Testimony of Betty Montgomery (3/23/99)

Mr. Chairman and members of the subcommittee, thank you for inviting me to testify today in support of the Internet Gambling Prohibition Act. My name is Betty Montgomery, and I am Attorney General for the State of Ohio.

The National Association of Attorneys General - the non-partisan membership organization for the 50 state attorneys general - has consistently supported federal prohibition of Internet gambling since the debate over this issue began in 1995. That was the year our national association formed its Internet Working group, examining this issue in earnest. I am a member of that working group, which has helped draft the legislation we are discussing today.

The Internet has changed our world, for better and for worse. The same convenience that allows for instant and international trading and communication also allows for people to gamble away a life's savings with the click of a mouse. It's all so eerily unreal. When I recently spent some time looking at these sites, I was struck by the way it all just feels like a video game. It seems it would be easy for the young or the naïve to not fully grasp that those little numbers disappearing on their computer screen are real dollars going down the cyber-drain.

For generations most communities in the United States have not allowed most forms of gambling. I don't think the average citizen is aware that because of the advances in the Internet, gambling is taking place in almost every community today in unprecedented numbers with almost no regulation at all.

The scariest thing is that it doesn't take much sophistication at all to gamble on the net. In a moment I want to share with you some examples of what's available out there. It took members of my staff almost no time and even less effort to find a site, set up an account, and have the ability to wager large amounts of money. Any child could do it, and we have every reason to believe that many children are. That's unacceptable.

Gambling has been primarily regulated by the states, and gambling laws and regulations have more state-to-state variety than almost any other area of law. Each state's gambling laws are carefully crafted to meet its own public policy concerns. In Ohio, most forms of gambling are prohibited. Exceptions have been made for the state lottery, horse racing, and some types of gambling activities conducted by nonprofit charitable organizations.

Most states' lawmakers and law enforcement officials, including Ohio's, believe the right combination of law and policy address their population's moral, law enforcement, consumer protection, and revenue needs in the traditional gambling environment, pre-Internet.

But, the Internet is a threat to the traditional independence of state law enforcement. As you know, a wide variety of card, dice, and other games of chance can be simulated on a home computer through the Internet. This means that virtually every type of gambling is available in some form in every state, and around the world, despite carefully crafted and explicitly stated gaming policies, laws, and regulations.

Let me share what we were able to retrieve by simply logging on to the Internet and by typing in the words "Internet Gambling." By using the search engine Alta Vista we hit 690 references. These interactive sites allow individuals to play games as if inside a casino. Audio available while visiting or playing these sites allows individuals to hear the wheels turn, the machines ring, the chips fall.

To create one of these sites, individuals need about $100,000 to purchase an Internet gambling software package, a computer, and a telephone line. No permanent real estate location is necessary. Individuals from Alabama can generate capital in Switzerland, run their business from Ohio, but have their computer software located and licensed in Antigua, and conduct business throughout the world. According to VIPsports, a popular Netherlands Antilles online gambling site, the gambling industry will generate more than $2.3 billion by 2001. VIPsports also reported a 2,000 percent growth rate in revenue and customers during 1998, totaling nearly $24 million. Most of this growth is because of the Internet.

Let's examine four of these sites. Copies of these web pages are included in your packets.

The first site shows the worldwide reach of Internet gambling. It allows consumers, from anywhere on the globe, to gamble with their currency of choice-all with the click of a mouse.

Next, the second site invites consumers to "play for free," but there is nothing free about gambling on the Internet. It's not Monopoly money consumers are losing, it's their hard-earned wages.

The third site offers games of chance that are available at any Atlantic City casino. Only this isn't Atlantic City-no plane ticket is needed-consumers can play poker, blackjack, or roulette without ever leaving their homes.

And finally, just as Las Vegas tourists head to slot machines with buckets of change, a one-armed bandit in cyberspace beckons them on the net. This site provide all the real-world actions of slot machines: change tumbling into the slot, the lever's downward motion, windows spinning around matching symbols, and lights flashing with instructions.

As the chief law enforcement officer in Ohio, I recognize early on that the Internet defies traditional concepts of jurisdiction and geographical boundaries. It is a global medium, and therefore intrinsically "interstate" in its reach. We understand that the law enforcement resources of the State of Ohio, even as part of a coordinated response by several states, can have only limited effect on Internet gambling. That is why Senator Kyl's legislation is needed.

Furthermore, technology alone cannot address the requirements of effective gambling regulation. Gambling is already one of the most heavily regulated industries in the world. Yet the Internet is one of the most unregulated and inherently difficult phenomena to regulate in modern times and it is all just a mouse click away.

Regulation in the traditional gambling industry has certain important parameters that cannot be addressed on the Internet. For instance, traditional forms of gambling have regulatory and enforcement mechanisms for conducting background checks of proprietors, verification of the age of players, and of course verification of the physical location of the players. The qualities that make the Internet such a powerful force and exciting new tool-anonymity and the ability of users to interact from vast distances-are the ones that pose challenges for traditional regulatory mechanisms.

For these reasons, NAAG has for several years supported federal intervention on this issue. In that time, this industry has grown immensely and the technology continues to improve. A few years ago there were a couple dozen web sites, now there are nearly 300. And between 2,000 and 3,000 Americans represent 75 percent of the online wagers. There are literally millions more Internet users, and the numbers continue to grow at a rapid pace.

Some will argue that the industry is already so entrenched, especially off-shore, that the U.S. government will not be able to effectively enforce any legal prohibition, and should therefore do nothing. Others will argue that the U.S. government should regulate, rather than prohibit this activity.

In response to these arguments, NAAG has consistently maintained it is difficult to have effective regulation in an industry with technological obstacles. A public stance of prohibition tells consumers that they should be extremely wary of Internet gambling. On the other hand, an ineffective regulatory scheme that is endorsed by the government only gives a false sense of security to consumers.

Finally, just because Internet gambling prohibition will be difficult to enforce does not mean that state law enforcement and the federal government should pretend that the activity does not exist, does not present a threat to consumers and minors, and is not likely to be opposed by the majority of their constituents. The continued rapid growth of the industry, and the inability of states to enforce their varied laws and policies, is just one more reason that federal legislation should be enacted quickly. Because of the power of this tool, unregulated Internet gambling would be, in a short time, the equivalent of deregulating gambling in general and return us to the days of the Wild West.

We urge you to support Senator Kyl's efforts and to make a strong statement to our constituents that this activity is not legal; that the games are not necessarily fair; that they are not necessarily offered by trustworthy parties; and that there may be no recourse for consumers or children who may be cheated. Thank you for the opportunity to appear before you today.

Jennifer/federal/legis/106th/t-gamble