Meanwhile, a new bill related to online gambling was introduced this week by U.S. Rep. James McDermott, D-Wash. H.R. 6501 amends the Social Security Act to establish a trust fund from the proceeds of taxing Internet gambling. The trust fund would be used to provide education, job training, public-transit subsidies and other services to individuals in foster care or in declining sectors of the economy. The bill was referred to the House Committee on Ways and Means and Committee on Education and Labor.

UIGEA, which bans gaming sites from accepting money transfers of any kind for bets deemed to be unlawful gambling, directs the U.S. Treasury Department and the Federal Reserve Board to create regulations that would require banks and processors to block payments to those sites.

Two critics of the UIGEA, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Rep. Ron Paul, R-Texas, senior committee member, on April 10 introduced H.R. 5767, which would have prohibited the Federal Reserve and Treasury Department from implementing the regulations called for in UIGEA. The bill was defeated in committee on June 25.

A bill offered as a substitute to H.R. 5767 also was defeated at the June 25 committee meeting. Dubbed the “Payments System Protection Act of 2008,” the bill would have prohibited implementation of UIGEA until the Treasury Secretary, the Federal Reserve, and the U.S. Attorney General jointly developed regulations defining the term “unlawful Internet gambling.” That bill was sponsored by Rep. Peter T. King, R-N.Y.

Banks, processors, the Fed, and the Treasury Department have said the regulations for implementing UIGEA are unworkable and will hurt the financial industry while having little impact on illegal online gambling (Digital Transactions News, April 21 and March 24). Critics say the regulations fail to define what constitutes unlawful Internet gambling, leaving it to each financial institution to reconcile conflicting state and federal laws and court decisions, as well as inconsistent Department of Justice interpretations, when determining whether to process a transaction. In addition, some of the information needed to determine whether a transaction is illegal is unavailable to banks.

It’s unclear how H.R. 6501, the bill that would tax Web-based gambling, would impact the UIGEA. McDermott did not return calls for comment. However, one UIGEA critic says the bill might gain more support than H.R. 5767 because taxes on gambling would be used for programs to help the disadvantaged.

His current run for president, is just a decade since an official favor for a friend with regulatory problems had nearly ended Mr. McCain’s political career by ensnaring him in the Keating Five scandal. In the years that followed, he reinvented himself as the scourge of special interests, a crusader for stricter ethics and campaign finance rules, a man of honor chastened by a brush with shame. Running on a platform of strict ethics and honor McCain looks down at online gaming and gambling on sports in general.

According to a 2004 ESPN Article

McCain wants to eliminate what he sees as the most troubling aspects of legalized gambling in the United States. He has led the fight to ban gambling on college sports, a battle the Nevada casinos have won (so far), in part by suggesting that he would make Super Bowl and NCAA pools illegal. (He wouldn’t, since they are zero-sum games, not for-profit enterprises.) And McCain would ban Internet gambling — not because it’s addictive, but because players typically have no way of knowing whether they are in fair games.

While a fair argument is proposed by McCain that he wants to protect the players at online casinos (much better then the general think of the children cause) there are better ways to assure the safety of adults who chose to gamble online or play at online casinos than prohibit their favorite activity which will just drive them underground and offer them no protection at all. McCain has waged his ant-gambling fight for years, albeit not at the forefront as he battled for campaign refinance reform as his number one priority.

As seen in countless other causes, to ban something just drives it further underground, providing less protection for the people who want it, rather then legalizing and regulating the cause. With recent news that the Poker Players Alliance has grown to 1 million members in the US, John McCain may perhaps wants to reconsider his position online gambling before the November election.

“The Frank-Paul bill would stop the U.S. government from taking any further steps on regulations that would require all of the country’s financial institutions to block Internet Gambling payments,” said SSIGI spokesman Jeff Sandman. “It’s a bold move, but a necessary one, in light of the warnings from the Treasury and Federal Reserve that they did not know how to write regulations to solve the problems created by UIGEA. Further, witnesses representing a broad spectrum of the financial services community unanimously stated that the current ban on Internet gambling is dangerous to the payments system and ineffective in stopping people from using the Internet to play poker, make bets on horses, or engage in other types of wagering.”

The current Internet gambling ban creates significant additional burdens for U.S. financial institutions, which say that it is unfair to turn them into the Internet gambling police at a time when their undivided attention ought to be on the economy.

Testimony before Congress last week offered proof that financial services institutions would face serious regulatory burdens in attempting to enforce UIGEA and related regulations, which is unlikely to stop millions of Americans from gambling online.

Representatives from the Credit Union National Association, Financial Services Roundtable, American Bankers Association and Wells Fargo & Co. testified about the burden they would unnecessarily face before the House Committee on Financial Service’s Subcommittee on Domestic and International Monetary Policy, Trade, and Technology on April 2. The current UIGEA law is ambiguous and allows for multiple interpretations of what may or may not be illegal activities.

Their comments reflect the concerns echoed in the more than 200 comments submitted to the Department of the Treasury and Federal Reserve System.

Frank introduced legislation last year, the Internet Gambling Regulation and Enforcement Act (H.R. 2046), that would regulate Internet gambling. The bill would require licensed Internet gambling operators to put in place safeguards to protect against underage and compulsive gambling and ensure the integrity of financial transactions.

A companion piece of legislation to the Frank bill introduced by Rep. Jim McDermott (D-WA), the Internet Gambling Regulation and Tax Enforcement Act of 2008 (H.R. 5523), would ensure the collection of taxes on regulated Internet gambling activities. According to a tax revenue analysis prepared by PricewaterhouseCoopers, taxation of regulated Internet gambling is expected to generate between $8.7 billion to $42.8 billion in federal revenues over its first 10 years.

While Ron Paul has long dropped out of the Republican Primary with rumors of of him possibly being the front runner for the Vice President spot along with John McCain, his thoughts on online gambling have become very relevant to those who are waiting for the day that the UIGEA is overturned. He delivered his thoughts in a speech before the Financial Services Committee Subcommittee on Domestic & International Monetary Policy of the US House of Representatives, April 2, 2008: Hearing on Proposed UIGEA Regulations. Similarly to Barack Obama, Ron Paul does not believe in that it’s the government’s function to be a nanny of all citizens.

Mr. Chairman, I stand opposed to the regulations being discussed today because I opposed the underlying bill upon which these regulations are based. The ban on Internet gambling infringes upon two freedoms that are important to many Americans: the ability to do with their money as they see fit, and the freedom from government interference with the Internet.

The proper role of the federal government is not that of a nanny, protecting citizens from any and every potential negative consequence of their actions. Although I personally believe gambling to be a dumb waste of money, American citizens should be just as free to spend their money playing online poker as they should be able to buy a used car, enter into a mortgage, or invest in a hedge fund. Risk is inherent in any economic activity, and it is not for the government to determine which risky behaviors Americans may or may not engage in.

The Internet is a powerful tool, and any censorship of Internet activity sets a dangerous precedent. Many Americans rely on the Internet for activities as varied as watching basketball games, keeping up on international news broadcasts, or buying food and clothing. In the last few years we have seen ominous signs of the federal government’s desire to control the Internet. The ostensible reasons are to protect Americans from sex offenders, terrorists, and the evils of gambling, but once the door is open to government intrusion, there is no telling what legitimate activity, especially political activity, might fall afoul of government authorities.

The regulations and underlying bill also force financial institutions to act as law enforcement officers. This is another pernicious trend that has accelerated in the aftermath of the Patriot Act, the deputization of private businesses to perform intrusive enforcement and surveillance functions that the federal government is unwilling to perform on its own.

In conclusion, I urge my colleagues to oppose these new regulations and support Chairman Frank’s HR 2046, of which I am a cosponsor. Although this bill has been criticized by some for its regulatory aspects, this act does not create any new federal laws and merely ensures that Internet gambling firms comply with existing federal law. The passage of HR 2046 would restore the right of Americans to decide for themselves whether or not to gamble online.