John G. Malcolm, a deputy assistant attorney general in the Justice Department, told the committee that the DOJ "generally" supports efforts by Rep. James Leach, R-Iowa, and Sen. Jon Kyl, R-Ariz., to stop payment mechanisms such as credit cards from being available for use in online gambling.
"While we have some technical and other concerns about these bills, we support the sponsors' efforts to address gambling on the Internet," Malcolm stated in his written testimony.
However, Sen. Richard Shelby, R-Al., the chairman of the committee, and Sen. Paul Sarbannes, D-Md., the ranking Democrat on the committee, both pressured Malcolm to be more precise about the DOJ's position regarding Leach's and Kyl's bills.
During the question-and-answer section of the hearing, Sarbannes asked Malcolm what the administration's position on the Leach and Kyl bills is. Malcolm answered that the DOJ is still analyzing the Kyl bill, S. 627, which was introduced last Thursday. He said the department has concerns about some of the criminal provisions in the bill.
Sarbannes, in reply, asked whether the DOJ would support the Kyl bill if its concerns were addressed. Malcolm replied that the department also had concerns about the bill's standards for injunctive relief. He also stated that the DOJ has the same concerns with the Leach bill as it does with the Kyl bill.
Sarbannes, frustrated, asked Malcolm when the DOJ intends to get involved in the crafting of the bills that regard Internet gambling.
"Justice should not just be a bystander in this process," he said.
Malcolm said the DOJ would make a final determination on the bills "promptly."
The committee also heard testimony from the following people: L. Richard Fischer, a lawyer with Morrison and Foerster LLP; Frank Fahrenkopf Jr., the president and CEO of the American Gaming Association; Richard Blumenthal, the attorney general of Connecticut; Frank Catania, gaming industry consultant and former director of the New Jersey Division of Gaming Enforcement; and William Saum, a representative of the National Collegiate Athletic Association; and Stuart Baker, the general counsel and secretary of the United States Internet Service Provider Association.
Kyl also testified with a brief recap of what his bill seeks to accomplish. He listed several reasons for wanting to cut off the funding for online gambling, including the risk that children and teenagers could play the games and the potential for the sites committing fraud by changing the odds of the games. Kyl called his bill "nearly identical" to the Leach bill, which would ban online gaming operators from accepting any bank instrument as payment from a U.S. resident for Internet gambling.
After today's hearing, the Kyl bill has a shot at being marked up by the Senate Banking Committee, said a Washington, D.C. source who did not want to be named. The source also said that the DOJ is now under pressure to come up with a concrete position on the Kyl and Leach bills.
Many, but not all, of the people who testified at the hearing offered blanket support for the approach taken by Kyl's bill.
Richard Blumenthal. Blumenthal spoke on behalf of the National Association of Attorneys General. He had harsh words for the online gambling industry, calling it "sordid" and "despicable." "Now, without delay, clear and specific federal measures are vital to add deterrent strength to current general prohibitions," he said. "State and federal law enforcement authorities have the historic opportunity and obligation to work together to halt the ongoing abuse," he stated. Blumenthal recently banned a CD-ROM lottery game in Connecticut by saying that it was dangerous for children.
John Malcolm. Malcolm, in addition to saying that the DOJ supports all but a few technicalities of the bill, stated numerous reasons why his organization would be in favor of putting an end to online gambling, one of which was the possibility that online casinos could be used for money laundering. "Because criminals are aware that banks have been subjected to greater scrutiny and regulation, they have--not surprisingly--turned to other non-bank financial institutions, such as casinos, to launder their money," he said in his written statement.
Frank Fahrenkopf Jr. The leader of the largest lobbying group in the gaming industry stated that the AGA's opinion about online gambling has not changed: "The AGA maintains the view that the technology necessary to provide appropriate regulatory and law enforcement oversight does not presently exist with regard to Internet gambling so as to properly regulate the integrity of the games and the security and legality of financial transactions, and to minimize the potential for underage and pathological gambling," he said. However, in his statement Fahrenkopf described how one member of the AGA, MGM Mirage, has started an online site using "technology to address concerns about underage gambling and problem gambling."
William Saum. As a representative of the NCAA, Saum spoke primarily on the effect of gambling and online gambling on college students and particularly on college athletes. He stated his belief that since college students have, as a group, more Internet access than anyone else in the country, they are particularly susceptible to online gambling activities.
Richard Fischer. Fischer spoke as a lawyer who has dealt extensively with the financial services industry about developing and implementing procedures to block online gambling transactions. He stated support for a ban on illegal Internet gambling, and said the credit card industry has little to reason to support an industry that brings it many cardholder disputes. "The costs to the payment card industry in the United States of Internet gambling transactions far exceed any benefits that could possible be gained by the marginal additional transaction volume due to such transactions," he said.
Frank Catania. Speaking on behalf of the Interactive Gaming Council, Catania said that developing a regulatory structure for online gambling in the United States makes more sense than trying to prohibit it. "The application of gambling to the Internet has created a market force that cannot be stopped without pulling the plug on the entire World Wide Web," he said. Catania also pointed to countries like the United Kingdom, which has decided to regulate and tax online gambling, and therefore benefit from it, instead of trying to fight it.
Stuart Baker. Baker said the United States Internet Service Providers Association would be willing to work closely with the DOJ to control online gambling, but he asked that the Kyl bill not require ISPs to be able to control all unlawful activity on the Internet. "If you're going to regulate this, the best way is to do so with a mind to how the Internet works," he said.