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Anne Lindner

HR 556 - The Industry Responds

2 October 2002

Leaders in the Internet gambling industry are expressing regret that the U.S. House of Representatives chose to pass a bill banning Internet gambling instead of focusing on regulating it.

HR 556, the Unlawful Internet Gambling Funding Prohibition Act, was passed yesterday by a voice vote.

"Leach and Goodlatte are undoubtedly good intentioned, but I don't think they understand the danger of what they're doing, and I think also they failed to take into account the consequences of their actions."
-Mark Blandford

"In essence, I think this is a very dangerous route that they're taking," said Mark Blandford, executive vice chairman of Sportingbet. "Leach and Goodlatte are undoubtedly good intentioned, but I don't think they understand the danger of what they're doing, and I think also they failed to take into account the consequences of their actions. ... What I mean by that is their attempt to control e-commerce in an industry which is quite legal elsewhere, in many countries."

Sportingbet, based in the United Kingdom, in May launched a public relations campaign in the Washington, D.C. that features ads with the now-famous "Please Sir, Can I Pay Taxes" tag line. Blandford's company was hoping, and still does hope, that U.S. lawmakers will regulate and tax the online gambling industry instead of criminalizing it.

"I think they are failing to address the point," he said. "The prohibition of Internet gambling will not stop the activity from taking place, but they're in danger of forcing it into the wrong hands, and therefore they're also losing the ability to put the safety nets in place to protect against minors, they are losing the ability to get the audit trail, so that things like point shaving scandals can be traced, and of course, there's no protection for problem gamblers."

The bill that passed was proposed by Rep. James Leach, R-Iowa, and contains elements from a similar bill that was put forth by Rep. Bob Goodlatte, R-Va. HR 556 would make Internet gambling illegal by way of making it unlawful to use any credit card, electronic wire transfer or any other bank instrument to pay for Internet gambling activities. It would also update the 1961 Interstate Wire Act to cover Internet gambling in addition to wagering via phone lines.

Lewis Rose, interim president and CEO of CryptoLogic Inc., a leading vendor of online gambling software, pointed out that the Senate still needs to approve the bill before it can have an effect on the industry.

"Prohibition just has not been successful, and I don't think it will be in the future."
- Jim McKennon
Action Online

"It's premature to speculate on whether it will become law," Rose said. "It must still pass the Senate, which is unlikely given the short remaining life of this Congress, and it's clear that all previous attempts to pass such legislation have failed.

"I can say that the move toward strictly regulated online gaming continues to gain momentum around the world. We've certainly seen that momentum in Europe..."

Jim McKennon, the CEO of Action Online, the only casino operator licensed in the Isle of Man with no land-based gaming facilities, compared the situation to the unsuccessful attempt in America to prohibit alcohol in the 1920s.

"I'm not sure they will have the same level of success in passing it in the Senate, and my view of the future is, you have to look historically to see what benefits banning Internet gaming has brought to the United States, and to that end, there's been no benefit," McKennon said. "We have a number of unregulated, independent enterprises out there that have been operating and actively soliciting and receiving wagers from the United States, so to that end, if the effect is to protect people from underage gaming and problem gaming and also disreputable operators, there is really only one solution, and that is for this industry to be regulated in a controlled environment and taxed appropriately. Prohibition just has not been successful, and I don't think it will be in the future."

The Interactive Gaming Council, an Internet gambling trade association of which McKennon is vice president, released a statement about the bill's passage. One section of the press release deals with allegations made by several champions of the bill that Internet gambling is a haven for not only money laundering but also terrorist activity.

"We take particular exception to the assertion that there is a link between Internet gaming and terrorism," the group said. "Notwithstanding the reckless statements some have made, there has never even been a credible allegation that terrorists have used Internet gaming for money laundering. Internet gaming involves credit card transactions with a clear record of every wager. Money laundering is extremely difficult in a situation where every electronic transaction is recorded. Internet gaming is no different from any other form of e-commerce with respect to money laundering; perhaps the only difference is that our industry is subject to greater law enforcement scrutiny."

The American Gaming Association (AGA), a lobbying group for U.S.-based casinos, neither endorsed nor opposed the bill. AGA president Frank Fahrenkopf said the bill satisfied the association's three-pronged approach toward evaluating Internet gambling legislation. First, the bill does not make anything the AGA's members are currently doing illegal. Second, the group feels that it treats all sections of the industry equally, from horse racing to lotteries to Indian gaming. Third, the bill recognizes states' rights.

Fahrenkopf said the AGA was not surprised the bill passed.

"We take particular exception to the assertion that there is a link between Internet gaming and terrorism."
-The Interactive Gaming Council

"We figured that when you've got the chairman of the House Financial Services Committee and the former committee chairman and the ranking Democrat of the committee all favoring it, that's pretty strong firepower," he said. "We also understood that the credit card industry, who is really impacted by it, withdrew their opposition to it. I expected that it was going to pass."

He said he was surprised, however, that the bill passed by a voice vote. When a voice vote is taken, a record of who votes for and against the bill is not taken, nor is a record of the specific number of votes.

"I talked to [Rep. Michael Oxley, R-Ohio, the chairman of the Financial Services Committee] this morning, and he said it surprised him," Fahrenkopf said. "So the people who opposed the bill sort of got beat at the switch. They were on their toes because any one member of the House could have said no and they would have had a roll call vote."

Regardless of whether the bill passes in the Senate and becomes law this year or fails and reappears next year in the House next year, Blandford said, the legislation can't touch two of the industry's key characteristics: its internationality and its innovation.

"From an English company's point of view, it's actually not going to make much of a difference because they have no jurisdiction over legal activity in terms of the e-cash companies who are non-American," he said. "People see the 7995 credit card issue (in which merchants are required to identify all I-gaming transactions with a code) and the Leach bill as actually creating a business opportunity around giving solutions to operators in what is now a huge industry."

HR 556 - The Industry Responds is republished from
Anne Lindner
Anne Lindner