April 26th, 2007
Washington, DC – Rep. Barney Frank (D-MA) today introduced H.R.
2046, the Internet Gambling Regulation and Enforcement Act of 2007 that
would create an exemption to the ban on online gambling for properly
licensed operators, allowing Americans to lawfully bet online.
The Act establishes a federal regulatory and enforcement framework
to license companies to accept bets and wagers online from individuals
in the U.S., to the extent permitted by individual states, Indian
tribes and sport leagues. All such licenses would include protections
against underage gambling, compulsive gambling, money laundering and
fraud.
“The existing legislation is an inappropriate interference on the
personal freedom of Americans and this interference should be undone,”
said. Rep. Frank.
In 2006, the House passed the Unlawful Internet Gambling
Enforcement Act, restricting the handling of payments by U.S. financial
institutions for unlawful forms of Internet gambling. That law
prohibits the use of payment instruments by such institutions to handle
the processing of any form of Internet gambling that is illegal under
U.S. federal or state law.
Traditional forms of legalized gambling already exist in nearly
every state. By continuing to prohibit Internet gambling in the U.S.,
the U.S. has left Americans who choose to gamble online without
meaningful consumer protections. The proposed legislation would
institute practical and enforceable standards to bring transparency to
Internet gambling and provide consumers the protections they expect and
deserve.
The Financial Services Committee will hold a hearing
entitled, “Can Internet gambling be regulated to protect consumers and
the payments system?” at a date to be determined in June, 2007.
Q&A About the Internet Gambling Regulation and Enforcement Act of 2007:
LICENSE REQUIREMENTS
How will the government ensure that the proper consumer protections are put in place?
No applicant would receive a license unless the following
requirements with respect to any Internet bet or wager, at a minimum,
are met:
• Safeguards to ensure the individual placing the bet or wager is 18 years of age or older
• Safeguards to combat fraud and money laundering and compulsive gambling
• Mechanisms to ensure all appropriate taxes and fees are collected from individuals and the licensees
• Safeguards to ensure that the individual placing the bet or wager
is physically located in a jurisdiction that permits that form of
Internet gambling
What safeguards would be implemented to ensure that licenses are granted only to qualified Internet gambling operators?
Applicants for a license would be required to provide comprehensive
financial statements and corporate structure documents, and to agree to
be subject to U.S. jurisdiction and all applicable laws related to
Internet gambling. No license would be granted to any applicant
convicted of a criminal violation of any law relating to gambling,
money laundering, fraud or other financial laws. Licensing would be
handled by the U.S. Treasury through its anti-money laundering agency,
the Financial Crimes Enforcement Network (FinCEN).
CONSUMER SAFETY
How does the bill protect consumers?
The framework set forth in the bill would for the first time
effectively regulate Internet gambling, thus making it possible to
address underage and compulsive gambling, neither of which are
prevented under prohibition regimes. Regulation combined with proven
technology would establish a system of effective controls to block
children and compulsive gamblers from gambling.
How can restrictions against underage Internet gambling be enforced?
Existing technology can enforce requirements that licensed Internet
gambling operators restrict minors’ access to Internet gambling. For
example, when registering at a gambling site, the customer would be
required to provide a range of information including name, address,
date of birth, telephone number and details of an identity document,
such as a driver’s license or social security number. This information
would then be passed on to the Payment Service Provider (PSP) and run
through the Know Your Customer (KYC) system to confirm that the data
being provided matches against several separate sources of information
and is in fact accurate. The operators may also have KYC systems in
place.
Operators could also request a physical copy of documentation, such
as a utility bill and/or a copy of the customer’s identity document,
for further verification.
Is it possible to identify and enforce restrictions on compulsive gambling?
There are a number of techniques that can be used, from systems that
limit the total amount of funds that may be wagered based on credit
limits, to the use of public databases that include details used to
identify persons who have chosen to exclude themselves from online
gambling. Customers could be added to this list at their own request.
Additionally, limits can be placed on the number of transactions a
customer can put through on a daily, weekly and monthly basis, by the
operator acting alone, by the credit card company, by the PSP, or by
all three. In the event that an unusual spending pattern is noticed,
these transactions could automatically be put on hold for further
investigation.
FINANCIAL INTEGRITY OF INTERNET GAMBLING TRANSACTIONS
How will a license and regulation framework protect against money laundering and fraud?
Funds entering a gambling operator’s system are already resident in
the banking network somewhere. That is, the funds have previously been
deposited into a bank account at some stage, subjected to stringent KYC
requirements, and which greatly increases the traceability of any funds
entering the system. All transactions can also be checked at the time
of authorization against a number of anti-fraud, money laundering and
terrorism databases.
What additional security measures could be put in place to protect the consumer from merchant fraud?
Payment
Service Providers could set-up escrow accounts for each licensee in
which money is set aside for a period of time to ensure that when a
financial transaction is successfully contested the operator
immediately refunds the consumer. Therefore, any claim regarding the
use of an unauthorized credit card could automatically result in a full
repayment to the principal credit card holder.
STATES AND INDIAN TRIBES
Would individual states and Indian tribes have the option to opt-out of legalized Internet gambling?
To protect States’ and Indian tribes’ rights to control gambling
activities within their respective geographic borders, the Act permits
States and Indian tribes either to prohibit Internet gambling
activities or impose limits on various types of Internet gambling
activities.
Is it possible for restrictions to be enforced if individual states
decide to “opt-out” from permitting persons in their states from
Internet gambling?
Yes. In using the Internet, a customer’s IP address is broadcast to
the operator, which can then be used to identify the state in which a
customer resides with a 99 percent level of accuracy. This information
is also made available and compared to the customer’s registration
information. In the event the information differs, the transaction is
not approved and the customer is prevented from engaging in Internet
gambling.
SPORTS BETTING
If professional sports leagues and college associations decide to
opt-out from allowing bets and wagers on their sporting activities,
could that be enforced?
Yes. Under the proposed legislation, all licensed Internet gambling
operators would be prohibited from accepting bets or wagers on sports
leagues or associations that have opted-out. In the event of a
violation, the operator’s license could be withdrawn and the operator
may be prohibited from applying for a new license. As part of its
contract with the Internet gambling operator, the PSP would be required
to enforce these requirements throughout the collection and payment
process.
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Author Contact Info: House Financial Services Committee
