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107th Congress                                            Rept. 107-339
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
           UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION ACT

                                _______
                                

               December 13, 2001.--Ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 556]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 556) to prevent the use of certain bank instruments 
for unlawful Internet gambling, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     5
Background and Need for Legislation..............................     5
Hearings.........................................................     8
Committee Consideration..........................................     8
Committee Votes..................................................     8
Committee Oversight Findings.....................................     9
Performance Goals and Objectives.................................     9
New Budget Authority, Entitlement Authority, and Tax Expenditures    10
Committee Cost Estimate..........................................    10
Congressional Budget Office Estimate.............................    10
Federal Mandates Statement.......................................    12
Advisory Committee Statement.....................................    12
Constitutional Authority Statement...............................    12
Applicability to Legislative Branch..............................    12
Section-by-Section Analysis of the Legislation...................    13
Changes in Existing Law Made by the Bill, as Reported............    14
Dissenting Views.................................................    16

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Unlawful Internet Gambling Funding 
Prohibition Act''.

SEC. 2. FINDINGS.

  The Congress finds as follows:
          (1) Internet gambling is primarily funded through personal 
        use of bank instruments, including credit cards and wire 
        transfers.
          (2) The National Gambling Impact Study Commission in 1999 
        recommended the passage of legislation to prohibit wire 
        transfers to Internet gambling sites or the banks which 
        represent them.
          (3) Internet gambling is a major cause of debt collection 
        problems for insured depository institutions and the consumer 
        credit industry.
          (4) Internet gambling conducted through offshore 
        jurisdictions has been identified by United States law 
        enforcement officials as a significant money laundering 
        vulnerability.

SEC. 3. PROHIBITION ON ACCEPTANCE OF ANY BANK INSTRUMENT FOR UNLAWFUL 
                    INTERNET GAMBLING.

  (a) In General.--No person engaged in the business of betting or 
wagering may knowingly accept, in connection with the participation of 
another person in unlawful Internet gambling--
          (1) credit, or the proceeds of credit, extended to or on 
        behalf of such other person (including credit extended through 
        the use of a credit card);
          (2) an electronic fund transfer or funds transmitted by or 
        through a money transmitting business, or the proceeds of an 
        electronic fund transfer or money transmitting service, from or 
        on behalf of the other person;
          (3) any check, draft, or similar instrument which is drawn by 
        or on behalf of the other person and is drawn on or payable at 
        or through any financial institution; or
          (4) the proceeds of any other form of financial transaction 
        as the Secretary may prescribe by regulation which involves a 
        financial institution as a payor or financial intermediary on 
        behalf of or for the benefit of the other person.
  (b) Definitions.--For purposes of this Act, the following definitions 
shall apply:
          (1) Bets or wagers.--The term ``bets or wagers''--
                  (A) 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 subject to chance, 
                upon an agreement or understanding that the person or 
                another person will receive something of greater value 
                than the amount staked or risked in the event of a 
                certain outcome;
                  (B) includes the purchase of a chance or opportunity 
                to win a lottery or other prize (which opportunity to 
                win is predominantly subject to chance);
                  (C) includes any scheme of a type described in 
                section 3702 of title 28, United States Code;
                  (D) includes any instructions or information 
                pertaining to the establishment or movement of funds in 
                an account by the bettor or customer with the business 
                of betting or wagering; and
                  (E) does not include--
                          (i) any activity governed by the securities 
                        laws (as that term is defined in section 
                        3(a)(47) of the Securities Exchange Act of 
                        1934) for the purchase or sale of securities 
                        (as that term is defined in section 3(a)(10) of 
                        such Act);
                          (ii) any transaction conducted on or subject 
                        to the rules of a registered entity or exempt 
                        board of trade pursuant to the Commodity 
                        Exchange Act;
                          (iii) any over-the-counter derivative 
                        instrument;
                          (iv) any other transaction that is exempt 
                        from State gaming or bucket shop laws under 
                        section 12(e) of the Commodity Exchange Act or 
                        section 28(a) of the Securities Exchange Act of 
                        1934;
                          (v) any contract of indemnity or guarantee;
                          (vi) any contract for insurance;
                          (vii) any deposit or other transaction with a 
                        depository institution (as defined in section 
                        3(c) of the Federal Deposit Insurance Act);
                          (viii) any participation in a simulation 
                        sports game or an educational game or contest 
                        that--
                                  (I) is not dependent solely on the 
                                outcome of any single sporting event or 
                                nonparticipant's singular individual 
                                performance in any single sporting 
                                event;
                                  (II) has an outcome that reflects the 
                                relative knowledge and skill of the 
                                participants with such outcome 
                                determined predominantly by accumulated 
                                statistical results of sporting events; 
                                and
                                  (III) offers a prize or award to a 
                                participant that is established in 
                                advance of the game or contest and is 
                                not determined by the number of 
                                participants or the amount of any fees 
                                paid by those participants; and
                          (ix) any transaction authorized under State 
                        law with a business licensed or authorized by a 
                        State.
          (2) Business of betting or wagering.--The term ``business of 
        betting or wagering'' does not include, other than for purposes 
        of subsection (e), any creditor, credit card issuer, insured 
        depository institution, financial institution, operator of a 
        terminal at which an electronic fund transfer may be initiated, 
        money transmitting business, or international, national, 
        regional, or local network utilized to effect a credit 
        transaction, electronic fund transfer, stored value product 
        transaction, or money transmitting service, or any participant 
        in such network, or any interactive computer service or 
        telecommunications service.
          (3) Internet.--The term ``Internet'' means the international 
        computer network of interoperable packet switched data 
        networks.
          (4) Unlawful internet gambling.--The term ``unlawful Internet 
        gambling'' means to place, receive, or otherwise transmit a bet 
        or wager by any means which involves the use, at least in part, 
        of the Internet where such bet or wager is unlawful under any 
        applicable Federal or State law in the State in which the bet 
        or wager is initiated, received, or otherwise made.
          (5) Other terms.--
                  (A) Credit; creditor; and credit card.--The terms 
                ``credit'', ``creditor'', and ``credit card'' have the 
                meanings given such terms in section 103 of the Truth 
                in Lending Act.
                  (B) Electronic fund transfer.--The term ``electronic 
                fund transfer''--
                          (i) has the meaning given such term in 
                        section 903 of the Electronic Fund Transfer 
                        Act; and
                          (ii) includes any fund transfer covered by 
                        Article 4A of the Uniform Commercial Code, as 
                        in effect in any State.
                  (C) Financial institution.--The term ``financial 
                institution'' has the meaning given such term in 
                section 903 of the Electronic Fund Transfer Act.
                  (D) Money transmitting business and money 
                transmitting service.--The terms ``money transmitting 
                business'' and ``money transmitting service'' have the 
                meanings given such terms in section 5330(d) of title 
                31, United States Code.
                  (E) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury.
  (c) Civil Remedies.--
          (1) Jurisdiction.--The district courts of the United States 
        shall have original and exclusive jurisdiction to prevent and 
        restrain violations of this section by issuing appropriate 
        orders in accordance with this section, regardless of whether a 
        prosecution has been initiated under this section.
          (2) Proceedings.--
                  (A) Institution by federal government.--
                          (i) In general.--The United States, acting 
                        through the Attorney General, may institute 
                        proceedings under this subsection to prevent or 
                        restrain a violation of this section.
                          (ii) Relief.--Upon application of the United 
                        States under this subparagraph, the district 
                        court may enter a preliminary injunction or an 
                        injunction against any person to prevent or 
                        restrain a violation of this section, in 
                        accordance with Rule 65 of the Federal Rules of 
                        Civil Procedure.
                  (B) Institution by state attorney general.--
                          (i) In general.--The attorney general of a 
                        State (or other appropriate State official) in 
                        which a violation of this section allegedly has 
                        occurred or will occur may institute 
                        proceedings under this subsection to prevent or 
                        restrain the violation.
                          (ii) Relief.--Upon application of the 
                        attorney general (or other appropriate State 
                        official) of an affected State under this 
                        subparagraph, the district court may enter a 
                        preliminary injunction or an injunction against 
                        any person to prevent or restrain a violation 
                        of this section, in accordance with Rule 65 of 
                        the Federal Rules of Civil Procedure.
                  (C) Indian lands.--
                          (i) In general.--Notwithstanding 
                        subparagraphs (A) and (B), for a violation that 
                        is alleged to have occurred, or may occur, on 
                        Indian lands (as that term is defined in 
                        section 4 of the Indian Gaming Regulatory 
                        Act)--
                                  (I) the United States shall have the 
                                enforcement authority provided under 
                                subparagraph (A); and
                                  (II) the enforcement authorities 
                                specified in an applicable Tribal-State 
                                compact negotiated under section 11 of 
                                the Indian Gaming Regulatory Act shall 
                                be carried out in accordance with that 
                                compact.
                          (ii) Rule of construction.--No provision of 
                        this section shall be construed as altering, 
                        superseding, or otherwise affecting the 
                        application of the Indian Gaming Regulatory 
                        Act.
                  (D) Banking regulators.--Before initiating any 
                proceeding under this paragraph with respect to a 
                violation or potential violation of subsection (e) by 
                an insured depository institution (as defined in 
                section 3 of the Federal Deposit Insurance Act), the 
                Attorney General of the United States or an attorney 
                general of a State (or other appropriate State 
                official) shall--
                          (i) notify the appropriate Federal banking 
                        agency (as defined in such section) of such 
                        violation or potential violation; and
                          (ii) allow such agency a reasonable time to 
                        issue an order to such insured depository 
                        institution under section 8(x) of the Federal 
                        Deposit Insurance Act.
          (3) Expedited proceedings.--In addition to any proceeding 
        under paragraph (2), a district court may, in exigent 
        circumstances, enter a temporary restraining order against a 
        person alleged to be in violation of this section upon 
        application of the United States under paragraph (2)(A), or the 
        attorney general (or other appropriate State official) of an 
        affected State under paragraph (2)(B), in accordance with Rule 
        65(b) of the Federal Rules of Civil Procedure.
          (4) Limitation.--No provision of this section shall be 
        construed as authorizing an injunction against an interactive 
        computer service (as defined in section 230(f) of the 
        Communications Act of 1934) unless such interactive computer 
        service is acting in concert or participation with a person who 
        violates this section and such service receives actual notice 
        of the order.
  (d) Criminal Penalty.--
          (1) In general.--Whoever violates this section shall be fined 
        under title 18, United States Code, or imprisoned for not more 
        than 5 years, or both.
          (2) Permanent injunction.--Upon conviction of a person under 
        this subsection, the court may enter a permanent injunction 
        enjoining such person from placing, receiving, or otherwise 
        making illegal bets or wagers or sending, receiving, or 
        inviting information assisting in the placing of bets or 
        wagers.
  (e) Circumventions Prohibited.--Notwithstanding subsection (b)(2), a 
creditor, credit card issuer, financial institution, operator of a 
terminal at which an electronic fund transfer may be initiated, money 
transmitting business, or international, national, regional, or local 
network utilized to effect a credit transaction, electronic fund 
transfer, or money transmitting service, or any participant in such 
network, or any interactive computer service or telecommunications 
service, may be liable under this section if such creditor, issuer, 
institution, operator, business, network, or participant has actual 
knowledge and control of bets and wagers and--
          (1) operates, manages, supervises, or directs an Internet 
        website at which unlawful bets or wagers may be placed, 
        received, or otherwise made or at which unlawful bets or wagers 
        are offered to be placed, received, or otherwise made; or
          (2) owns or controls, or is owned or controlled by, any 
        person who operates, manages, supervises, or directs an 
        Internet website at which unlawful bets or wagers may be 
        placed, received, or otherwise made or at which unlawful bets 
        or wagers are offered to be placed, received, or otherwise 
        made.
  (f) Enforcement Actions.--Section 8 of the Federal Deposit Insurance 
Act (12 U.S.C. 1818) is amended by adding at the end the following new 
subsection:
  ``(x) Depository Institution Involvement in Internet Gambling.--If 
any appropriate Federal banking agency determines that any insured 
depository institution is engaged in any of the following activities, 
the agency may issue an order to such institution prohibiting such 
institution from continuing to engage in any of the following 
activities:
          ``(1) Extending credit, or facilitating an extension of 
        credit, electronic fund transfer, or money transmitting service 
        with the actual knowledge that any person is violating section 
        3(a) of the Unlawful Internet Gambling Funding Prohibition Act 
        in connection with such extension of credit, electronic fund 
        transfer, or money transmitting service.
          ``(2) Paying, transferring, or collecting on any check, 
        draft, or other instrument drawn on any depository institution 
        with the actual knowledge that any person is violating section 
        3(a) of the Unlawful Internet Gambling Funding Prohibition Act 
        in connection with such check, draft, or other instrument.''.

SEC. 4. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.

  (a) In General.--In deliberations between the United States 
Government and any other country on money laundering, corruption, and 
crime issues, the United States Government should--
          (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 this Act; and
          (3) encourage the Financial Action Task Force on Money 
        Laundering, in its annual report on money laundering 
        typologies, to study the extent to which Internet gambling 
        operations are being used for money laundering.
  (b) Report Required.--The Secretary of the Treasury shall submit an 
annual report to the Congress on the deliberations between the United 
States and other countries on issues relating to Internet gambling.

                          Purpose and Summary

    H.R. 556 prohibits the acceptance of any bank instrument 
for unlawful Internet gambling. It defines certain terms for 
purposes of the Act; establishes civil remedies, criminal 
penalties, and regulatory enforcement authorities; encourages 
cooperation by foreign governments in the enforcement of the 
Act; and requires the Secretary of the Treasury to report 
annually to Congress on deliberations between the United States 
and other countries on issues relating to Internet gambling. 
Its primary purpose is to give U.S. law enforcement a new, more 
effective tool for combating offshore Internet gambling sites 
that illegally extend their services to U.S. residents via the 
Internet.

                  Background and Need for Legislation

    The Committee has established a comprehensive hearing and 
markup record on Internet gambling. In addition to the 
extensive debate at the Committee's October 11, 2001 markup of 
H.R. 3004, the Financial Anti-Terrorism Act of 2001, Internet 
gambling was addressed at the Committee's October 3, 2001 
hearing on terrorism and money laundering. At that hearing, the 
FBI, the Criminal Division of the Department of Justice, and a 
money laundering expert testified that Internet gambling serves 
as a vehicle for money laundering and can be exploited by 
terrorists for that purpose. The FBI also testified about 
pending litigation linking organized crime to money laundering 
and Internet gambling.
    At two hearings held in July by the Subcommittee on 
Oversight and Investigations and the Subcommittee on Financial 
Institutions and Consumer Credit, witnesses discussed the legal 
status of Internet gambling, the social and financial 
challenges it poses, and legislative options for addressing 
those challenges.
    Many legal experts, including officials from the Department 
of Justice, State attorneys general, and others involved in law 
enforcement, hold the view that Internet gambling is generally 
prohibited under various Federal statutes. Among them, the 
Federal Wire Act (title18, United States Code, section 1084) 
criminalizes the knowing use of a wire communication facility 
by a gambling establishment for the transmission of bets or 
wagers in interstate or foreign commerce.
    Conventional forms of gambling activities, such as casino 
wagering, State lotteries, slot machines, and horseracing, 
legal in many jurisdictions, are regulated by the individual 
States. However, these activities are subject to intense 
scrutiny and a myriad of licensing and other operational 
requirements. Virtually all States prohibit the operation of 
gambling businesses not expressly permitted by their respective 
constitutions or special legislation. Internet gambling fell 
into the category of illegal gambling activity in all fifty 
States until June of 2001 when the Nevada legislature 
authorized the Nevada gaming commission to legalize on-line, 
Internet gambling operations if and when such operations can be 
conducted in compliance with Federal law.
    Because Internet gambling is generally held to be illegal 
under Federal and State law, most of the estimated 1,500 
Internet gambling sites today operate from offshore locations 
in the Caribbean and elsewhere. As such, they operate 
effectively beyond the reach of U.S. regulators and law 
enforcement, as well as the statutory anti-money laundering 
regimes that apply to U.S.-based casinos. These ``virtual 
casinos'' advertise the ease of opening betting accounts mainly 
through the use of credit cards. Internet gambling sites are 
not only vulnerable to criminal exploitation by money 
launderers, they can also easily abuse a customer's credit card 
information or manipulate the odds of a particular wager to the 
casino's advantage.
    At the Oversight Subcommittee's hearing on July 12, the 
American Gaming Association--representing commercial casinos 
and their suppliers in the United States--addressed some of the 
practical problems associated with Internet gambling, including 
the difficulty of subjecting Internet operations to the kinds 
of regulation currently applied to U.S.-based casinos. 
According to the AGA, its major concern is that offshore 
Internet gambling sites ``frustrate important state policies, 
including restrictions on the availability of gaming within 
each state.'' The AGA went on to say: ``* * * unregulated 
Internet gambling that exists today allows an unlicensed, 
untaxed, unsupervised operator to engage in wagering that is 
otherwise subject to stringent federal and state regulatory 
controls. These controls are vital to preserving the honesty, 
integrity and fairness that those in the gaming industry today 
have worked so hard for so long to bring about.'' The AGA 
further reported that it does not believe the technology for 
exercising such controls with respect to Internet gambling is 
yet available.
    Testifying from a State perspective, the New Jersey 
Director of Gaming Enforcement also noted that offshore 
Internet gambling operations provide no tax revenue or jobs to 
States, unlike State-regulated casinos.
    In addition to the legal and economic challenges cited 
above, problem gambling--including problem Internet gambling--
can lead to personal and family hardships, such as lost 
savings, excessive debt, bankruptcy, foreclosed mortgages, and 
divorce. In particular, Internet gambling is proving to be a 
serious problem for many college students. Testimony from the 
National Collegiate Athletic Association (NCAA) at the July 
hearings underscored the vulnerability of young people to 
losing large sums through Internet gambling. According to a 
Nellie Mae survey cited by the NCAA, 78 percent of college 
students have credit cards, nearly a third have four or more 
credit cards, and one in ten will graduate with balances over 
$7,000. One student reportedly lost $10,000 on Internet sports 
gambling over a three-month period. And, in another case, a 
student reportedly lost $5,000 on a single Internet wager on 
the Super Bowl and was forced to drop out of school. The New 
Jersey Director of Gaming Enforcement also testified that the 
State of New Jersey has filed a suit against certain offshore 
casinos found to be taking online bets from minors in that 
State. Witnesses from the National Council on Problem Gambling 
and the Compulsive Gambling Center testified about the problems 
associated with compulsive or pathological gambling, and the 
Christian Coalition, in a letter to a Member of the Committee, 
echoed concerns about the impact of gambling on families and 
society and, in particular, the impact of Internet gambling on 
the poor, youth, and those who are already compulsive gamblers.
    Because of the pervasive legal, economic, and social 
challenges posed by the rapid growth of Internet gambling, the 
National Gambling Impact Study Commission unanimously 
recommended in its 1999 final report that the Federal 
government prohibit, with no new exemptions, all Internet 
gambling not already authorized by law. The Commission also 
recommended that legislation be adopted to prohibit wire 
transfers to Internet gambling sites or to the banks which 
represent them, and called on the government to develop 
enforcement strategies that include credit card providers and 
money transfer agencies that facilitate Internet gambling.
    H.R. 556, the Unlawful Internet Gambling Funding 
Prohibition Act, builds on the recommendations of the National 
Gambling Impact Study Commission by prohibiting gambling 
businesses from accepting credit cards or other bank 
instruments in connection with unlawful Internet gambling. 
Because of the anticipated difficulty in enforcing this 
prohibition offshore, the legislation also authorizes the 
Attorney General (or appropriate State officials) to seek an 
injunction against any person to prevent or restrain a 
violation of this bill, including to prohibit banks and other 
financial service providers from processing any credit card 
transaction or other financial instrument with a specified 
illegal Internet gambling site. The bill is similar to 
provisions incorporated in the Committee-reported version of 
H.R. 3004, the Financial Anti-Terrorism Act of 2001, as well as 
to legislation adopted by the House Banking Committee in the 
last Congress (H.R. 4419).
    H.R. 556, as amended, is not intended to impose new burdens 
on financial institutions to identify which offshore gambling 
sites may be engaged in unlawful activities. Rather, the 
legislation contemplates a mechanism whereby banks and other 
financial service providers will be provided, pursuant to an 
injunction, with the names of specific Internet gambling 
operations to which payments are to be prohibited. The 
obligation of financial institutions pursuant to such an 
injunction would be similar, in effect, to their obligations 
under certain other U.S. laws, such as those administered by 
the Office of Foreign Assets Control (OFAC) barring financial 
transactions with terrorists and drug kingpins.

                                Hearings

    The Subcommittee on Oversight and Investigations held a 
hearing on July 12, 2001 entitled, ``Financial Aspects of 
Internet Gaming: Good Gamble or Bad Bet?'' Witnesses at the 
hearing included Mr. John Peter Suarez, Director, Division of 
Gaming Enforcement, New Jersey Department of Law and Public 
Safety; Mr. Sebastian Sinclair, Vice President, Christiansen 
Capital Advisors; Mr. Keith S. Whyte, Executive Director, 
National Council on Problem Gambling; Dr. Valerie Lorenz, 
Executive Director, Compulsive Gambling Center; Mr. Frank J. 
Fahrenkopf, Jr., President and CEO, American Gaming 
Association; Mr. Bill Saum, Director, Agent Gambling and 
Amateurism Activities, National Collegiate Athletic 
Association; Mr. Mark MacCarthy, Senior Vice President Public 
Policy, Visa USA, Inc.; Ms. Sue Schneider, Chairman, 
Interactive Gaming Council; Ms. Penelope W. Kyle, Executive 
Director, Virginia Lottery, and President, National Association 
of State and Provincial Lotteries; and Mr. Greg Avioli, Deputy 
Commissioner, National Thoroughbred Racing Association.
    The Subcommittee on Financial Institutions and Consumer 
Credit held a hearing on July 24, 2001 on H.R. 556, the 
Unlawful Internet Gambling Funding Prohibition Act and other 
Internet gambling proposals. Witnesses at the hearing included 
The Honorable James A. Leach (IA); The Honorable Bob Goodlatte 
(VA); The Honorable Jon Kyl (AZ); Mr. Michael L. Farmer, Senior 
Vice President, Wachovia Bank Card Services; Dr. Bob Frederick, 
Chairman, National Collegiate Athletic Association Committee 
(NCAA) on Sportsmanship and Ethical Conduct, NCAA, former 
Director of Athletics, University of Kansas; Mr. Mark 
VanNorman, Executive Director, National Indian Gaming 
Association; Mr. Edwin J. McGuinn, CEO, E-Lottery; and Dr. 
Timothy A. Kelly, former Executive Director, National Gambling 
Impact Study Commission.

                        Committee Consideration

    On October 31, 2001, the Committee met in open session and 
ordered H.R. 556 reported to the House with a favorable 
recommendation, with an amendment, by a record vote of 34 yeas 
and 18 nays.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Oxley to order the bill reported to the House 
with a favorable recommendation, with an amendment, was agreed 
to by a record vote of 34 yeas and 18 nays (Record vote no. 
10). The names of Members voting for and against follow:
        YEAS                          NAYS
Mr. Oxley                           Mr. Baker
Mr. Leach                           Mr. Castle
Mrs. Roukema                        Mr. Ney
Mr. Bereuter                        Mr. Paul
Mr. Bachus                          Mr. LaTourette
Mr. Royce                           Mr. Ose
Mr. Lucas of Oklahoma               Mr. Toomey
Mr. Gillmor                         Mr. Fossella
Mr. Ryun of Kansas                  Mr. Tiberi
Mr. Riley                           Mr. Frank
Mr. Manzullo                        Mr. Kanjorski
Mr. Green of Wisconsin              Ms. Waters
Mr. Shays                           Mr. Watt of North Carolina
Mr. Gary G. Miller of               Mr. Capuano
    California                      Mr. Ford
Mr. Grucci                          Mr. Hinojosa
Ms. Hart                            Mr. Crowley
Mrs. Capito                         Mr. Clay
Mr. Ferguson
Mr. Rogers of Michigan
Mr. LaFalce
Mr. Sanders
Mrs. Maloney of New York
Mr. Bentsen
Mr. Maloney of Connecticut
Ms. Hooley of Oregon
Mr. Sherman
Mr. Sandlin
Mr. Meeks
Ms. Lee
Ms. Schakowsky
Mr. Moore
Mr. Gonzalez
Mr. Lucas of Kentucky
Mr. Israel

    The Committee also considered the following amendments:

          An amendment in the nature of a substitute by Mr. 
        Oxley, no. 1, substituting the Internet gambling 
        provisions of H.R. 3004, as reported, was agreed to by 
        a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Ney, no. 1a, clarifying language 
        exempting lawful transactions with State authorized or 
        licensed entities and exempting Internet service 
        providers and telecommunications companies from the 
        bill's general coverage, was agreed to by a voice vote.
          An amendment to the amendment in the nature of a 
        substitute by Mr. Watt, no. 1b, clarifying that 
        injunctive authority applies to illegal gambling, was 
        agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation: Using authority granted by this legislation, the 
Attorney General will reduce the availability of offshore 
Internet gambling in the United States.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 13, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 556, the Unlawful 
Internet Gambling Funding Prohibition Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contract is Lanette J. 
Walker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 556--Unlawful Internet Gambling Funding Prohibition Act

    Summary: H.R. 556 would prohibit gambling businesses from 
accepting credit cards, checks or other bank instruments from 
gamblers who illegally bet over the Internet. The bill also 
would authorize the agencies that regulate insured depository 
institutions to issue cease-and-desist orders against 
institutions that knowingly facilitate Internet gambling. The 
Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation (FDIC), the Office of Trift Supervision 
(OTS), and the National Credit Union Administration (NUCA) 
would enforce the provisions of H.R. 556 as they apply to 
financial institutions.
    CBO estimates that implementing this legislation would 
result in no significant cost to the federal government. 
Because enactment of H.R. 556 could affect direct spending and 
receipts, pay-as-you-go procedures would apply to the bill. 
However, CBO estimates that any impact on direct spending and 
receipts would not be significant.
    Although H.R. 556 would prohibit gambling businesses from 
accepting credit card payments and other bank instruments from 
gamblers who bet illegally over the Internet, the bill would 
not create a new intergovernmental or private-sector mandate. 
Under current federal and state law, gambling businesses are 
generally prohibited from accepting bets or wagers over the 
Internet. Thus, H.R. 556 does not contain a new mandate 
relative to current law, and would impose no costs on state, 
local, or tribal governments.
    Estimated cost to the Federal Government: CBO estimates 
that the government would incur no significant costs under H.R. 
556. CBO estimates that implementing H.R. 556 would increase 
administrative costs of the Department of Justice, but any such 
costs would be negligible. The bill also would have a small 
effect on the operating costs of the FDIC and the Federal 
Reserve System. Finally, the bill would have a negligible 
effect on the collection and spending of criminal penalties.
    Basis of estimate: The bill would have only minor budgetary 
effects, as described below.

Spending subject to appropriation

    Because H.R. 556 would establish a new federal crime 
relating to Internet gambling, the federal government would be 
able to pursue cases that it otherwise would not be able to 
prosecute. CBO expects, however, that most cases would be 
pursued under existing state laws. Therefore, we estimate that 
any increase in federal costs for law enforcement, court 
proceedings, or prison operations would not be significant. Any 
such additional costs would be subject to the availability of 
appropriated funds.
    H.R. 556 would require the Department of Justice to submit 
an annual report on deliberations with other countries on 
issues related to Internet gambling. CBO estimates that 
preparing and completing the report would cost less than 
$100,000 a year, subject to the availability of appropriated 
funds.

Direct spending and revenues

    The NCUA, the OTS, and the OCC charge fees to cover all 
their administrative costs; therefore, any additional spending 
by these agencies to implement the bill would have no net 
budgetary effect. That is not the case with the FDIC, however, 
which uses deposit insurance premiums paid by all banks to 
cover the expenses it incurs to supervise state-chartered 
banks.
    The bill would cause a small increase in FDIC spending, but 
would not affect its premium income. In total, CBO estimates 
that H.R. 556 would increase direct spending and offsetting 
receipts of the NCUA, OTS, OCC, and FCC by less than $500,000 a 
year over the 2002-2006 period.
    Budgetary effects on the Federal Reserve are recorded as 
changes in revenues (governmental receipts). Based on 
information from the Federal Reserve, CBO estimates that 
enacting H.R. 556 would reduce such revenues by less than 
$500,000 a year over the 2002-2006 period.
    Because those prosecuted and convicted under the bill could 
be subject to criminal fines, the federal government might 
collect additional fines if the bill is enacted. Collections of 
such fines are recorded in the budget as governmental receipts 
(i.e., revenues), which are deposited in the Crime Victims Fund 
and spent in subsequent years. Any additional collections are 
likely to be negligible because of the small number of cases 
involved. Because any increase in direct spending would equal 
the amount of fines collected (with a lag of one year or more), 
the additional direct spending also would be negligible.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. Enacting 
H.R. 556 could affect both direct spending and receipts, but 
CBO estimates that any such effects would be negligible.
    Intergovernmental and private-sector impact: Although H.R. 
556 would prohibit gambling businesses from accepting credit 
card payments and other bank instruments from gamblers who bet 
illegally over the Internet, the bill would not create a new 
intergovernmental mandate. Under current federal and state law, 
gambling businesses are generally prohibited from accepting 
bets or wages over the Internet. Thus, H.R. 556 does not 
contain a new mandate relative to current law.
    Estimate prepared by: Federal Spending: Mark Hadley and 
Lanette J. Walker. Federal Revenues: Carolyn Lynch. Impact on 
State, Local, and Tribal Governments: Susan Sieg Tompkins. 
Impact on the Private Sector: Jean Talarico.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section provides the short title of the bill, the 
``Unlawful Internet Gambling Funding Prohibition Act.''

Section 2. Findings

    This section provides findings which note that: (1) 
Internet gambling is primarily funded through the personal use 
of banking instruments and plays a large role in the creation 
of ultimately uncollectible personal debt; and (2) Internet 
gambling is susceptible to abuse by money launderers.

Section 3. Prohibition on acceptance of any bank instrument for 
        unlawful Internet gambling

    Subsection (a) prohibits a gambling business from accepting 
bank instruments in connection with unlawful Internet gambling. 
Covered instruments include credit cards, electronic fund 
transfers, and checks.
    Subsection (b) defines the term ``bets or wagers'' as 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 with the agreement that the 
winner will receive something of greater value than the amount 
staked or risked. Excluded from that definition is a bona fide 
business transaction governed by the securities laws; a 
transaction subject to the Commodity Exchange Act; an over-the-
counter derivative instrument; any other transaction exempt 
from State gaming or bucket shop laws pursuant to the Commodity 
Exchange Act or Securities Exchange Act; a contract of 
indemnity or guarantee; a contract for insurance; a deposit 
with a depository institution; certain participation in a 
simulation sports game or education game; or a transaction 
authorized under State law with a business licensed or 
authorized by a State.
    This subsection also defines the term ``business of betting 
or wagering'' and excludes from that definition a credit card 
issuer, an insured depository institution, various other 
financial service providers, an interactive computer service 
and a telecommunications service, except as provided by 
subsection (e).
    Another term defined in subsection (b) is ``unlawful 
Internet gambling'' which means to place, receive, or otherwise 
transmit a bet or wager by any means which involves the use of 
the Internet where the bet or wager is illegal under Federal or 
State law in the State where the bet or wager is initiated, 
received, or otherwise made. This subsection does not seek to 
redefine what is lawful or unlawful Internet gambling and is 
not intended to supersede existing State or Federal law, or to 
effect any change in current law related to tribal compacts 
pursuant to the Indian Gaming Regulatory Act, in terms of its 
definitions and coverage.
    Subsection (c) authorizes civil remedies, including the 
issuance of a preliminary injunction or injunction by a U.S. 
District Court--at the request of the Attorney General or 
certain State officials--against any person to prevent or 
restrain a violation of this legislation. Injunctions issued in 
connection with alleged violations of this bill on Indian lands 
are to be enforced in accordance with the Indian Gaming 
Regulatory Act and any applicable Tribal-State compact. The 
subsection also requires the Attorney General or State official 
to notify the appropriate Federal bank agency before seeking an 
injunction against an insured depository institution in order 
to allow the bank agency time to issue its own order under the 
Federal Deposit Insurance Act. Subsection (c) also limits the 
availability of the broad injunctive relief otherwise available 
under this subsection with respect to interactive computer 
services, as defined in section 230(f) of title 47.
    Subsection (d) authorizes criminal penalties for a 
violation of subsection 3(a), including fines under title 18 or 
imprisonment for not more than five years or both. It also 
authorizes the issuance of a permanent injunction against any 
person convicted of a violation under subsection (a).
    Subsection (e) provides that certain financial service 
entities, interactive computer services, or telecommunications 
services may--despite their general exclusion from the 
definition of a business of betting or wagering--be liable for 
a violation of subsection (a) if they have actual knowledge and 
control of bets and wagers and they operate, own, or supervise 
(or are operated, owned, or supervised by) an Internet site 
engaged in illegal gambling. The purpose of this subsection, 
when read in conjunction with the exception to the definition 
of ``business of betting or wagering'' in subsection (b), is to 
ensure that a financial intermediary, interactive computer 
service or telecommunications service is not held liable for a 
violation of this bill based solely on its unknowing and 
unintentional involvement in an unlawful Internet gambling 
transaction.
    Subsection (f) provides that a Federal banking agency may 
take appropriate enforcement action against any financial 
institution that knowingly permits its payment or credit 
facilities to be used in connection with Internet gambling 
activity that violates this bill.

Section 4. Internet gambling in or through foreign jurisdictions

    Section 4 provides that, in deliberations between the U.S. 
Government and any other country on money laundering, 
corruption, and crime issues, the U.S. Government should 
encourage cooperation by foreign governments and international 
fora in identifying whether Internet gambling operations are 
being used for money laundering, corruption, or other crimes, 
advance policies that promote cooperation by foreign 
governments in enforcing this bill, and encourage the Financial 
Action Task Force on Money Laundering (FATF) to study the 
extent to which Internet gambling operations are being used for 
money laundering. It also requires the Secretary of the 
Treasury to submit an annual report to Congress on the 
deliberations between the United States and other countries on 
issues relating to Internet gambling.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

             SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT

  Sec. 8. (a)  * * *

           *       *       *       *       *       *       *

  (x) Depository Institution Involvement in Internet 
Gambling.--If any appropriate Federal banking agency determines 
that any insured depository institution is engaged in any of 
the following activities, the agency may issue an order to such 
institution prohibiting such institution from continuing to 
engage in any of the following activities:
          (1) Extending credit, or facilitating an extension of 
        credit, electronic fund transfer, or money transmitting 
        service with the actual knowledge that any person is 
        violating section 3(a) of the Unlawful Internet 
        Gambling Funding Prohibition Act in connection with 
        such extension of credit, electronic fund transfer, or 
        money transmitting service.
          (2) Paying, transferring, or collecting on any check, 
        draft, or other instrument drawn on any depository 
        institution with the actual knowledge that any person 
        is violating section 3(a) of the Unlawful Internet 
        Gambling Funding Prohibition Act in connection with 
        such check, draft, or other instrument.

           *       *       *       *       *       *       *


                            DISSENTING VIEWS

    H.R. 556, which limits the ability of individual citizens 
to use bank instruments, including credit cards or checks, to 
finance Internet gambling should be rejected by Congress since 
the Federal Government has no constitutional authority to ban 
or even discourage any form of gambling.
    In addition to being unconstitutional, H.R. 556 is likely 
to prove ineffective at ending Internet gambling. Instead, this 
bill will ensure that gambling is controlled by organized 
crime. History, from the failed experiment of prohibition to 
today's futile ``war on drugs,'' shows that the government 
cannot eliminate demand for something like Internet gambling 
simply by passing a law. Instead, H.R. 556 will force those who 
wish to gamble over the Internet to patronize suppliers willing 
to flaunt the ban. In many cases, providers of services banned 
by the government will be members of criminal organizations. 
Even if organized crime does not operate Internet gambling 
enterprises their competitors are likely to be controlled by 
organized crime. After all, since the owners and patrons of 
Internet gambling cannot rely on the police and courts to 
enforce contracts and resolve other disputes they will be 
forced to rely on members of organized crime to perform those 
functions. Thus, the profits of Internet gambling will flow 
into organized crime.
    Furthermore, outlawing an activity will raise the price 
vendors are able to charge consumers, thus increasing the 
profits flowing to organized crime from Internet gambling. It 
is bitterly ironic that a bill masquerading as an attack on 
crime will actually increase organized crime's ability to 
control and profit from Internet gambling!
    In conclusion, H.R. 556 violates the constitutional limits 
on Federal power. Furthermore, laws such as H.R. 556 are 
ineffective in eliminating the demand for vices such as 
Internet gambling; instead, they ensure that these enterprises 
will be controlled by organized crime. Therefore I urge my 
colleagues to reject H.R. 556, the Internet Gambling 
Prohibition Act.
                                                          Ron Paul.