Testimony of Frank J. Fahrenkopf, Jr. President & CEO of the American Gaming Association

10 February 1998

Testimony of
Frank J. Fahrenkopf, Jr.
President & CEO
American Gaming Association

555 13th Street, NW
Suite 1010 East
Washington, D.C. 20004

Before the United States House of Representatives
Committee on the Judiciary
Re: H.R. 2380 "Internet Gambling Prohibition Act of 1997"

February 4, 1998

Good morning. I am Frank Fahrenkopf, president and CEO of the American Gaming Association. The AGA represents the commercial hotelcasino entertainment industry, which consists primarily of publicly held companies listed on the New York, American and NASDAQ Stock Exchanges and which are closely regulated, not only by state and local governments, but by the Securities and Exchange Commission.

The AGA does not oppose H.R. 2380, the "Internet Gambling Prohibition Act of 1997." Many may think it an anomaly that a national association that represents the casino gaming industry would take such a position. Some postulate that the traditional gaining industry is fearful of the competition from Internet gambling. This is, of course, ridiculous. For whatever business that Internet gambling may garner, if the well-branded casino companies entered that market, they would quickly capture dominant market share.

Our major concern with Internet gambling concerns the use of this new technology to avoid federal and state regulatory controls and frustrate state policies on the availability of gaming within their jurisdictions. Since the formation of the Union, individual states have, pursuant to the dictates of the 1 oth Amendment, retained the power to decide gambling policies within their own borders.

Many critics of this bill argue that history has shown that prohibition does not work. The fallacy in that argument is that the option is not between gambling and no gambling, it is between unregulated and regulated gambling. Legal, regulated gaming is available in some form in 48 of the 50 states. In every instance, state government has the opportunity and, indeed, the obligation to assure the honesty, integrity and fairness of its gaming industry and to set fundamental gaming policies. It is tough state regulatory and law enforcement controls that provide integrity to today's gaming industry.

The Internet presents technology that brings gambling opportunities directly into a person's home without regard to regulations and policies otherwise applicable to gaming. The Internet operator may be doing business in another state or another country. Almost without exception, they are outside the jurisdiction of the state government to regulate or police. This situation robs the various states of the opportunity to decide gambling policy within their own borders. Moreover, this does not impact only those states that prohibit gambling, but also those majority of states that regulate it. Between states with legal gambling opportunities, there exist many differences in gaming policies. Some may restrict gambling to certain areas; others may place bet or loss limits, and still others permit some, but not all, types of games.

One can safely represent that casino gaming is among, if not the most highly regulated industry in America. Government regulators effectively control all aspects of casino operations to assure compliance with all state and local laws and policies. Stringent licensing procedures assure that only suitable persons obtain licenses to operate the casino. Strict enforcement assures that the games are fair and honest and that only responsible adults are allowed to participate. Detailed accounting procedures assure that all moneys are accounted for and proper taxes paid.

With regard to Internet gambling technology today, mandatory licensing, enforcement and auditing are impossible. Internet gambling could result in an unacceptable situation where patrons are cheated by unlicensed and unsuitable operators. Moreover, these defrauded individuals would not have any means of legal redress. State governments would be equally frustrated in enforcing policies that, among other things, may limit the amount of wagers, impose loss limits, or prohibit gambling by minors. Moreover, tax revenues that go to support important state programs would go uncollected. Furthermore, unregulated Internet gambling could circumvent various federal anti-money laundering requirements with which AGA members now comply.

In sum, Internet gambling should not be sanctioned until demonstrable methods are shown that allow states to retain their right to set policy and enforce state law for gaming activities by persons within their boundaries.

It is important to emphasize that as Congress drafts legislation in this area, it not make illegal What is now and should remain legal in terms of the use of the Internet and other on-line technologies by gaming companies. For example, hotels and businesses generally, including casino-hotels, have World Wide Web sites to advertise their properties and accept on-line reservations. Federal legislation to prohibit actual interactive gambling should not prohibit Internet marketing by casino-hotels or interfere with legal sports-book wagering in Nevada and off-track-betting in a number of states. A federal prohibition aimed at actual gambling transactions on the Internet need not prohibit or interfere with the use of new technologies for the data transmission associated with such wagering. We, at the AGA, would welcome the opportunity to continue to discuss these and other details as the legislative process moves forward.

With all this being said, laws to prohibit Internet gambling must come with a commitment of time, expertise and funding to enforce them. An undesirable scenario would occur if federal laws were passed, but not enforced. This would allow the offshore industry to exist, grow and probably prosper without proper oversight. We state this, being fully cognizant of the challenge of enforcement.

Without effective enforcement, states will suffer the entire burden of the Internet gaming industry. Its citizens that gamble online will have insufficient protection from unscrupulous operators or legal recourse if they are defrauded. State governments will be unable to control underage gambling or to limit gambling to suitable locations.

These same states will find it difficult to protect their interests. When the person that operates the Internet site is operating offshore, the state has no law enforcement authority. Total reliance must be placed on the federal government to use diplomatic powers and its treaty powers for enforcement efforts.

This will require the federal government to make a sincere commitment to opening diplomatic channels to assure international cooperation in the enforcement of the law. It will also require that the federal government dedicate the time, personnel and expense to see this policy through to fruition.

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.