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Congress Wades Into Internet Gambling Controversy Congress Wades Into Internet Gambling Controversy

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Congress Wades Into Internet Gambling Controversy

In the wake of a recent threat by the European Union to lodge a World Trade Organization complaint against the United States, members of Congress this week will wade into the heated debate over Internet gambling.

At issue is whether proposed U.S. policies banning the transfer of funds from banks and credit unions to Internet gambling Web sites yield more burdens than benefits. Rep. Luis Gutierrez, D-Ill., said he hopes that a Wednesday hearing before the House Financial Services Domestic and International Monetary Policy, Trade and Technology Subcommittee - which he chairs -- will clarify regulations under the Unlawful Internet Gambling Enforcement Act before those rules become final.


The legislative language was attached to an unrelated port security bill, which passed Congress in September 2006 -- and Gutierrez is concerned that financial institutions could be saddled with "a confusing regulatory scheme during this period of financial turmoil." The hearing will likely include Federal Reserve and Treasury Department officials, representatives from the affected financial institutions and possibly an executive from the U.S. Chamber of Commerce, an aide said.

Chairman Frank Seeks An Exemption

House Financial Services Chairman Barney Frank, who introduced a bill last year that would exempt properly licensed operators from the gambling ban, held a hearing on the topic last June. Frank's bill would establish a federal framework to authorize companies to accept bets and wagers online from U.S. individuals to the extent permitted by individual states, Indian tribes and sport leagues. All such licenses would include safeguards against underage or compulsive gambling, money laundering and fraud.

A related measure that would ensure the collection of taxes on regulated Internet gambling outfits has been introduced by Rep. Jim McDermott, D-Wash. That legislation would strengthen provisions in an earlier version of the bill. McDermott has cited an analysis by PricewaterhouseCoopers that found taxation of Web gambling could generate $8.7 billion to $42.8 billion in federal revenue in its first decade.


Jeffrey Sandman, a spokesman for the Safe and Secure Internet Gambling Initiative, said it is "encouraging to see the momentum building in support of regulating Internet gambling," while adding, "It is time for Congress to address this issue and support legislation that would not only protect consumers, but generate billions in revenue needed for critical government programs."

European Union Charges Discrimination

In threatening to take its case to the WTO, the European Union has argued that U.S. Web gaming laws discriminate against companies based within the territory of EU members. the bloc. While the United States. has clamped down on European businesses, it has not taken action against domestic firms that offer similar services, EU officials complain.

"The U.S. has the right to address legitimate public policy concerns relating to Internet gambling, but discrimination against EU companies cannot be part of the policy mix," EU Trade Commissioner Peter Mandelson declared. In the coming months, the European Commission plans to study factual and legal issues involved and present findings in a report that could lead to WTO proceedings.

The EU investigation highlights "the reckless manner in which the U.S. has handled its withdrawal of gaming commitments under the [General Agreement on Trade in Services]," said Nao Matsukata, a former government trade official now with Alston & Bird. He added, "This situation would not be possible if the United States had chosen to resolve the GATS dispute from the beginning by appropriately changing U.S. law and adopting the Frank bill."


Rep. Bachus Wants Ban Maintained

At this week's hearing, Financial Services ranking member Spencer Bachus plans to reiterate his strong support for the Internet gambling ban. Bachus said the current law, which he worked for years to get passed, is much needed and that "it would be a huge mistake to repeal it or otherwise condone an addictive and unlawful activity that has destroyed families and aided money launderers."

Claims that the practice is a victimless crime are false, Bachus argued. "The very real victims of illegal Internet gambling are the underage gamblers who by the tens of thousands are becoming compulsive and addicted gamblers, and their families," he said, pointing to several instances of college students who committed suicide after driving up online gambling debt.

But Rep. Robert Wexler, D-Fla., a member of the Financial Services Committee, has been an outspoken critic of the gambling ban -- and said he was glad that the panel was scrutinizing its potentially harmful impact, which has already forced gaming companies underground and offshore. He issued a statement last fall saying that "the prohibition is doomed to failure just like the ban on alcohol failed."

In response, Wexler introduced a bill that would permit U.S. citizens to play games of skill, such as poker, backgammon and mah-jong, online. Under the proposal, online poker sites would be regulated and problem gamblers, whom he argued make up a tiny percentage of all gamers, would be monitored and helped. Additionally, income earned through the legitimate sites would be taxed.

More Details Sought On Recent Trade Deal

Meanwhile, Frank and Rep. Ron Paul, R-Texas, wrote to U.S. Trade Representative Schwab last week requesting details of a recent trade deal with the European Union, Japan and Canada to compensate nations for the United States' withdrawal of Internet gambling from the GATS treaty. The WTO previously ruled that U.S. laws banning the practice violate GATS.

The agreement was negotiated in December, and published reports have indicated that new trade opportunities would be provided in the postal and courier, research and development, and other sectors. But no dollar amount has been attached to the new concessions and very few specifics have been provided, Frank and Paul wrote.

Their appeal followed a recent "Dear Colleague" letter sent by Rep. Peter DeFazio, D-Ore., which argued that the WTO "has pushed aside American morals and values in favor of free trade." Contended DeFazio, "This is another example of the WTO overruling U.S. sovereignty." The immediate impact is a $21 million U.S. government payment to the Caribbean nation of Antigua, but the long-term effects are more severe, he said.

DeFazio's request is an indication that the Bush administration's attempt to resolve the WTO Internet gambling dispute is in jeopardy, Sandman said. "Congress should have been consulted before the U.S. agreed to these trade concessions," he added. His group has called for more transparency, communication and consultation from the USTR.

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