House Testimony: Alan Kesner

In 1996, the National Association of Attorneys General issued its first report on the topic of gambling on the Internet. I chaired that staff working group, and continue to chair the group today. In the mid 1990s, we found less than 25 web sites actually offering real gambling for money over the Internet. The technology utilized at that time for individuals to browse the World Wide Web was in its infancy. The passage of time has made this activity more attractive to consumers.

Now, it is possible for persons sitting at their home computers to experience the sound and light experiences of real casino action. Not surprisingly, the industry has taken off. Now there are estimated to be over 850 sites offering real-time live gambling, for real money, over the Internet. And this number will do nothing but increase if the activity is allowed to grow unchecked.

What drives this industry to open so many sites providing the same service? Money. For a minimal investment in computer hardware and software, an individual or company can set up website operations in a friendly foreign jurisdiction, offer gambling to the world (including the United States) via the internet, and watch the money start to flow in. To many operators, it almost seems like magic. And since it is difficult to spend actual cash over the Internet, the flow of money to these operations consists almost entirely of some sort of financial instrument that is covered by the bill which is the topic of today's hearing.

Senator Kyl and Representative Goodlatte have proposed legislation which would make the law even clearer regarding the illegality of Internet gambling, as well as providing new enforcement tools for state and federal governments. From the beginning, our organization has supported the efforts of Senator Kyl and Representative Goodlatte. This is one of few instances where the states have actively promoted and supported the adoption of a federal law to combat such an issue. The somewhat unique nature of our support reflects the importance of federal legislation to aid the states' general efforts to control gambling activity that occurs within our borders.

The Internet Gambling Prohibition Act simply takes an effective enforcement tool for the states and ensures that we can continue to use this mechanism for activity on the Internet. For decades, the states have utilized the Interstate Wire Act, §1084, to address illegal bets placed through the technology of the telephone and other wire communications. That law allows the states to go to the carriers and require them to "pull the plug," eliminating the use of the wire system for those who violate the law. This law operates in cooperation with other federal laws, e.g., the Interstate Horseracing Act and the Indian Gaming Regulatory Act, and the various state laws. The Internet Gambling Prohibition Act provides the same mechanism, in cooperation with other federal and state laws, for the Internet.

Once enacted, this legislation will immediately put a damper on much of the illegal Internet gambling that is currently taking place. To date, it has made significant strides towards enactment into law at both ends of the capitol. Of course, the next few weeks will determine the final fate of this legislation, but it is clear that the principals underlying those two bills have overwhelming support in both of these legislative bodies.

While we have worked closely in crafting the prohibition legislation, we also recognize that those bills do not provide the only means to combat this illegal activity. States that have effectively used §1084 to "pull the plug" to address wagering over the wires are finding creative methods to address wagering over the Internet. For example, in Florida, the state entered into a voluntary compliance agreement with Western Union not to transfer money to specific off-shore accounts of gambling entities.

Based upon the success of these efforts, I am please to be here today to testify in regard to the bill before this Committee. H.R. 4419 represents an additional tool in the efforts to slow down gambling on the Internet. H.R. 4419 would adopt much of the definitional language crafted in the Kyl/Goodlatte legislation, applying it to an additional enforcement mechanism, a prohibition against using bank instruments in connection with the placement of bets or wagers over the Internet.

In addition to providing an effective enforcement tool for the government, this legislation would provide assurance for the banking industry that it will not be made the scapegoat for the illegal activities of persons utilizing their services. Unless they are shown to be knowingly involved in the operation of a gambling business, the financial institutions whose instruments are covered by this bill are protected from liability if their services are used illegally by others.

While the National Association of Attorneys General has not taken a specific position on this bill, it is safe to say that the goals of this legislation are consistent with our support of the Kyl/Goodlatte legislation. This bill is also consistent with the organization's support for implementation of the recommendations of the National Gambling Impact Study Commission.

As I stated earlier, money is the reason these websites are in existence, and cutting off the supply of money for the website operators would have a strong effect on the industry. It would be entirely appropriate to liken this effort to "cutting off the air supply" of these operations. Without money coming in, they would have no reason to continue their existence, and states would regain some of their lost ability to control the gambling that occurs by persons within their own borders.