubling aspect of the activity, to him, is that I-gaming does not have the same security mechanisms in place for children and problem gamblers that land-based casinos do. Eleven million Americans have gambling problems, he said, citing the National Council on Problem Gambling.

"These facilities are open 24 hours a day, seven days a week, all within a person's own home," Coble said. "By making gambling more convenient, it can do nothing but make the problem worse."

Coble did not express a preference for the tactic taken by either bill, stating only that today's testimony would help the subcommittee decide which approach to take. He turned the floor over to Rep. Robert C. "Bobby" Scott, D-Va., the committee's ranking Democrat, after taking a moment to wish Scott a happy birthday.

Scott began his remarks by saying he believes gambling should remain a matter for the states to govern, as it traditionally has been. He said while he appreciates Leach's proposal, he said the bill may not be the most effective way of legislating online gambling, noting that online gambling merchants could find ways around the payment restrictions by either using different codes for transactions or promoting other types of payments, like e-cash.

"We would simply be increasing the profit opportunities for other countries, particularly ones with whom the United States does not have a diplomatic relationship," he said.

Scott advocated the Conyers bill instead, saying that legalized online gambling would both protect players from unscrupulous actors and provide state governments much needed tax revenue.

"Under HR 1223, there is the potential for a tightly regulated industry overseen by Americans of integrity bolstered by laws and regulations that provide substantial protections for minors and problem gamblers, remove any potential for money laundering and provide economic benefit and tax revenue to the United States."

- Jeffrey Modisett
Bryan Cave LLP

Leach's testimony consisted of a rehashing of some of his previous arguments for other committees that have considered his bill. He stated that Internet gambling is a threat to the family and a money laundering risk, and also talked about the issue of gambling addiction.

However, near the beginning of his remarks, he trotted out a new horse: jobs and unemployment, saying that "it is not good for the economy at large to have Americans send billions to overseas Internet casinos, which often have shady or unknown owners."

"Casino gambling, while it competes for jobs with other sectors of the economy, such as restaurants and the retail trade, also partly balances job losses elsewhere with some job creation," he said. "Internet gambling, on the other hand, may be the only sector of the economy where the case of greater efficiency is not altogether compelling. It reduces jobs in competing parts of the American economy, but creates few in itself and all, to date, are abroad."

Leach also said while he personally skeptical about gambling as a form of entertainment, he respects the rights of others to make "legitimate choices," which he apparently does not think online gambling is. While land-based casinos offer entertainment and socialization, he said, "Using a laptop at home or a computer in the workplace involves no entertainment or socialization element and lacks the fundamental protections of law and regulation."

Malcolm of the Justice Department said his agency generally supports the approach taken by Leach's bill, and that it has concerns about Conyers' bill. He expressed concern about the online gambling industry, citing underage gambling, the potential for fraud, abuse by compulsive gamblers, potential for organized crime and potential for money laundering. Since banks have sharpened their anti-money laundering rules recently, criminals might seek online casinos as less-scrutinized way to transfer funds, he said.

"At this time, the Department believes that Internet gambling should be prohibited for many of the reasons I have mentioned, as well as others cited by the Congressionally-created National Gambling Impact Study Commission in its 1999 report recommending that Internet gambling be prohibited," Malcolm said.

In later questioning, however, Malcolm did mention specific problems that the DOJ has with the Leach bill, including its carve-outs for Internet Service Providers.

Modisett, who while attorney general of Indiana issued an official opinion that online gambling is illegal in that state, testified that Conyers' bill is a more realistic and effective way of dealing with Internet gambling because whether or not the practice is prohibited, people are still likely to engage in it.

Hornbuckle also testified in favor of Conyers' approach, stating that "we see this (prohibitive) activity as ubiquitous and impossible to control from an end-user perspective, with long-term attempts to do so as futile."

MGM Mirage Online launched its Isle of Man-regulated Internet casino last year and does not take bets from Americans, although 60 percent of all people who attempt to register on the site are Americans.

Hornbuckle answered many questions from subcommittee members who wanted to hear more about the ways MGM Mirage Online blocks play from minors, Americans and people from other countries where online gambling is prohibited, like Hong Kong. He said the site only takes bets from a handful of Western European and Scandinavian countries.

Leach's testimony

Malcolm's testimony

Modisett's testimony

Hornbuckle's testimony