Testimony of
Bernard P. Horn, Director of Political Affairs
National Coalition Against Gambling Expansion
in support of H.R. 2380
the Internet Gambling Prohibition Act
before the
Subcommittee on Crime
of the U.S. House Committee on the Judiciary
February 4, 1998
Chairman McCollum and distinguished Members of the Subcommittee:
I am Bernard Horn, Director of Political Affairs of the National Coalition Against Gambling Expansion (NCAGE), a grassroots coalition of citizens and groups. Just like the sponsors of this legislation, we are Republicans and Democrats, conservatives and liberals, from every area of the United States.
NCAGE is not an organization of moralists. We are not trying to stop Americans from gambling. We do not seek to close down Las Vegas or Atlantic City. Rather, we oppose the expansion of legalized gambling because the costs of gambling far exceed the benefits.
On behalf of our coalition, I urge you to support the Internet Gambling Prohibition Act as well as increased enforcement of existing law because the Internet multiplies the societal costs of gambling while virtually eliminating its benefits.
Increased social costs of gambling addiction
Mental health authorities testify that the prevalence of gambling addiction is closely linked to the accessibility and acceptability of gambling in society. Like alcoholism, only a small percentage of Americans are susceptible to this disorder. But as more people try gambling in its various forms, more of those prone to the illness are exposed.
We have seen this demonstrated again and again-the more legalized gambling a state makes available, the more pathological behavior is triggered. For example, in Iowa, the introduction of riverboats more than tripled the problem causing the percentage of residents who were lifetime pathological or problem gamblers to rise from 1.71% in 1989 to 5.4% in 1995. And in Minnesota, as sixteen Indian casinos opened across the state, the number of Gamblers Anonymous groups shot up from one to forty-nine.
Internet gambling will multiply addiction exponentially. As Dr. Howard J. Shaffer, Director of the Harvard Medical School Division on Addiction Studies, explained-
"When we have technological advances, when we have new ways of administering drugs, we typically have some epidemic that follows. After the hypodermic needle was invented, we had an epidemic of heroin use, It was the hypodermic needle and the ability to smoke cocaine that created an epidemic of cocaine use when, in fact, cocaine and heroin had been used for many, many years before those epidemics in a much safer way.... So with new technological advances, with Internet gambling, with telephone and television interactive gambling, we're likely to see many more pathological consequences to gambling-"
Lecture in Orlando, Floridi, Octoher 27, 1995
The Internet not only makes highly addictive forms of gambling easily accessible to everyone, it magnifies the potential destructiveness of the addiction. Because of the privacy of an individual and his/her computer terminal, addicts can destroy themselves without anyone ever having the chance to stop them.
Increased social Costs of underage gambling
Internet gambling will also worsen the already serious problem of underage gambling and teenage addiction. Researchers have called gambling the fastest growing teenage addiction, with the rate of pathological gambling among high school and college-aged youth more than twice that of adults. Because of the anonymity of the Internet, there is no practical way to stop underage gambling. We will likely witness more and more kids borrowing/swiping credit cards from parents/others to gamble on-line.
Increased social costs of bankruptcy
It should be no surprise that gambling addicts go bankrupt- A number of studies have shown that 20 percent or more of compulsive gamblers eventually file for bankruptcy. In fact, "Gambling may be the single fastest-growing driver of bankruptcy," according to a 1997 study by SMR Research Corporation. This report also found that the number of bankruptcies increases with proximity to a casino. In areas near casinos, "[g]ambling-related bankruptcies account for a good IO to 20 percent of the filings." On-line wagering will worsen our already-awful bankruptcy problem.
Increased social costs of crime
Wherever gambling goes, crime and corruption follow-that is the history of gambling in America. The link between gambling establishments and large increases in crime has been exposed by numerous studies. Contemporary crooks target casinos and other gambling establishments because, as Willie Sutton would say, "that's where the money is."
On-line gambling poses novel problems in crime. For example, the Internet creates huge opportunities for cheating, especially by virtual casinos. There's just no way to tell if virtual dice, roulette or cards are rolled, spun or dealt randomly (that is, fairly) or whether they're responding to a sequence pre-planned to cheat customers. More ominous is the fact that Internet gambling will provide a perfect front for organized crime. We're never going to know for certain who owns an Internet gambling site based in another country, but we do know that the mob always seeks involvement in gambling enterprises.
By exacerbating the problem of pathological gambling, Internet wagering will also spark an increase in financial crimes, such as embezzlement, check kiting, credit card fraud, loan fraud, insurance fraud, and tax evasion. Up to 90 percent of pathological gamblers commit crimes to pay off their wagering debts. Indeed, pathological gamblers are responsible for an estimated $1.3 billion worth of insurance-related fraud per year.
Elimination of any economic benefits
Money spent on gambling does not float out of the air, it is money that would otherwise have been spent on other products or services, usually money that would have been spent at restaurants, theaters and retail stores. A riverboat casino, for example, diverts revenues from local businesses, and those businesses are forced to lay off workers. Like conventional gambling establishments, Internet gambling will cannibalize existing businesses.
Yet in the case of a conventional gambling establishment, the casino/racetrack/lottery hires employees, which tends to offset the jobs lost elsewhere. This is not the case with Internet gambling, which has the potential to take huge sums out of the entertainment/retail economy all over the nation without creating any replacement jobs. Internet gambling will be a black hole for the American economy.
Lack of enforcement of current federal law
The Internet Gambling Prohibition Act will make it much easier for both federal and state law enforcement authorities to stop Internet gambling. But gambling on the Internet is already a violation of 18 U. S.C. § 1084, see Op. FL Att@ Gen. 95-70 (October 18, 1995).
Unfortunately, the U.S. Justice Department is not enforcing the law. Companies blatantly offer and even advertise Internet gambling.
Over the past few years, Justice Department spokesman John Russell has given a number of excuses for the Department's inaction, including.- "If the casinos are outside the United States, there's not a thing we can do about it except prevail upon the host government.... [And] it's not that vexing a problem." As recently as January 31, 1998, Mr. Russell was quoted in the New York Times asserting that: "We have no jurisdiction. The offense has not been made on U.S. soil." That is simply inaccurate as a matter of law and fact. Our coalition believes that the Justice Department could stop the bulk of Internet gambling aimed at Americans today by sponsoring a few "sting" operations and following up with highly-publicized prosecutions.
One benefit of the Internet Gambling Prohibition Act is that it will prod the Justice Department into action- NCAGE recommends that this Subcommittee also consider using its powers of oversight to inquire into the reasons behind the Department's inaction.
Why the Congress must act
Many states and jurisdictions have turned down casinos or other tvpes of gambling because they want to avoid the social costs of gambling. For example, in 1996, voters in Kansas, Colorado, Nebraska, North Dakota, Ohio and Washington State overwhelmingly defeated referenda which would have expanded gambling. In 1997, state legislation to expand gambling was defeated in Alabama, Colorado, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New York and West Virginia.
The long-held position of the federal government has been to allow states to permit gambling if they want it, but to protect the policies of states that don't want gambling. Thus, for example, federal law allows lottery ads to be broadcast in states where lottery is legal but not in states where it is illegal (18 U. S.C. §1304, 1307). Obviously, the Internet crosses all state boundaries. Allowing gambling on the Internet will take away the power of state legislatures, tribal governments and voters to decide for themselves whether they want gambling in their jurisdictions, The only way to preserve the federal policy of keeping gambling a local decision is for Congress to make it clear that gambling on the Internet is illegal and give law enforcement authorities the tools they need to enforce the law,
Enact H.R. 2390
On behalf of the National Coalition Against Gambling Expansion and its thousands of supporters, I ask you to enact the Internet Gambling Prohibition Act, a common-sense measure designed to facilitate the enforcement of a long-standing federal policy. Mr. Chairman, thank you.
Bernard P. Horn is the Political Director of the National Coalition Against Gambling Expansion (7VCA GE), Commifnications Director of the National Coalition Against Legalized Gambling (NCALG), and Executive Director of NOcasiNO Maryland. He is also an attorney and President of Strategic Campaign Initiatives, Inc., a political consulting firm that has worked for dozens of candidates and causes. From 1988 to 1994, Bernard served as a leg7slative director, lobbyist and strategist for Handgun Control, Inc. in Washington, D. C. He is a graduate of the Johns Hopkins University and the Georgetown University Law Center.
No federal grant, contract or subcontract has been received by Bernard Horn, NCAGE, NCALG or NOcasiNO.
QUESTIONS & ANSWERS ON INTERNET GAMBLING
and H.R. 2380/S. 474, the Internet Gambling Prohibition Act
Who supports H.R. 2380/S. 474?
H.R. 2380/S. 474 has been endorsed by the National Coalition Against Gambling Expansion, the National Association of Attorneys General, the National Football League, the National Collegiate Athletic Association and FBI Director Louis Freeh.
What would H.R. 2380/S. 474 do?
H.R. 2380/S. 474 would (1) make it clear that all types of interstate on-line gambling are illegal (clearing up ambiguities in existing law); (2) extend federal law to cover those who bet with a bookie or casino (but not bets between friends); (3) strengthen the ability of law enforcement agencies to cut off an on-line casino's phone service through the phone company and/or Internet service provider; and (4) encourage the Justice Department to enforce the laws against on-line gambling by requiring a report from the Attorney General within one year of enactment.
What existing laws cover Internet gambling?
Title 18, Section 1084 of the United States Code provides that "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers ... shall be fined not more than $ 1 0, 000 or imprisoned not more than two years, or both."
It is clear that Internet gambling already violates federal law, See, e.g., Op. FL Att@ Gen. 95-70 (October 18, 1995). However, Section 1084 only covers those individuals, either bettors or receivers of bets, who are "in the business" of gambling. Further, the law contains language which makes some argue (we believe erroneously) that it applies to sports betting only, that is, to Internet bookies but not Internet casinos.
Internet gambling also violates state law in most (if not all) jurisdictions in the United States. While some actions can be, and are being, taken against on-line gambling by state law enforcement authorities, this problem would be best addressed by federal agencies.
Is gambling on the Internet protected as "free speech" under the First Amendment of the Constitution?
In a long line of cases, dating back to 1878, the U.S. Supreme Court has consistently ruled that gambling is not protected by the First Amendment. The Supreme Court most recently rejected a First Amendment claim for gambling in (IS. v. Edge Broadcasting Co., 113 S.Ct. 2696 (1993), holding that "gambling-implicates no constitutionally protected right- rather, it falls into a category of 'vice' activity that could be, and frequently has been, banned altogether."
Is gambling on the Internet legal when the site of the virtual casino or bookie is located in a country, state, or tribal reservation where gambling is legal?
It is clearly wrong to assert that gambling over the phone lines is legal if the casino or bookie is located in a place where Internet gambling is legal. Such an assertion is based on the fiction that the gambling actually "occurs" at the casino site and not at the other end of the phone line where the bettor is located. (See e.g., letter from the President of Sports International Ltd., an Internet bookie, reprinted in Gambling On The Internet, report of the National Association of Attorneys General, June 11, 1996.) In fact, federal courts have flatly rejected such arguments, pointing out that federal law bans the interstate or foreign transmission of wagers regardless of the location of the parties, and that Congress has the constitutional power to do so. See Martin @ (J. S., 389 F.2d 895 (1968).
Are laws against Internet gambling enforceable?
If an Internet casino or bookie is located outside the United States, federal authorities will have difficulty arresting the perpetrators. Nevertheless, law enforcement agencies can obtain indictments and arrest warrants against Internet gamblers which brand them as fugitives from justice and restrict their travel. Even without H.R. 2380/S. 474, we believe the Justice Department could stop the bulk of Internet gambling by sponsoring a few "sting" operations and following up with highly-publicized prosecutions.
After H.R. 2380/S. 474 is enacted, law enforcement authorities would also be able to direct phone companies and Internet service providers to "pull the plug" on Internet gambling sites as well as obtain court injunctions to close down such sites.
How common is Internet gambling today?
In the past year, there has been a sharp rise in the number of gambling sites on the World Wide Web, from about a dozen at the beginning of 1997 to more than 60 today.
Internet gambling sites enjoyed net revenues of about $17 million in 1996 (according to a research analyst for Christiansen/Cummings Associates, Inc., published in International Gaming and Wagering Business magazine, June 1997). This represents a tiny fraction of the $44 billion in profits which legal gambling establishments earned in the U.S. last year.
If unchecked, however, some analysts predict that within the next decade Internet gambling could generate as much as $10 billion in profits each year.
What is limiting the growth of Internet gambling?
Besides its illegality, on-line gambling currently suffers from three problems that hinder its popularity.
First, like much of the graphic material on the World Wide Web, virtual casinos operate slowly and are thus pretty boring places right now. This problem will be fixed over time, however, as wire connections, hardware and software all get faster.
Second, many people feel uncomfortable sending their credit card information across the Web. Some on-line casinos/bookies invite players to set up accounts in foreign banks to facilitate gambling, but this solution is awkward and not very popular. This problem may soon disappear. Other methods to send money over the Internet (e.g. "cybercash") are being developed and tested, and are likely to become popular for on-line gambling within a short time.
Third and perhaps most important, users don't have any reason to trust Internet gambling sites (after all, they're already breaking the law by their existence). There is simply no way for a bettor to know if he/she is being cheated by a "virtual" roulette wheel or blackjack dealer. The gambling site's software can 'ust as easily cheat as play fair. And even if the bettor "wins," there is no guarantee that he/she will ever collect (see e.g., Wagering on the Web a Risky Business, MSNBC, July 23, 1997, telling the story of a winning bettor who couldn't get his cyberbookie to pay him). This problem can only be solved if well-respected companies own or operate gambling sites.
What are some of the most talked-about Internet gambling sites?
The Coeur d'Alene tribe in Idaho has a Web site offering the "U.S. Lottery." A similar effort to open a nationwide lottery using an 800 number and operators was killed last year when several state Attorneys General objected. Attorney General Jay Nixon of Missouri filed suit against the tribe's Internet operation and that case is pending.
Minnesota's Attorney General Hubert (Skip) Humphrey filed suit for fraud against Granite Gate Resorts, Inc., a Las Vegas-based company, after it advertised that it would offer Internet gambling from a site in Belize. In December 1996, a judge ruled that the state could prohibit Internet gambling.
Maryland's Attorney General Joe Curran ordered RealTime Prizes Network, a Maryland-based Internet gambling company, to close. The company agreed in February 1997 to comply with
Curran's order.
Missouri's Attorney General Jay Nixon obtained an injunction and $66,000 in penalties against Interactive Gaming & Communications Co. (IGC), the Pennsylvania-based parent company of Sports International (an Internet bookmaking site) and Global Casino (an on-line casino), both based in Grenada. On June 26, 1997 a grand jury in Missouri also indicted IGC and its president, Michael Simone.
The tiny country of Liechtenstein started selling lottery tickets over the Internet in 1995. In earlv 1997, the International Red Cross planned to be-come a sponsor of the Liechtenstein lottery in exchange for 15 percent of the wagers, but the Red Cross later canceled the plan, responding to international pressure.
A few Internet gambling companies are publicly traded, including IGC, United Casino (operating a virtual casino based on Cook Island), Playstar Corp. (a Delaware-registered company operating from Toronto which plans to open a Caribbean-based virtual casino), and VentureTech Inc. (a Reston, Virginia company developing a gambling site).
What is wrong with gambling on the Internet?
Generally, the social and economic costs of gambling far outweigh the economic benefits, Internet gambling will bring even higher costs and fewer benefits than casinos, racetracks, or other gambling -establishments. Those costs include addiction, bankruptcy and crime. (See testimony of Bernard P. Horn February 4, 1998.)
Why should the federal government (instead of states) act against Internet gambling?
Many states and local jurisdictions have turned down casinos or other types of gambling because they want to avoid addiction, bankruptcy and crime. For example, in 1996, voters in Arkansas, Colorado, Nebraska, North Dakota, Ohio and Washington State overwhelmingly defeated referenda which would have expanded gambling. In 1997, state legislation to expand gambling was defeated in Alabama, Colorado, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New York and West Virginia.
The long-held position of the federal government has been to allow states to permit gambling if they want it, but to protect the policies of states that don't want gambling. Thus, for example, federal law allows lottery ads to be broadcast in states where lottery is legal but not in states where it is illegal (18 U.S.C. §1304, 1307). Obviously, the Internet crosses all state boundaries. Allowing gambling on the Internet will take away the power of state legislatures, tribal governments and voters to decide for themselves whether they want gambling in their jurisdictions. The only way to preserve the federal policy of keeping gambling a local decision is for Congress to make it clear that gambling on the Internet is illegal and give law enforcement authorities the tools they need to enforce the law.
Other testimonies:
- Testimony of Sue Schneider from the Interactive Gaming Council and Rolling Good Times
- Testimony of Frank J. Fahrenkopf, Jr., President & CEO of the American Gaming Association
- Testimony of Doug Donn, from the American Horse Council
- Testimony of Frank Miller, former state gaming regulator
- Testimony of Bill Saum, of the NCAA
- Testimony of Bernard P. Horn, from the National Coalition Against Gambling Expansion
- While the Coeur d'Alene tribe was not able to testify at the House hearings,they did submit a written testimony.