Banking Interests Asks US Senate to Amend I-Gaming Prohibition Bil

2 August 2006

Officials from the U.S. Chamber of Commerce and the Independent Community Bankers of America (ICBA) sent separate letters to U.S. senators on Friday, urging them to amend the Internet Gambling Prohibition and Enforcement Act (HR 4411) for fears that it will impose impossible burdens upon the U.S. banking industry.

The letter from the ICBA, which represents nearly 5,000 community banks, is addressed to the chairman of the Committee on Banking, Housing and Urban Affairs, Sen. Richard C. Shelby, R-Ala., and the chairman of the Committee on the Judiciary, Sen. Arlen Specter, R-Pa. The ICBA asks the Senate to "address the operational difficulties this bill presents before it takes action," and demonstrates three critical issues that remain unresolved in the bill.

The first critical issue is "an impossible burden for 'un-coded' transactions" that HR 4411 would create. The letter explains that while it is indeed possible to monitor and block online gambling transactions that use credit cards due to the fact that credit card transactions contain a code that identifies which type of business receives the payment, it is not possible to block transaction that use automated clearing house (ACH) or paper and electronic checks because such transactions are not coded.

The letter states, "Due to the overwhelming number of ACH and check transactions, the application of this bill to un-coded transactions would require a massive overhaul of the payments system," and notes that even after such an overhaul, it would still be possible for gamblers to easily evade restrictions. The ICBA estimates that its financial system processed about 12 billion transactions by ACH in 2004, and that about 36 billion checks were written in 2004, which represents about 45 percent of all transactions, making checks the most commonly used type of non-cash payment.

The ICBA also suggests that HR 4411 should be improved to "prevent the courts from placing additional compliance requirements on the nation's banking system," a concern that was recently highlighted in the U.S. District Court's temporary restraining order (TRO) barring the 708 affiliated entities of from receiving fund transmissions from wagering. The letter states, "To comply with this TRO, any bank that may have a customer who may gamble with the defendant Web site of any of the 708 listed affiliates would have to monitor and block all their customers' payments (check, debit and ACH) to prevent payments to the defendant and all other 708 possible payees."

The ICBA's second worry is that "the bill threatens to subject banks and electronic processors to potential criminal liability for pursuing their core business operations of merely processing financial transactions." Although banks were excluded from liability in previous House versions of the bill, they are no longer exempt in the current version, which passed in July.

The third concern is that "the bill could subject banks to inconsistent state and national standards."

The letter concludes by stating, "We urge Congress to recognize that the nation's banks have already taken on major responsibilities to help detect and prevent terrorist financing and illegal money laundering. Attempting to monitor and block gambling transactions, particularly given the limits of the current payment technology, could detract from those efforts. Therefore, I strongly urge you to modify this legislation to reduce its negative impact on community banks."

The letter written on behalf of the U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size, sector and region, also stresses concern about "the regulatory burden HR 4777 could impose on financial institutions."

Echoing the ICBA letter, the U.S. Chamber of Commerce letter states, "We understand that requiring credit card companies and banks to block Internet gambling transactions that are coded as such poses no particular regulatory burden, However, we believe the bill would probably result in financial institutions being subject to regulations which would require them to scrutinize non-coded transactions as well, with substantial compliance costs."

The letter goes on to quote the Congressional Budget Office (CBO)'s estimate of the private sector compliance costs of H.R. 4411, which explained that "if the regulations also include the requirements for banks to identify and block checks or similar paper instruments used in a restricted transaction, the direct cost to comply with the mandates could increase significantly and CBO has no basis to estimate whether those costs would be above or below the annual threshold."

The Chamber of Commerce also suspects that requiring financial institutions to determine the purpose of ACH and check transactions would pose "a substantial regulatory burden which would require substantial changes to the systems by which such instruments are processed. Clearly, the costs of these changes would be significant."

The letter concludes, "We are writing to strongly urge the Senate to amend this legislation to clarify with certainty that the bill will not require financial institutions to block non-coded transactions."

This week's letters do not represent the first time either the Chamber of Commerce or the ICBA has spoken out against efforts to prohibit online gambling. The Chamber of Commerce sent a similar letter to the U.S. House in June 2004, while Samuel A. Vallandingham, vice president of the First State Bank of Barboursville, West Virginia, testified at a House hearing in April 2006 on behalf of the ICBA.

Senate Status

Only three days remain before the Senate breaks for recess until September 4. The Senate's calendar continues to be overloaded, and with issues such as defense appropriations, pension reform, minimum wage increases and estate tax cuts taking top priority, it seems extremely unlikely that H.R. 4411 will be addressed by the Senate before the recess.

Click here to the Independent Community Bankers of America letter.

Click here to the U.S. Chamber of Commerce letter.

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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