US House Committee Hears Testimony on Frank Bil

The U.S. House of Representatives got its first opportunity on Friday to hear arguments for and against the Internet Gambling Regulation and Enforcement Act, Rep. Barney Frank's, D-Mass., bill to regulate Internet gambling in the United States. Six of the witnesses--four of them in favor of the bill, and two against it--also submitted written testimony to the House Financial Services Committee.

Those who support the legislation argued that the recently passed Unlawful Internet Gambling Enforcement Act (a law prohibiting Internet gambling) is an infringement on civil liberties (based on the notion that people have the right to gamble in the privacy of their own homes); that regulating Internet gambling fixes the problems cited by proponents of prohibition as reasons to ban the activity; that the government should focus its enforcement efforts on greater dangers than Internet gambling; and that the prohibition bill was wrongfully snuck through the legislature as a subset of a larger bill.

The main two arguments made against the Frank bill were that Internet gambling leads to great social harm as a result of gambling addiction and that technology for regulating Internet gambling--namely geo-location and age verification systems--is inadequate.

The most compelling arguments in favor of the legislation perhaps came from Reason Magazine Senior Editor Radley Balko, who categorized the Unlawful Internet Gambling Enforcement Act (UIEGA) as the prohibition of a victimless crime and, therefore, an infringement on civil liberties.

Balko, a former policy analyst for the Cato Institute, put it simply, "What Americans do in their own homes with their own money on their own time is none of the federal government's business."

He supported his argument by pointing out poker's presence in American culture.

"Online poker is merely a new evolution of the game, similar to the way Civil War poker games introduced the straight, and gave us variations like draw and stud poker," Balko explained. "The Internet merely removes the geographic barrier preventing those who love the game from finding opponents of similar skill who are willing to wager similar amounts of money."

The remaining testimony in support of the Frank bill related to the availability of technology for regulating Internet gambling. Jon Prideaux, an independent consultant to the payments industry and founder of Virtual Visa, Visa Europe's Internet Division, presented the regulation of Internet gambling in the United Kingdom as a case study for what could be accomplished in the United States.

After pointing out that some of England' largest, most successful companies are gaming operators, Prideaux gave a step-by-step explanation of the Internet payment process and concluded: "It is worth reflecting that at all stages of the process, precisely because the Internet gambling environment takes place in the electronic environment, the degree of control that can be applied far exceeds that which can be applied in the face-to-face environment, where cash is the normal currency. Internet gamblers cannot be anonymous and all the activity that they undertake can be regulated and controlled through a variety of different processes."

Prideaux added that through his experience as the chairman of Visa Europe's Compliance Committee, he recognizes that dispute rates for regulated Internet gambling operators are around 0.1 percent--less than average for Internet transactions. He also said that he has never received complaints related to problem gambling or cheating, nor has he seen suspicious activity indicating money laundering.

Meanwhile, Gerald Kitchen, chief executive of U.K.-based SecureTrading Group Limited, describes effectiveness of the STBT system, a joint project from his company and Baker Tilly. The system is specifically designed to provide security, protect against fraud, prevent money laundering, and limit other abuses in areas of e-commerce that are perceived to pose special risks, such as in travel reservations and Internet gambling transactions.

Kitchen pointed out that "if Congress decides to allow any Internet gambling transactions to occur, they should do so knowing that technology and processes exist to protect their constituents from falling victim to underage gambling, compulsive gambling, and involvement of organized crime, money laundering and fraud. It exists, it is being utilized, and it is working very effectively."

Michael Colopy, senior vice president of communications for Aristotle, Inc. agrees, specifically when it comes to age and ID verification. "The Internet has brought an acceleration of technological remedies that are far more effective today than they were at the star of the last Congress," Colopy stated. "State-of-the-art online verification illustrates this pattern."

He later added, "Age and ID verification is efficient, effective, reliable and available nearly everywhere."

Jeff Schmidt, chief executive officer of Authis, a provider of identity and security-related products and services to the financial industry, testified that technological controls aren't as effective as Colopy and Kitchen suggest.

A recognized expert on identification and authentication, an author of numerous books and articles on information security-related topics and the founder of the private sector component of the FBI's InfraGard Program, Schmidt argued that technology for identifying the age and/or location of Internet users is not advanced enough to employ the necessary controls for successfully regulating gambling over the Internet.

"Today, mass consumer Internet authentication is problematic: Security is weak and irritated users are forced to maintain long lists of usernames and passwords," Schmidt stated. "I would ask the distinguished Committee Members, 'How many usernames and passwords do you have?'"

He added, "When considering the proposed legislation, it is critical to consider that Internet age verification can not be done reliably and as such one must conclude that motivated minors will in fact easily and regularly circumvent the system."

The other individual testifying against passing the Frank Bill was Greg Hogan, the Pastor of First Baptist Church, Barberton, Ohio. Hogan is the father of Greg Hogan, the outstanding student and sophomore class president at Lehigh University who famously gambled himself into financial ruin playing Internet poker and ultimately robbed a bank to support his gambling habit. Hogan pleaded with committee members to maintain the status quo so that more families are not destroyed by the social ills perpetuated by Internet gambling.

"Because of Internet Gambling," Hogan said, "Greg's dreams of becoming a judge or working on Wall Street have been destroyed. Because Greg fell victim to Internet Gambling's illusions of quick riches and a shortcut to his dreams, his dreams are in ashes today. Each day my wife, myself, and our three other children have to experience what it is to be a victim of Internet Gambling. Each of us has experienced sleep disturbances, panic in social settings, depression, and sought out counseling and medical help."

Balko, on the other hand, suggested that the "protection" Hogan is seeking to uphold entails the removal of Constitutional rights.

"If a free society means anything," Balko said, "it means we should have the freedom to make bad choices, in addition to good ones."

Interactive Gaming News will report next week on the oral testimony given at Friday's hearing.

Written Testimony