WikiLeaks Document Release
http://wikileaks.org/wiki/CRS-RS21275
February 2, 2009
Congressional Research Service
Report RS21275
Internet Gambling: A Sketch of Legislative Proposals in the
107th Congress
Charles Doyle, American Law Division
Updated October 8, 2002
Abstract. Distinctly different Internet gambling bills have been reported out of two committees in the House
and one in the Senate. Their common theme is a refusal to allow credit cards, checks, electronic transfers or the
like to be accepted for certain Internet gambling purposes.
Order Code RS21275
Updated October 8, 2002
CRS Report for Congress
Received through the CRS Web
Internet Gambling: A Sketch of Legislative
Proposals in the 107th Congress
Charles Doyle
Senior Specialist
American Law Division
Summary
http://wikileaks.org/wiki/CRS-RS21275
The Internet gambling bill passed by the House on October 1, 2002 (H.R.
556)(Reps. Leach & LaFalce), 148 Cong.Rec. H6848, outlaws the acceptance of credit
cards, checks, electronic transfers, and the like for purposes of illegal Internet gambling.
An amended version of the language approved by the Financial Services Committee and
earlier endorsed by the Committee in H.R. 3004, it enlarges the coverage of the Wire
Act to reach gambling-related transmissions by satellite or microwave. It also creates
a system of regulation and immunities to ensure the enforcement assistance of financial
institutions and Internet service providers. In related legislation, a Senate bill, S.718
(Sen. McCain), reported out by the Senate Commerce, Science and Transportation
Committee includes provisions on athletic abuse of performance-enhancing drugs and
on sports gambling. Another Senate bill, S. 3006 (Sen. Johnson), and a proposal
approved by the House Judiciary Committee, H.R. 3215 (Rep. Goodlatte), rewrite the
Wire Act to confirm its prohibition of illegal Internet gambling. A final offering, H.R.
2579 (Rep. LaFalce), applies funding proscriptions to both legal and illegal Internet
gambling operations (the other bills only apply to funding related to illegal Internet
gambling).
Related CRS products include CRS Report RS20880, Sports Legislation in the
107th Congress; CRS Report 97-619, Internet Gambling: Overview of Federal Criminal
Law; and CRS Report RS20905, Internet Gambling: A Sketch of Legislative Proposals
in the 106th Congress.
Background. Wagers amounting to an estimated $1.6 billion a year pass through
the approximately 1500 sites available for Internet gambling, H.Rept. 107-339, at 6
(2002). Critics contend that gambling on the Internet offers a particularly addictive and
child-alluring form of gambling; one that makes personal bankruptcy more likely; one that
provides a convenient environment for fraud and money laundering by organized crime
Congressional Research Service ~ The Library of Congress
CRS-2
and terrorists; one that is beyond the effective reach of state regulators; and one that is
frequently operated offshore making it more resistant to law enforcement efforts.1
Although state and federal laws prohibit most Internet gambling,2 enforcement has
proven difficult. Our extradition treaties ordinarily cannot reach offshore operators. The
federal Wire Act (18 U.S.C. 1081-1084), which features a number of enforcement
advantages, also suffers from limitations. It does permit communication service providers
to deny service to gamblers at the request of state and federal law enforcement officials,
and Internet communications generally rely on wire communications in whole or in part
and thus come within the scope of the Act. Yet the Wire Act's coverage of anything other
than matters involving sports gambling is uncertain. Read literally, the Act seems to
reach more than sports gambling. The Justice Department, however, has rarely
prosecuted a case that did not involve sports and consequently there is little case law on
the point.3
Internet gambling proposals seeking to overcome these difficulties in one manner or
another have been working their way through the Congress since the 105th Congress.4 The
Senate approved an Internet gambling ban as part of the Commerce-Justice-State
http://wikileaks.org/wiki/CRS-RS21275
appropriations bill in 1998, 144 Cong.Rec. S8801-803 (daily ed. July 23, 1998), but the
1
Unlawful Internet Gambling Funding Prohibition Act and the Combating Illegal Gambling
Reform Act: Hearing Before the Subcomm. on Crime of the House Comm. on the Judiciary, 107th
Cong., 1st Sess. (2001) (Judiciary Hearings); H.R. 556- The Unlawful Internet Gambling Funding
Prohibition Act and Other Internet Gambling Proposals: Hearing Before the Subcomm. on
Financial Institutions and Consumer Credit of the House Comm. on Financial Services, 107th
Cong., 1st Sess. (2001) (Financial Services Hearings).
2
See generally, Internet Gambling: Overview of Federal Criminal Law, CRS Rept. 97-619A.
3
A few courts have found violations of the Wire Act in cases involving other forms of
gambling, People ex rel. Vacco v. World Interactive Gaming Corporation, 185 Misc.2d 852, 714
N.Y.S.2d 844 (N.Y.S.Ct. 1999)(Internet casino offering slots, blackjack and roulette); AT&T
Corp. v. Coeur D'Alene Tribe, 45 F.Supp. 2d 995 (D.Idaho 1998)(on-line lottery), rev'd on other
grounds, 283 F.3d 1156 (9th Cir. 2002); United States v. Smith, 390 F.2d 420 (4th Cir.
1968)(numbers); United States v. Chase, 372 F.2d 453 (4th Cir. 1967)(same), but see, In re
MasterCard International, Inc. Internet Gambling Litigation, 132 F.Supp.2d 468 (E.D.La.
2001)(the Wire Act only applies to sports gambling).
4
H.R.4419, The Internet Gambling Funding Prohibition Act: Hearing Before the House Comm.
on Banking and Financial Services, 106th Cong., 2d Sess.(2000); Internet Gambling Prohibition
Act of 1999: Hearing Before the Subcomm. on Crime of the House Comm. on the Judiciary, 106th
Cong., 2d Sess. (2000); H.R. 3125, the Internet Gambling Prohibition Act of 1999: Hearing
Before the Subcomm. on Telecommunications, Trade & Consumer Protection of the House
Comm. on Commerce, 106th Cong. 2d Sess. (2000); Internet Gambling: Hearing Before the
Subcomm. on Technology, Terrorism, and Government Information of the Senate Comm. on the
Judiciary, 106th Cong., 1st Sess. (1999); Internet Gambling: Hearing Before the Senate Comm.
on Indian Affairs, 106th Cong., 1st Sess. (1999); Internet Gambling Prohibition Act of 1997:
Hearings Before the Subcomm. on Crime of the House Comm. on the Judiciary, 105th Cong., 2d
Sess. (1998); Internet Crimes Affecting Consumers: Hearing Before the Subcomm. on
Technology, Terrorism, and Government Information of the Senate Comm. on the Judiciary,
105th Cong., 1st Sess. (1997); The Internet Gambling Act of 1997: Hearing Before the Subcomm.
on Technology, Terrorism, and Government Information of the Senate Comm. on the Judiciary,
105th Cong., 1st Sess. (1997).
CRS-3
provision died in conference. The following year, the Senate passed the Internet
Gambling Prohibition Act of 1999 (S. 692)(Sen. Kyl), 145 Cong.Rec. S14870 (daily ed.
Nov. 18, 1999); see also, S.Rept. 106-121.5 In the House, Rep. Goodlatte introduced
H.R. 3125, a similar bill with the same name. The House Judiciary Committee reported
it favorably, H.Rept. 106-655 (2000). It was brought to the floor under suspension of the
rules, but failed to secure the necessary two-thirds vote, 145 Cong.Rec. H6057 (daily ed.
July 17, 2000). These bills outlawed Internet gambling in a separate statute. Other
proposals sought (1) to deny Internet gambling entrepreneurs the benefits of access to
their customers' checks, credit cards, and electronic fund transfers, H.R.4419 (Rep.
Leach), or, (2) at the suggestion of the Justice Department, to clarify the Wire Act's ban
on Internet gambling, H.R. 5020 (Rep. Conyers).
The dual approach continued in the 107th Congress. The House Judiciary Committee
approved a Wire Act amendment bill that included a credit card ban, H.R. 3215 (Rep.
Goodlatte) (H.Rept. 107-591), while the House Financial Services and Senate Commerce,
Science and Technology Committees endorsed free standing credit card bans, H.R. 556
(Rep. Leach)(H.Rept. 107-339); S. 718 (Sen. McCain)(S.Rept. 107-16). Other proposals
include one to deny the use of credit cards and the like in relation to both legal and illegal
http://wikileaks.org/wiki/CRS-RS21275
Internet gambling (the other proposals address only the financing of illegal Internet
gambling), H.R. 2579 (Rep. LaFalce), and a Senate proposal that features the credit card
ban as part of a Wire Act amendment, S. 3006 (Sen. Johnson). The House ultimately
passed a compromise version of H.R. 556 (Leach-LaFalce) that added some amendments
to the Wire Act to its free standing credit card ban.
Issues. Although over the years Congress has enacted a number of statutes
designed to protect the states from the unwelcome intrusions of interstate or international
gambling, some resist further federal gambling legislation even for this limited purpose.6
Others clearly favor federal legislation which reenforces the prerogative of the states to
effectively determine which forms of gambling, if any, will be permitted within their
5
The same year, the National Gambling Impact Study Commission recommended a ban on
internet gambling and related financial transactions, Final Report, at 5-12 (1999).
6
E.g., H.Rept. 107-339 at 16 (2001) (Dissenting Views of Rep. Paul)("the Federal Government
has no constitutional authority to ban or even discourage any form of gambling"); Judiciary
Hearings, at 49 (prepared statement of Lisa S. Dean and J.Bradley Jansen, Free Congress
Foundation)(Internet gambling proposals "fly in the face of conservative principles of federalism,
individual responsibility, and limited government").
Contemporary construction of the Constitution's commerce and necessary and proper
clauses seems to recognize Congress's legislative authority over commercial activities and over
activities that utilize the instrumentalities of interstate and foreign commerce such as the Internet
and other forms of communications, United States v. Lopez, 514 U.S. 549, 558-60 (1995); United
States v. Morrison, 529 U.S. 598, 608-9 (2000).
CRS-4
borders.7 And some favor additional federal proscriptions of Internet gambling, whether
legal or illegal under relevant state laws.8
Beyond the question of whether federal legislation is appropriate lies the question
of what form any such legislation should take. To compensate for the difficulties
involved in prosecuting offshore Internet gambling operations, the proposals in this
Congress seek to deny them the benefits of American financial services. In addition to
a general prohibition, the proposals generally contain a mechanism enabling state and
federal law enforcement officials to secure a court order to deny service to at least certain
Internet gambling operations.9 Critics have argued that this could expose credit card
companies and others to a series of inconsistent and conflicting court orders.10
Although it has endorsed the approaches taken in the Goodlatte, Leach and McCain
bills, the Justice Department has consistently urged that Internet gambling be treated the
same as gambling accomplished through use of the telephone and prefers amendments to
the Wire Act in order to expand or clarify the Act's coverage of Internet gambling.11
Opening the Wire Act for amendment, however, unleashes a number of other issues
unrelated to Internet gambling.12
http://wikileaks.org/wiki/CRS-RS21275
Comparison of H.R. 556 and S. 718. The House-passed Leach-LaFalce
Internet Gambling Enforcement Act (H.R. 556):
7
E.g., H.Rept. 107-591 at 6 (2002)(This legislation "does not, however, supersede the traditional
leadership roles of States in enforcing gambling laws within their borders. It addresses a growing
problem that no single State, or collection of States, can adequately address. Because of the
unique interstate and international nature of the Internet, [this legislation] is necessary").
8
E.g., Financial Services Hearings, at 10 (comments of Reps. LaFalce and Leach).
9
Whether because of litigation costs, the perils of collection, or anticipation of federal
legislation, some financial institutions have already begun to limit service, Financial Services
Hearings, at 25 (statement of Michael L. Farmer, Wachovia Bank Card Services);("Wachovia
developed a policy to decline internet gambling charges in order to mitigate our losses"); Citi to
Block Online Gambling Payments, American Banker, 24 (June 17, 2002)(reporting that Citibank,
Bank of America, MBNA Corp., and J.P.Morgan Chase & Co. have begun to block credit card
transactions with online gambling operations); eBay Goals for PayPal, American Banker, 1 (July
9, 2002 (reporting that eBay plans to close down it PayPal Internet gambling business); see also,
Cheyenne Sales, Ltd. v. Western Union, 8 F.Supp.2d 469 (E.D.Pa. 1998)(Wire Act precludes
customer's suit following Western Union's termination of its electronic fund transfer account
used to make payments to offshore Internet gambling operations); The Enforceability of Internet
Gambling Debts: Law, Policies, and Causes of Action, 6 VIRGINIA JOURNAL OF LAW &
TECHNOLOGY 6 (2001).
10
H.Rept. 107-591, at 124 (Dissenting Views of Rep. Conyers, Scott, Watt, and Waters)("Credit
card companies such as Visa and MasterCard have raised concerns with the bill because it could
subject them to injunctions in numerous jurisdictions that require different � or even conflicting
� remedies to prevent the payment of Internet bets or wagers. The result will be a hodge-podge
of inconsistent court orders, rather than a cohesive enforcement scheme")
11
Judiciary Hearings, at 8-9 (statement of Rep. Goodlatte); at 48 (prepared statement of Ass't
Attorney General Michael Chertoff).
12
Financial Services Hearings, at 11 (testimony of Sen. Kyl).
CRS-5
- prohibits anyone engaged in a gambling business ("business of betting or
wagering") from accepting credit cards, checks, electronic fund transfers, or the like
in connection with illegal Internet gambling;
- violators are subject to imprisonment for not more than 5 years and/or a fine under
title 18, and may be barred from engaging in future illegal Internet gambling;
- excludes lawful transactions with a state licensed or authorized business from the
definition of "betting or wagering";
- exempts financial institutions and internet service providers from the definition of
gambling business unless they conduct or control an unlawful Internet gambling site;
- authorizes federal courts to enjoin violations at the behest of the Attorney General
or state attorneys general; and
- urges diplomatic action to encourage international cooperation for the enforcement
of its provisions and to identify any connection between Internet gambling and
http://wikileaks.org/wiki/CRS-RS21275
money laundering.
The modifications made to H.R. 556 prior to its passage under suspension of the
rules involve:
- limits on the civil remedies available against Internet service providers;
- a list of aggravating factors to be considered before financial institutions are
exposed to a corrective court order;
- adjustment of the powers given bank regulatory authorities to permit them to
require the establishment of policies and practices designed to identify and prevent
prohibited transactions, and enforceable by both the regulators and the Federal Trade
Commission (FTC); and
- expansion of the Wire Act to cover satellite and microwave transmissions.
S. 718, as reported out of committee, differs from H.R. 556 in a number of respects.
Among other things it:
- outlaws the knowing receipt of illegal Internet gambling proceeds by financial
institutions, rather than prohibiting Internet gambling businesses from accepting
credit cards or the like;
- states more explicitly that illegal Internet gambling occurs where it is unlawful
either in the place where a bet is placed or the place where it is received (with an
exception for Class III Indian gambling pursuant to a state compact);
- does not address Internet service providers;
- makes no changes in the Wire Act;
CRS-6
- says nothing of international cooperation;
- directs the National Institute of Standards and Technology to establish grant
programs to support research and preventive education with respect to the use of
performance-enhancing substances by athletes;
- prohibits gambling on Olympic, high school, or college sporting events;
- requires colleges to report on the prevalence of underage and other illegal campus
gambling and on their policies concerning such gambling; and
- instructs colleges to monitor use of its wire communications facilities to detect
violations of the Wire Act.
http://wikileaks.org/wiki/CRS-RS21275