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U.S. House committee hears testimony about banning or regulating Online Gambling

by Michael Bluejay • November 25, 2007

There were lots of interesting moments in the hearing held by the U.S. House Judiciary Committee on Nov. 14th about the legal state of online gambling:

  • The U.S. Attorney seemed to be unable to make up her mind whether online gambling was legal or not.
  • An esteemed law professor said that the U.S. is breaking international law by not allowing online gambling.
  • A professional poker player bested a member of Congress in a battle of wits.
  • The Family Research Council was outed as actually being opposed to all forms of gambling (even the lottery), not just online gambling as they let on.
  • There was reference to new bills filed which would legalize online gambling explicitly, removing any ambiguity.

You can see video of the hearing on the House of Representatives website, along with all the written testimony provided by the expert witnesses. But of course we'll highlight the juicy bits below so you don't have to watch the whole four-hour thing (like we did).

 

U.S. Attorney says online gambling is illegal, then changes her mind

If you're confused about whether online gambling is legal or not, you're not alone. U.S. Attorney Catherine Hanaway doesn't seem to know either. She gave conflicting answers on that question at the hearing.

She started out by saying flatly that all Internet gambling is illegal, including not only sports but also casino games and even poker. (timecode 00:24) Whoa, that seems pretty clear cut! Rep. Robert Wexler (D-FL) seemingly mocked her, saying, "The beauty of the Dept. of Justice's position as you enunciate it, which is all forms of Internet gambling are prohibited, means that there's no gray area." (2:21)

It wasn't long before she was forced to reverse herself.

Rep. Robert C. Scott (D-VA) asked, "Isn't it true that in the federal code, it is not illegal to gamble on the Internet, it is illegal to run a gambling operation?"

Hanaway replied, "It is illegal to engage in the business of taking bets or wagers."

Scott countered, "But...there's no prohibition against gambling on the Internet?"

Hanaway: "That's correct." (2:35)

Ah, so gambling online isn't against the law after all. Right after she said it was.

Even Rep. Bob Goodlatte (R-VA), the primary supporter of a ban on Internet gambling, admitted that online gambling isn't illegal:

[T]he only thing that Congress has done is to pass legislation related to the transfer of funds. We have changed no laws related to what is lawful and what is not lawful for gambling. (2:42)

It didn't stop there. Rep. Robert Wexler (D-FL) said,

If [all forms of Internet gambling are really prohibited], why aren't we prosecuting every lottery director in America? Why aren't we prosecuting everybody who shows up at an offtrack horse-betting establishment in America? Why aren't we prosecuting every fantasy sports outlet in America? Please tell me, where do I have it wrong?

He asked the U.S. Attorney directly,

Has the Dept. of Justice shut down a single e-lottery system in the United States? And if you haven't, why not?

Hanaway said she didn't know, but that she could find out and follow up. She doesn't know?! That's hard to believe. (2:20)

 

Law professor says U.S. is obligated to allow online gambling

Also testifying was a law professor who said in no uncertain terms that under international law, the U.S. has no choice but to allow online gambling. Joseph Weiler, professor at the New York University School of Law, said:

Under the commitment the United States took within the World Trade Organization, the activity which is being prosecuted is protected. It should not be prosecuted.

He gave an example of how we expect other countries to abide by the WTO, while we don't abide by it ourselves:

The United States brought a case against Japan which was discriminating in the way they taxed alcohol. They found an ingenious scheme that had a low tax on Japanese alcohol and a high tax on our bourbon, etc. The U.S. represented to the WTO very, very forcefully. It said to Japan, 'You undertook when you signed onto the WTO that decisions of the appellate body should be complied with unconditionally. Please comply!' And Japan complied. And I think it's the interest of this country that the decisions of the appellate body of the WTO, of which there's always an American judge, should be complied with -- when we win, and when we lose. (~2:30)

Not only that, but by doing so we're putting U.S. citizens at risk for imprisonment in other countries! Weiler adds:

I would be interested in the position of the Justice Dept, if, for example, say China hypothetically were to prosecute an American citizen and put them in prison in violation of an international legal obligation owed to the United States, and simply they would say to the United States, "Under our internal Chinese law this individual has no defense, despite the fact that we recognize that we are violating the international obligation to you." And then China moved to withdraw the commitment they had given to the United States. And with a little rider, China would add, "And we learned this trick from you." What would be the position of the Justice Department in such a situation? (1:12)

U.S. Attorney Hanaway had a pretty pathetic response to that: "I think it would be unwise for me to try and answer a hypothetical situation which does not exist..." On the other hand, I guess we couldn't very well expect her to admit that the U.S.' flouting of international law is pretty stupid.

Weiler made some other good points. As for whether we can prosecute offshore companies, he noted that each situation is different, but that in general, "Just as we would not like some faraway country to prosecute legal activity in our country, other countries do not like us to prosecute what is legal activities in their country."

He also pointed out why the WTO court didn't buy the U.S.' argument that it should be granted an exception because of America's moral objection to online gambling, since the U.S. openly allows certain kinds of online gambling, like horse racing and state lotteries. (He might have also mentioned that 48 of the 50 states have some form of legal gambling, the only exceptions being Hawaii and Utah.) So the WTO wasn't convinced that online gambling is so morally offensive in our culture.

 

Rep. Goodlatte tries to bluff poker player and loses

One of my favorite parts of the hearing was watching Rep. Goodlatte's attack on a pro poker player backfire on him. He went after Annie Duke, a poker pro from California, possibly thinking that she couldn't keep up with him because she wasn't as versed in policy matters as the politicos, or maybe because she's a woman. But how wrong he was! In fact, Duke was probably the most accomplished speaker at the entire hearing.

At issue was the WTO case, where the WTO ruled that the U.S. has no right to ban online gambling. Goodlatte first asked Duke whether she thought that the states should have the right to determine whether and what kinds of gambling to allow within those states? She agreed. He then asked how that squared with the idea that the WTO says that we can't prohibit gambling. Utah bans all forms of gambling, how could that be allowed under the WTO? But Duke wasn't falling for it, there was an answer and she knew it: Utah isn't a member of the WTO, the United States is. It's the federal government that's not allowed to ban online gambling. The states can do what they want.

His attack failing, Goodlatte tried to get her on several other points, but Duke had a ready and intelligent answer for everything. At one point he became so flustered that he interrupted her and wouldn't even let her finish answering the question that he himself posed. (3:42)

 

Rep. Cohen exposes Family Research Council's true intentions

But beating up on expert witnesses wasn't entirely unsuccessful. Tom McClusky of the Family Research Council addressed the committee to warn of the supposed evils of Internet gambling, being very specific to the idea that it's the online component which is especially troublesome. But Rep. Steve Cohen (D-TN) ferreted out the true positions of McClusky's group. First he forced an answer on whether the Council thought that even horse racing and lotteries should be illegal. McClusky agreed that they should be. Then the conversation went like this:

Rep. Cohen:

So it's really not the Internet you're against, it's gambling in general, is that right?

Tom McClusky:

Uh...yes, that's true. Or at least unrestricted gambling, such as we have with the Internet, or other....

Cohen:

But the lottery is restricted. You can't play if you're a child. Same with horse racing. But you're against that, are you not?


Yes.

Cohen:

So if it's restricted or unrestricted, you're against it.


Yes.

Cohen:

Is there any fun that you're for?


Any what?

Cohen:

Fun.


Well, we're for this and it seems like a lot of fun.

Cohen:

Hearings? Good, good. (3:34)

 Cohen then engaged U.S. Attorney Catherine Hanaway.

Rep. Cohen:

Were you in Missouri when they had the referendums on lottery and casino gaming?

U.S. Attorney Hanaway:

I was.

Cohen:

And was it predicted there that all these awful things would occur, that the river would go all the way back up to Cairo, that the Cardinals would leave, and that Busch Stadium would no longer exist?

Hanaway:

There were some predictions that it would have ill effects, but none of those precisely as you described.

Cohen:

They talked about divorce rates going up, that bankruptcies would increase, that all those kind of things, didn't they?

Hanaway:

I believe so.

Cohen:

That's the standard litany. I sponsored and passed a lottery in Tennessee. They said all those things would occur. None of them occurred. And in fact what happened is we have raised a billion dollars for education. And the most avaricious group trying to get into the lottery program, to get scholarships, were the faith-based schools, who wanted more money...and then they wanted exemptions after exemption for home-schoolers, for people on missions.... There was a little bit of hypocrisy because they were so much against it, and then they were the first people at the trough.

And that's a problem that I think, Mr. McClusky, your group has, when you come and predict the end of the earth, and it doesn't occur, then the next time it's kind of like Chicken Little. You know, the sky's still up there. And that's a problem.

Red herring: money going offshore

One reason given by those who want to ban online gambling is that they don't want all that U.S. money flowing offshore. Well, sure, but wouldn't legalizing online gambling sites in the U.S. solve the same problem? If U.S. players could play at gambling sites run in the U.S., then that stops the flow of money offshore just as well. Rep. Sheila Jackson Lee (D-TX), made exactly that point. (3:31)

 

Difficulty of enforcement

How does a bank know what a transaction is for? Under the new UIGEA law, banks are supposed to disallow transactions for online gambling. But Rep. Scott wanted an answer to how a bank could know what a wire transfer to, say, a Monte Carlo hotel was for, when that money could be for hotel rooms, legal casino gambling, or some form of online gambling that the hotel operated? Not surprisingly, the rep from the Dept. of the Treasury didn't have an answer. (2:38)

 

How the U.S. justifies its prosecution of foreign companies

Many people wonder how the U.S. can get away with prosecuting offshore companies. How is it that we can say that foreign companies are subject to our laws?  Some in Congress wonder the same thing, and asked the DoJ rep about that.  Attorney Hanaway had a reasonable answer: "The position we have taken is that they are using wires that are contained within the United States to either transmit the funds or transmit the information upon which they are placing the bet. [thus violating the Wire Act]" (2:36)  Of course, that's separate from the fact that such prosecutions are illegal given the WTO court ruling, but this administration has a frightening ability to disregard the law when it wants to.

 

New legislation

A hearing is nice, but what will become of it?  Rep. Wexler and Rep. Barney Frank (D-MA) have each introduced bills to address the issue. Wexler's H.R. 2610, the Skill Game Protection Act, was introduced on June 7th and would legalize online games of skill.  Frank's H.R. 2046 bill would legalize, regulate, and tax online gambling.  Will either pass?  Probably not, given that House Speaker Nancy Pelosi voted for the online gambling restrictions last year, and that neither bill has even been scheduled for debate yet.  But the fact that there's increasing support in congress for lifting gambling restrictions can only be good for us.