Testimony of Frank Miller, former State Gaming Regulator

10 February 1998

Prepared Remarks of Frank Miller, Esg.

Before the U.S. House of Representatives
Judiciary Committee
Subcommittee on Crime

February 4, 1998

Good morning. Chairman McCollum, members of the Subcommittee, my name is Frank Miller. Thank you for this opportunity to testify on the issue of internet gaming.

This morning, I would like to address the specific question of how to regulate internet gambling. I believe I am particularly well-suited to speak to this issue given my previous professional experience. Prior to my joining the private sector in 1997, I was the director of the Washington State Gambling Commission, a position I held for six years. As you may know, Washington State has one of the largest gambling enforcement commissions in the country, trailing only Nevada's and New Jersey's in size. In my capacity as the chief gambling regulator for the state, I was responsible for overseeing charitable, commercial, and Class III tribal gaming operations. I was also past president and board member of the North American Gaming Regulators Association (NAGRA) in 1994 and 1995.

Although I presently consult with governments and the private sector within the gaming industry, I do not represent any entities that currently provide so-called interactive or internet gaming services.

Mr. Chairman, I have monitored the progress of Senator Kyl's legislation in the Senate and Congressmen LoBiond's bill in the House. I am very concerned that critical legislative decisions are being made based on inaccurate or incomplete information. I believe sound policy can only be developed by having all of the facts presented to decision-makers in a fair and unbiased way - regardless of whether one is in favor of or opposed to the application of 21st century technology to an activity such as gaming.

One of the fundamental claims made by the proponents of the Kyl and LoBiondo bills is that gaming on the internet is impossible to regulate - and in the absence of regulation, it should be prohibited. With all due candor, this approach simply won't work. While interactive wagering presents some unique regulatory challenges, these obstacles are by no means insurmountable. In fact, I just returned last week from Australia where I met with gaming regulators who are very close to finalizing a regulatory program for internet wagering in the area of sports betting and horse racing. Australian officials have also initiated a national debate and have developed a model for comprehensive regulation of all in virtual gaming. The model allows for strict regulation, ultimate consumer protection, and sets forth alternatives for taxation by individual Australian states. Although the model has not been formally adopted, it is important to note the proactive approach by the Australian government to address this issue.

I believe even stronger measures could be taken in the United States in order to screen out compulsive gamblers and minors from the system, guarantee the collection of taxes from bettors and operators, and ensure that games offered are well-regulated and fair.

If, instead, a prohibition is enacted, it will only drive the industry off-shore, where enforcement of age-restrictions and other regulations are far less likely to be in place, and virtually impossible for U.S. authorities to enforce (especially when sovereign governments have already set their own gaming standards). As such, passage of the LoBiondo bill may have the unintended effect of actually increasing the exposure of children and compulsive gamblers to on-line wagering, while creating a black market that benefits off-shore companies at the expense of the domestic industry and the U.S. economy.

Ideally, a regulatory framework in the United States would be a partnership between the states and the federal government, and paid for with industry profits. Regulation would include strict licensing requirements, permanent U.S. siting requirements to ensure a jurisdictional nexus and U.S. control, appropriate state and federal limitations, and complete accountability through advanced auditing technology. Consumer protection would be achieved and taxes would be collected. To address minor access, the gaming operator could be required to strictly control participation through a comprehensive verification system that includes a mandatory waiting period to establish the bettor's identity. Such a regulatory regime would be funded entirely by the operators and would not cost taxpayers a dime.

Technology currently exists to extensively and thoroughly audit on-line casino style games. Auditors would be able to make unannounced "inspections" of virtual games electronically, without the casino ever knowing. From a regulator's perspective, such spot checks are invaluable in the fight against corruption. As one Australian regulator told me last week, "Virtual gaming will be easier to regulate than the gaming which exists today." I could not agree more.

Given the reach of the internet, and its international character, I believe a comprehensive regulatory program is a necessity. The passage of the LoBiondo bill to prohibit internet gaming in the U.S. outright, will only serve to create a domestic black market for it - a market that may be beyond the reach of American legislators and regulators, but not the vulnerable public. U.S. attorneys would be forced to seek otherwise confidential information from internet service providers to prosecute individuals who play from their homes. The State Department would be required to negotiate prohibition agreements with foreign governments to stop the importation of Internet gaming services into this country. And despite such efforts, it will be nearly impossible to prevent anyone from placing a bet on-line. If the Kyl and LoBiondo bills are adopted, the end result will be a statute that will be difficult, if not impossible, to enforce. I used to believe that the only method of consumer protection in the context of internet ganung was caveat emptor - play at your own risk.' I never thought there would be a significant market worth regulating. After concluding my recent trips overseas, I can emphatically state that the internet gaming industry is not only viable, but burgeoning on a global basis. As such, it needs to be strategically regulated in a thoughtful manner.

Mr. Chairman, that is the extent of my prepared remarks. I would be happy to answer any questions you or members of the Subcommittee may have.

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.