K&LNG
JULY 2006
Alert
Internet Gaming
Internet Gambling Prohibition and Enforcement Act Passes
U.S. House
INTRODUCTION
SUMMARY OF THE MERGED BILL
On July 11, 2006, the U.S. House of Representatives
(one of the two chambers of the U.S. Congress)
debated and, by a 317-93 vote, passed the GoodlatteLeach bill, which the bill's sponsors promoted as a
vehicle for rendering illegal or prohibiting Internet
gambling in the U.S. The bill will now proceed to
the U.S. Senate, where most commentators do not
believe it will be considered before the Senate's
summer recess (tentatively scheduled for August 7 to
September 5). This Alert discusses the genesis of the
bill, its substance, the House's consideration of it, and
what might be expected as the bill moves to the U.S.
Senate.
As we described at length in our May 2006 Alert
updating activities in Congress
(http://www.klng.com/files/Publication/09c6b6f82dd8-4e29-a6f180d4c0600474/Presentation/PublicationAttachment/a
7170ed0-08bb-45e7-b15a893a03d4893b/IGA0506.pdf), the Goodlatte bill
focused on amending the federal Wire Act, a criminal
statute in Title 18 of the U.S. Code, while the Leach
bill focused on barring banks and credit card
companies from processing payments for online
wagers by adding a new subchapter to Chapter 53,
concerning monetary transactions, in Title 31
(Money and Finance) of the U.S. Code. The merged
bill contains both components.
GENESIS OF THE GOODLATTE-LEACH BILL
Representatives Leach and Goodlatte both introduced
bills during the 109th Congress that they promoted as
prohibiting Internet gambling. After both bills were
approved by the U.S. House Judiciary Committee in
late May 2006, attempts were instituted to merge the
two bills into one and to bring the merged bill to the
full House for consideration. House Leadership then
included the prohibition of Internet gambling on its
"American Values" agenda and promised to bring the
bills on the agenda to a vote before the House
recessed for the summer (tentatively scheduled for
July 31 to September 3). With this impetus, the
Goodlatte and Leach bills were merged into a bill
referred to as the "Goodlatte-Leach Internet
Gambling Prohibition and Enforcement Act" (the
"merged bill"). The text of the merged bill was
substituted for the original text of the Leach bill
(H.R. 4411) and considered by the full House on
July 11, 2006.
Wire Act Amendment
Title I of the merged bill amends or adds definitions
to 18 U.S.C. §1081 to clarify that the Wire Act
covers Internet transmissions and bets and wagers
placed on activities in addition to sports.
Specifically, the bill would amend the Wire Act to
expand the communication facilities covered by the
Wire Act to include the Internet and other emerging
technologies and to expand the Wire Act to cover
bets and wagers on events other than sports events.
With respect to the communications facilities
covered, the merged bill amends the definition of
"communication facility" to mean "any and all
instrumentalities, personnel, and services (among
other things, the receipt, forwarding, or delivery of
communications) used or useful in the transmission
of writings, signs, pictures, and sounds of all kinds by
aid of wire, cable, radio, or an electromagnetic,
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JULY 2006
photoelectronic or photo optical system, or other like
connection (whether fixed or mobile) between the
points of origin and reception of such transmission."
With respect to the bets and wagers covered, the
merged bill adds an expansive definition of the term
"bets and wagers." Generally, "bets and wagers"
"means the staking or risking by any person of
something of value upon the outcome of a contest of
others, a sporting event, or a game predominantly
subject to chance, upon an agreement or
understanding that the person or another person will
receive something of value in the event of a certain
outcome." It specifically includes "the purchase of a
chance or opportunity to win a lottery or other prize
(which opportunity to win is predominantly subject
to chance.)" The definition, however, excludes
numerous activities, including (but not limited to) socalled fantasy sports games (if specific requirements
are met), activities governed by the Securities
Exchange Act or the Commodity Exchange Act,
over-the-counter derivative instruments, and
contracts of insurance.
Title I of the merged bill also amends 18 U.S.C.
§1084, the portion of the Wire Act that describes
criminal activity and sets criminal penalties. Section
1084, when originally enacted, included a caveat that
it did not "prevent the transmission in interstate or
foreign commerce of information for use in news
reporting of sporting events or contests, or for the
transmission of information assisting in the placing
of bets or wagers on a sporting event or contest from
a State or foreign country where betting on that
sporting event or contest is legal into a State or
foreign country in which such betting is legal."
The merged bill expands this caveat.
Consistent with the added definition of "bets or
wagers," the limitation to "sporting event or contest"
would be removed and state lotteries added. In
recognition of the gambling permitted on Indian
tribal lands by the federal Indian Gaming Regulatory
Act and permitted by local law in states permitting
local governments to permit gambling locally, the
caveat would also be expanded to permit the
transmission of information assisting in the placing
of bets or wagers and related to state-specific
lotteries "from a State or foreign country where such
betting or wagering is permitted under Federal, State,
tribal, or local law into a State or foreign country in
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which such betting on the same event is permitted
under Federal, State, tribal, or local law." The
merged bill also provides that it does not prohibit
"the use of a communication facility for the
transmission of bets or wagers" within a state or on
Indian tribal land by an individual or entity
"physically located" in the same state or on Indian
lands in the state, if (among other things) the state or
tribe has authorized the bets and requires "a secure
and effective location and age verification system."
Interestingly, Title I of the merged bill addresses,
without clarifying, the relationship between the
interaction of the merged bill and the Interstate
Horseracing Act ("IHA") found in 15 U.S.C. §§3001
et seq. The merged bill specifies in Section 105 that
"nothing in [the bill] may be construed to prohibit
any activity that is allowed" by IHA. Section 106 of
the merged bill provides:
It is the sense of Congress that this Act does not
change which activities related to horse racing may
or may not be allowed under Federal law. Section
105 is intended to address concerns that this Act
could have the effect of changing the existing
relationship between the [IHA] and other Federal
statutes that were in effect at the time of this Act's
consideration; this Act is not intended to change that
relationship; and this Act is not intended to resolve
any existing disagreements over how to interpret the
relationship between the [IHA] and other Federal
statutes.
Section 106 recognizes that the U.S. Department of
Justice (but not the horse racing industry and others)
interprets the Wire Act (and other federal criminal
statutes) as precluding interstate and foreign
transmission of wagers on horse races. It also shows
unwillingness on the part of the sponsors of the bill
to take a position on that issue.
Financial Component
Title II of the merged bill establishes the financial
enforcement mechanism envisioned by both
Goodlatte and Leach in their original bills.
The merged bill would attempt to cut off the flow of
money to Internet gambling websites by requiring
"each designated payment system, and all
participants therein, to identify and block or
otherwise prevent or prohibit restricted transactions,"
i.e., bets or wagers to Internet gambling websites.
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The bill empowers the Treasury Department and the
Federal Reserve, in consultation with the Attorney
General, to promulgate regulations that establish the
procedures to identify and prevent financial
transactions related to Internet gambling. Through
these regulations, financial institutions operating in
the United States would be responsible for blocking
the payments to Internet gambling sites from U.S.
residents.
Other Provisions Of Interest
Title III of the merged bill attempts to address the
sticky wicket that exists because online gambling is a
worldwide phenomenon and is licensed and regulated
by numerous other countries. Title III focuses on the
fear expressed by many that the Internet gambling
industry is used by organized crime to launder money
and on the reality that the U.S. cannot enforce its
prohibition on Internet gambling against offshore
gambling enterprises without the assistance of
foreign jurisdictions. Specifically, Title III provides
that the "United States Government should" attempt
to "(1) encourage cooperation by foreign
governments and relevant international fora in
identifying whether Internet gambling operations are
being used for money laundering, corruption, or other
crimes; (2) advance policies that promote the
cooperation of foreign governments, through
information sharing or other measures, in the
enforcement of the Act; and (3) encourage the
Financial Action Task Force on Money Laundering,
in its annual report on money laundering topologies,
to study the extent to which Internet gambling
operations are being used for money laundering
purposes."
THE HOUSE'S CONSIDERATION
Debate on the merged bill was limited to one hour.
Twenty representatives spoke, some more than once.
Of the twenty, only six – Reps. Frank (D-Mass), Paul
(R-Texas), Conyers (D-Mich), Scott (D-Va), Berkley
(D-Nev) and Porter (R-Nev) – opposed passage of
the bill, while fourteen – Reps. Oxley (R-Ohio),
Hooley (D-Ore), Leach (R-Iowa), Aderholt (R-Ala),
Bachus (R-Ala), Dent (R-Pa), Wolf (R-Va), Shadegg
(R-Ariz), Pitts (R-Pa), Sensenbrenner (R-Wisc),
Goodlatte (R-Va), Boucher (D-Va) and Meehan (DMass) – urged passage.
The opponents were not united in their reasons for
opposition. Some expressed concern that the merged
bill was an intrusion on the individual right to
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privacy. Others complained that the merged bill did
not go far enough and actually prohibit all Internet
gambling.
The proponents of the bill, on the other hand, were
consistent in their reasons. They listed money
laundering, increased addiction, underage gambling,
damage to families, source of funds for terrorism,
organized crime and fraud as bases for passage.
At the conclusion of the debate on the merged bill,
Rep. Berkley (D-Nev) introduced an amendment (cosponsored by Reps. Wexler (D-Fla) and Conyers (DMich)), which was debated for 20 minutes. The
amendment would have struck language that (1)
excepted from the prohibition bets placed with a
gambling business in a state or on Indian lands, if the
state or Indian tribe has authorized the bets and has
in place an age and location verification, (2) provided
the bill did not prohibit any activity allowed under 15
U.S.C. §§3001 et seq. (Interstate Horseracing Act),
and (3) said, among other things, it was the "sense of
Congress" that the bill "does not change which
activities related to horse racing may or may not be
allowed under Federal law."
Six representatives addressed the amendment: Reps.
Berkley (D-Nev) and Conyers (D-Mich) spoke in
support; Reps. Sensenbrenner (R-Wisc), Goodlatte
(R-Va), Boucher (D-Va) and Wolf (R-Va) spoke in
opposition. Rep. Berkley accused the proponents of
pandering to the horse racing industry, while Rep.
Sensenbrenner accused Rep. Berkley of promoting
her state's interests (Nevada has no horse racing
industry or state lottery) to the exclusion of the other
49 states. The amendment was put to a voice vote
and it was not clear whether the yeas or nays were
louder. After Rep. Berkley requested that the vote be
individually taken, the vote was postponed until later
in the day.
Approximately one hour later, an electronic vote on
the amendment was taken and the amendment was
defeated. Rep. Conyers then moved for the bill to be
recommitted with instructions to require the bill to be
reported back with an amendment that adds a new
section providing a measure to protect against under
age gambling. After a short debate, the motion was
defeated.
Following the motion's defeat, an electronic vote on
the merged bill commenced. The final vote was 317
in favor and 93 opposed.
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JULY 2006
WHAT'S NEXT?
The merged bill now moves to the Senate. Most
commentators do not believe that the bill will be
considered by the Senate before its summer recess or
that the Senate will actually pass the bill before the
end of the 109th Congress.
Should the Senate pass the merged bill as received,
the bill would go to President Bush. He would likely
sign the bill (approve it), and it would then become
law.
Should the Senate amend and then pass the bill, the
House would need to reconsider the bill. If the
House did not agree to the Senate amendments, the
two chambers would have to attempt to work out
their differences. They would have to accomplish
this before the end of the 109th Congress.
While remote, there is also the possibility that
President Bush, if the bill is passed by both chambers
and presented to him, might veto it. In that event, the
bill would go back to Congress, which could pass it
over the President's veto by a super majority vote
(two-thirds of the members) in favor of the bill in
both chambers. If such happened, the bill would
become law, as if it had been signed by the President.
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Should the Senate not consider and pass the bill
before the end of 2006, the bill would "die" and the
process would need to start over in the 110th
Congress that begins January 2007 and ends with the
end of calendar year 2008.
CONCLUSION
For now, the situation in the U.S. with respect to
Internet gambling remains murky. We will continue
to monitor the progress of bills in the U.S. Congress
that concern Internet gambling and provide updates.
Linda J. Shorey
lshorey@klng.com
717.231.4510
Robert A. Lawton
rlawton@klng.com
717.231.4549
Deborah J. Peckham
dpeckham@klng.com
617.261.3126
Kirkpatrick & Lockhart Nicholson Graham
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JULY 2006
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dpeckham@klng.com
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Deborah J. Peckham
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Warren L. Phelops +44.20.7360.8129
wphelops@klng.com
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310.552.5090
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JULY 2006