Yesterday, the House Committee on Financial Services held a hearing to discuss the Internet Gambling Regulation, Consumer Protection and Enforcement Act (H.R. 2267).  The legislation, introduced by Chairman Barney Frank, would regulate Internet gambling activity in the U.S. and require licensed operators to put in place safeguards to protect against underage and problem gambling.

Witnesses including Ed Williams of the Credit Union National Association (CUNA), Lynn Malerba of the Mohegan Tribe and professional poker player Annie Duke provided evidence to Committee members that regulating Internet gambling, as proposed in Chairman Frank's legislation, would ease the burden placed on financial institutions, better protect consumers and provide an opportunity to generate billions in new state and federal government revenue.  

U.S. Chamber, NAFCU, and Financial Services Roundtable Voice Support for Chairman Frank's Legislation
 
In anticipation of yesterday's House hearing, the U.S. Chamber of Commerce, the National Association of Federal Credit Unions (NAFCU) and the Financial Services Roundtable demonstrated their support for the Internet Gambling Regulation, Consumer Protection and Enforcement Act.  These powerful organizations sent letters of support of the legislation to Committee Chairman Barney Frank and Ranking Member Spencer Bachus.

R. Bruce Josten, executive vice president for Government Affairs at the U.S. Chamber of Commerce wrote that rather than allowing revenue to flow offshore, as it currently does in an unregulated environment, "the United States should seek to bring that commerce on-shore and regulate it to provide appropriate protections to consumers."  Additionally, Josten wrote, "the Chamber believes that H.R. 2267 would create jobs and revenue for federal and state governments."

In NAFCU's letter to Reps. Frank and Bachus, President Fred Becker urged them to "take swift action on an Internet gambling bill that would ensure credit unions and other financial services providers are not unduly burdened with the cost of enforcement efforts against unlawful gambling activity."

Additionally, during yesterday's hearing, Chairman Frank noted the support of the Financial Services Roundtable for H.R. 2267, citing the group's concerns about the overly burdensome rules faced by financial service companies in an attempt to prevent unlawful Internet gambling transactions.
Analogies were quite popular in Wednesday’s Congressional hearing on Rep. Barney Frank’s online poker bill.

Rep. Spencer Bacchus (R-AL) compared poker players to heroin addicts, poker pro Annie Duke compared the opposition’s argument to the mindset of a tyrannical China or Iran, and two witnesses on the panel likened the notion of allowing current poker sites to operate in a newly regulated system to allowing drug cartels from Mexico or Columbia to be entrusted with the American drug industry if narcotics were ever legalized.

There was a lot of debate and little agreement in Wednesday’s informational hearing on HR 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act. The House Financial Services committee, which the bill’s author Frank chairs, held the hearing, which featured testimony from Duke on behalf of the Poker Players Alliance, Lynn Malerba of the Mohegan Tribe, Ed Williams on behalf of the Credit Union National Association, Tom Malkasian of California’s Commerce Casino, and Michael Fagan, a law enforcement consultant.

In the biggest news development that came out of the meeting, Rep. John Campbell (R-CA) said he would propose an amendment that included a stop-loss to address concerns that a player could lose more than he or she could afford. It is unclear whether that stop-loss provision would be optional or required; if it is the latter, more than a few high-stakes players are sure to be upset with the final product.

Of the panelists, Duke, Malerba, and Williams all spoke out generally in favor of Frank’s bill. Fagan and Malkasian, whose casino is leading the efforts in California to legalize intrastate online poker, spoke out against the bill.

“The legislation is fundamentally flawed and unsound,” said Malkasian, before noting that he was against a law that would “brazenly award foreign illegal operators.” Fagan also voiced that concern, while saying he believed an open market would present money laundering risks.

The hearing did provide some tense moments, including an exchange between Bacchus and Duke when the Congressman brought up the UltimateBet scandal and noted the panelist’s affiliation with the site. Duke responded to Bacchus by correcting him on the overall amount of money involved in the scandal, and saying that such a situation was precisely the reason the federal government needed to act.

“The site self-regulated and refunded all the money to its customers. I would prefer to have something like HR 2267 so that the government could oversee that regulation. I think that the customers of that site were lucky that they were playing under a site with new management that behaved in an honest way and refunded them,” said Duke. “The one individual who perpetrated the crime and breached the software has not been prosecuted because unfortunately there is no jurisdiction to do so.”

Another fiery moment came at the hands of Rep. Joe Baca (D-CA), who opposes Frank’s legislation. Baca claimed that Native American tribes would de facto be giving up their sovereignty if they agreed to a 2% tax to the federal government on online gambling profits. Malerba, who is set to become chief of the Mohegan tribe, strongly disagreed and told the Congressman that tribes pay plenty in taxes now to state governments and that she would love a 2 percent tax on something such as her tribe’s slot revenue, which is right now at about 25 percent.

A lot of the talk in the meeting was once again about age-verification methods to ensure underage citizens cannot access online gambling sites. After Bacchus asked Fagan if current age-verification methods were fool-proof, the former prosecutor answered, “The short answer is no.”

Duke and other members rebutted by pointing out that various well-respected countries, including the UK, employ methods today that are arguably more effective than using an ID at a land-based casino.

Frank went one step further, saying the constant bringing up of a youth safeguard was more of a political ruse than anything else.

“You can protect children, but this is not a protection of children. This is a ban on all activity…The poor children here are being used here by the people who don’t like gambling,” said Frank, before giving his justification for the bill. “It is the death of freedom if you say that because some minority of adults will abuse something, you prohibit it.”

Frank (D-MA) is expected to bring the bill back to the committee for a mark-up and vote in the next couple of weeks. If he is able to get enough votes in committee, the legislation could then go to the full House of Representatives for consideration.

Watch the entire House Financial Services committee hearing online right now.

Notes

In the hearing, Rep. Brad Sherman (D-CA) said that he was now evaluating the situation after originally opposing Frank’s bill, saying that he could get behind legislation if it punishes and/or bans the current poker sites that are “defying and violating U.S. law.”
Rep. Jeb Hensarling (R-TX) hinted that he might be inclined to support the bill if the revenue were used to reduce the deficit rather than creating more funds for the federal government to allocate.
According to opencogress.org, Frank’s bill currently has 69 co-sponsors.