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Capitol Hill gears up on internet gambling bill

Posted on August 3rd, 2010

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Debates on the legalization of internet gambling is heating up on Capitol Hill as the House Committee on Financial Services votes on Wednesday 41-22 passing a bill that would allow American citizens to wage bets in online poker and casino games operated by licensed gambling companies. Sponsored by Representative Barney Frank, the Internet Gambling Regulation, Consumer Protection and Enforcement Act, if enacted into law, would supersede the Unlawful Internet Gambling Enforcement Act (UIGEA) passed in June 2006 which prohibits online betting and penalizes banks that process payments to offshore gambling sites. Frank, a Massachusetts democrat, hailed the passage of the bill (also known as Frank Bill) as giving the Americans the freedom “to do what they wish to do without so much government intrusion”. Frank said effectively licensing and regulating online gambling will protect the growing number of consumers who are placing bets with offshore companies.

Frank notes that American gambling enthusiasts are vulnerable to corruption from offshore gambling operators that perpetuate underground gambling ever since UIGEA declared unlawful any online gambling activities in the US. Donald Trump, an American business magnate who has built fortunes in both business and casinos, praised the panel’s victory over the passage of the bill. “Why lose all the billions of revenue? Online gambling is going to happen, so we might as well have it work to the public’s advantage”, Trump was reported as saying to the New York Post. Trump has interests in several casinos in the US operating under the Trump Entertainment Resources.

Harrah’s Entertainment, one of the world’s largest provider of branded casino entertainment with a sizeable exposure in several online casinos in Europe, is also excited with the bill’s prospects. Anticipating the coming of an enabling law, the company prepares to take a controlling position in the US internet gambling market. The Frank bill received a few amendments from Committee members before it was passed. The amendments include the exclusion of sports betting and the prohibition against the use of credit cards to place bets. Debit cards and other prepaid accounts are allowed. The other mark-ups are those measures that require gambling operators that will be licensed by the US Treasury Department to be located in the United States and prevent companies previously involved in illegal gambling operators from obtaining a license. These two provisions were inserted in the light of the need to create job opportunities for the growing number of unemployed Americans. “It seems to me that this is a way in which to protect American jobs and also insure that regulation can be most effective”, says Kevin Di Gregory, a partner of Manatt, Phelps and Phillips.

The Frank Bill also comes with safeguard measures to prevent underage and compulsive gambling as well as prohibit Americans from placing bets in states that do not allow online gambling. An oversight will be established to protect consumers against fraud, identity theft and related crimes. A separate bill, sponsored by Washington Democrat Jim McDermott, is now discussed before the House Ways and Means Committee which mulls the imposition of taxes on online poker and other internet gambling activities. The tax measure would levy gambling operators a 2 percent tax to the federal government on betting deposits and 6 percent tax to the states.

A congressional analysis estimates that the federal government stands to gain as much as $42 billion over 10 years with the passage of the gambling tax bill. “This is money sitting on the table,” said Michael Waxman of the Safe and Secure Internet Gambling Initiative. The internet gambling tax bill will be passed once the Frank bill gets a full House passage. These two bills will then constitute the House’s comprehensive measure for the legalization of internet gambling in the United States.

The bipartisan vote on the passage of the Frank bill shows the overwhelming support of the majority of the House members on the legalization of internet gambling. However, the bill may face a major hurdle with timing. The House is scheduled to recess in August and resumes session in September and will need to work double time to pass the law with the election slated in November. Added to that is the challenge to reconcile the bill with the Senate version. The House version covers online poker and casino games such as slots and blackjack. But the Senate counterpart bill, generally speaking, seeks only the legalization of online poker. If Congress fails to pass the internet gambling law before it adjourns in October, everything goes back to the first step.