Thank you, Mr. Chairman and Members of the Subcommittee, for providing me this opportunity to discuss with you the important and complex issues relating to gambling on the Internet. The Nation's policy with regard to Internet gambling must carefully balance important competing interests, and it is essential for all interested parties to recognize that any effort to craft legislation focusing on the use of the Internet, whether for gambling, or other purposes, implicates a variety of complicated legal doctrines, including issues related to free speech, federalism, sovereignty, international law and comity and domestic and international commerce and trade.

In recent years, a great deal of attention has been devoted to studying and discussing the societal problems generally associated with casino gambling, such as addiction, diminished job performance, crime, money laundering, decreased investment, participation by minors, and a regressive effect on those with lower incomes. However, very little is yet known about how the availability of gambling over the Internet will affect society. In fact, in 1996, you assigned the National Gambling Impact Study Commission precisely that task -- to assess the impact of gambling, and specifically electronic gambling, on individuals, families, businesses, social institutions and the economy. Accordingly, the Department of Justice generally believes that there is considerable value in waiting until the National Gambling Impact Study Commission has concluded its study of the scope and effect of Internet gambling before passing new legislation that would change the way in which Internet gambling is regulated or prohibited.

Furthermore, as the Members of this Subcommittee undoubtedly know, various states have drawn quite different conclusions about the positive and negative consequences associated with gambling. In fact, forty-eight of the fifty states have legalized some form of gambling in their state. Although many of these states allow only state lotteries, and/or casino or bingo games for charitable purposes, an increasing number of states have legalized commercial casino gambling. Accordingly, it appears that at least some state legislation regarding gambling is not designed to prohibit or limit gambling activity on moral grounds, but rather, to create and ensure the viability of a source of state revenue. In any event, any effort to create an entirely new federal regime regarding electronic gambling will inevitably shift responsibility and control over gambling-related issues away from state and to the federal government. The Department continues to believe, however, that in the absence of fraud or organized crime involvement, primary regulatory enforcement responsibility for gambling laws should remain with the states.

That being said, 18 U.S.C. 1084 -- the Wire Communications Act -- currently prohibits someone in the business of betting and wagering from using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers on any sporting event or contest. This law was originally enacted to assist the states and territories in enforcing their laws and to suppress organized crime involvement with gambling. To the extent that Internet casinos are likely to be located abroad and beyond the easy reach of state authorities, the states are likely to seek federal assistance more frequently when foreign casinos offer gaming to local citizens in violation of local law. Assisting states through enforcement of the Wire Communications Act, therefore, is fully consistent with the Department's law enforcement priorities.

To be perfectly clear, however, the Department believes that many forms of Internet gambling can be effectively prosecuted under existing state and federal law. Because most methods of connecting to the Internet involve the use of "wire communication facilities" as defined in the Section 1084, anyone in the business of betting or wagering who transmits or receives bets and wagers on sporting events via the Internet is acting in violation of the Wire Communications Act. In appropriate cases, the Department will bring prosecutions under this statute. The recent complaints filed in the Southern District of New York illustrate this point. In those cases, the United States Attorney's Office filed criminal complaints against twenty-one individuals who owned and managed nine overseas sports betting establishments that accepted bets and wagers from United States citizens over the telephone and via the Internet. All of the complaints charged violations of Section 1084, the Wire Communications Act. Already, three of the individuals charged in those complaints have pled guilty to violating section 1084.

However, the Department also recognizes that the advent of Internet gambling may have diminished the overall effectiveness of the Wire Communications Act, in part, because that statute may relate only to sports betting and not to the type of real-time interactive gambling (e.g., poker) that the Internet now makes possible for the first time. Therefore, the Department generally supports the idea of amending the federal gambling statutes by clarifying that the Wire Communications Act applies to interactive casino betting and that the Act covers all Internet use, even if the Internet transmissions use modern technology -- such as satellite communications -- that may not be included in the traditional definition of "wire communications."

If any legislation specifically pertaining to the transmission of information over the Internet is to be considered at this time, we believe that such legislation should share three important characteristics. First, such legislation should treat physical world activity and cyberactivity in the same way. If activity is prohibited in the physical world but not on the Internet, the Internet will become a safe haven for that criminal activity. On the other hand, it is hard to explain why conduct previously deemed acceptable in the physical world should suddenly become criminal when committed in cyberspace. Therefore, we strongly recommend that the legislative treatment of Internet gambling be consistent with the treatment of gambling via other wire and wireless methods of communication.

Any effort to distinguish Internet transmission from other methods of communication is likely to create artificial and unworkable distinctions. For example, with the expected growth of digital Internet telephony -- the use of the Internet or other packet-switched networks for pure voice communications -- any effort to distinguish wagers placed via voice communications from wagers placed via electronic communications will lead to substantial confusion.

This leads to my next point, which is that any legislation should strive to be technology neutral. Legislation that is tied to a particular technology may quickly become obsolete and require further amendment. As a result, we believe it prudent to identify the conduct we are trying to prohibit, and then prohibit that conduct in technology-neutral terms.

Third, it is critical that the law recognize that the Internet is different from prior modes of communication in that it is a multi-faceted communications medium that allows for both point-to-point transmission between two parties, like the telephone, as well as the widespread dissemination of information to a vast audience, like a newspaper. Because of the unique nature of Internet transmissions, any prohibitions specifically geared to Internet communications must be carefully drafted in ways that accomplish the legislation's objective without stifling the growth of the Internet or chilling its use as a medium of communication and commerce.

For example, under the existing version of 18 U.S.C. § 1084, it is illegal for someone in the business of betting or wagering to transmit information in interstate or foreign commerce that assists in the placing of bets or wagers, unless the transaction is legal in jurisdictions at both ends of the transmission. Applied literally to the postings on the World Wide Web, this provision could be construed to criminalize the dissemination of information relating to lawful gambling at land-based casinos.

Finally, I would like to comment on two aspects of existing legislative proposals regarding Internet gambling that the Department opposes. First, and most significantly, the Department strongly opposes any legislation that would seek to make the activities of mere bettors -- those not in the business of betting or wagering -- a violation of federal law. Second, the Department believes that efforts to make enforcement of an anti-Internet gambling statute an international law enforcement priority are misguided.

Let me discuss these issues in more detail. Since 1961, the Wire Communications Act has targeted only individuals in the "business of betting or wagering" in order to cover professional lay-off bettors, but not mere bettors. During hearings on the 1961 bill, then-Attorney General Robert F. Kennedy acknowledged that the Department had no intent to prosecute individual bettors, because it would be an almost impossible task for the federal government to accomplish. The same is certainly true today. Criminal penalties against individual bettors have traditionally been left to the states to implement and enforce. Nothing about gambling on the Internet suggests that criminalizing the activities of mere bettors should become a federal law enforcement priority. Extending federal jurisdiction to cover mere bettors is both unnecessary and unwise. It is unnecessary because a state may always choose to criminalize, and then prosecute, bettors located in its jurisdiction. It is unwise because federal resources should be spent targeting large gambling operations -- and any organized crime involvement or fraud connected with such activities -- and other more serious offenses.

Because enforcement against mere bettors is not likely to be a priority, we believe it is inadvisable to have such legislation on the books. This is especially true where any failure to apply the criminal statute against common social wagering activities -- such as an office NCAA basketball pool conducted via e-mail, or a wager of local products between Members of Congress who represent districts that have Superbowl or World Series-bound teams -- would raise questions of inconsistent enforcement.

With regard to the international aspects of the legislation, the United States needs to be very sensitive to issues of international law and comity in the Internet context. Because other countries, such as Australia, have declared their intention to permit Internet gambling operations to accept bets and wagers via the Internet, it will be difficult to enforce Internet gambling prohibitions against operations located outside the United States. More specifically, a foreign national who is operating a licensed Internet-based casino in his country will not be violating his country's laws if he solicits or accepts bets from United States citizens. If we demand that foreign countries investigate, on our behalf, non-fraudulent gambling-related conduct that is legal in their countries, we must be prepared to receive and act upon foreign requests for assistance when the conduct a foreign country complains of is legal, or even constitutionally protected, in the United States.

For example, if we ask a foreign country to investigate gambling that is legal in the foreign state, that state may ask us to investigate constitutionally protected speech transmitted on the Internet from the United States that arguably violates that country's hate speech laws. Considering all of the challenges facing law enforcement in the information age, we believe current efforts should focus on conduct which either is, or should be, universally prohibited, rather than conduct which many states in this country, and many foreign countries, deem permissible.

I want to conclude my remarks by commending this Committee's efforts to investigate the need for statutory reform to take into account the effect of new technology on existing laws and I appreciate the opportunity to present the Department's views on this issue. I would now be pleased to answer any questions you may have.

Q: How can the Department prosecute Internet gambling under existing law?
 

In two ways. First, as I discussed in my testimony, most ways of connecting to the Internet currently involve the use of a "wire facility" in the connection process. As a result, bets and wagers that would be prohibited under Section 1084 if placed by telephone, are still prohibited even if transmitted via the Internet.

Second, many other federal statutes, such as 18 U.S.C. 1955, the "Illegal Gambling Business" statute, are predicated on a violation of state law. That is, the underlying activity must first be illegal in the state where the gambling occurs and then satisfy a certain monetary or operational threshold. It is the position of the Department of Justice that a wager, including an electronic or phone wager, occurs in the location it is placed and in the location in which it is received. To be legal, the wager must comply with the laws of the states at both ends of the transaction. Therefore, individuals or enterprises that solicit or accept wagers in states that have not authorized them to engage in such conduct violate state criminal law, and in many cases, federal criminal law as well.

Q: How would new legislation prohibiting Internet gaming affect Indian tribes:
 

Obviously, the effect on Indian gaming will vary considerably depending on the breadth of the legislation. Most notably, the Indian Gaming Regulatory Act (IGRA), does allow some coordination between and among tribes who are conducting certain authorized gaming activities on Indian Lands. To the extent that a broad statute is drafted, it would be appropriate to ensure that the prohibitions on Internet gambling are not inconsistent with the rights or privileges reserved to Indian tribes under IGRA, unless Congress specifically intends to revisit IGRA.

Of course, to the extent that Indian Tribes seek to offer gaming to citizens of various states, where such gaming does not take place solely on Indian lands and is not authorized under state law, there is no compelling reason to exempt Indian Tribes from the otherwise generally applicable provisions of the legislation.

Finally, to the extent that any legislation would seek to exempt from its prohibition bets and wagers that are authorized by both the state or country in which the bettor and the recipient reside -- an exemption contained in a previous version of H.R. 2380 but not present in existing law or in the current draft of the Kyl Bill -- Indian Tribes should be treated as every other sovereign for the purpose of authorizing gaming activity on their lands.

Q: Give us more details about the cases in the Southern District of New York
 

Initially, the United States Attorney for the Southern District of New York filed complaints against fourteen owners and managers of six sports different betting establishments that all accepted bets from United States residents via telephone and, some via the Internet. As part of the investigation, agents of the Federal Bureau of Investigation placed bets from and received payouts in the Southern District of New York.

These initial complaints were followed by complaints against seven additional owners, managers, and employees of three different sports betting operations, as well as complaints against two persons affiliated with two of the sports betting operations charged in the initial round of complaints that had continued to operate.

All of the individuals charged were United States citizens who had established overseas locations for their gaming operations. These locations included Curacao, Antigua, Nevis, Costa Rica, the Netherland Antilles, and the Dominican Republic. All of the sports books also operated Internet web sites that advertised their casino operations, though not all accepted bets through their web site.

Since the complaints were filed, three of the defendants have pled guilty to violating the Wire Communications Act.

Q: How would pending legislation affect fantasy sports leagues conducted on the Internet?
 

That is a more complicated question than it seems. Determining whether the operation of an Internet-based fantasy sports league would violate the Wire Communications Act, in its existing form, requires a detailed analysis of a range of factors, including: the fees charged to participants, the type of payouts awarded, and the rules of the competition. Answering the question in a hypothetical context is both impracticable and inappropriate. That being said, the breath of the Senate's current proposal to prohibit Internet gambling, especially the provisions that would criminalize the activities of end bettors, would make it more likely that participating in or administering fantasy sports leagues that involve monetary payouts or prizes would be deemed to violate federal law, unless such activities were specifically exempted.

Q: What have other countries done with regard to Internet gaming?

Although it is too soon to determine how other countries will ultimately react to Internet gambling, it is clear that their approaches are likely to vary considerably. Currently, many Caribbean Community states have chosen to permit and license Internet gambling operations that purport to be located locally. Antigua, for example, has been especially prolific, having reportedly registered more than 31 Internet gambling operations. Other Caribbean states, such as Curacao, Grenada, the Dominican Republic, have issued at least four Internet gambling licenses. And at least one operation has been licensed in the Netherland Antilles, Trinidad, St. Vincent and the Cayman Islands. Conversely, the Bahamian government has recently announced its intention to completely prohibit all Internet Gambling in the Bahamas.

Other countries are proceeding more slowly. In Australia, for example, the Queensland government and the Government of the Northern territory have developed, but not yet implemented, legislation designed to permit and regulate Internet gaming operations based in their territories. Canada appears to be headed in the opposite direction, as the United States Commercial Service in Canada has recently reported that running a gaming establishment over the Internet violates existing Canadian law, and can subject foreign site operators to prosecution in Canada if they solicit or accept bets from Canadian residents.

We believe that a significant number of countries are waiting to see how the United States reacts before specifically addressing this issue.
 
 
 

Go to . . . CCIPS Home Page || Justice Department Home Page