US Law Roundup - September 2002

13 September 2002

Staying on top of interactive gambling bills as they move through the United States' federal and state legislatures no longer entails hours of research, thanks to this monthly update on U.S. state and federal legislation. Congress is back from its summer break, and there is a push among House of Representatives leadership to bring the HR 556, an anti-Internet gaming bill, to the floor for a vote. On the state level, Nevada gaming authorities were informed in August by the Justice Department that its statewide law that makes Internet gambling legal goes against the Wire Act.

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State Legislation

ARIZONA HB 2404

Bill Summary HB 2404 clarifies that gambling online through an Internet kiosk is classified as gambling under state law. It would make illegal the practice of placing Internet kiosks in bars to allow users free access to the Internet if users visit an online gambling site. Bars would stand to lose their liquor license if they are found to allow Internet gambling kiosks on their premises.

Bill Status The bill was introduced in January 2001 and on Feb. 13 was approved by the Energy, Utilities and Technology Committee by a vote of 10-0. No action has been taken on the bill since then.
Outlook The bill has already undergone significant amending since being introduced. Rep. Jeff Hatch-Miller, the bill's primary sponsor, said HB 2404 originally dealt with Internet gambling in a broader way, but due to the difficulty in changing the state's gaming statutes, the bill was changed to only address Internet gaming via kiosks. Hatch-Miller said the bill has the backing of the state's major land-based gaming interests.

MICHIGAN HB 4653

Bill Summary The bill, HB 4653, would ban a person engaged in a gambling business from using the Internet or any interactive computer service (which would include an Internet service provider or system providing access to the Internet) from using the Internet to both place and offer wagers. For further information, a legislative analysis is available.

Bill Status House Bill 4653 awaits a hearing before the House Committee on Gaming and Casino Oversight. The bill was introduced by Rep. James Koetje, the chairman of the House Committee on Gaming and Casino Oversight, on April 24. A committee hearing has not been scheduled yet.
Outlook The outlook for Michigan's latest effort to prohibit Internet gambling remains unclear. Although the state early last year enacted legislation that supposedly prohibits the activity, the law's ability to do so has been questioned. Act 235, which amended the state's criminal code by making it illegal to offer Internet gambling to Michigan residents, has long been derided as ineffective. Michigan may be trying to clarify its anti-Internet gambling status through this bill. The state legislature has until December 2002 to either pass or kill HB 4653.

NEVADA AB 466

Bill Summary AB 466 permits gambling sites to operate from Nevada. The original bill, AB 296, was eventually incorporated into a companion bill, AB 578. At first the bill steamrolled its way through both houses of the Nevada legislature, yet failed at the final step--by all accounts, suffering from a political tiff between the two houses--while awaiting a vote on the Senate floor. The legislation, however, was brought back to life by being piggybacked with AB 466, a bill that creates a uniform, statewide system for issuing work cards to gambling employees. Gov. Kenny Guinn signed the legislation on June 14, and the bill went into effect on July 1. The next step is for the Nevada Gaming Commission and the Gaming Control Board to do a survey of applicable legislation on the state and federal levels

Bill Status AB 466 went into effect July 1. Now the state is looking at the legality of Internet gambling under federal law, as well as a host of other issues. A hearing on this subject was held July 31 and Aug. 1, 2001. (See related article, Nevada Gaming Commission Meeting Agenda.)

Outlook Internet gambling probably remains a few years from becoming a reality in Nevada. There has been no determination whether the federal government could prevent a state or territorial government from offering interactive gambling services. Recent discussion of anti-Internet gambling bills in the U.S. House of Representatives Financial Services Committee couldn't solve the problem of overlap between state and federal laws. In late August, the U.S. Justice Department responded to an inquiry put forth by the Nevada Gaming Commission and Gaming Control Board regarding whether AB 446 is legal according to the Wire Act. The Justice Department responded that its interpretation of federal law indicates that gambling via the Internet, including casino-style gambling, is illegal. The next session of the Nevada legislature will convene on Feb. 3, 2003.

New Jersey A-568

Bill Summary This controversial bill would authorize licensed land-based casinos in New Jersey to offer their games via the Internet.

Bill Status A-568 is this year's prefiled version of A-3150, a bill Assemblyman Tony Impreveduto filed during the 2000-2001 legislative session. A-3150 had been sent to the Commerce, Tourism, Gaming and Military and Veterans Affairs Committee on Jan. 23, 2001, where it remained for the rest of the session.
Outlook Unlike the pro I-gaming bill in Nevada that passed last year, New Jersey's A-3150 had failed to garner great support among legislators and Atlantic City casino operators.

New Jersey A-1532

Bill Summary This bill was prefiled for the 2002-2003 legislative session by Assemblymen Joseph Azzolina and Nicholas Asselta. It replaces A-3932, which they introduced on Nov. 9, 2001. Both the old bill and the new one propose to allow Atlantic City casinos to offer real-time card games via the Internet.
Bill Status A-3932 was heard by the Commerce, Tourism, Gaming and Military and Veterans Affairs Committee on Nov. 20. The purpose of the hearing was to educate the committee members about the technology that could be implemented if the bill is passed. The committee received more than an hour of demonstrations, at which point it decided to table the bill until another hearing could be scheduled. The legislative session ended before A-3932 could be revisited.

Outlook Azzolina and Asselta have pre-filed A-1532 for the current session. It faces competition from Assemblyman Tony Impreveduto's A-568.

New York S 1663

Bill Summary Proposed by Sen. Bill Larkin, the bill would require online gambling operators to register to do business within New York.

Bill Status The bill was first introduced by Larkin in 1999. At that time the bill passed the Senate but not the Assembly. This time around, the bill has so far been passed by the Senate's Racing, Gaming and Wagering Committee. After heading back to the Senate for a third reading, the bill was committed to rules on June 20.
Outlook Larkin's general counsel, Stephen Casscles, said the bill is not a top priority in the state legislature and that in introducing it, Larkin is trying to get the ball rolling on state regulation of online wagering. "It is one of those things where we are pushing the concept of it, so it may take a while," Casscles said.

Federal Legislation

HR 556 Unlawful Internet Gambling Funding Prohibition Act

Bill Summary This bill would prohibit Internet gambling businesses from accepting the following payment methods from customers: credit cards, electronic fund transfers, any instrument drawn by or on behalf of another and payable through any financial institution and the proceeds of any other form of financial transaction involving a financial institution as payer or financial intermediary for another.

The bill provides for civil and criminal penalties including a permanent injunction against wagering. It shields certain financial institutions from liability from unknowing involvement of their facilities in credit card transactions, electronic fund transfers, money transmitting and drawing, paying, transferring or collecting a check or draft instrument. In addition, HR 556 includes provisions against money laundering, including encouraging foreign governments to identify Internet gambling operations that are used to launder money.

Bill Status HR 556 is the second attempt by Rep. James Leach, R-Iowa, to prohibit Internet gambling by making it nearly impossible for Americans to pay for it. The bill was introduced in February by Leach but was revisited in the Financial Anti-Terrorism Act of 2001, which was proposed by Financial Services Committee Chairman Rep. Michael Oxley, R-Ohio, and Rep. John LaFalce, D-N.Y. A response to the Sept. 11 terrorist attacks, that bill aimed to squash money-laundering opportunities for terrorists. Leach's bill against online gambling was included in the anti-terrorism legislation. After being discussed by the House Financial Services Committee, the anti-terrorism bill was fast-tracked without the Internet gambling provisions and approved by the full House on Oct. 17. On Oct. 31, the Internet gambling section was reconsidered and approved by the committee by a vote of 34 to 18. HR 556 is now awaiting a vote by the full House. It was discussed on Nov. 29 along with HR 3215 at a legislative session of the House Judiciary Committee's Subcommittee on Crime. The bill was neither marked-up for voted upon during this session. The witness list included Rep. Bob Goodlatte, R-Va.; Rep. James Leach, Timothy Kelly, former executive director of the National Gambling Impact Study Commission; and Frank Catania, former director of the New Jersey Division of Gaming Enforcement.

On Dec. 13 the House Committee on Judiciary granted an extension for further consideration of the bill no later than Dec. 21; on Dec. 20 the same committee granted another extension for consideration of the bill ending on March 29, 2002. On Jan. 29, 2002 LaFalce and Rep. Michael Oxley, R-Ohio, testified before the Senate Banking, Housing and Urban Affairs Committee. They told the committee was that online gambling and credit card fraud are terrorists' key money laundering methods. On Feb. 5, Leach, Oxley and LaFalce sent a letter to members of the House asking them to support and consider co-sponsoring HR 556. In the letter, the authors ask House members to support their bill over other proposals that have been introduced to ban Internet gambling, most notably, Rep. Bob Goodlatte's bill.

In early September, elements of Goodlatte's bill were implanted into Leach's bill, essentially putting the two legislators on the same team regarding Internet gambling. The new version of Leach's bill will have the following changes: Penalties for criminal violation of the Wire Act will be raised to five from two years; the Wire Act will be made technology-neutral; and Internet service providers will have a list of actions to complete in response to a court order.

OutlookThe Leach bill is waiting to be heard and voted on by the full House. Leach's press secretary, Bill Tate, told IGN that Leach has requested floor time for the bill to be discussed, but that a time has not been assigned to it yet. Since the House returned from summer recess, there has been a push among Republican leadership to bring the bill to a floor vote.

HR 3215 Combatting Illegal Gambling Reform and Modernization Act

Bill SummaryHR 3215 would update the 1961 Interstate Wire Act to include Internet gambling as unlawful. The bill also aims to rid the Wire Act of gray areas caused by the Internet and other modern technology. In addition, the bill would ban Internet gambling merchants from accepting payments in the form of credit cards, checks and Internet transfers. It was proposed by Rep. Bob Goodlatte, R-Va., on Nov. 1.

Bill StatusThis bill was referred to the House Judiciary Committee; it was discussed on Nov. 29 at a legislative session of that committee's Subcommittee on Crime. No action was taken regarding the bill at that session, which also included discussion of Rep. James Leach's anti-Internet gambling bill, HR 556. On March 12, the Judiciary Committee's Subcommittee on Crime voted to favorably report the bill to the full committee. During that session, the panel voted to amend the bill. On May 8 the bill was brought before the Judiciary Committee for mark-up, although after a few statements were made, the committee was called to the House floor for a vote. Goodlatte subsequently pulled the bill from the mark-up session.

On June 18, the House Judiciary Committee passed the bill, but not before approving an amendment from Rep. Chris Cannon, R-Utah, to delete all of the bill's exemptions for the horse racing, lottery and casino industries.

Outlook Last year Goodlatte failed to get a passing vote on his Internet gambling legislation, partly due to Energy and Commerce Committee Chairman Rep. W.J. "Billy" Tauzin, R-La., who expressed concern that the bill would encourage new forms of gambling. HR 3215 differs from the LaFalce-Oxley bill that the House Financial Services Committee is considering because the two bills suggest different enforcement mechanisms. According to a Capitol Hill insider, Goodlatte pulled the bill from the May 8 mark-up session because the bill was in danger of being stripped of its amendments, without which the bill would have a much lower chance at passage. Now that it no longer provides carve-outs for horse race wagering, lotteries and casinos, the Goodlatte bill is now unsupportable by the American Gaming Association and a variety of other organizations that are affiliated with those industries. Sources close to the proceedings say the bill will have a hard time being heard in the full House for this reason.

In late August, the parts of the Goodlatte bill were added into the Leach bill. The updated version of the Leach bill is now being supported by Goodlatte.

HR 2579 Internet Gambling Payments Prohibition Act

Bill Summary The purpose of the bill, which was introduced by Rep. John LaFalce, D-N.Y., is to prevent the use of certain bank instruments for Internet gambling and other purposes.

Bill Status HR 2579 is pending before two House committees. This bill was introduced to the House of Representatives on July 20 before being referred to both the House Financial Services and House Judiciary committees. On Aug. 8 it was referred to the House Subcommittee on Crime.

Outlook Last year, LaFalce co-authored a similar bill with Rep. James Leach, R-Iowa. Upon that bill's failure to pass before Congress recessed, the two legislators have split their approach, with each introducing his own bill to ban the use of credit cards and other payment systems for Internet gaming. LaFalce's bill, however, could be condemned to meet the same fate as last year's bill. As it is, Leach's bill, which was introduced earlier this year, remains in committee awaiting attention.

HR 2421 Jurisdictional Certainty Over Digital Commerce Act

Bill Summary HR 2421 aims to establish jurisdictional boundaries over the commercial transactions of digital goods and services conducted through the Internet. While not directly related to Internet gambling, this bill would give the federal government control over all e-commerce transactions, effectively erasing any state or territorial control over Net betting issues, including both regulation and prohibition of such activity.

Bill Status Introduced on June 28 by Rep. Cliff Stearns, R-Fla., HR 2421 was referred to the House Energy and Commerce Committee, as well as the House Judiciary Committee. On July 6, 2001, the Commerce Committee sent the bill for consideration by the Subcommittee on Commerce, Trade and Consumer Protection. The Judiciary Committee on July 16 forwarded HR 2421 to the Subcommittee on Commercial and Administrative Law, where it remains.

Outlook The fate of this bill remains unclear, although determining whether the federal government should have control of the Internet--at least in the United States--remains a political hot potato.

S 718 Amateur Sports Integrity Act

Bill Summary This bill would require the National Institute of Standards and Technology to establish a program to support research and training in methods of detecting the use of performance-enhancing drugs by athletes and others. It would also outlaw all betting on amateur sports in Nevada, including college and Olympic events. Sen. John McCain, R-Ariz., introduced this bill on April 5.

Bill Status The Amateur Sports Integrity Act remains on the Senate legislative calendar, but no date has been set for it to be addressed. S 718 has been the focus of several hard-fought battles between senators. Despite these battles in the Senate Commerce Committee, S 718 managed to survive, earning a tied vote of 10 to 10 on May 3. A representative for McCain said the senator would introduce his bill as an amendment to another bill. On May 14, 2001, the bill was placed on the Senate Legislative Calendar under general orders.

Outlook Whether this bill will pass is unclear. Although McCain has managed to gain significant support from a number of interest groups, the American Gaming Association continues to lobby hard against S 718.

Failed Legislation

California: AB 1229

California's most recent effort to prohibit Internet gambling failed when AB 1229, a bill introduced by Assemblyman Dario Frommer (D-Glendale), was unable to get moved out of the state Senate Governmental Organization Committee before adjournment on June 25.