Legislative Issues & Policies - Internet Gambling Regulation and Enforcement Act of 2007

Introduction

The Unlawful Internet Gambling Enforcement Act was passed in the last Congress and signed into law by President Bush.  While the new law does not directly prohibit Internet wagering, it does bar banks and credit card companies from processing payments for such illegal wagering by prohibiting the use of credit in connection with unlawful Internet wagering.  The law excludes from the definition of “unlawful Internet wagering” “any activity that is allowed under the Interstate Horseracing Act of 1978,” thus protecting racing’s interstate wagering activities by maintaining the status-quo with respect to such activities under the Interstate Horseracing Act.

Since that time, opponents of the ban and supporters of licensed, regulated Internet wagering have been pushing for a repeal of that prohibition. 

Internet Gambling Regulation and Enforcement Act of 2007
 
Congressman Barney Frank (D-MA) introduced the Internet Gambling Regulation and Enforcement Act of 2007 (H.R. 2046) on April 26, 2007.  The bill would permit Internet gambling with operators licensed and regulated by the federal government.  The bill was referred to the House Committee on Financial Services.  Mr. Frank is the Chairman of that Committee.

While the legislation just introduced does not repeal the Unlawful Internet Gambling Enforcement Act of 2006, it would allow Internet wagering if the operators were licensed.

Congressman Frank’s bill would create a federal regulatory and enforcement framework under which Internet gambling operators could obtain federal licenses authorizing them to accept wagers over the Internet, telephone or other wire communication from individuals in the U.S. On its face, the bill applies to both foreign and domestic operators.  The bill defines an Internet gambling facility as one that directs, manages, supervises or controls an Internet site through which bets are placed, accepted, or otherwise made. 

Licensing and Safeguards Required.  Facilities would be licensed annually by the Director of the Financial Crimes Enforcement Network (FinCEN).  FinCEN is the anti-money laundering agency within the Department of Treasury. 

In order to receive a license, operators would have to:

• Subject themselves to U.S. jurisdiction and all laws related to Internet wagering; and
• Provide information for review of their financial condition, structure, experience and criminal background checks.

Internet gambling operators would have to have safeguards in place to ensure that a bettor is 18 or over, is physically located in a jurisdiction that permits Internet gambling, and ensure that all taxes and fees are collected from operators and individuals.

Individual states and Indian tribes would be able to prohibit or impose limits on Internet gambling within their borders.  Bets could not be taken from any state or tribal land that prohibits Internet gambling and the governor or principal chief has notified FinCEN of this prohibition.  Violations would subject operators to loss of license, fines and/or criminal penalties of up to five years.

The bill would not alter, limit or extend any federal or state gambling statute or Tribal-State compact.  This includes the Federal Wire statute.  The bill specifically provides that it does not permit any bet or wager that violates the Interstate Horseracing Act.

Taxes and Fees.  The bill does not include any provisions to tax Internet gambling.  In a statement made when the bill was introduced, Mr. Frank said such measures were beyond the jurisdiction of the Financial Services Committee.  Nonetheless, there have been suggestions that regulating and taxing Internet wagering could be a substantial revenue source for various federal programs.

The bill does authorize Fin CEN to assess “user fees” to administer the act and to meet the expenses of reviewing license applications, but these amounts could not be used for general government funds.

House Action

The House Financial Services Committee conducted a hearing on June 8 on this bill.  The hearing was entitled:  “Can Internet Gambling Be Effectively Regulated to Protect Consumers and the Payment System?”

Chairman Frank did not indicate what or when the next action on this bill might be following the hearing.

Internet Gambling Regulation and Tax Enforcement Act of 2007

Congressman Jim McDermott (D-WA) introduced this bill (H.R. 2607), which is the tax component of the Frank Internet regulatory scheme.  The bill would impose a 2% fee on any company licensed by FinCEN to offer Internet wagering.  The 2% license fee would be paid every 30 days based on the funds deposited with the operator by bettors during that period.  The fee could not be paid out of funds deposited by bettors.  The fees would be paid into the general fund of the Treasury. 

In order to receive a license, the operator must implement measures to ensure that all federal and state taxes applicable to Internet gambling and all licensing fees are collected from individual bettors and from the operators and paid to the Treasury and states.

House Action

The bill has been referred to the Committee on Ways and Means.