On Wednesday, the House Financial Services Committee approved a bill that would effectively legalize online poker and other nonsports betting, overturning a 2006 federal ban that critics say merely drove Web-based casinos offshore.

The bill would direct the Treasury Department to license and regulate Internet gambling operations, while a companion measure, pending before another committee, would allow the Internal Revenue Service to tax such businesses. Winnings by individuals would also be taxed, as regular gambling winnings are now. The taxes could yield as much as $42 billion for the government over 10 years, supporters said.

The two measures — which are backed by banks and credit unions but have divided casinos and American Indian tribes — are far from becoming law. A bill to legalize online poker sponsored by Senator Robert Menendez, Democrat of New Jersey, has not yet had a hearing. The Congressional timetable has little spare room before the midterm elections, and the Obama administration has not taken a position.

But the vote suggests a willingness by Congress to look for unconventional ways of plugging holes in the budget and comes as struggling states have also been looking to extract revenue from the gambling industry, which took a hit as consumers cut back on travel and entertainment during the recession but continues to reap billions of dollars in annual profits. The committee vote Wednesday was 41 to 22, with seven Republicans joining most Democrats on the panel in favor of the measure.

Last year, Colorado expanded casino hours, raised maximum-bet limits and permitted roulette and craps, while Missouri eliminated a $500 loss limit at riverboat casinos. Delaware and Pennsylvania have weighed proposals to allow the conversion of slots parlors into full-service casinos, making further inroads into the eroding Atlantic City gambling industry.

Opponents, who only four years ago, when Congress was controlled by the Republicans, secured a law that banned the use of credit and debit cards to pay online casinos, said they were aghast. “People sometimes resort to drastic things when they are strapped for cash,” said Representative Robert W. Goodlatte, Republican of Virginia, who called the new proposals “unfathomable.”

Representative Barney Frank, the Massachusetts Democrat who leads the Financial Services Committee, has been the legislation’s champion.

“Some adults will spend their money foolishly, but it is not the purpose of the federal government to prevent them legally from doing it,” Mr. Frank said.

The committee’s top Republican, Representative Spencer Bachus of Alabama, noting the passage of far-reaching changes in financial regulation this month, said that “after all the talk last year about shutting down casinos on Wall Street,” he was incredulous that members would vote to “open casinos in every home and every bedroom and every dorm room, and on every iPhone, every BlackBerry, every laptop.”

Mr. Bachus said lobbyists had spent “tens of millions” to overturn the 2006 law. “They’ve had quite a bit of success in turning votes,” he said.

Supporters of legalization said fiscal considerations played a role in their thinking. “I was looking for the money,” Representative Jim McDermott, Democrat of Washington, said in an interview. He sponsored the companion measure to allow taxation of Internet gambling; he wants to dedicate the money to education.

Representative Brad Sherman, Democrat of California, said in an interview that the money was an attractive source of financing for other programs. “We will not pass an Internet gaming bill,” Mr. Sherman predicted. “We will pass a bill to do something very important, funded by Internet gaming.”

He added, “Forty-two billion dollars over 10 years has an effect.”

The legal status of online gambling has long been murky. The Justice Department asserts that the Wire Act of 1961 prohibits it, but prosecutors have largely left individual gamblers alone.

To crack down on the activity, a 2006 law — inserted at the last minute into an unrelated bill in one of Congress’s last actions before Democrats took control — banned financial institutions from transmitting payments to and from gambling operators.

In the same year, the authorities arrested David Carruthers, a British online-gambling executive, as he changed flights at a Texas airport. He was sentenced to 33 months in prison for racketeering. Last year, the authorities ordered four banks to freeze the accounts of online payment processors that owed money to some 27,000 people who had used offshore poker sites.

But the enforcement actions have barely put a dent in the industry, experts say. Gamblers have used online payment processors, phone-based deposits and prepaid credit cards to circumvent the ban. By some estimates, American online gambling exceeds $6 billion a year.

“Today, any American with a broadband connection and a checking account can engage in any form of Internet gambling from any state,” Annie Duke, a professional poker player, testified in May on behalf of the Poker Players Alliance, which hired a former Republican senator from New York, Alfonse M. D’Amato, to lobby for the bill.

Michael Brodsky, executive chairman of YouBet.com, an online site for parimutuel horse racing, said, “As with Prohibition, illegal online gambling is thriving as an underground economy.”

Banks and credit unions said the 2006 law was poorly drafted — so much so that the Obama administration delayed, to June 1 of this year, the deadline for banks to comply with the law, to address concerns about its enforceability.

In 1999, the National Gambling Impact Study Commission urged the prohibition of Internet gambling. Attorney General Eric H. Holder Jr. has said he would not support efforts to legalize online gambling, a view shared by most state attorneys general.

“Because Internet gambling is essentially borderless activity, from a money-laundering and terrorism-financing perspective, it creates a regulatory and enforcement quagmire,” said James F. Dowling, a former special agent with the Internal Revenue Service.

And Mr. Bachus released a November letter from the F.B.I. in which Shawn Henry, the assistant director of the cyber division, said it would be difficult for companies to verify the age and location of their customers.

The bill contains measures intended to protect minors and combat compulsive addiction. It would allow states and Indian tribes to “opt out,” so players from those states and reservations would not be able to make online bets. But those governments would have a potentially lucrative incentive to allow the activity since they could then collect taxes from Internet casinos.

Before voting, the committee approved amendments to delegate enforcement duties to states and tribes, continue a ban on betting on sporting events, ban marketing aimed at children, and prohibit companies that violated the 2006 ban from obtaining licenses.

The bill sponsored by state Sen. Raymond Lesniak, D-Union, specifically would allow “New Jersey residents to place wagers on casino games via the Internet,” according to the text of the legislation.

All games, including poker, would be offered through Internet wagering, the bill states.

In addition, the bill would require that the equipment used to operate the Internet wagering be located in a restricted area of a casino hotel or in a secure facility off the premises of the casino hotel, “but within the territorial limits of Atlantic County.”

The bill comes with an annual tax of 20 percent on gross revenue from Internet wagering, which would be paid into a casino revenue fund. It also provides for the creation of a Division of Internet Wagering under the direction of the state Casino Control Commission.

Additionally, the Casino Control Commission and the New Jersey Racing Commission would allow the operation of terminals at racetracks at which “individuals who have registered to participate in Internet wagering may wager on games conducted at casinos in Atlantic City.”

Those terminals would be identical in appearance to casino slot machines.

The full text of the proposed legislation, S3167, “Permits Internet wagering at Atlantic City casinos under certain circumstances,” is available here.

Source: http://www.pressofatlanticcity.com/news/breaking/article_dfdd5dcc-0375-11df-b557-001cc4c002e0.html

Similar legislation failed in the last Congress. Frank, a Massachusetts Democrat, has support for the bill from such companies as Youbet.com Inc., and Harrah’s Entertainment Inc., in addition to the Poker Players Alliance, formed to overturn a 2006 ban on Internet poker.

Supporters “have been mobilizing,” Frank said last week. “This is a grass-roots thing.”

The legislation would allow licensed gambling operators to accept online wagers from people in the United States. The bill would revise the 2006 law, which made it a crime for banks to process financial transactions used to place illegal bets online.

Harrah’s vice president Jan Jones said regulating and taxing online gambling might swell government coffers by $2 billion to $6 billion annually. “At a time where there is no money, that can be going to healthcare or S-CHIP,” the children’s insurance program, Jones said.

St. Paul resident Chris Wallace said he makes about $2,000 a week playing poker online, enough to support himself, his fiancée and his dog. He’s not about to stop, even as Minnesota officials take new steps to try to crack down on online gambling.

“I have e-mailed the Justice Department, and I’ve volunteered to be arrested,” said Wallace, 35, who left college because online poker was taking up so much of his time. “I play online poker. Come and get it.”

The state of Minnesota wants to do just that. A division of the state Department of Public Safety that enforces gambling and alcohol laws said Wednesday that it has instructed 11 national and regional telephone and Internet service providers (ISPs) to block access by all Minnesota-based computers to nearly 200 gambling websites.

Minnesota, citing a 1961 federal anti-gambling law, says all online gambling within its borders is illegal, even if the games are hosted outside the United States.

“We are putting site operators and Minnesota online gamblers on notice and in advance,” says John Willems, director of the state’s Alcohol and Gambling Enforcement Division. “State residents with online escrow accounts should be aware that access to their accounts may be jeopardized and their funds in peril.”

Full story at: startribune.com

The unanimous decision by three judges of division I of the appeals court says that Rousso would have to show that policing Internet poker imposes excessive burdens and not worth the state’s commitment to regulating gaming.

“Ultimately, given the importance of the state’s interest in protecting its citizens from the ills associated with gambling, and the relatively small cost imposed on out-of-state businesses by complying…Rousso has failed to meet his burden….”

Rousso said appeals court rejected many of the state’s arguments in the case, so he is leaning in favor of taking the case to the state Supreme Court…

While in New Jersey, a group representing gaming and horse-racing industries in New Jersey filed a lawsuit on Monday seeking to overturn a federal law that bans sports betting in New Jersey and most other U.S. states.

The suit filed against the federal government claims the Professional and Amateur Sports Protection Act of 1992 violates five amendments to the U.S. Constitution by discriminating against the people of New Jersey and by regulating a matter that should be reserved to the states.

Gaming is an important industry in New Jersey, with 11 casinos located in Atlantic City. New Jersey Governor Jon Corzine told reporters the initiative to legalize sports betting was “worth pursuing” and would boost Atlantic City if it happened.

The sat particularly badly with the island nation of Antigua, which complained to the WTO over what it saw as discriminatory trade practices. The WTO agreed and ruled against the United States back in April of 2007—a fact the US has more-or-less ignored. Gambling laws have always been a patchwork of contradictions; the federal government prohibits gambling across state lines but allows states to set their own laws when it comes to intra-state betting. Many states have laws that favor particular types of gaming over others; Kentucky has gone so far as to try to seize control of online gambling sites and makes no secret of its stance on horse racing. Taken as a whole, the US policy of simultaneously condemning and supporting gambling is uglier than the hypothetical love child of Janet Reno and Alan Greenspan.

The Bush Administration settled the initial Antigua complaint by offering the country concessions in other trade-related areas, but multiple European countries remain angry; the UK-based Remote Gambling Association has claimed that the US Department of Justice (DOJ) has discriminantly targeted certain websites while ignoring the operations of others. The European Commission reportedly plans to file its own complaint with the WTO. In the face of international bad feeling and an uncertain positive impact at home, it may be time for the UIGEA to fold its hand.

Source: http://arstechnica.com

“The bill introduction should happen in the next month,” a spokesman for House of Representatives Financial Services Committee Chairman Barney Frank said.

On Thursday, Reuters reported the EU could file a complaint about U.S. enforcement of the gambling ban at the World Trade Organization.

“Mr. Frank will bring back legislation to repeal the UIGEA (Unlawful Internet Gambling Enforcement Act),” the spokesman said, referring to a Republican-crafted bill passed in 2006 when the party controlled Congress and the White House.

Supporters of the ban argued offshore Internet gambling websites take billions of dollars out the U.S. economy, damage families and serve as vehicles for money laundering.

The law cost Europe’s online gambling companies billions in lost market value as they were forced to retreat from one of their most lucrative markets. It barred businesses from knowingly accepting payments in connection with unlawful Internet gambling, including payments made through credit cards, electronic fund transfers and checks.

Against Frank’s advice, the Bush administration finalized regulations late last year to implement the ban and gave companies until December 1 to comply.

Frank said the rules would burden the financial service industry at a time of economic crisis.

Many publicly traded European companies, including PartyGaming and 888.com, withdrew from the United States after Congress passed the ban, but they face possible criminal prosecution for activities before then.

Anurag Dikshit, a founder of PartyGaming, pleaded guilty in December to Internet gambling charges and agreed to pay $300 million in fines. He still faces possible jail time under a deferred sentencing arrangement. Other PartyGaming founders have not settled with the U.S. Justice Department.

EU industry officials said the pressure on Dikshit to make a deal showed the Justice Department had crossed a major line in its prosecution of cases.

The European Commission, acting on industry petition, began a formal investigation in March into whether Washington was singling out EU companies for enforcement actions while allowing U.S. online firms to operate freely.

Sources familiar with that investigation told Reuters in Brussels on Thursday they expect the investigators’ report, initially due last year, to recommend action at the WTO when it is released next month.

Rather than move immediately to litigation, EU officials would use the report as leverage to seek a negotiated solution with the United States, they said.

U.S. Sen. John E. Sununu complained a year ago that the law was ambiguous and was grabbing legitimate enterprises in its net. He warned that “risk-averse financial institutions will simply choose to block every transaction that may be interpreted or could resemble gambling, whether legal or not.”

Lottery Executive Director Rick Wisler said the problem is definitely affecting lottery sales here, which are down significantly. He said his concerns have been made known to Visa and MasterCard and that those companies say they will review them.

The problem seems to have spread beyond Internet lottery sales. We have been told that even employees at state liquor stores have declined to allow lottery ticket purchases using a bank-issued debit card.

Gambling proponents often cite the New Hampshire Lottery as a viable and reliable generator of public revenues and an example of why it should expand. But if even the sale of a scratch ticket is going to be thwarted by the feds, how do they expect bigger gambling to succeed?

The Board and the Treasury are required by the Act to develop a joint rule in consultation with the Department of Justice. The final rule requires U.S. financial firms that participate in designated payment systems to establish and implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in connection with unlawful Internet gambling. The rule provides non-exclusive examples of such policies and procedures and sets out the regulatory enforcement framework. For purposes of the rule, unlawful Internet gambling generally would cover the making of a bet or wager that involves use of the Internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is initiated, received, or otherwise made.

Compliance with the rule is required by December 1, 2009. Rep. Barney Frank, D-Mass., has said he will seek to overturn the law, pointing out that even the most ardent fans of the regulations have said they will be difficult to interpret and enforce.

Part of the problem is to define “unlawful Internet gambling.” For instance, the National Football League’s “Fantasy Football” is exempted from the legislation, because the NFL claims the game is skill-based and not a game of chance and, thus, not gambling.

Opponents of the legislation complained earlier this week before the Treasury Department and the Federal Reserve Bank issued new regulations describing the legislation. The opponents argued that a former NFL lobbyist was working in the White House and represented a conflict of interest. A White House spokesperson said the lobbyist, William Wichterman, was in compliance with ethics rules.

The legislation, HR 4411, was originally sponsored by Republican Rep. Jim Leach, R-Iowa, and it had the strong and influential backing of then-Sen. Bill Frist, R-Tenn. After 30 years in the House, Leach was narrowly defeated in the 2006 election. This summer Leach threw his support to Barack Obama to the consternation of many Republicans, and this week Obama named Leach and former Secretary of State Madeleine Albright as his representatives to an international economic summit in Washington.

William Wichterman, who with others at the Covington & Burling law firm earned $2.8 million lobbying for the NFL against Internet gaming and on other matters from 2004 through March, is working on the gambling restrictions in the White House Office of Public Liaison, White House spokesman Dana Perino confirmed yesterday.

“He appropriately sought and received clearance from ethics officers to be able to work on this rule,” Perino said, adding, “I know our ethics officers to be professionals who know the law and the guidelines inside out.” She said last night that she could not immediately reach the officers to learn their reasoning in this case.

The 2006 law at the center of the White House review has been of intense interest to the NFL. With the league’s support, it was tacked onto unrelated legislation, meant to upgrade counterterrorism measures at U.S. ports, in the waning hours of the congressional session that year and approved without getting a separate vote in the House or Senate.

Ever since, the measure has been attacked as unwieldy or unworkable by banks and the Internet gambling industry, now based mostly overseas and bringing in many billions of dollars each year. A top official of the Federal Reserve Bank testified in April that, due to the difficulties of pinpointing illegal gambling transactions amid the huge flows of funds online, “the ability of the final [implementing] rule to achieve . . . [its goals] is uncertain.”

Democrats such as Rep. Barney Frank (Mass.), chairman of the House Financial Services Committee, have sponsored alternative measures that would regulate and tax Internet gambling, rather than ban it altogether. But they have been thwarted by Republicans who have depicted the existing law as a way to safeguard morals and stop personal misspending.

“I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations” to implement the law, Frank wrote Monday in a letter to Treasury Secretary Henry M. Paulson Jr. He said the new regulations would “burden the financial services industry at a time of economic crisis” and tie the hands of the Obama administration.

The NFL’s general counsel, Jeffrey Pash, urged lawmakers in March to “support the integrity of American athletics” by rejecting Frank’s bill or any other alternative to the existing legislation. But Internet gambling officials have long maintained that the NFL’s real motivation is to block any competition for lucrative “fantasy football” gambling via the Internet, which was explicitly exempted from the 2006 ban.

The NFL provides statistics, logos and player information to fantasy leagues that pay substantial royalty fees, industry sources say. It backed the exemption on grounds that fantasy football is a game of skill, not chance.

Rep. Stephen I. Cohen (D-Tenn.) wrote to White House counsel Fred Fielding on Friday to express concern that the “impetus for the rule may have been a particular White House employee who has a clear and obvious conflict of interest.” Cohen said he had been told that Wichterman “has been a source of considerable political pressure to speed this regulation through to finalization.”

A phone call to Wichterman, seeking comment, was returned by a White House press aide, who declined to add to what Perino said.