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Congress aims to level the online gambling playing field

After years of legal and regulatory flip-flops -- restrictions, prohibitions, partial authorizations, sweeping criminal indictments, gamblers' winnings and account balances evaporating into thin air -- most hopes for some sort of regulatory clarity and sanity rest on two new bills awaiting action in Congress.

"Previous attempts by Congress to prohibit Internet gambling have failed, leaving millions of Americans who continue to gamble online without any guaranteed protections or safety net," said Michael Waxman, a spokesman for the Safe and Secure Internet Gambling Initiative, a group that promotes responsible and safe online wagering.

"Compounding this is the recent introduction of conflicting state regimes," he said. "Without consistent regulations, federal and state governments are being deprived of valuable tax revenue, while offshore Internet gambling operators continue to benefit from an uncertain and untaxed marketplace."

Federal officials and other regulators are expressing other concerns, and a lot is at stake here. Morgan Stanley, the financial services firm, recently estimated that the U.S. online gambling industry will account for $9.3 billion in annual revenue by 2020 -- more than the amount currently generated by Las Vegas and Atlantic City combined. Much of that online gambling takes place by credit and debit card.

"Does the patchwork of state laws and regulations sufficiently protect consumers from fraud?" Sen. Claire McCaskill asked during a July 17 congressional hearing on online gambling. "Can it prevent underage and problem gambling? Does the expansion of online gambling provide more conduits for criminal activity, such as money laundering? Worse, will terrorists be able to more readily use online gambling sites to launder money and finance their activities?

"These are all legitimate questions that I think Congress must ask," said McCaskill, who chairs the U.S. Senate Subcommittee on Consumer Protection, Product Safety and Insurance, which conducted the hearing.

Two bills have been introduced to address some of those issues.

Internet Poker Freedom Act
On July 11, Rep. Joe Barton (R-Texas) introduced a bill that focuses solely on online poker -- by far the most popular form of Web-based wagering -- and would create uniform standards to control the activity. Among other things, it mandates steps that would limit underage access to online poker, protect consumers from fraud and preserve some state rights and revenues related to the activities.

"Poker is an all-American game," Barton said when he filed his bill. "It's a game that I learned as a teen and continue to play today. Just like millions of other players, I enjoy the strategy and skill involved.

"I continue to be supportive of the Americans who play poker online," he said. "They deserve to have a legal, onshore system that makes sure everyone is playing in an honest, fair structure."

He, McCaskill and others in Congress and elsewhere say that cash-strapped states are moving rapidly to authorize online poker and other games within their borders and that compacts soon will be reached that allow Americans to gamble across state lines -- without ever leaving their homes.

"Congress cannot ignore progress and the facts," said John Pappas, executive director of the Poker Players Alliance, which has more than 1 million U.S. members. "Americans want the freedom to play online poker in a regulated market, and states are filling the void." A dozen state legistlatures are currently considering 18 often-contradictory bills.

On this issue, Barton said, the future can be seen clearly.

"As people see how well and fair it is in states that allow it, they are going to demand through their congressmen and senators to have it in their states," he said during a telephone news conference. "I can't say when that general mass will occur, but I can say it will occur and that it won't be 20 years from now. It will be, if not next year, the year after or soon after that."

Credit card ban
His Internet Poker Freedom Act of 2013 would prohibit the use of credit cards to fund the accounts of online poker players. Credit cards are by far the most popular financial vehicle used by Web-based gamblers.

In fact, a previous federal law that prohibited the processing of such transactions by credit card companies and other institutions deeply wounded the U.S. industry after it took full effect in 2009 and pushed many gamblers into using offshore gambling sites. In some cases, those sites ultimately stood accused of defrauding those gamblers out of hundreds of millions of dollars.

Barton said that he proposed the ban on credit cards to prevent gamblers from getting in over their heads in debt. He noted that debit cards, which tap actual bank balances, would still be allowed.

Others called the exclusion of credit cards misguided.

"Credit card use is encouraged by regulators in other countries because they offer far greater consumer protections than other payment vehicles," said Waxman. "It is completely foolish and a mistake to prohibit their use.

"There's no way rules can be developed to stop people from finding a way to use funds from their credit cards to gamble online," he said. "It'll just make the transaction and transfer of money a lot less transparent."

Others were more upbeat, willing to overlook -- for now -- the issue of credit card use.

"Internet poker is here to stay in America and we are all better served through licensing and regulation that implements high standards to protect consumers, thwart fraud and abuse and guarantee the proper safeguards against underage and addictive gambling," said former U.S. Sen. Alphonse D'Amato, chairman of the Poker Players Alliance.

D'Amato also praised the other recently proposed congressional bill , which would authorize and regulate online poker and virtually every other type of online casino-style game other than sports betting.

Internet Gambling Regulation Act
Introduced in June by Rep. Peter King of New York, the Internet Gambling Regulation, Consumer Protection and Enforcement Act of 2013 requires states to be certified by the U.S. Department of Treasury before they can license online gaming operators, mandates technologies that block underage gamblers, allows states to opt out of online gambling operations and authorizes federal funding to address gambling addiction.

"A common federal standard will ensure strong protections for consumers, protect against problem and underage gambling and make it easier for businesses, players, lawmakers and regulators to navigate and freely participate," King said as he introduced his bill.

King's proposal includes no substantive restriction on the use of credit cards.

He and others say congressional action became mandatory in the immediate wake of a key -- and, at the time, highly unexpected -- development in this complex issue.

Legal interpretation opens floodgates
That arrived in September 2011, when the U.S. Justice Department came out of nowhere and announced that the Federal Wire Act of 1961, long used as the federal basis on which to prohibit the interstate placing of bets, applied only to wagers on sports events.

The Justice Department's legal opinion opened the floodgates, essentially authorizing states to go their separate ways as they decide whether to allow and regulate online poker and other games. Now, a hodgepodge of state laws already are in place or are being debated.

Residents of Nevada and New Jersey currently have access to online poker operations within their states and Delaware residents will be able to choose from a full slate of online games by the end of September. Legislators in a dozen states are considering various online gambling bills. Seven bills are in play in Texas. Four are being considered in New York. Many Native American tribes have vested interests in anything that involves legalized gambling.

Online gamblers and their supporters say the current situation is not tenable, and serious consideration of the bills filed by Barton and King is essential.

"Internet poker is a reality that is here to stay," said Geoff Freeman, president and CEO of the American Gaming Association, which represents the casino industry. "The question is whether Congress will ensure minimum regulatory standards of online poker, protect consumers, exclude bad actors from the American market and provide Native American tribes with an appropriate regulatory framework."

Said D'Amato: "In order to avoid a patchwork of state laws that limit player pools and provide consumer protections only to Americans in those states, it is time for Congress to step up and pass federal legislation."

See related: Online gambling action shifts to states