Positive vibe at Barney Frank's hearing

Thursday hearing saw some useful testimony...and a strangely uninformed FBI opinion

The House Financial Services Committee hearing Washington Thursday attracted some 22 members of the committee and an impressive list of expert witnesses, most of whom appeared to support the concept of regulated online gambling in the United States.

One very obvious but expected exception was the Republican Representative from Alabama, Spencer Bachus, who presented his customary anti-online gambling arguments, augmented by a new twist - an FBI letter claiming that collusion was possible and implying that little was done to counter it. The Poker Players Alliance was quick to criticise this in a subsequent statement.

The 90 minute hearing was for information purposes only as a first step to launching chairman Barney Frank's Internet Gambling Regulation, Consumer Protection and Enforcement Act of 2009 (H.R. 2267) next year in another attempt to legalise, regulate and tax online gambling, and there was no vote or markup procedure.

Chairman Frank opened proceedings with a statement in which he said: "The notion that this Congress should tell millions of adult Americans that we know better than they what they should with their own money on their own time on their own computer seems to me to be a very grave error.

"It is true if things are [on] the Internet, there is the possibility that underage people can get at them," he continued. "There are a whole range of things on the Internet that we would not like underage people to use....the notion that because some people will abuse something, you prevent everybody from doing it, is as great a threat to the liberty of the individual as any philosophy I have seen."

Congressman Frank went on to criticise Republican opposition to repealing the UIGEA, saying it was incompatible with conservative philosophy.

"I am struck by frankly what seems to be a inconsistency on the part of some of my conservative colleagues who bemoan the nanny state, who talk about limited government, who urge the government to stay out of people's lives, who also argue that the Internet ought to be a free of restrictions, but who then single out the Internet for restrictions on personal choices to be made by individuals," Frank said.

Witness testimonies provided further evidence to Committee members that a regulatory framework for Internet gambling would protect consumers and ensure the integrity of Internet gambling financial transactions.

The hearing highlighted the success of existing systems and technologies in blocking minors from gambling online, combating compulsive gambling and protecting consumers against money laundering, fraud and identity theft.

Parry Aftab, executive director of WiredSafety, the largest Internet safety and help group in the world, concluded in her testimony that regulation provides the best opportunity to protect consumers.

"The status quo offers no meaningful assurances that consumers will be protected," Aftab testified. "There are a number of technologies routinely used in other industries that are easily adaptable to online gambling sites. They are real, proven and in use today. They are also improving by the minute."

A comprehensive study conducted by Harvard University's John F. Kennedy School of Government and presented by Professor Malcolm K. Sparrow further reinforced the consumer benefits of regulation.

In the Harvard study, "Can Internet Gambling Be Effectively Regulated? Managing the Risks," which was released at the hearing, Professor Sparrow found: "The establishment of a well-regulated industry under U.S. jurisdiction would offer far better protection against online gambling's potential social harms than outright prohibition. Combining a thoughtful regulatory scheme with education, technology tools, and support appears to be the most effective means of handling the realities and risks of online gambling in the United States...In the end, consumers in the United States would be better protected than they are now."

In his testimony, Dr. Sparrow, who is a former Detective Chief Inspector of the British Police Service with extensive experience in criminal investigation, said: "At a minimum, even an imperfect legalization and regulatory regime for online gambling would give Americans much more protection than they have now." His research included important findings on issues of gambling by minors and the potential for criminal and fraudulent behavior, in which the study concludes that improved technology and enforcement mechanisms that are currently available are more effective than an outright ban.

Michael Brodsky, executive chairman of Youbet.com, a provider of pari-mutuel horse racing content for consumers through Internet and telephone platforms, testified that existing technology can be deployed to successfully regulate Internet gambling.

"Today at Youbet we use technology that would ensure effective regulation of Internet gambling. The already-existing, totally legal, online pari-mutuel horserace wagering industry is a U.S.-based model of how to provide a responsible online wagering experience for adults - one that is clean, regulated and scrupulous about both collecting and paying taxes," stated Brodsky.

The Youbet executive went on to characterise today's illegal online gambling as a 'Wild West Affair', adding, "The only way to put any controls on Internet gambling is to legalize it and regulate it."

While existing federal laws generally prohibit online wagering, Congress has allowed domestic companies like Youbet.com to accept online wagers for horse racing, despite a Justice Department position that such wagers remain illegal.

In his largely neutral testimony, Keith Whyte, executive director of the National Council on Problem Gambling, the U.S. advocate for programs and services to assist problem gamblers and their families, discussed how online technology and controls can be used to better help combat compulsive gambling than can be done in the existing land-based industry.

"The graphical and interactive structure of the internet provides an opportunity to create informed consumers with access to a variety of information designed to encourage safe choices and discourage unsafe behavior," stated Whyte. "The amount of online information and possible interventions are essentially unlimited."

Chairman Frank referred to the recent six month postponement by federal agencies of the UIGEA regulations, commenting that this gave Representatives "....a chance to act in an unhurried manner on my legislation to undo this regulatory excess by the Bush administration and to undo this ill-advised law."

The main opposition to online gambling came as usual from Rep. Spencer Bachus, who argued that the UIGEA should have been finalised and implemented two years back - delays occasioned by federal drafters during the Bush Administration. Apparently overlooking this fact, Bachus challenged Frank to "Quit the foot dragging and enforce this law."

"No amount of regulation can begin to protect against this particularly predatory and abusive intrusion into American homes and the harm it is causing our youth," Bachus asserted.

Further opposition came from Robert Martin, tribal chairman of the Morongo Band of Mission Indians in California who claimed that legalising online gambling would be prejudicial to tribal gambling interests. His objection was challenged by Congressman Frank, who noted that the Morongo had recently tried to engineer online poker legalisation state laws that would give exclusivity. "They are not against Internet poker in general and in fact are trying to get involved in the industry by passing legislation in California," he observed. "You want to be able to do it and have no one else do it, is that the issue?"

Martin did not respond to the challenge.

Only hours after the hearing, the Poker Players Alliance pounced on the negative FBI opinion presented to the hearing by Representative Spencer Bachus.

In a statement that achieved wide and immediate media coverage, the Alliance challenged the statement allegedly made by Shawn Henry, Assistant Director of the Cyber Division of the Federal Bureau of Investigation that there is potential for criminal activity through online poker.

The PPA statement pointed out: "The largest poker sites all use software to detect collusion. If a site is subjected to allegations that players are cheating, few players will play on that site."

"Every concern the [FBI] letter raises is better addressed by licensing and regulation than by prohibition," said John Pappas, Executive Director of the Poker Players Alliance. "The letter misconstrues much about the current state of online poker, but it does so in a way that clearly makes the case for why federal oversight is necessary.

"Licensing and regulation is the most protective measure we can take to ensure the online community can be properly monitored while maintaining our internet freedom," Pappas concluded.

An older FBI claim that online gambling is vulnerable to money laundering, was addressed by Rep. Peter King (R-N.Y.), the current ranking member and former chairman of the Committee on Homeland Security. He attended the hearing and said publicly that he is not aware of any money laundering or terrorism financing through Internet gaming. He pointed out that if financial crimes were a legitimate concern, then regulation and oversight as proposed in H.R. 2267 is the best way to mitigate that risk.

Samuel A. Vallandingham, chief financial officer and vice president of The First State Bank speaking on behalf of the Independent Community Bankers of America said the UIGEA makes impossible demands on community banking in the US. He testified that the attempt to block payment transactions by online casino operators is a burden the financial industry cannot handle.

"The added burden of monitoring all payment transactions for the taint of unlawful Internet gambling would drain finite resources currently engaged in complying with anti-terrorism, anti-money laundering regulations, the plethora of new regulations emerging from the financial crisis and the daily operation of community banks to meet the financial needs of their customers," said the expert on banking technology.

He drew attention to the imprecise definition of illegal online gambling provided in the UIGEA, commenting that because no overriding law exists, banks would have the problematic task of determining each customer's legality with regard to hundreds of state, federal, and local laws.

"ICBA strongly endorses H.R. 2267, the Internet Gambling Regulation, Consumer Protection and Enforcement Act which establishes a federal regulatory and enforcement framework for licensing Internet gambling operators," concluded the banking representative, throwing the support of the financial industry squarely behind Barney Frank's bill.

Frank ended the hearing by saying the committee would return to the subject next year, presumably for further debate and markup.

Summing up the hearing, Pappas commented: "I think what this hearing did was lay a foundation of record for the issue. The proponents of Internet gambling did a good job. I really think we got the much stronger and compelling arguments. If that's the best they [anti-online gambling critics] can bring to the table, I feel pretty good about it."

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