Washington Focuses on Internet Gambling

A subcommittee of the U.S. House of Representatives Committee on Financial Services held a hearing today to gather opinions on Internet gambling from a variety of sources within the gaming and financial industries.

Many of the experts to give testimony to the Subcommittee on Oversight and Investigation expressed that outlawing Internet gambling completely in the United States would not be feasible.

Most notably, a representative from Visa said that it would be nearly impossible for Visa to block transactions from offshore I-gambling operations. Potential legislation outlawing Internet gambling in the United States could place the responsibility of blocking illegal transactions on credit card companies.

Visa, Mark MacCarthy said, requires Internet gaming merchants to use a combination of codes that tells the card issuer that a transaction is likely to be an I-gaming transaction. The code allows the card issuer to deny the transaction, and if the United States passes a law making all Internet gambling illegal, unscrupulous online gaming merchants would simply stop using the correct codes.

"We believe that the responsibility for illegal acts should be placed squarely on the shoulders of the illegal actors themselves, the gamblers and casinos that engage in illegal operations" said the senior vice president of public policy. "Making payment systems responsible for policing Internet gambling does not provide a practical and effective solution for this complex social problem."

Also testifying before the subcommittee were representatives from problem gaming organizations and sporting associations such as the National Collegiate Athletic Association and the National Thoroughbred Racing Association.

A bill drafted by Rep. James Leach, R-Iowa, to make Internet gambling illegal was introduced Feb. 14 and is now in committee. Two other House members, Rep. Robert Goodlatte, R-Va., and Rep. John LaFalce, R-N.Y., are said to be coming forth with separate bills that also aim to ban online wagering for U.S. citizens.

Rep. Sue Kelly,R-N.Y., chairwoman of the subcommittee, told a C-SPAN interviewer Wednesday that the purpose of the hearing was to raise questions and examine issues relevant to I-gaming. When asked if there was anything in Kelly's personal background to make gambling of special importance, she replied that she had a good friend once who lost everything to gambling addiction.

"He became a homeless person on the street and it was all because he gambled and continued to gamble on a regular basis," Kelly said.

The hearing was divided into two parts, with five testimonials given in each part. A question and answer section followed each panel of five witnesses, in which subcommittee members could ask questions of the participants. Several people in attendance noted it was unusual for Goodlatte, who is not on this particular House subcommittee, to question testifiers.

One such participant to receive a Goodlatte question was Sebastian Sinclair, a financial analyst with Christiansen Capital Advisors, who told the subcommittee members that $2.2 billion was spent globally on Internet gambling last year, with the majority coming from U.S. citizens. He testified that it would be difficult to prohibit online wagering altogether.

"We have been relatively unsuccessful in legislating away demand," he said. "Stopping supply becomes difficult in the digital age."

Sinclair continued, saying that the demand for Internet gambling is evident.

"I don't know the area very well, but I imagine I don't have to walk very far to buy a lottery ticket," he said. "The question is, how do we unring that bell?"

The subcommittee also heard from two experts on problem gaming, one of which was Valerie Lorenz, executive director of the Compulsive Gambling Center. Lorenz said that during her nearly 30 years of working with gambling addiction, she has only seen the problem get worse in Nevada. Her recommendation was to put a moratorium on all expansion of gambling, including Internet gambling.

"Does this country really want citizens that can gamble away their life savings on the Internet?" she asked.

A statistic cited in the testimony of Sue Schneider, CEO of The River City Group and chairman of the Interactive Gaming Council, put the above question into perspective. Schneider and others on the council pointed out that regardless of what lawmakers want for the country, many American currently gamble online. Fifty to 90 percent of the market demand for online gambling comes from the United States, Schneider said.

"This fledgling segment of the gambling industry is one of the few profitable business sectors on the Internet and it is growing," she said

Another perspective on the issue was presented by Penelope W. Kyle, who is the executive director of the Virginia Lottery as well as the president of the National Association of State and Provincial Lotteries.

She said her association's members are splintered in their beliefs about whether state lotteries should be offered via the Internet, with some strictly against it and some in support of it. She said her organization has not taken a stand for or against Internet gambling because each state should be able to decide for itself.

"We feel that this is a position that must be taken by each of the individual states," Kyle said, "to determine the forms of regulating their own gaming as well as the methods that are offered in that state."