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June 15, 2000, Thursday

SECTION: CAPITOL HILL HEARING

LENGTH: 30805 words

HEADLINE: HEARING OF THE TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF THE HOUSE COMMERCE COMMITTEE

SUBJECT: INTERNET GAMBLING

CHAIRED BY: REPRESENTATIVE W.J. TAUZIN (R-LA)

LOCATION: 2123 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 11:00 AM. EDT

WITNESSES:

REP. ROBERT GOODLATTE (R-VA);

KEVIN V. DIGREGORY, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, JUSTICE DEPARTMENT;

LISA DEAN, VICE PRESIDENT FOR TECHNOLOGY POLICY, FREE CONGRESS FOUNDATION;

MICHAEL BOWMAN, VICE PRESIDENT FOR GOVERNMENT RELATIONS, FAMILY RESEARCH COUNCIL;

ANNE PAULSON, PRESIDENT, VIRGINIA THOROUGHBRED ASSOCIATION;

LOUIS SHELDON, TRADITIONAL VALUES COALITION;

DANIEL NESTEL, ASSISTANT DIRECTOR OF FEDERAL RELATIONS, NATIONAL COLLEGIATE ATHLETIC ASSOCIATION;

GERARD WALDRON, PARTNER, COVINGTON & BURLING;

GREG ZIEMAK, EXECUTIVE DIRECTOR, KANSAS STATE LOTTERY;

BODY:
REP. W.J. (BILLY) TAUZIN (R-LA): Subcommittee will please come to order. We'll ask our guests to take seats and to catch the doors so that we can have some quiet in the Hearing Room. Thank you very much.

This morning we will consider legislation that the Speaker referred to this Committee because of our historical experience in dealing with matters that affect interstate and foreign communications. In particular, we're here today to consider H.R. 3125, the Internet Gambling Prohibition Act which is sponsored by my friend and colleague, Mr. Goodlatte who will be once again testifying on a matter pending before our Subcommittee.

The Congress has spent much of its time heralding the promise of the internet. For example, just yesterday the House provided overwhelming support when an initiative sponsored by Mr. Bliley that will help to establish a key foundation in the digital economy, namely electronic signatures and Mr. Dingell and Mr. Markey and Mr. Oxley were key components of the effort to work that bill through the House- Senate Conference and through the Floor vote yesterday for which I want to thank my dear friends and colleagues. They also provided strong support for the idea that the internet should remain tax free, at least until States and localities dramatically simplify their patchwork of sales and use tax structures.

The promise of the internet is indeed real, but we all know that a promise always brings with it some risk and in some cases real and identifiable problems such as spam which the Committee again addressed yesterday through legislation to protect consumers against this nuisance and sometimes very troubling and inefficient aspect of the internet.

Also on-line pharmacies have come up for some discussion because we've learned that on-line pharmacies have the potential of preying on senior citizens. In addition to the purveyance on on-line obscenity and pornography, the internet's darkest side rears itself with the issue of internet gaming. There's no mistaking the threat that internet gambling poses to society, children in particular. We hear first hand evidence of this today and we will explore that evidence as we move forward.

We'll also hear evidence of how strong internet gambling's future is unless Congress decides to act, but as complicated as the problem is, the solution is no less complex. We'll hear testimony today from numerous experts in the area of the law and policy, some in support of this bill and some in strong and unequivocal opposition.

I note in particular that some resist the idea that a bill that is indeed intended to prohibit internet gambling actually creates exemptions which could have the effect, indeed, of promoting some forms of gambling on the internet. Nevertheless, we all know that sports-related and casino style gambling account for most of the gambling on the internet and the bill with or without a State lottery provision would clearly bar such gambling in the future.

Let me say that I first of all want to commend the work of Mr. Goodlatte and his colleagues at the Judiciary Committee. They've worked long and hard to craft a bipartisan solution. Our job this morning is to begin the process of exploring whether this important legislation can be refined further.

We look forward to the testimony of this morning's witnesses and you'll back the balance of my time and yield to my friend and colleague, the Ranking Minority Member from Massachusetts, Mr. Markey.

REP. EDWARD J. MARKEY (D-MA): Thank you, Mr. Chairman, very much and I want to commend you for calling this hearing today on legislation that proposes certain new regulations on the internet in this case dealing with the subject of gambling.

The legislation broadly proposes making gambling over the internet illegal, providing criminal penalties for violations, authorizing civil enforcement proceedings by federal and State authorities, as well as establishing regulations on how internet service providers will terminate and block access to material or activity that violates the gambling prohibition.

On the other hand, the legislation contains provisions that might have made the late great Claude Rains blush. A number of exceptions to the general prohibitions on internet gambling that permit under certain circumstances fantasy sports leagues, gambling on horse races, gambling on jai alai and gambling on greyhound racing. The legislation also permits intrastrate purchase of lottery tickets, but only if such purchases are made in a public facility which presumably means that you can't buy a lottery ticket from home over the net.

On the one hand, on the other hand approach to internet gambling reminds me of the story of Father Murphy who goes up into the pulpit on Sunday morning and says "on Wednesday night in the church hall Father Giny will lecture on the evils of gambling. Thursday night in the church hall, bingo."

Ladies and gentlemen, there's no question that our society has a schizophrenic attitude towards this issue. Gambling can be a very addictive, debilitating compulsion that many citizens struggle with daily. It can poison professional and amateur athletics. It is strongly opposed by many religious organizations.

On the other hand, many otherwise pious people hop on flights every year to visit the modern day gambling Mecca of Las Vegas or they go to Atlantic City or to the Babylon on the Bayou now that Louisiana has gambling. There are now casinos on Indian Reservations and on river boats all over this country. And in the east, in the east we have a button down version that we call Wall Street. But we don't call that gambling. We call it capital formation. We will permit wages on the web unless, of course -- we will prohibit it, unless of course, it's a bet on biotech stocks where the bookie isn't in the local bar, but on the big board or on-line at Ameritrade where you can place your bets for only $8 and double your bit if you're willing to play chicken with the office copy boy named Stewart.

Now how do we choose which type of gambling to ban? Should we place them all on a spinning roulette wheel and see where it lands? I know that I strongly oppose organized gambling on college athletics, but on the other hand, March Madness, how much does it cost to join that pool in your office? H.L. Mencken once said that the definition of a Puritan was someone who had the haunting fear that somewhere, somehow, someone was having a good time. Much of what we're talking about here is how ordinary people gamble, not how people gamble on Wall Street when they're looking at biotech stocks or some new internet company that they're putting $100,000 on, but they have no idea what the company does because somebody just whispered this little tip to them.

Did I grow up in a community with who minds on gambling? In a word, bingo. I think we all did. That's why this particular subject is so complex and it's going to require a lot of thought on our part before we craft rules that will be binding for a good long time on the American public.

Thank you, Mr. Chairman.

REP. TAUZIN: Rock on, Mr. Markey. If the gentleman would yield just a second, just to relay a cute, but real story. I was calling bingo once at my church near that Babylon on the Bayou, New Orleans and I called the wrong number and the day when people were using corn to cover the number on their cards instead of those fancy, nice cards that do it automatically. So I had to ask the audience to look under all their corn and see if they had the number I'd called and to remove that one and put the corn on the right. Now there was a lot of grumbling in the audience and so I asked them please to understand, I'd made a mistake and that everybody did once in a while. That's why we had erasers on the back of pencils. And some guy in the back of the room said, "Yeah, Billy, that's why we got elections now and them too."

The chair is now pleased to welcome the gentleman from Oklahoma, Mr. Largent next.

REP. STEVE LARGENT (R-OK): Thank you, Mr. Chairman. I want to thank you for holding this morning's hearing on H.R. 3125, the Internet Gambling Prohibition Act. There is no dispute that there has been an explosive growth of internet gambling over the past few years. The National Gambling Impact Study Commission reports that internet gambling revenues have doubled every year for the past three years. One study indicates that on-line gambling revenues have grown from $300 million in 1998 to $651 million in 1999. It's expected that revenues will grow to $2.3 billion by 2001.

There is dispute, however, if this legislation is sufficient to address the problem of internet gaming. We will hear testimony today from some of our witnesses who believe that H.R. 3125 strikes the proper balance between curbing the growth on on-line gaming, but allowing otherwise lawful wagering on animal races, Indian gaming an jai alai. We will also hear from others who believe that H.R. 3125 is a special interest bonanza and if we are to prohibit on-line gaming, we need to prohibit all internet gambling.

I look forward to hear the pros and cons associated with 3125 and I yield back my time.

REP. TAUZIN: Thank the gentleman. The gentleman from Texas, Mr. Green is recognized.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman and like my colleagues I'm glad you called this hearing on the bill although I'm a little confused by its legislative intent. Just recently our Subcommittee held a hearing on obscenity available over the internet and the tenor of that hearing was trying to prevent the spread of this destructive material to adults and children. So I'm quite surprised that when I read 3125 that we're going to legalize gambling over the internet. Gambling is just as addictive as drugs and alcohol and yet the passage of this bill would allow residents of Texas to bet on horse and dog races in other States.

Mr. Chairman, we already share our financial resources with the casinos in Louisiana from Texas and we don't want to share any more. That's one of the disturbing aspects of it.

I can sit in my home and flush my family's financial security down the disk drive while without anyone knowing about my actions until it's too late. The legislation would be a boon to compulsive gamblers, even if your State prohibits it.

We should rename maybe this legislation "The Break Up of the Family" because I would know what would happen if my wife came in at 10:30 at night and I say by the way, we just lost our savings and our children's savings. I lost that horse race.

Any bill dealing with gambling has the greed factor and it's truly amazing. I didn't support Dr. gambling in the Texas Legislature when I was there and although after I left the citizens of Texas voted for a State lottery and that lottery now provides over $1 billion a year for our Texas Public Schools. I didn't vote for it as a legislator or during the referendum. And I would surely be concerned about allowing internet gambling on horse racing and dog racing outside the State of Texas because we do have that. The voters also approved that, but it would have little benefit to the individual State. At least the lottery provides $1 billion to the Texas Public Schools.

So my concern is that Members whose States have a lottery are supposed to support allowing horse and dog track owners in other parts of the country to have internet gambling and yet the lotteries would not be able to do that. I sure don't want to have to sell that at home in Texas. And again, Texas has changed in a few years. We also allow horse race and dog race gambling actually at our tracks on races around the country, but that's still to the benefit of the folks in Texas. Gambling, no matter what form it comes in, needs to be decided on the State level and I'm sure I'm not the only Member here today that feels like we're going to trample on the rights of our States by regulated gambling within their borders.

I am interested to hear the Panel discussion we have today on this legislation and particularly on improvements in it. And I have a suggestion, we could just ban internet gambling. Gambling in any form over the internet should be illegal. For the sites that currently exist outside the borders of this country, hopefully the Justice Department could use its resources to shut that down.

The Subcommittee has spent a lot of time exploring the weaknesses of our human behavior and how the telecommunications revolution affects it. Let's don't pass legislation that actually encourages something that would devastate people and their families whether it be gambling or pornography.

And I yield back the balance of my time.

REP. TAUZIN: Before my friend yields, I want to tell him the biggest bet that's going down in Texas right now is whether Edwin Edwards really goes to prison or not.

I don't know if you heard that, but he came out of the Grand Jury Room when they indicted him for crimes that if convicted would put him in prison for 350 years, I think. In his thick Cajun accent he said "I want to tell you all one thing, if I'm convicted I will not serve out my full term."

The gentlelady, Ms. Cubin, is recognized.

REP. BARBARA CUBIN (R-WY): Thank you, Mr. Chairman. Thank you also for holding this hearing on H.R. 3125 so that we can learn more about internet based gambling, how it is grown, how it is regulated or in most cases unregulated, and what role the federal government should take to insure that certain abuses don't occur. I understand fully why some argue that federal legislation is needed. The internet is unique and as such gaming over the internet is also unique.

The fact that one State could allow internet gambling when it is prohibited by its neighboring States demonstrates some need for a federal role. However, I have always been a States rights advocate. The State of Wyoming isn't much of a gaming State compared with other States, however, the revenue brought to the State just last year from one horse racing track was over $6 million. That's a fairly significant amount of money, but even more significant are the 232 full-time and part-time jobs that that race track supports.

I believe it's important as we continue this debate that we take into account the States and their rights to allow or to prohibit gaming within their borders. Equally important is the enforcement of current laws that prohibit fraudulent activities over the internet such as credit card fraud and underage gambling.

I took a particular interest in the Department of Justice's testimony and its concerns with the bill expanding gambling opportunities instead of prohibiting them. In a way, I agree with the Justice Department's read of this legislation. If it is the intent of the bill's author to prohibit gambling over the internet, why should we allow certain types of gambling and not allow others?

Furthermore, I agree that permitting gambling in one medium and prohibiting it in that same medium, excuse me, in that same form of gambling in another medium just doesn't make a lot of sense to me. Instead of prohibiting gambling in certain forms of the internet which I stated earlier doesn't seem workable, it is as if this bill is bolstering an already established brick and mortar gaming industry. I really want to become educated with this entire issue and it's my hope that the witnesses we have here today will be able to shed some light on the points that I've made.

The fact that a number of people have been prosecuted by the Department of Justice for on-line gaming shows me that maybe the laws are already on the books, that they just need to be enforced and that those that violate the laws should be sought more aggressively.

Again, Mr. Chairman, I brought many of my concerns forward and I hope that by the time this hearing is over today we'll have a lot better understanding as to how we should proceed with this legislation. Thank you for allowing me to speak and I yield back the balance of my time.

REP. TAUZIN: Thank the gentlelady. The gentlelady from California, Ms. Eshoo is recognized. By the way, let me say again that we may not yesterday have thanked the gentlelady enough for her early and important work on the digital signature bill, an important bill that moved yesterday. I want to thank her again for that.

REP. ANNA G. ESHOO (D-CA): Thank you, Mr. Chairman. I appreciate that and I think as partners in the previous Congress we brought a very important issue to our colleagues and it really matches where we are in the beginning of this century, so I appreciate it.

I also appreciate Mr. Chairman and our full Committee Chairman, Mr. Bliley for making sure that we have a hearing on this legislation. I think the bill has serious implications for e-commerce and the whole issue of regulation of the internet so I think it's important that we have a chance to review these issues.

I want to compliment Mr. Goodlatte and our colleagues for their efforts to attempt to protect society from the dangers of gambling and the abuses that are sometimes associated with it. It can be a corrosive agent and it's frequently a manifestation of addictive behavior, but I do think that the bill is deeply flawed and I want to make some comments about where and how I think it's flawed. It prohibits some types of gambling and it actually expands other kinds. It puts an inappropriate burden in my view on high technology companies and it also interferes with civil liberties of the American people.

I think the legislation is rife with loopholes which appear to be the result of special interest lobbying which isn't new around here, but it's still rife with it. Betting on horses and dogs is okay. Sports and casino style games are out. Jai alai is in. State lotteries are out. It's a patch work of exemptions and prohibitions which seem to be based on the degree of power of a particular interest group rather than good public policy. After all, if gambling on the internet is wrong, then gambling on the internet is wrong period. So I think that we have a long ways to go to fill these gaps.

I'm going to be a little harsh here but I'm still going to express my disappointment with the NCAA and the NFL on their somewhat strident views on this issue. I hear a lot of concern about the threat that internet gambling would pose to the values of young athletes and the integrity that sports have, but it seems to me that there are other practices that are tolerated by collegiate and professional sports organizations that pose a far greater risk of failing to instill the kind of values that we want to instill in young people. Today, big time college athletes are given special dorms. They eat at training tables. They're allowed to preregister for courses and they frequently enjoy relaxed academic standards and some even fail to graduate. So I think if we're going to broaden the lens here, that we need to take all of it in and really be honest about it as we approach this. I know that the NFL is here today to testify to the threat of internet gambling to young people, but I also think that they need to look within their ranks and really take a good hard look at what they can do there with some of their players.

Finally, the bill seeks to put regulatory boundaries on the internet and I think that we have to take a look at whether these views are short sighted and also take into consideration civil liberties. The notice in the take down provisions in my view are overly broad. They're too burdensome for ISPs and I think that they give the government too much power. The blocking provisions in the legislation intrude on individual privacy. They attempt to put artificial boundaries on the internet when the internet is designed specifically to transcend boundaries.

So Mr. Chairman, I think that we've got a lot of work to do. I think that we have some miles to go and some places to see. I think that the bill has a long ways to go and I think that we have a lot of work to do.

I welcome the witnesses and I look forward to hearing their testimony and I thank you and the Chairman of the Full Committee for making sure that we have a hearing on the bill. I yield back.

REP. LARGENT: Will the gentlelady yield?

REP. ESHOO: I'd be glad to, if I have any time left.

REP. ESHOO: If I have any time left.

REP. LARGENT: First of all, college athletes don't have special dormitories any longer. That was changed a long time ago. They're now integrated in the study body.

Second of all, I would point out that student athletes graduate, as a percentage, graduate far greater than --

REP. ESHOO: Are there special floors in dorms for athletes?

REP. LARGENT: What's that?

REP. ESHOO: Are there special floors in dorms for athletes?

REP. LARGENT: No, there are not.

REP. ESHOO: They're not. Thank you.

REP. TAUZIN: The gentlelady's time is expired. The gentleman from Illinois, Mr. Shimkus is recognized.

REP. JOHN SHIMKUS, (R-IL): Thank you, Mr. Chairman. I'm not going to wax philosophically, but join my colleague, Mr. Markey, in claiming that I too am schizophrenic on this issue of gambling and that's the importance of the hearing.

I do have a question for the Chairman. It's a question on seniority of committee assignments. Is Bob Goodlatte senior to me? It seems that he attends these hearings much more than even many Members of our colleagues.

REP. TAUZIN: He has commerce envy.

REP. SHIMKUS: I think he does.

(Laughter.)

REP. SHIMKUS: I'm looking forward to the time when we have a hearing on a bill that he does not show, but I do want to welcome him and yield back my time.

REP. TAUZIN: Thank the gentleman. Gentleman, Mr. Ehrlich, will speak. Oh, he's gone. Mr. Stearns is recognized.

REP. CLIFF STEARNS (R-FL): Mr. Chairman, thank you for holding this hearing on H.R. 3125, the Internet Gambling Prohibition Act. And I would like to thank my colleague, Mr. Goodlatte for being here this morning again.

The commercial event of the internet affords the consumer household a flood of resources. A couple of keystrokes and mouse clicks one can now track local weather, access news, watch video and listen to music as well as make on-line purchases. Previously one would have to travel to Las Vegas or Atlantic City to partake in gambling and games of chance. Now it is only a matter of another couple of clicks and the web surfer can stroll through a virtual cyber casino. Every home with a computer and on-line access now is also a home with a casino.

Mr. Chairman, I'd like to read from the National Gambling Impact Study Commission. Internet gambling is "the newest medium offering a game of chance." Furthermore, the report states that "the previously small number of operations has grown into an industry practically overnight. Last year alone, the Commission came across more than 250 on-line casinos, 64 lotteries, 20 bingo games and 139 sports books providing gambling over the internet. Additionally, the FBI reported growth in internet gambling from 300 million in 1998 to 651 million in 1999. And Bear Sterns Brokerage House estimates that internet gambling websites generate more than $1.2 billion last year and that number will grow to $3 billion within the next two years.

Regulation of gambling has been traditionally left to the States, however, due to the nature of the internet, no single State or collection of States can adequately address the growing problem of on- line gambling. While I'm generally cautious about imposing regulations thereby possibly strangling the growth of the internet, I believe this bill brings the law up to date with internet technology by clarifying federal law that operating and internet gambling business is illegal, all the while recognizing States' leadership role in regulating gambling within their borders.

Additionally, this legislation does not prohibit legitimate businesses which rely on legal gambling from going on-line. The horse racing, for example, is a legal activity that is closely regulated in my home State of Florida. The horse racing industry has a $2.2 billion annual impact on Florida's economy and employs more than 27,000 people in Florida.

This bill obviously is not a perfect bill, but it's a step in the right direction and I look forward to the testimony today and thank you, Mr. Chairman.

REP. TAUZIN: Thank the gentleman. Are there any further opening statements? Then the chair is pleased to open our colleague and friend from the Judiciary Committee, Mr. Bob Goodlatte of the great State of Virginia, the author of the legislation. Bob, you're welcome and we appreciate your testimony today.

REP. BOB GOODLATTE (R-VA): Thank you very much, Mr. Chairman. It is indeed a pleasure to be back before the Commerce Committee. I would say to the gentleman from Illinois that I do introduce these bills in other Committees. They all wind up visiting the Commerce Committee as well.

REP. TAUZIN: You realize that doesn't help you before this Committee to acknowledge that.

(Laughter.)

REP. GOODLATTE: Some of them I introduce here as well. But I welcome the opportunity to speak about this legislation which I believe is very important. I do have a written statement that I would ask be made a part of the record.

REP. TAUZIN: Let me do this now. The written statements of all Members, as well as all our witnesses, will be introduced in the record as part of our record without objection. It is so ordered. And the gentleman may summarize his statement.

REP. GOODLATTE: Thank you, Mr. Chairman. I'd like to focus my remarks on some of the comments made during the opening statements of Members of the Committee because I am very respectful of the issues raised and want to take some time to address those and I want to first say to the gentlewoman from California that I very much respect her interest in and love of the internet. She serves with me on the Congressional Internet Caucus. She represents the heart of Silicon Valley and has a deep abiding interest in promoting the growth of the internet. I would say to her and I think she knows that I share that desire. We've worked together on many bills to promote the public's access to the use of the internet, to the use of encryption to protect their privacy on the internet and a number of other things.

The internet, however, also has its seamier sides, just like society as a whole does. We have problems with child pornography on the internet and I think we have a serious problem with gambling on the internet. It is something that different people will have different philosophical views, in general. I'm opposed to gambling, in general. Every State regulates it in different ways, but it is basically illegal in the United States unless regulated by the States and the internet poses a very considerable challenge to that. For example, in my State of Virginia, we do not allow casino gambling, but virtually anybody in Virginia who is on-line can have access to more than 700 cyber casinos in their family room, bedroom, whatever part of their home. These operations are not regulated. In fact, I can't see how it would be possible for individual States to regulate them the way casinos are regulated in Nevada or New Jersey and so on.

So to me, the resolution here is a ban on gambling on the internet. Now if I could roll back everything that has taken place thus far, I would do so, but I don't believe that this legislation has the capability to do that, but a couple of years ago the National Association of Attorney Generals, the State organizations, experiencing increasing frustration with having to deal with various types of gambling coming into their States came to Senator Kyle and myself and asked us to introduce legislation. This legislation has twice passed the Senate. This Congress it's passed unanimously in the Senate. It recently passed through the Judiciary Committee by an overwhelming bipartisan vote and it is supported by a wide array of organizations. The gentleman from Oklahoma made reference to the National Collegiate Athletic Association and the NFL. Their concern stems from the fact that the very largest percentage of gambling taking place on the internet in their estimation is coming from betting on sports, particularly the NFL and college sports and they're very concerned about this. They're concerned and I think the Committee will hear from witnesses later on this morning about the problems of people being able to bet on-line, children and so on in a totally unsupervised atmosphere.

We heard testimony in the Judiciary Committee about teenagers who lost thousands and thousands of dollars of their family's money betting on-line so in addition to the Attorney General and the sporting associations, the legislation is also supported by a number of organizations opposed to gambling, including the National Association Against Gambling, but also the Family Research Council, Focus on the Family, Christian Coalition and lest one be concerned that this is only conservative religious organizations that are opposed to this, the National Council of Churches endorses this legislation as does the governing body of the Presbyterian Church. There are consumer groups that are supportive of this legislation. The legislation is endorsed by the National Gambling Impact Study Commission, a commission established by the Congress a couple of years ago under legislation introduced by Congressman Frank Wolf. So the effort here is to stop gambling.

Now there have been some who have suggested there are exceptions to this and I would suggest to you that we have stopped the advent of additional efforts to move into areas of gambling, but we are not expanding gambling on the internet with this legislation.

That charge seems to come from the provision in the bill that recognizes that under very limited State government regulated circumstances you can have a closed loop system for parimutuel betting, horses, dogs and jai alai. That is something that is already taking place on the internet in a number of States and in recognition of that, we have stopped that.

There are those who would like to have the legislation go further and authorize that for State lotteries. The fact of the matter is there is not one State lottery in the country that is offering sale of lottery tickets on-line at this time and it seems to me to be very appropriate, given the problems of unsupervised circumstances where children can go on line and buy lottery tickets from their homes that the current system is a far better one and if the legislation which does not allow that which would ban casino type gambling which would impose other limitations on gambling in the country is the properly balanced legislation that is now before the Commerce Committee.

We have worked very carefully on the remedies available in this legislation as well and we've worked very carefully with internet service providers, one of whom I spoke to just moments before the hearing and they have been very much involved and are very much satisfied with the language in this legislation which provides for a set of circumstances very similar to the Digital Millennium Copyright Act which calls for a notice and take down procedure when someone is found to be in violation of the law and the internet service provider is called upon to assist in taking down a website or disabling access to a website.

Mr. Chairman, I would be pleased to answer questions of the Committee.

REP. TAUZIN: I thank the gentleman. The chair will first recognize himself and then Members in order.

Mr. Goodlatte, I'm trying to understand the way the bill, as it comes from Judiciary, treats these closed loops, subscriber based services or these intranet activities in gambling. As it applies to horse track betting and I think jai alai and dog racing, the bill provides for closed loop subscriber based service betting, but does not require that those wages be placed in a facility that is open to the general public. Is that correct?

REP. GOODLATTE: That is correct.

REP. TAUZIN: So the criticism the bill is receiving from the Administration and from others that it would permit people to bet on those forms of gambling on the internet in their homes is accurate?

REP. GOODLATTE: I wouldn't say the criticism is accurate, but the statement that that is a different treatment is correct and the reason why it is is because it's already taking place in some States.

REP. TAUZIN: I want to make sure, I didn't mean to make judgment, I'm asking is the statement correct in the Administration's criticism of this bill, that the bill permits gaming on these forms of gambling in a person's home on a computer that might exist in a children's bedroom. Is that correct?

REP. GOODLATTE: For parimutuel betting, it is my understanding that that is correct, but that, as I say is already taking place and the point that I would make to you regarding that is simply that we would love to roll back as far as possible the limitations on gambling, but this is where we think we can draw the line.

REP. TAUZIN: But this provision would allow States that do not yet permit closed loop subscriber based gambling to occur from home computers to do so, does it not? It allows the expansion of this form of gambling in States that currently don't allow it. Is that correct?

REP. GOODLATTE: No. It does not allow the expansion because it is already taking place under the circumstances --

REP. TAUZIN: Suppose it's not taking place in a State. Under this provision, can the State allow it?

REP. GOODLATTE: And under current law, the States can do that. So when the Justice Department says that we are expanding by changing the law --

REP. TAUZIN: I see your argument.

REP. GOODLATTE: We disagree --

REP. TAUZIN: What you're saying is you're not changing the current law that permits that to occur, but the fact is that it doesn't yet occur in many jurisdictions, so that you're not changing the law, at least in a practical sense.

REP. GOODLATTE: That's correct.

REP. TAUZIN: That form of gambling may expand in those jurisdictions, but it could do so under current law.

REP. GOODLATTE: That's correct, Mr. Chairman. Some States that have State regulated horse racing, that takes place and other States that have State regulated horse racing it does not. This brings clarity to the law.

REP. TAUZIN: When it comes to lotteries on the other hand, there was a big carve out for lotteries in the original draft. The Judiciary Committee changed that provision. As I now read it, it now permits purchasing lottery tickets in a wholly-intrastate situation where there could be a closed loop interactive computer service, subscriber based service, form of purchasing. But you've imposed on lotteries the condition that those bets, those purchases must be made at a facility that is open to the general public. So if I understand this correctly, the bill treats horse racing, jai alai and dog racing in a way that would permit the placing of bets on home computers, but when it comes to lotteries would say that you have to go to a public place to access the computer closed loop or intranet system. Is that accurate?

REP. GOODLATTE: That is accurate and the reason.

REP. TAUZIN: Give me the reason.

REP. GOODLATTE: The reason for that is that the States do not at this point, not one of them, have a service that offers the sale of lottery tickets in homes.

REP. TAUZIN: Could you give us information as to which States currently allow these closed loop systems to be used on home computers to gamble on horse racing, jai alai and dog racing?

REP. GOODLATTE: Mr. Chairman, my understanding is there are seven such States. I would be happy to provide the names to the Committee.

REP. TAUZIN: Would you please do so. You don't have them in front of you?

REP. GOODLATTE: I donot.

REP. TAUZIN: If you would please submit that for the record. The Chairman's time has expired. The gentleman will yield to the gentleman from Massachusetts.

REP. MARKEY: Thank you, Mr. Chairman, very much. As has been noted over and over again, the bill allows for betting on horse racing and dog racing and jai alai, but not on lotteries on line. The policy judgment on the horses and the dogs is essentially that it's regulated, it's part of a closed loop restricted system and it's already in place, although in a small number of States.

Lottery tickets, however, are not going to be given the same option, although you could set up a closed loop for lottery ticket purchases as well. If you can protect against children betting on the dogs, you can protect against children betting on the lottery.

REP. GOODLATTE: You can try. Mr. Markey, I would say there are going to be problems with either one and if it were a situation where you could enact legislation that perfectly reflected my point of view, I would have none of this, but that is not the political reality that we're --

REP. MARKEY: What I'm saying is if the primary goal is to protect children and a closed loop system doesn't work for dogs and ponies right now, that we need to legislate inside this bill on what we're going to require every race track in America to provide as an additional protection.

If it does work, if it does work, then we should not say that it can't work for the lottery as well. So we have a problem one way or the other. We have to either tighten up legally what the requirements are --

REP. GOODLATTE: But my effort, if I might respond is to halt gambling on the internet as much as possible. Horse racing is a very small percentage of the overall amount of gambling that takes place in the United States today. So we are saying that this halts 95 percent of the gambling on the internet.

REP. MARKEY: But it's the only thing that's permitted, so it's bound to grow. You're commenting on an exception on something that's still in a limited number of States, but it's bound to grow if gambling is going to be the phenomenon. See, I guess the problem that I have is as I think about it, is that the money from horse racing, dog racing, jai alai, it goes into the pockets of race track owners, jockeys, trainers. The money from the lottery goes for schools and police and fire. So if you could justify gambling, you know and limit its reach, then I would be honestly more inclined to look at horse racing and dog racing, but at the end of the day we need a standard. You need to give to us a standard. What is the test that we're using to determine which gambling is appropriate and which gambling is inappropriate. The test that we use is to stop a line where we have reached it right now. There is no State where the Governor or the legislator has stood up and said hey, wouldn't it be great if you could buy lottery tickets at home? This, I think, is the time and the place to stop that from happening. That has not taken place in the other area and therefore there is what we regard to be a consistency in the current state of the law.

And I would also add, Mr. Markey, that the dog tracks in or near your district in Massachusetts pay a lot of taxes to the State of Massachusetts. They exist under the supervision of the State because the State derives a lot of revenues from those facilities as well as it does from the sale of lottery tickets.

REP. MARKEY: Well, the bulk of it goes to the owners of the race tracks, which is fine, that's the private sector.

REP. GOODLATTE: And there are higher carrying costs.

REP. MARKEY: But there's a purer opportunity for the government to collect revenues out of the lottery and it goes directly into those earmarked pockets, mostly for local communities, it seems to me, across the country.

I don't know, it just seems to me that what we're deciding here is we're going to be making these distinctions based upon categories that, the bases seem to be which are our favorite domesticated animals and those will be permitted and they seemed to have a closed loop over here that works for them, but we can't set up something over here that has a closed loop as well for the lottery for money that as it's raised is going to be directed towards societal needs and I just think that we need a uniform way of dealing with this, otherwise those that have been grandfathered, even though they're new to this as well, they're coming in -- we're catching up with this, I agree with you. But I don't think the wy in which the Congress should catch up with issues with new technologies is to say well those who figured out how to exploit it before anybody else, we're going to grandfather them. I think we need a uniform set of guidelines that we're all going to use right down the line with an articulated philosophy, moral, political philosophy that we're applying. Otherwise, we wind up with a discriminatory system.

It's one thing for baseball in 1920 to ban the spitball and grandfather in everyone that was throwing it up until then so they could throw it until the end of their careers, because you knew that was going to end in six or eight or ten years, huh? Here, what we're saying in perpetuity, one whole group of people can do it and one whole other can't do it and I don't think that's the kind of grandfathering that we should be talking about here. I think at the end of the day we're going to have a standard that we can all understand and explain to everyone or we're not going to have really a standard at all. It's a nonstandard standard I think which this legislation now has at its core and I don't think that's going to be acceptable.

REP. TAUZIN: The gentleman's time is expired. The gentleman from Oklahoma, Mr. Largent.

REP. LARGENT: Thank you, Mr. Chairman. I've been reading the dissenting view of the bill that was handed to us and Mr. Goodlatte, I'd like to ask you in the very first paragraph it says "H.R. 3125 not only expands gambling over the internet, it arbitrarily favors certain forms of gambling over others."

Could you address those two issues? First of all, how does this bill expand -- how can the dissenters of this bill from the Judiciary Committee claim that this bill would expand gambling over the internet?

REP. GOODLATTE: Thank you, Mr. Largent, the fact of the matter is that if you take action against now more than 700 cyber casinos doing more than $1 billion in gambling on the internet, if you take action to restrict new forms of gambling on the internet like the sale of lottery tickets, if you address the probably largest problem of all of sports betting on the internet that this is going to be a substantial halt to a very, very rapidly, dramatically growing problem. You can just see it in what has taken place in a very short period of time, growing from when I introduced this legislation about 20 or 30 cyber casinos to now more than 700 and the amounts being in the tens of millions of dollars instead of in the billions of dollars, how urgent it is because we all know that and we're talking about gambling. We're definitely talking about money here and what has happened is that those people who are hoping to profit from this, to sell these services to State lotteries, for example, or to continue to expand this, are going to grow larger and larger and their reach greater and greater.

Unless we take action on this legislation in this Congress, it's going to be difficult to continue to pursue it. So no, this legislation is a very strong effort to stop the growth of gambling on the internet. It is not responsible for any expansion of gambling on the internet. It does recognize one existing form of gambling and permits that regulated by the States in a closed loop system where they can use the internet to share information to exist. But that is not the same thing at all as in any way expanding the internet, gambling internet.

REP. LARGENT: When we talk about a closed loop system though, when we say that parimutuel betting is legal over the internet, aren't we expanding that closed loop?

REP. GOODLATTE: No, because, well, obviously it depends upon the legal niceties of that issue, but those who have examined this closely, including myself believe that that is already legal and it is simply the one small thing that we have not made illegal by this act.

REP. LARGENT: Let me ask you another question, how many States are like the State of Oklahoma where we don't have anything beyond Class II gaming in the State of Oklahoma. We don't have a lottery. There's no casinos. We do have bingo that is legalized on -- our Native Americans have bingo parlors, but that's it. How many States are like that?

REP. GOODLATTE: I don't have a number for you. I would be happy to see if I can get that.

REP. LARGENT: Well, then let me ask you, in Oklahoma, you said all gambling is illegal unless regulated by the States.

REP. GOODLATTE: Right.

REP. LARGENT: So in the State of Oklahoma, there's nothing beyond Type II, Class II gambling, bingo, but yet over the internet you essentially can do everything in Oklahoma that you can do in Las Vegas, is that right?

REP. GOODLATTE: That's right, the sovereignty of the State of Oklahoma and its citizens is being impinged by the fact that the internet is a massive way around that.

REP. LARGENT: So would that be illegal in the State of Oklahoma because it's not regulated by State government. It is illegal, Class III gaming is illegal in Oklahoma and yet it's coming in through the internet.

Is that illegal?

REP. GOODLATTE: Some State Attorney Generals have attempted, Mr. Chairman, if I might while I'm thinking about this very point, I'd ask to be made a part of the record a letter from the National Association of Attorneys General and a statement by the Attorney General of the State of Wisconsin. They were not able to get a witness to the Committee in time for the hearing. If that could be made a part of the record.

REP. TAUZIN: Without objection, so ordered.

REP. GOODLATTE: In support of the legislation.

REP. TAUZIN: So ordered.

REP. GOODLATTE: To respond to the gentleman from Oklahoma, the Attorney Generals have experienced frustration in attempting to operate under existing State laws and the existing Wire Act in terms of enforcement and that's why they have sought this essentially modernization of federal laws and it's important, Mr. Chairman, for the Committee, I think, to be aware that this is not new for the Congress to step in and regulate in this area. In 1821, the Congress passed legislation prohibiting the use of U.S. mails for the sale of lottery tickets and so in the 1960s, we passed the Wire Act and now because the Wire Act deals with copper wires and we are communicating in a whole host of new ways, this legislation modernizes the federal government's prohibition against gambling and gives the States new tools in which to fight it if they do not want it in their State.

REP. LARGENT: I thank the gentleman for his work on this cutting edge issue. I yield back, Mr. Chairman.

REP. TAUZIN: Thank the gentleman. The gentleman recognizes the gentlelady from California, Ms. Eshoo.

REP. ESHOO: Thank you, Mr. Chairman. I'd like to explore the whole area of the closed loop because as I read through parts of the bill there is a heavy emphasis indeed somewhat of a promise of what the closed loop system will do and who it will protect. So first tell me what the purpose of the closed loop system is relative to the bill?

REP. GOODLATTE: Well, the purpose of the closed loop system is to recognize the fact that some States are using such a system now and for the purpose of allowing the State to regulate these industries that they have traditionally regulated, horse racing, dog racing and jai alai.

REP. ESHOO: How would it work, walk us through, I mean, I can't help but think of AOL as an example. It doesn't differ from that in terms of a disk? How would an adult or anyone else make use of this closed loop system?

REP. GOODLATTE: Well, I think they would become a subscriber to the system and --

REP. ESHOO: They would request of whom a subscription?

REP. GOODLATTE: They must subscribe with the State.

REP. ESHOO: With the State. So they request of the State, do they make application to the State for essentially a disk?

REP. GOODLATTE: They would have to have a way to access the closed loop, that's correct.

REP. ESHOO: Now how is the State going to verify age, eligibility, etcetera?

REP. GOODLATTE: Well, I would imagine that there are different ways it's done. I cannot speak for the one that are operating now, but there would be ways that you could do that and obviously you would do something like issue a PIN number or rely on some other access code to enable it.

REP. ESHOO: See, I think your intentions are very good because I think these provisions are placed in the bill to protect minors, but I think that there's a huge loophole in the closed loop system, most frankly. I mean are we going to send people to individuals' homes to verify or are you going to do fingerprints? Are you going to have drivers' licenses, I don't know how you're going to enforce this relative to verification and I agree with you about protecting minors relative to gambling. I hate gambling. I mean I'm not -- the closest I've ever come to it is to buy the scratchers for my mother. She likes the $2 tickets instead of the $1 tickets and if we ever win, she's the one that wins. I pay, she wins. There's a loss on the $2 scratcher. I'm the one that loses the $2. So it's quite a system.

I don't know, what I question is how this actually works. I applaud your efforts in what you're trying to. I think it falls short. I don't know how you can guarantee that people are going to with this closed loop system, how it's going to work, how you enforce it.

REP. GOODLATTE: To answer your first two questions the definition of the closed loop subscriber based service is on page 37 of the bill and it leaves to the State the means by which it conducts that verification.

REP. ESHOO: But where does the bill require the consumer to apply to a State for the disk to subscribe to the gambling operation?

REP. GOODLATTE: Again, it's subject to the regulations of the State.

REP. ESHOO: Do all States have regulations on this, all 50 States?

REP. GOODLATTE: I would imagine on the States that have this system in place.

REP. ESHOO: You imagine or you know?

REP. GOODLATTE: I'd be happy to get you the details, but I will just tell you the States that have this system now obviously have a system, some may be better than others, some may work differently than others.

REP. ESHOO: Could they apply to the race track for the disk?

REP. GOODLATTE: Again, it's up to the State government to determine how that works. As to the ones that are working now, I'd be happy to get you some information about that.

REP. ESHOO: But if it's already working in the States, then what are we doing here with this then? If, in fact, they have a closed loop system, they apply to the State, the States enforce. The States verify in the cases where they have the -- where this --

REP. GOODLATTE: Ms. Eshoo, we're here not because of this one section, but we're here because of the 95 percent of other gambling, the 700 cyber casinos, the sports betting, the effort to halt --

REP. ESHOO: But they're not legal in a closed loop system in the bill though.

REP. GOODLATTE: What's that?

REP. ESHOO: They're not legal in a closed loop system in the bill, right?

REP. GOODLATTE: They would not be legal at all if this bill were passed into law. But they are now and that's the problem.

REP. TAUZIN: The gentlelady's time has expired. REP. ESHOO: I would just conclude, Mr. Chairman, with a sentence. I don't think it's workable. I think the goal is a good one, but I think you can drive a Peter Bilt truck through this. We're talking about closed loop. I think the loophole is big enough for a truck to go through and I don't know how many kids in my District or any other place in the country could just get this disk and -- they're the smartest ones. Is it an unfunded mandate? I don't know. Thank you, Mr. Chairman.

REP. TAUZIN: Let me suggest that Mr. Goodlatte has a small problem with a foot injury. We're going to take a recess and give you a chance to get to the Floor and vote, Bob. And then if you don't mind coming back. Let's take a 15 minute recess. The Committee stands in recess.

(Recess)

REP. TAUZIN: The Subcommittee will please come back to order.

Let me ask our guests to take seats and I'd like to take a second to do something that I don't often get a chance to do. I want to welcome a visiting parliamentarian from the Netherlands, the Honorable Franz Vickers who is a Member of the Lower House of Parliament in the Netherlands, is visiting with us and Franz, why don't you stand and let us give you a hand and welcome. Thank you, sir.

(Applause.)

Franz is part of a program sponsored by the German Parliamentary Fund which invites parliamentarians from Europe and from America to interact and to learn from one another. Franz, we hope you enjoy your stay in Washington and anything we can do to accommodate you, we'd certainly love it. Thanks for being here.

The chair now recognizes the gentlelady from Wyoming, Ms. Cubin for a round of questions.

REP. CUBIN: Thank you, Mr. Chairman. Mr. Goodlatte, part of the written testimony that we have received and in some of the discussions today have indicated that maybe we don't need this legislation because there are federal laws already in place that take care of the issue and even in my opening statement I cited some prosecutions that have taken place under existing law like the Wire Act, the Travel Act, Crime Control Act, Racketeering Influenced in Corrupt Organizations Act, RICOA. I think there might be one or two others. But as we all know, internet in this day of technology you can get the internet over the air, wireless, and you can get the internet through cable television. And so would it be your opinion that those are areas where there is not current federal law to prevent gambling?

REP. GOODLATTE: That's correct, Ms. Cubin. The initial push for this legislation came from the Attorney Generals of the States who were experiencing frustration dealing with existing laws. The Wire Act was written in the 1960s, communications have changed very, very dramatically since that time and they felt that this legislation was needed as an update to those circumstances and that's why we have pushed forward. We're simply trying to deal with how we have attempted to regulate and frankly on the federal level make illegal gambling in a new era.

REP. CUBIN: And with technology changing, who knows what might come next. And so I think there is a place for this legislation.

Wyoming, we don't allow gambling for the most part and I would like to keep it that way, but will this bill do anything to prevent this from happening, to prevent gambling coming into the homes really? I mean how are we going to enforce it?

REP. GOODLATTE: There are a number of provisions. First of all there are criminal penalties, fines and penalties in the legislation for the violation of the law so that if someone in Wyoming or more likely because it is indeed the internet, if somewhere else in the United States or even more likely somewhere outside the United States violates the law, they become subject to this federal law. If they are then entering the United States and a great many of the owners of these offshore cyber casinos are actually U.S. citizens who presumably want to come and go from the United States, they can be apprehended and prosecuted.

In addition, the legislation provides for a notice and take down procedure where the Attorney General from the State of Wyoming or federal prosecutors can work with internet service providers to either take down the site or to work with them so that people in your State or wherever the action is taken from cannot get access to the violate of the law. Obviously, if they're outside the United States, we don't have the ability to completely prohibit them from doing business. If they want to offer gambling services to somebody in France or Brazil or wherever and they're outside the jurisdiction of the United States that's outside the purview of our laws, but if they're offering those services into the United States, the laws can reach them that way.

In addition, I would note that Congressman Leach, the Chairman of the Banking Committee has introduced legislation which he's going to hold hearings on shortly dealing with what I think is another critical component here and that is the only way you can gamble on line is to be able to extend your financial credit to that other location and eliminating the ability to use credit cards and other means of transferring funds would be a major part of this as well. As you know, many States right now make it an unenforceable debt to have a gambling obligation and so some of the credit card companies are already backing away from cooperating with some of these sites to say that you can use your credit card under any circumstances, but his bill would be designed to enhance that and that I think is also a major tool in making sure that people can operate from anywhere in the world and have a gambling site in your home in Cheyenne, Wyoming.

REP. CUBIN: Thank you, Mr. Chairman. I yield back the balance of my time.

REP. GOODLATTE: Mr. Chairman, if I might for just one second, one of the questions raised by Ms. Eshoo related to the procedures that will be followed by the States in terms of the verification of the closed loop system. And I have a statement from the Oregon Racing Commission, Steven Walters, who is, I believe, the Chairman and it goes into -- it's five pages long. It goes into very minute detail as to how the State of Oregon handles this very set of circumstances right now and I'd ask that that be made part of the record.

REP. TAUZIN: Without objection, that will be made part of the record, but with the gentleman's consent, I'd also like to make part of the record website documents for Capital OTB Racing 2000, it looks like, that contains information on off-track betting information requirements in New York which is quite different from Oregon. We ought to see both of those. Without objection, that will be made part of the record.

Gentleman from Texas, Mr. Green is recognized.

REP. GREEN: Thank you, Mr. Chairman, and I'll be brief because Bob, you've been here a long time already this morning.

I wasn't here for part of it where you talked about under certain circumstances in your opening testimony that you could have a closed loop, for example, someone in Texas who -- we have horse race gambling, we have off track, but you have to be at a local site in Texas, so I guess we get part of the revenue. Is it legal now for me in my home to have a closed loop with someone to bet on, whether it be horse races, dog races or casinos now or anywhere else in this country?

REP. GOODLATTE: That is regulated by the State, so if the State of Texas were to permit that under those circumstances, the answer would be yes. If they did not, the answer would be no. Different States obviously have different laws relating to this and that is the reason why we have the provision in the bill that makes recognition of the States' rights to have these kind of systems where you're dealing with a closed loop system which is defined in the bill and which requires verification of who it is that you're dealing with.

REP. GREEN: And that would be subject to the State's decision?

REP. GOODLATTE: Right, totally up to the State. Some States will have, as the Chairman just pointed out, State of New York has a different system than the State of Oregon has and do on.

MR. GREEN: Could a State under current law do that now?

REP. GOODLATTE: To my knowledge, yes, and that's why we don't feel we're doing anything that enhances gambling on the internet which is one of the attacks of some of our critics. We believe we are rolling back 95 percent of all gambling on the internet and we're leaving in place this State regulated area.

REP. GREEN: Did you say that a State could allow now interstate and not just intrastate?

REP. GOODLATTE: That's one of the things that we made clear in the law. You cannot do that unless the other State in which you're doing it agrees to that. In other words, if the State of Texas had a system and they wanted to extend that loop into Virginia and Virginia did not agree with that, did not make it lawful statutorily, they could not do that under this legislation. On the other hand, if they did, then they could.

REP. GREEN: Without this legislation that we're discussing here today, could the State of Texas allow for interstate gambling from Texas citizens to Louisiana, under current federal law?

REP. GOODLATTE: If it is totally lawful in both States.

REP. GREEN: If it's lawful in both States?

REP. GOODLATTE: Right.

REP. GREEN: Mr. Chairman, obviously, you would still want us Texans to drive over there to --

REP. TAUZIN: Not necessarily, it depends on who you are.

(Laughter.)

REP. GREEN: Don't worry, I've paid my dues to the local Parish Board or whatever it is for speeding on I-10. Thank you, Mr. Chairman, I yield back.

REP. TAUZIN: Will the gentleman yield for just a second? In the New York case the only thing required to bet on-line, the only information you need to post is your name and your e-mail address and they have forms where you can put an address. Theoretically, you can put any address you want and there's a form to say I'm 18 years of age but all that requires is a check on a document. What's to stop me if I'm living in South Carolina where they say they will not accept applications from South Carolina, just listing an address in Texas or Louisiana or not listing an address at all, just putting an e-mail address?

Do you follow what I'm saying? In other words, you're saying the bill says that only if the two States agree, but if the citizens of Texas which may not agree to gamble on-line in Louisiana, they decided they just don't want to allow that, but if they can get on-line and claim a Louisiana address or just put no address at all, an e-mail address, is it really enforceable?

REP. GOODLATTE: Well, I believe it is because I think there are a number of ways you verify where you're doing business from, but I would point out this that not being familiar with the details of the current New York system, this bill would actually enhance that. This would require greater steps to be taken in order for them to continue that system because it does require more verification than what you described under the current system in New York.

REP. TAUZIN: The gentleman's time has expired. The gentleman from Illinois, Mr. Shimkus is recognized.

REP. SHIMKUS: Thank you, Mr. Chairman, and just one quick question. Bob, is there any way to technologically to prohibit someone within the Continental United States from using a casino website in Barbados and prohibiting that access and that gambling venue?

REP. GOODLATTE: There are several things. We talked about the Enforcement Provisions Bill, but obviously there, they're directed at the proffer of the service there. In the jurisdiction of the United States of extradited to the United States they can be prosecuted under the law, but in terms of actual technologically being connected, yes. The provisions in this bill that relate to keeping people from doing business where they shouldn't be doing business, where they're prohibited from doing business are based upon the provisions in the Digital Millennium Copyright Act that the Congress passed a couple of years ago related to copyright violations where somebody has a website up somewhere and they're giving away free copyrighted material that's in violation of the law.

And that bill has and this bill has a provision called a Notice and Take Down Provision where in that case the owner of the copyright, in this case the law enforcement agency, the Attorney General of the State can notify the internet service providers through which access is gained to these different sites around the world, that this site is in violation of U.S. law and that the site can either be taken down or accessed to the U.S. be restricted.

Secondly, I mentioned just a few moments ago to Ms. Cubin that there is the possibility that the States and there is legislation in the Congress introduced by Congressman Leach, the Chairman of the Banking Committee to increase dramatically the difficulty with which you could use credit. It's not like going into a casino and you take cash out of your pocket and put it down on the table. If you've got to be able to transfer funds to this entity in order to gamble with it, measures can be taken. Not in this legislation, but hopefully in legislation to follow that would make that more difficult.

REP. SHIMKUS: And just a follow-up, suppose I have my internet access here with our server here at the Capitol and then I go an get on AOL and then I use AOL to get Microsoft and I go through -- and you can -- you go from internet provider to internet provider to internet provider to the gambling site. Who is held accountable?

REP. TAUZIN: Which Microsoft did you use?

(Laughter.)

REP. GOODLATTE: I'm not sure which one yet. REP. TAUZIN: That would become evident later on.

REP. GOODLATTE: The answer is the Court could issue an injunction under those circumstances requiring that those sites act accordingly and I would presume that if somebody is -- if a State is attempting to take action against a site, they're going to contact all of the leading internet service providers.

Could somebody find some way going through a lot of loopholes to do it? I'm sure that there's going to be a technological escalation of warfare on that issue. The average person is not.

REP. SHIMKUS: Actually, I would predict some conniving entrepreneurial gambler to make it very easy to not only go through internet providers here, but then to go offshore and then go back in.

REP. GOODLATTE: Even if the internet service provider, even if the server is outside of the United States, the backbone of the internet into the United States can be utilized to block these things.

REP. SHIMKUS: Thank you and I yield back.

REP. TAUZIN: Thank the gentleman. The gentleman from Tennessee, Mr. Gordon.

REP. GORDON: Thank you, Mr. Chairman. I think these questions demonstrate why we need to have this hearing and it's been an education for me. We've got more to go and I think we need to try to make room for this next panel. They've been waiting a long time, so I'm just going to quickly say that I wanted to learn more about this closed loop. I have a little bit here. I came in a little bit late. If Billy's scenario of what goes on in New York is a part of that closed loop, then clearly I would suggest to you, Bob, that you need to be looking for some type of addendum to this legislation that sets I don't think we can leave it to the States. There's got to be some kind of uniform security that goes with this closed loop or that it looks like there is no security.

REP. GOODLATTE: Except I would add that the legislation itself is stronger than what is provided for in New York. So it would actually, by passing this legislation, you would require States and I don't want to speak for New York, but if they have a lax system, they would be required. I'll read just briefly. What it requires is well beyond that. "A device or combination of devices expressly authorized and operated in accordance with the laws of the State exclusively for placing, receiving or otherwise making a bet or wage as subscribed in Subsection F(1)(b) by which a person located within any State must subscribe and be registered with the provider of the wagering service by name, address and appropriate billing information to be authorized to place, receive or otherwise make a bet or wager and must be physically located within that State in order to be authorized to do so and be an effective customer verification and age verification system expressly authorized and operating in accordance with the laws of the State in which it is located to insure that all applicable federal and State legal and regulatory requirements for lawful gambling are met and appropriate data security standards to prevent unauthorized access by any person who has not subscribed or who is a minor.

"

REP. GORDON: That certainly beefs it up.

REP. GOODLATTE: Yes.

REP. GORDON: Now is there an enforcement vehicle there or penalty that goes with that?

REP. GOODLATTE: Basically, the answer is either they meet the requirement or they do not qualify under the law for being allowed to offer a closed loop system.

REP. GORDON: Well, I think there needs to be a penalty for falsification or against the States for not abiding by it too. But that's certainly on the right track there.

REP. TAUZIN: Will the gentleman yield? I think the problem the gentleman points out is that if you leave it up to the States both to define what is really required under that standard, and secondly to enforce that standard, then it may not provide protections for the citizens of other States who have made different decisions. And the concern I think the gentleman makes in regard to that is that perhaps that needs to get some attention.

REP. GORDON: The fundamental problem with this is any kind of electronic transaction in terms of establishing venue, establishing age, establishing whether it's a PIN number, somebody can always steal it. It's a -- you're a part of the problems that this whole new era of electronic commerce has brought to us, but we have to be looking for, I think, whatever continuity we can provide as well as looking for technology.

REP. TAUZIN: Thank the gentleman. The gentleman's time has expired. Let me, before I thank you, Bob and we introduce the next panel we have a Member who has to catch a plane so I have to move along. I just want to ask you to comment on one criticism that the Justice Department has made of your bill, that it is not technologically neutral, that if, for example, the bill only applies to internet gambling and therefore sets up new restrictions, law or conditions upon gambling on the internet, but does not change and leaves in place current law on gambling over wire communications facilities, so that if I make a bet on a telephone, I'm covered by one kind of law. If I make a telephone call on the internet, under this bill I would be affected by a different set of laws. So that the Justice Department is saying, in effect, look, you're writing a bill that is designed for a particular technology when it may create inconsistent legal treatment, depending upon whether you use the phone or you use internet telephony to make the same bet. What's your answer?

REP. GOODLATTE: Mr. Chairman, that's exactly what the Wire Act was in the first place. It created a separate form of treatment for the telephone. This technology is different than the telephone. We've had this philosophical debate --

REP. TAUZIN: So you're saying it does treat them differently, you're admitting that?

REP. GOODLATTE: It does, it is a procedural difference. I think the end result is very similar, if not the same in terms of the substantive result. And I would point out, for example, that --

REP. TAUZIN: Let me, if I can, if you can do something on a phone that you can't do on the internet, isn't that a substantive difference and isn't somebody subject to a different, perhaps criminal violation, depending upon whether you use the phone or the internet and do you really want to do that, particularly when the internet is going to have voice communications on it more and more, internet telephony is upon us?

REP. GOODLATTE: Mr. Chairman, I'm not sure that I'm aware of any substantive difference. The Wire Act makes illegal these types of bets in interstate --

REP. TAUZIN: The Justice Department thinks so. We're going to have to --

REP. GOODLATTE: I'll just explain very briefly. The Justice Department has had a different approach. They want us to take the current section of the Wire Act and amend that and instead of creating a separate section, we feel that the technology is so different, the internet --

REP. TAUZIN: Can I bet on jai alai right now on the phone?

REP. GOODLATTE: I don't know about jai alai, but --

REP. TAUZIN: Can I bet on dogs on the phone?

REP. GOODLATTE: Horses, I believe you can and I would --

REP. TAUZIN: Horses, I can. Dogs and jai alai, I can't, but now under your bill I can bet on jai alai and dogs on the internet phone, but not on the regular phone. Is that right?

REP. GOODLATTE: Here's the thing. Those who are saying you can pick up the phone and place a bet on horses, you can, under State regulated closed loop systems, you can do it on the phone.

REP. TAUZIN: I understand that. Bob, I'm not arguing that. I think you're right. I think you can make a phone call and place a bet on a horse and you can make, under your bill, and the current law and many States, at least seven and perhaps with loopholes I'm looking at here, many States, you can make a bet on the internet on a horse. But can you pick up a phone and make a bet on a dog race or jai alai today? I think the answer is no. I think the answer is no.

REP. GOODLATTE: Very similar to what the bill says, if you're in the State and you're participating in a closed loop PIN number type system, yes, you can pick up the phone and do that right now an that's why we think that our bill is compatible with current law, consistent, it is not an expansion of gambling.

REP. TAUZIN: But your closed loop system for jai alai betting on the internet is interstate, it need not be intrastate. If I read it right, let me try to summarize because I got to go to the next panel.

REP. GOODLATTE: I understand. If I read it right, you're saying that with a closed loop system people can use the internet to bet interstate, interstate, on jai alai and dogs -- only if the other State participates in the --

REP. TAUZIN: I understand, I understand, but you can under certain circumstances bet interstate on the internet on jai alai and dogs in your bill, but current law does not allow you under the Wire Communications Act to bet on dogs and jai alai interstate on the phone and the Justice Department is questioning whether or not that creates a real problem when I pick up the telephone on the internet, telephone telephony, and I can do something which is prohibited on a telephone. Is that a real criticism or not?

REP. GOODLATTE: No, it is not. Because right now on the telephone interstate bets of the nature we described are taking place.

REP. TAUZIN: On dogs and jai alai?

REP. GOODLATTE: Dogs, horses, jai alai.

REP. TAUZIN: I think there's some dispute about that. We'll find out. Let me thank the gentleman. I have to move on.

Bob, thanks so much, you've given us an awful lot of your time and I deeply appreciate it and I hope your foot gets better, by the way.

REP. GOODLATTE: Thank you.

REP. TAUZIN: You need to get a faster horse. I got here faster than you did it with that motorized unit. Thank you for coming.

We'll introduce the next panel and let me make with the consent of the Committee a request that we take one of the witnesses out of order who has a problem with time, Mr. Gregory Ziemak, Executive Director of the Kansas Lottery.

So we'll start with you, Mr. Ziemak, but let me bring the second panel up and it will include Mr. Kevin DiGregory, Deputy Assistant Attorney General, Criminal Division, Department of Justice; Ms. Lisa Dean of the Free Congress Foundation; Mr. Michael Bowman of the Family Research Council; Ms. Anne Paulsen of the Virginia Thoroughbred Association; Daniel Nestel, of the National Collegiate Athletic Association; the Reverend Louis Sheldon of the Traditional Values Coalition; Gregory Ziemak, I've just mentioned of the Kansas Lottery; Gerard Waldron of Covington & Burling on behalf of the National Football League. And Mr. Richard Williams, Chairman of Lac Vieux Desert Band, Lake Superior Chippewa Indian Tribe and bon francais, welcome.

We want to welcome you all and we'll start, as I said with the permission of all the other witnesses with Mr. Ziemak of the Kansas Lottery in Topeka, Kansas. Mr. Ziemak, your written testimony, all of you, is already made a part of the record. Please don't read your testimony to us today. As we're going through this, think about the highlights. If you would leave us with -- highlights, not jai alai -- if you would leave us with the five or ten salient points you want us to remember try to hit those for us in summary so we can get it all done and get to Q & A.

Mr. Ziemak is recognized.

MR. ZIEMAK: Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is Greg Ziemak and I'm the President of NASSPL, North American Association of State and Provincial Lotteries. NASSPL is a nonprofit, professional organization to which every sanctioned U.S. lottery and Canadian lottery belong in addition to Puerto Rico, the Virgin Islands and Jamaica. I'm also the Executive Director of the Kansas Lottery.

I've been professionally involved in the U.S. Lottery industry for over 25 years and I appreciate the opportunity to testify for you this afternoon regarding your work on H.R. 3125, the Internet Gaming Prohibition Act.

For as long as the Congress has been in existent, never has it attempted to regulate the method in which States govern gaming within their borders. NASPL and their members oppose passage of H.R. 3125 on the grounds that it violates the right of the nation's Governors and State Legislators to authorize gaming within their borders. We urge you to reject this language unless there are provisions admitted back into the bill that would protect a State government's right to govern its own lottery.

In its current form, H.R. 3125 would allow for limited benefit gaming. Those forms of gaming whose profits benefit only a limited group of individuals, horse racing, greyhound racing and jai alai to be played either from a public or private venue. Under this legislation limited benefit gaming operators would be required to operate their on-line system using what is known as a closed loop subscriber based service which we've just been discussing already. It would verify the eligibility of the individual placing the wager to engage in such activity. For public benefit gaming and I would define that as State lotteries, whose profits benefit programs such as primary and secondary education, programs for the elderly, the environment and property tax relief, the situation would be quite different. Under the provisions of the current bill, State Governors and legislatures would only be allowed to authorize internet State lottery games that could be played from a public venue using a private network. In reality, providing federal regulations of State obligations.

In its original form, H.R. 3125 offered language that would, at a minimum, protect the State's right to offer internet games on a level playing field with private benefit gaming through use of the same type of closed loop subscriber base service. As you know, this language was removed in the Judiciary Committee after strong protests from anti-lottery groups. The opponents of State lotteries said that it would be dangerous to children to allow State lottery games to be played on the internet because technical security would not be sufficient to protect minors.

In addition, opponents of State lotteries stated that internet lottery games would be an expansion of gaming.

I would be doing a disservice to the millions of Americans who benefit from lottery funded programs if I did not discuss the truth on these issues. First of all, it's interesting to point out that the closed loop subscriber base service that would be used by State lotteries is the same type of system that would be used for limited benefit gaming interests. So if the technology isn't secure enough for State lotteries, why is it secure for select benefit gaming interests where the wagers and payoffs are much greater? It is a fact that security standards for State lottery games have been proven to be some of the most stringent in the world and it is in our best interest to keep it that way if we are to maintain the level of public trust we have gained from our players and taxpayers of our lottery jurisdictions.

Secondly, I'd like to point out that under current law, you can purchase lottery tickets over the telephone and in fact, in some States retailers are developing systems that will allow residents to purchase lottery tickets when they buy their groceries on-line. It is my understanding that that has not been implemented yet, but there are some retailers, large grocery chains out in the West that are looking at that.

It is assumed that by allowing Governors and State Legislators the right to continue control the way their State lotteries operate means that all State lotteries will begin to offer it in their products and this is simply not true. In fact, there are several members of our organization and as I mentioned our organization includes all sanctioned lotteries in the United States and 38 lotteries, 37 States plus the District of Columbia, there are some members in our organization that feel very strongly about this and would oppose any attempt by their State legislature to authorize such games. But there are States who feel that there may come a time when their governments feel it is appropriate to offer these games. I make this point, Mr. Chairman, to overstate that even though that the members of NASSPL may not all agree on the value of internet lottery games and I can assure you there is some disagreement within our group, we are united, however, in the belief that the federal government has no place in determining the way in which State lotteries operate or the games they offer.

Mr. Chairman, I would again urge the Committee to amend H.R. 3125 to include the strongest language possible to protect a State's right to control gaming within its borders.

Before concluding, there's a second issue that while not as fundamental as the State's rights amendment, argument, it still is worth mentioning. Because the language of H.R. 3125 would mandate that public benefit gaming would be limited to public arenas only, State lotteries would be put at a competitive disadvantage to other participants in the industry.

There's a little scenario I'd like to give the Committee. It's Saturday afternoon and it's raining. You have a choice, put on your coat and walk or drive through the rain to a local convenience store and purchase a lottery ticket or remain in the comfort of your own home and wager a larger sum of money on a horse or greyhound race or jai alai from your personal computer. The potential revenue loss to State lotteries and the programs they fund could potentially be staggering.

Mr. Chairman, I've attached to my statement a detailed state-by- state list of where lottery profits are used in each state. And I ask you to allow this information to be entered into the record.

Thank you very much, and I'd be happy to answer any questions you may have.

REP. TAUZIN: Thank you, Mr. Ziemak. We're going to proceed through the whole panel. If you have to leave, we understand.

MR. ZIEMAK: I can stay for a little while longer.

REP. TAUZIN: Thank you, sir.

We'll start with Mr. Kevin DiGregory, Deputy Assistant Attorney General of the Criminal Division, Department of Justice.

Mr. DiGregory, again, we thank you for your attendance, and would you summarize your statement for us.

MR. DiGREGORY: Thank you, Mr. Chairman. It's indeed a pleasure to be before your committee. And, Mr. Chairman, and members of the committee, it's been discussed already, and I'll just make the point very briefly, that, of course, proliferation of internet gambling opportunities is well documented.

And the proliferation of these opportunities concerns the Department of Justice, most particularly those in the Department of Justice who are concerned with enforcing current federal law -- that is, the Criminal Division in the Department -- and United States Attorneys around the country.

And we're troubled for three reasons. We're troubled because of the potential for fraud by internet gambling operators. The potential is far greater than it is for traditional gambling, because the internet, of course, is instantaneous and anonymous, which means that we would have difficulty as prosecutors, as enforcers of the law, as would the investigators, in tracking those perhaps responsible for perpetrating fraud through internet gambling.

Secondly, we're concerned about opportunity and availability. Anyone who has access to the internet can at any place and at any time this includes, of course, compulsive gamblers -- place a bet and perhaps wreak financial devastation upon themselves and their family.

Thirdly, we're concerned about anonymity and availability, and we're concerned that anonymity and availability may equal an inability to ensure that minors will not gamble. We do not think that there currently exists a technological way to grant any of us any such assurances.

But we welcome any industry representatives to come in and sit down and talk with us at the Department, most specifically with those folks at the Computer Crime and Intellectual Property Section, and tell us how it is they can technologically assure us that minors will not have access to internet gambling.

Despite these problems, Mr. Chairman, and members of the committee, we have made enforcement in-roads. Some reference was made to those in-roads earlier this morning. I will specifically note that in the Southern District of New York, an off-shore sports betting operation run by a fellow by the name of Jay Cohen, which used both the telephone and the internet, was prosecuted recently. And Mr. Cohen was found guilty after a trial of violating current federal law, 18 United States Code 1084.

18 United States Code 1084, which I have a copy -- I've got a copy with me today, prohibits the interstate transmission of bets or wagers over a wire communication facility. It also prohibits the transmission of information assisting bets or wagers interstate over wire communications facilities, with the single exemption of allowing such transmission of information assisting bets or wagers between two states where such betting or wagering is legal. It prohibits gambling businesses from transmitting that information, Mr. Chairman.

Now, to talk about H.R. 3125, first and foremost, we believe, at the Department of Justice, that H.R. 3125 does indeed expand gambling opportunities. Parimutuel wagering is exempted. It allows not only the horse racing industry, but dog tracks and jai alai frontons to do over the internet what federal law prohibits them from doing on the phone.

Not only is H.R. 3125 inconsistent with current federal law, its inconsistency exposes another what we believe to be a significant weakness. It is not technologically neutral. It would apply specific and different rules to the internet. We would encourage members of this body, members of the Congress, to legislate based on conduct and not on the medium used to perpetrate that conduct.

In considering whether the operation of interstate gambling businesses should be prohibited, we recommend amending existing law, most specifically 18 United States Code 1084 -- and I mentioned what 1084 prohibits; I'll briefly state it again.

Currently, 1084 prohibits the transmission of bets or wagers on sporting events or contests over wire communications facilities interstate. It also prohibits the transmission of information assisting in the placing of bets or wagers on sporting events or contests interstate over wire communications facilities.

We urge you to consider a proposal that we have made, and I will highlight what that proposal would do. It would clarify that 18 United States Code 1084 applies to all betting and not just betting on sporting events or contests. Our proposal would update 18 United States Code 1084, so that it applies to the use of any, not just wire, communications facilities.

Our proposal would also ensure that existing protection from liability, given common carriers who deny services to gambling businesses upon notice by law enforcement, it ensures that that protection would be provided to any person, including internet service providers who are required by that notice to terminate a customer's service.

Our proposed amendment, Mr. Chairman, and members of the committee, would not prohibit any gambling currently permitted, nor would our proposal permit anything that is currently prohibited.

I believe that our draft proposal has been attached to my written statement. I thank you for allowing my written statement to be added to the record, and later on I'll try to answer any questions that you may have.

REP. TAUZIN: Very good. Thank you very much, sir.

Ms. Lisa Dean, the Vice President of the Free Congress Foundation here in Washington, D.C., is recognized for your statement.

MS. DEAN: Thank you very much, Mr. Chairman, and thank you for hearing my testimony today.

The Free Congress Foundation is a nonprofit conservative Washington-based think tank, and we do not in any way endorse gambling or encourage gambling in any way. However, we have problems with H.R. 3125.

One of the problems is, of course, mentioned -- it was mentioned earlier -- states' rights. And we believe that H.R. 3125 takes the power away from the states to regulate their own lotteries as a usurpation by the Federal Government to usurp one of the most fundamental rights of states -- the right to self-governance.

Also, this legislation is inconsistent. It says that internet gambling should be prohibited, except in cases where gambling takes place on horse racing, dog racing, and similar activity.

Thirdly, and perhaps most importantly, is the issue of government regulation, and that's where our strongest opposition lies. It's been discussed earlier, the issue of enforcement -- how will this bill be enforced if passed into law? Will the Federal Government propose to enforce nearly unenforceable legislation, which is what H.R. 3125 is, but begin to monitor everyone's e-mail?

Will it create a list of Federal Government-banned sites that internet service providers must block? Will it stage dead-of-night raids to seize the hard drives of unsuspecting individuals? Frankly, we hope not. But it's difficult to see how tactics like these, using short of tactics like these, if this legislation could be enforced and effective in shutting down an industry that is legal in countries all over the world.

Also, by suggesting who can and cannot place bets online, it divides the internet up by geography, which is exactly what those who would tax the internet need. As such, we believe it is not inconceivable that passage of this legislation could be the first nail in the coffin of a tax-free internet.

But taxation is only one potential problem. When we use the term "gambling," we're referring to casinos, horse racing lotteries, and other games of chance. The definition is rather narrow, but for those seeking the opportunity to regulate the internet, they would likely use this legislation to expand the definition of gambling to include perhaps online auctions or even day trading. And from there, it's not much of a stretch to include other industries as well, which Washington may not like.

I realize that this is not the intent of the sponsors of H.R. 3125, but, rather, the intent of those who seek to control an industry that is young and inexperienced in a world of Washington politics. Nevertheless, it is a stark reality, and this legislation would give the green light to those who wish to regulate this new medium and marketplace.

And, for those reasons, the Free Congress Foundation opposes H.R. 3125, and I thank you for allowing me to speak today.

REP. TAUZIN: Thank you, Ms. Dean.

Next we'll hear from Mr. Michael Bowman of the Family Research Council here in D.C.

Mr. Bowman?

MR. BOWMAN: Am I on?

REP. TAUZIN: Try it again. Pass the other mike, perhaps, to him. Thank you so much.

MR. BOWMAN: Am I online now? Okay.

I'm Michael Bowman, the Vice President of Family Research Council.

You know, this has been a tough bill for us, but let me say it -- we sympathize with you working for this, and there are some strange alliances here today, on both sides.

REP. TAUZIN: That's the understatement of the day.

(Laughter.)

MR. BOWMAN: Let me just say that we, like you, think the internet is an amazing technology for a lot of good. But we also know that there's a lot of amazing things that are not so good, such as child obscenity, slave trade, drug trafficking, things that clearly undermine state and federal sovereignty.

We are talking about an international technology that is crashing on the boundaries of our laws, and the question I think before the committee is, as we have addressed, we do not think that international laws or international lack of laws should be the dumbest law creates the law of the land.

And so we are strongly in support of the bill, knowing that it is slightly what we would call flawed. We would like to see some of the we don't support any form of gambling, but when you look at the prolificness of the gambling today that's going on, we believe that this bill takes the heart out of an industry that is just about ready to flourish.

We have seen such quotes from The Las Vegas Sun that the casino industry will launch next year on the internet. Right now, they're not online. How are we to come next year before this committee with the full force of the casino industry, the parimutuel industry, the lotteries, who, in states like Ohio, are planning to go online?

Let me also make clear that the lottery is not just tickets. There is nothing -- they are talking about, in South Dakota, blackjack and video poker. They are talking about all games of chance. To me, that's nationalism, and all we're going to do is have the states run a business. And if we're going to do that, we might as well do cigarette companies, HMOs, gun manufacturers, because those are also controversial issues.

So when we look at this, we need a place to start, and we see this as an incremental purist approach with some not so -- with understanding some existing realities that are already happening.

I have submitted a more lengthy testimony, but I think that kind of gets the heart of the issue. Let me just say this. This would prohibit and give the way for the Attorney Generals -- and we have not been satisfied with the Department of U.S. Justice in its prosecution of gambling sites. One site out of 750? That, to us, is not a glowing record. We can give you sites; just do a Yahoo search and find out how many sites you can put up with a $2 bet.

So H.R. 3125 gives a takedown measure for the state Attorney Generals to be able to enforce the law, if the administration at the Presidential level does not. This bill also prohibits all lotteries from being online.

Let me just say, Family Research Council does believe there are worse forms of gambling, and lotteries, in our judgment, as in the judgment of the Gambling Commission, with electronic types convenience gambling, is far the worse. It's accessible at the home. Forcing someone to go to a destination -- a casino -- not that we would support that, is far different than going into your bedroom and having the availability to go online.

Finally, this bill also prohibits sports betting, which is clearly the largest type of betting that's going online. We're talking about NCAA fixing in colleges. FRC, with the NCAA, has worked aggressively this year with the NCAA bill as well. We are not talking out of both sides of our mouth. We are trying to prohibit gambling through-in and throughout.

And finally, again, the Attorney Generals at the state level will now be able to have a mechanism to enforce the law if the Federal Government will not.

Thank you.

REP. TAUZIN: Thank you, Mr. Bowman.

We'll next hear from Ms. Anne Paulson, President of the Virginia Thoroughbred Association, in Warrenton, Virginia.

Ms. Paulson?

MS. PAULSON: Thank you. I appreciate this opportunity to present the views of the horse industry on H.R. 3125. I am testifying today in my capacity as President of the Virginia Thoroughbred Association. In addition to my oral testimony here today, I would like to include the more detailed written testimony submitted to the committee yesterday for the record.

We strongly support the legislation, which would prohibit gambling on the internet or through an interactive computer service. Without this legislation, our industry is threatened by a proliferation of unregulated offshore gambling activities conducted on the internet.

There are provisions in the bill that grandfather activities now being offered by legitimate, licensed, and regulated American gaming operators, including parimutuel horse racing and dog racing. With regard to horse racing, the bill permits interstate simulcast wagering and account wagering on live parimutuel horse racing on a closed-loop system already discussed under strict requirements, including the Interstate Horse Racing Act of 1978.

The racing provisions ensure that the legislation does not have the unintended effect of prohibiting pari-mutuel activities that have been conducted for many years by allowing state-licensed racing facilities to continue to operate on an interstate basis pursuant to the restrictions and limitations set out in the bill.

Importantly, the bill does not expand parimutuel wagering on horse racing, but, instead, preserves the existing rights of individual states to determine what types of wagering occur within their borders. Nothing in this bill legalizes any wagering that is illegal today. Horse racing is a sport that can be legally wagered on in the U.S.

Parimutuel racing is the only wagering activity for which a federal law, the Interstate Horse Racing Act of 1978, was passed to ensure its interstate activities were encouraged and regulated, and, further, which requires industry and state regulatory approvals.

This protects the states, the industry, and the public, and ensures that all revenue involved in these activities is shared with each, as required by state law or contractual obligations. The racing industry has been offering interstate simulcast wagering since 1968, and interstate merging of wagering pools -- that is, combined money wagered at each location into one pool -- for a decade under the Interstate Horse Racing Act state licensing and regulation.

Indeed, interstate simulcast wagering and commingling pools is now commonplace and represents over 80 percent of the amount wagered on horse racing in the U.S. Racing has a long record of interstate account wagering, which has been offered and successfully regulated in Connecticut, Kentucky, and Pennsylvania, for nearly 20 years, and in New York through a state-owned off-track betting system for nearly 30 years.

The Internet Gambling Prohibition Act respects state laws in this area and does not override any state requirements or prohibitions.

Without the current racing provisions, this legislation would prohibit what racing has been doing legally on an interstate basis for many years. The result would be catastrophic for the $34 billion racing and breeding industry, the 40 plus states that rely on it for significant tax revenue, and the 500,000 full-time jobs it supports.

In my home state of Virginia, for example, the horse industry supports 25,000 full-time jobs and has an annual economic impact of $1 billion on the state's economy, making it the fifth largest agribusiness in the state.

While the legal and commercial issues being debated with respect to this bill are of great importance to Congress, state legislators, and law enforcement officials, the racing and breeding industry I am a part of has an additional perspective. People in my home state have been breeding horses to race for more than 300 years.

There are hundreds of farms in Virginia today, ranging from multi-million dollar showplaces to the more numerous mom and pop operations, where folks go out at the crack of dawn each day to care for their horses and prepare for them their careers in the racing world.

To them, to me, this is a sport, a business, and a way of life. Horse racing is built upon a foundation that includes those farmers and their employees and many thousands of owners, trainers, jockeys, track employers, and, yes, customers, who come to the track or use off-track facilities to legally bet on their favorite sport, thus providing the revenue stream to support this great infrastructure.

As you heard me state earlier, racing has been able to utilize the advances in telecommunications to facilitate customer transactions in what is a highly competitive entertainment and gaming marketplace. Ultimately, the industry's purpose in taking these steps has been to protect and enhance its product, that of live horse racing, which in turn supports the economic framework for those thousands of people whose livelihood and way of life are centered around the horse.

What House bill 3125 does is to let our industry continue to do what it does best, blending agriculture and entertainment for millions of industry participants and racing fans, and perpetuating a tradition that is deeply-rooted in my home state, and in most of the states which you represent.

Let me close by saying that the racing provisions in the bill are carefully crafted to ensure that what racing has been offering for decades with respect to interstate simulcast wagering, merging pools, and account wagering, is maintained. It is not an expansion of those activities.

Rather, it is a Congressional recognition that, with respect to those activities, that a state approves and regulates, particularly in the area of gambling that has traditionally been licensed and regulated by states. The Federal Government should continue to not interfere.

We urge the members of this committee to support the bill as reported by the House Judiciary Committee.

Thank you so much for your time.

REP. TAUZIN: Thank you, Ms. Paulson.

Next will be Mr. Daniel Nestel, representing the NCAA here in Washington, D.C.

Mr. Nestel?

MR. NESTEL: Thank you for the opportunity to testify on behalf of the National Collegiate Athletic Association in support of H.R. 3125. My primary role here today is to introduce videotape testimony from a college student who got heavily involved in sports gambling on the internet.

However, before I do, I would like to briefly discuss why the NCAA is so concerned about this activity. Believe me, Mr. Chairman, I received your marching orders, and I assure you these are the highlights.

The NCAA has long opposed sports gambling because it is potential to jeopardize the integrity of intercollegiate athletics contests and to threaten the welfare of student athletes. Despite federal and state laws that prohibit sports gambling in nearly every state, this activity remains a growing problem on college campuses.

In recent years, NCAA institutions have suffered damaging point- shaving scandals, have witnessed the spread of bookies on college campuses, and have taken notice of a growing consensus of research that reveals rates of pathological and problem gambling among college students that are three times higher than the adult population. Clearly, sports gambling is not a victimless crime.

And now along comes the internet and internet gambling. It should not be surprising that internet gambling presents a multitude of new potential dangers for young people. College students are perhaps the best wired group in America. They can surf the web in their school library, in a computer lab, or in the privacy of their dorm room.

Now, with the emergence of internet gambling, students can wager behind closed doors in virtual anonymity. This new industry not only increases the ease for participating in illegal game-fixing schemes, but it also was highly attractive to college students. In a moment, you will hear a videotaped account of a college student who, in just a few months, lost $10,000 gambling on sports over the internet.

Unfortunately, his story is not unique. It is representative of the types of problems that are occurring with more frequency on college campuses.

This student contacted the NCAA after watching an ESPN segment on internet gambling. After months of discussion, the student agreed to tell his story at a number of NCAA seminars held through athletic administrators. This videotape was filmed at one of these sessions. The student has asked the subcommittee to keep his identity unknown. After all, he is graduating soon and is looking towards a bright future.

Before we roll the tape, I have one final message to deliver. Internet gambling is growing at a rapid pace. Agreements have already been made with equipment manufacturers to bring internet gambling to wireless, handheld devices. Imagine students placing internet bets on their cell phones.

Nevada officials are already warning that if federal legislation fails, U.S. casinos will likely enter the marketplace. You can bet that internet gambling will really take off if casinos like Harrah's were to establish its recognized brand name in cyber space.

The House sponsors of H.R. 3125 have worked several years on trying to craft a bill that addresses the areas of concern and that has the best chance of passage.

The NCAA urges Congress not to let this opportunity slip away. If legislation is not enacted by the end of this legislative session, it is likely that Congress will not be able to check the explosive growth of internet gambling in the future.

With that, I would like to roll the videotape.

REP. TAUZIN: Let's roll the video. See if we can get some lights, too. Thank you. All right.

By the way, have you been watching University of Lafayette, Omaha, and LSU? Isn't that amazing? Awesome. Awesome.

(Whereupon, the videotape was started.) Let me suggest you put a mike or something by it, because we can't really hear him right now. Pause it for a second. Let's stop it for a second, pause it, back it up. Let's get a mike on those speakers, so that -- if you don't mind. I want everybody to hear it. Otherwise, it won't work.

(Whereupon, the videotape was restarted and shown.)

The Chair will ask that the demonstration -- let me ask that the demonstration be halted. I'm hearing from members that they can't understand it. Will you hold it? We can't understand it. If we're going to do a demonstration, we just -- my apologies to the presenter.

We can't hear it. We can't understand it.

And let me ask for a written -- if you would submit a written transcript of the gentleman's testimony at this event.

And let me apologize for the sound in this room, but we're wasting, I think, valuable time when we can't understand the young man on that mike. I will do my best, whenever I have that capacity, to make sure this room is high-teched, by the time we do more demonstrations.

Mr. Nestel, if you will kindly submit to us a transcript of his testimony. Basically, I think I understood he started betting, he lost -- he won the first time, he got to betting more and more, his personality changed, messed up his life real bad, and he lost 10 grand. Is that about it?

(Laughter.)

Thanks very much, sir.

The next witness will be the Reverend Louis Sheldon of the Traditional Values Coalition here in Washington, D.C.

Reverend Sheldon?

MR. SHELDON: Thank you, Mr. Chairman, and thank you for holding this hearing today and giving us the opportunity to testify and express our viewpoints. On behalf of our 43,000 member churches that comprise the Traditional Values Coalition, I want to make as clear as possible our strong opposition to H.R. 3125, as the bill has been reported out of the Judiciary Committee.

Mr. Chairman, I would like to speak candidly to you and the members of the committee, because I'm very passionate about this issue. I know the members of the committee have worked very hard to present this bill, but there is an angle here that we must seriously consider, and that is this angle of these exemptions.

And some of the statements that have been given to us -- 95 percent of gambling is included -- I call that into question, and I'd like to have those statistics really substantiated in front of us.

And, furthermore, I think it's important to realize that in the home, that once you invade the home, once you have the right and I give you the key to my house, and I give you a lease to come into my house, children, parents, friends, anybody, people are then going to become very vulnerable.

They're going to find that something is happening that they cannot control, as the Congressman from Texas, Mr. Green, mentioned about his own home this morning, and as the Congresslady from California stated very clearly these things.

Protecting children from addictive gambling is very important. It is our moral responsibility. Gambling tempts people for the quick fix, for the quick wealth. And yet the holy scriptures teach us that the only wealth that's going to last is that wealth that has come by the sweat of the brow. That may be ingenious, it may be intellectual, it may be labor work.

But that is the only wealth that is going to have endurance and is going to have benefit for the full community. Gambling too often leads people to become dominated with other kinds of characteristics in their life that are not necessarily acceptable or appropriate.

It causes them to abandon their commitment to family and to the community and even to God, and that's why I cannot stand and understand, really, how my dear friends are particularly supporting this bill. And I'm on the phone to Pat. I'm on the phone to Jerry. I want to find out if they know, are these exceptions in this bill? And already I've spoken to their senior staff in both of those offices, and they're saying they don't know. So we're going to find out exactly what's happening at this level.

Mr. Chairman, it is true that a wolf sometimes comes dressed in sheep's clothing. But this is a wolf itself.

(Laughter.)

Everyone knows that certain gambling interests have gutted the bill. They know it. Let's face it. The horse racing, dog racing, jai alai lobbies obtained the exemptions, and that's their right. I support free enterprise. I like horses. I like dogs. I don't race with them.

(Laughter.)

We know that these loopholes will increase gambling. We know that. It was stated by, I think, Mr. Markey very well. He said earlier to Mr. Goodlatte, "Hey, you have given the exemptions to the people that have been the most crafty in getting around the law." So, therefore, now you've given out -- you've carved these out. Everyone knows that this is going to happen.

I think it's very important. The Justice Department has said very clearly, in the case with Mr. Cohen, they have the ability to prosecute, but they haven't prosecuted enough. Fine. That's another case. The Congress maybe should be a resolution to Janet, to Mrs. Reno. They should do a resolution encouraging her.

You know, she comes before the committees for budget and for money. Hey, put the screws on it there. Get it done.

(Laughter.)

We, at TVC, are not ignorant of the give and take that is required to pass legislation. We know that perfect cannot become the enemy of the good. And we do not want it to become the enemy of the good.

With all due respect, Mr. Chairman, what criteria has been used for this decision to carve out these exemptions? Is it the size of the wealth of the lobbies fighting the ban? Or is it the risk of the harm posed by the conduct?

We see how the gambling interests have used their influence to gut this well-intentioned bill. And I would like to submit for the record two very simple things -- The Washington Post, "On Gambling Bill: Web Industry Favors." The other article is by The Wall Street Journal, called "Click, Place, or Show: Playing the Ponies in your Underwear."

(Laughter.)

The story makes it clear the horse racing lobby is excited at the prospect of bringing betting into the home. I want to read you a brief passage from The Wall Street Journal. "Still, things are looking up lately for online racing fans. A bill working its way through Congress would ban most forms of internet gambling, but excludes an exemption for horse racing."

It continues, "For track operators and horse trainers, it's critical to keep betters playing with officially-sanctioned companies, because these concerns share revenue with tracks, supporting big money purses for the horses."

I would ask the members of the committee: is that what this is all about? Big money purses? Greed? Do you want to use your vote here in Congress to create officially-sanctioned companies that can bring gaming into our homes? Certainly, this can't be the case.

Now, I do not want to question the motives of my good friend, Mr. Goodlatte, or intentions of the sponsors of the bill. I know they are trying to do the right thing. I know the members of the committee and the Congress want to do the right thing.

But here's the problem. We are taking what is illegal -- there are five laws now on the books that say that this kind of gambling is illegal -- five laws -- and we are now taking what is illegal and we are making it legal, with these exceptions.

Mr. Chairman, I hope this bill will have a markup next week. I hope you will plead with Mr. Bliley about that. And I hope this bill will not go to the floor unless these exemptions are removed.

Thank you.

REP. TAUZIN: Thank you very much, Reverend.

And next we'll hear from the NFL, represented by Mr. Gerard Waldron, a partner of Covington & Burling, here in Washington, D.C.

Mr. Waldron?

MR. WALDRON: Thank you, Mr. Chairman, and members of the subcommittee.

My name is Gerry Waldron. I represent the National Football League. And let me start off by saying that I think the exaggerations have overwhelmed and swept over the core principle underlying this bill.

The problem that the NFL sees, along with the NCAA and the other sports leagues, is that essentially technology is being used to repeal the fundamental laws against sports gambling in our country. That those laws have been on the books for many years, they were recently updated in 1992 in the form of PASVA, and that the internet is essentially repealing with technology those fundamental laws against sports gambling.

The nature of the legislative process, and the nature of hearings and I certainly appreciate that -- is to focus on maybe the 10 percent of the bill that people have issues with. Well, what I'm here to tell you is the 90 percent of the bill that goes after the issue of sports gambling is a comprehensive and complete solution to the problem of sports gambling on the internet.

It is an issue of sports gambling on the internet, which, frankly, is the dominant part of internet gambling. And let's be clear about that. The statistics that Reverend Sheldon alluded to came from the Nevada Gambling Commission.

I testified before the Nevada Gambling Commission, along with the Attorney General from Wisconsin, two months ago. And it was that body that came forward, and that is certainly consistent with it. So the lion's share of gambling on the internet is on sports. And, frankly, the lion's share of sports gambling is on professional football.

So that is why the NFL, frankly, is so concerned about this issue, and why we think that any bill that gives significant enforcement mechanisms to the Justice Department is a step forward.

I want to underscore what we heard from the Justice Department today. What we heard is that they agree that the current law is not adequate. Mr. Gregory referred to the prosecution of Jay Cohen in New York. The fact is that Jay Cohen used telephone wires, just like people have been using telephone wires for years.

And Mr. DiGregory also said that the Justice Department supports changes to current law because the mechanism doesn't work. Imagine you have a betting parlor at 101 Main Street. Law enforcement discovers that there is a betting parlor there. What do they do? They call up Bell Atlantic, and they say, "Cut the wire to 101 Main Street." The betting parlor is out of business. That has been on the books since 1961. It works very well.

Take it in 2000. What happens when they discover that a web site is operating a gambling operation? They call Bell Atlantic and they say, "Cut the wire to AOL"? No, that would annoy 22 million people, and that would be a stupid thing to do. There is no enforcement.

Prosecution, frankly, is not a very effective step in dealing with this issue. There are 700 web sites. The Justice Department has prosecuted one. We don't expect them -- they have important crimes to chase after. It takes a lot of resources. We do not expect them to spend all their prosecutorial time prosecuting gamblers.

What we do want, however, is an effective enforcement mechanism such as is currently now with Section 1084. And that's what Mr. DiGregory underscored, that we need an update of the law in order to give law enforcement those kinds of tools. And that's what is contained in Section 3125.

Let me also address a point that Mr. Markey and Mr. Shimkus both raised about the sort of schizophrenia. And I was a son of St. Joseph's, and I also had -- our bingo night was Saturday night. And, certainly, the clean and pure way, the perfect way if you will, would be to have a one-sentence bill. "All gambling is prohibited on the internet."

The problem is that -- and, frankly, I think some of the sponsors started out with a one-sentence bill. The problem is that our land- based laws on gambling are a lot more complicated than that. We have an Interstate Horse Racing Act of 1978. We have interstate lotteries that permit it. We have the sharing of horse racing and powerballs that are permitted with compacts.

We have Indian gaming, and there's a whole Federal Indian Gaming Regulatory Act. Actually, our existing land-based laws are fairly complicated. And so the one-sentence bill that this started out with unfortunately, frankly, from the NFL's perspective got complex. And that is, as this subcommittee knows well, the nature of the legislative process.

But I do also want to just, finally, underscore that the enforcement mechanism came directly from the provisions that this subcommittee wrote into the WIPO bill. And it is a notice and takedown provision.

They were carefully negotiated over months with the internet service providers and their trade associations. The bill -- and I want to make sure that -- to address a point that Ms. Eshoo and others raised. The bill explicitly disclaims any obligation on internet service providers to monitor usage. The bill gives anyone who has been disconnected an automatic right to get reconnected.

So the civil liberties of users have been balanced in here. And it is important to recognize that the notice and takedown provision in the copyright works well.

Just to finish up, essentially, sports and gambling do not mix. Sports threatens the integrity of the game, and we do not want our players used as poker chips online or offline. We think the bill accomplishes that goal, and we urge it to be adopted.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank you, Mr. Waldron.

We have time to hear our final witness. Here's our plan. We'll hear from Mr. Williams, for his five minutes. It'll give us time to get to the floor. And I'm also going to recess for about 40 minutes when we do recess. It'll give you a chance to all go, you know, take care of some lunch or whatever you need to do. We'll come back after we hear Mr. Williams' testimony and take rounds of questions.

Let me introduce Mr. Richard Williams, Chairman of the Lac Vieux Desert Band of the Lake Superior Chippewa Indian Tribe.

Mr. Williams?

MR. WILLIAMS: It's indeed an honor to be in front of you today representing the Lac Vieux Desert Band of Lake Superior Chippewas.

We achieved the sovereignty issue with the Federal Government in 1988, September of 1988, and also, ironically, the Indian Gaming Regulatory Act became effective in October of 1988.

The testimony I present to you today, I would hope that you would reserve -- allow me to reserve one minute of that testimony so that my counsel could speak on some of the legal complexities of the testimony. And I also thank you for acknowledging the government-to- government relationships between the United States and Indian tribes.

My testimony also carries with it resolutions from the oldest, largest and respected Indian organization, the National Congress of American Indians, and also two other smaller organizations, the Midwest Alliance of Sovereign Tribes, United South and Eastern Tribes. So we do have a diverse geography that the Indian people are being made aware of the Goodlatte bill.

We ourselves would support an outright prohibition of all gaming on the internet. Such a blanket prohibition would be fair to everybody.

As of right now, language in the Kyle bill and the Goodlatte bill puts us back on our reservations. We have come a long ways. It's been quite a struggle in many cases, but we are here. We want to be a part of this world. We need to be a part of the internet world.

We have created a game. We spent a lot of money on it. We have invested millions of dollars to presenting the world with a game of integrity. And what we would like to see inserted as far as language into the bill, "Any otherwise lawful wager for Class 2 or Class 3 gaming, as defined in Section 4 of the Act of October 17, 1988."

This is the Indian Gaming Regulatory Act. That's where we took our lead from. That's where we did our research from. This Congress and this government gave us the authority to go forward and use technological advancements to produce and expand our audience. And I believe that's what we did, in compliance with the law.

Now, this bill will take everything that is legal and put it on the side. Even though they do say, "We protect your rights. If you want to exercise your rights, you stay on your reservation and do it."

I, Mr. Chairman, live off the reservation. I cannot even play this game because I live off my reservation.

So, in conclusion, I would like to present my counsel, Robert Rosette, just for a brief minute of your time, so that he can explain some things.

REP. TAUZIN: You've got about a minute and a half, sir.

MR. ROSETTE: Yes, thank you.

I'm counsel to the tribe and a member of the Chippewa Creek Tribe as well. Again --

REP. TAUZIN: Give your name for the record.

MR. ROSETTE: My name is Robert Rosette.

And as you heard the Chairman, he was discussing a legal Class 2 bingo game that the tribe operates completely and entirely on the Indian reservation.

Very quickly, the tribe did say that they would support this legislation if it was a blanket prohibition for all gambling interests. However, in this case, the Indian tribal provisions are inadequate for three reasons, the first of which is that it may violate the equal protection clause of the United States Constitution.

The second is it makes this otherwise legal Class 2 bingo game illegal; and, thirdly, it doesn't consistently apply a criteria for granting carveouts for these other gambling interests as it would for Class 2 bingo.

Very quickly, on the due process issue, that can best be illustrated by giving you an example. Many tribes have compacted with their states through tribal state compacts to conduct simulcast wagering.

This legislation now puts these tribes at an extreme competitive disadvantage, because while their company counterparts of the United States, business counterparts, can offer these games in the home now, tribal governments are still required that the players be physically located on the Indian reservation.

Now, that means that the tribes cannot market or conduct in-home gambling/simulcast wagering, which is both sanctioned by the state and by the Indian Gaming Regulatory Act, simply because of their status that they are an Indian tribe and the companies are not.

Secondly, the Class 2 bingo game that the Chairman is talking about is legal. They used the Indian Gaming Regulatory Act to design it. They took careful attention in designing it. And as we heard today, the intent to some of these carveouts was to sort of stop the line at what is legal and ongoing. Well, not in this case, because we see this game as legal, yet they are taking it away from the tribes, and at the same time extending the law to provide these companies their games.

Finally, I would just ask, if you didn't look at the Indian Gaming Regulatory Act, or the constitutional due process or equal protection implications, that you would look at this from a policy statement -- this game from a policy standpoint. And you would see that it compares more to the carveouts than it does the games you're trying to prohibit.

For example, the Class 2 gaming is regulated. It's allowed in the state. And our amendment that we're offering would not allow tribes to conduct any form of Class 3 gaming. It would not allow tribes to -- anything else. All it is is a parimutuel game, just like horse racing.

REP. TAUZIN: We've got to make a vote, so we're going to have to wrap.

Let me thank you all. I'm particularly going to be interested, Mr. DiGregory, in some of your rebuttal to some of the statements that were made, particularly that the later law trumps the earlier law and the specific -- we know what to know a little bit about what law rules here.

We'll get back to that in just about 40 minutes. We'll take a good break. We'll come back at 2:45. Let's make it 2:45. Without objection, the committee stands in recess.

(Recess.)

REP. TAUZIN: The committee will please come back to order. We'll ask all of our guests to take seats, and the panel to reassemble. I apologize for being a little late.

You won't believe it, but in the time we left one another, we not only took votes on the floor, but I went and handled another bill in another committee and got it passed.

(Laughter.)

Multi-tasking.

Let me thank you again for your testimony. And as we left, if you recall, I was really interested in the state of the current law. We've heard a lot of conversation in the morning about whether this bill codified existing law, or went beyond existing law, whether it allowed things to happen that couldn't happen under current law, whether it restricted things that were happening under current law from happening in the future.

And I must confess to you, I am in some doubt here. I don't know who's right or wrong. And so I suggested, Mr. DiGregory, why don't we start with that discussion. What is the state of the current law as it affects -- let's go through the whole range. You know, parimutuel betting, let's take jai alai, let's take lotteries, let's take gambling casinos, whether they're owned by corporate America, or whether they're owned by an Indian tribe.

What's the story here? What's the state of current law? And let's see if we can debate it out and find out where it is.

Mr. DiGregory?

MR. DiGREGORY: The state of current law is -- let me first start off by pointing out that federal gambling law is premised on assisting state governments in the enforcement of their own gambling laws.

For example, you've got 1084, which allows, as an exception, as I mentioned earlier, the transmission of information assisting in the placing of bets or wagers, where the placing of those bets or wagers are legal, between those two states where the bets or wagers are legal.

And when you're talking about other federal gambling statutes, which --

REP. TAUZIN: Give us an example of that, so we understand what that means. What is --

MR. DiGREGORY: Let's take Nevada and New Jersey.

REP. TAUZIN: Okay.

MR. DiGREGORY: New Jersey and Nevada transmit line information on sports betting between the two states using telephone facilities. That's information assisting --

REP. TAUZIN: So the facilities --

MR. DiGREGORY: -- in the placing of a bet or wager.

REP. TAUZIN: -- are exchanging information about the betting that's going on.

MR. DiGREGORY: Not about the betting itself, but about the kinds of information which would be helpful to them in perhaps setting odds or establishing lines. You know --

REP. TAUZIN: I got you.

MR. DiGREGORY: -- and so that's one example of information assisting it. So currently --

REP. TAUZIN: Well, I'll tell you what. Let me -- I'll maybe get it quicker this way.

MR. DiGREGORY: Sure.

REP. TAUZIN: Is it legal today to get an interstate phone call and place a bet -- a parimutuel bet?

MR. DiGREGORY: No.

REP. TAUZIN: No. There was some confusion about that.

Ms. Paulson, do you think it is legal to do that? Is it legal today to get on a phone and make a long distance interstate call and place a parimutuel bet?

MS. PAULSON: On a state-by-state basis -- REP. TAUZIN: Between any two states.

MS. PAULSON: As long as --

REP. TAUZIN: Can I call from one state to another and place a bet in that other state on the phone line, interstate long distance phone call?

MS. PAULSON: If it is regulated and approved by the two states that are involved.

REP. TAUZIN: Do you agree with that, Mr. DiGregory?

MR. DiGREGORY: No.

REP. TAUZIN: Why not?

MR. DiGREGORY: I don't agree with it, but let me first point to the language of 1084. 1084, "Whoever, being engaged in the business of betting or wagering, knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers" --

REP. TAUZIN: But wait. Let me stop you, because we're going to get confused. I want to know what current law says. What does 1083 are you reading the current law?

MR. DiGREGORY: Current law.

REP. TAUZIN: All right. Read current law for me. I'm sorry --

MR. DiGREGORY: That's all right.

REP. TAUZIN: -- if I interrupted you.

MR. DiGREGORY: It's all right. "Whoever, being engaged in the business of betting or wagering, knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned on" --

REP. TAUZIN: So you're saying that's a criminal violation, to make a phone call across state lines, interstate commerce, to place a parimutuel bet. The language covers that, you're saying, right?

MR. DiGREGORY: For someone in the business, yes. It is a prohibition directed at the gambling business operator and not at the person placing the bet.

REP. TAUZIN: Oh. So are you saying that I can make a phone call today, if I'm not in the business of gambling, I'm just a gambler, I can make a phone call and place a parimutuel bet in interstate commerce today?

MR. DiGREGORY: You can do that and avoid, as a better, federal prosecution. You may not be able to do that and avoid prosecution under state law, depending upon what the state law is.

REP. TAUZIN: Okay. And do you agree with that, Ms. Paulson?

MS. PAULSON: Let me tell you what the account wagering practices are here. Currently, we have account wagering legalized in nine states, which is 20 percent of the states that allow wagering on horse racing. You had asked earlier what those states are. They are: Connecticut, Kentucky --

REP. TAUZIN: What is account wager, so we have the record clear?

MS. PAULSON: Okay.

REP. TAUZIN: What does that mean?

MS. PAULSON: It is telephone wagering.

REP. TAUZIN: Okay.

MS. PAULSON: Where you set up accounts for --

REP. TAUZIN: So there are how many states that allow you to make a phone call wager?

MS. PAULSON: Nine.

REP. TAUZIN: Nine.

MS. PAULSON: And do you want to know --

REP. TAUZIN: Do those states allow me to do it over interstate commerce?

MS. PAULSON: It's our understanding, yes, they --

REP. TAUZIN: Okay.

MS. PAULSON: -- do. You know, clearly, our industry have a disagreement with Justice's position. And we believe that their interpretation of the Wire Act disregards the specific purpose of that Act, of combatting organized crime, and the passage of the Interstate Horse Racing Act of 1978, which federally regulates the interstate --

REP. TAUZIN: Did the '78 Act come after the Wire Act?

MS. PAULSON: Yes.

REP. TAUZIN: So you're saying it came after, and it specifically says what now?

MS. PAULSON: The interstate --

REP. TAUZIN: In regard to interstate calls to place bets on parimutuel betting.

MS. PAULSON: What the interstate regulatory framework does is it was enacted to provide a federal regulatory structure for interstate wagering on horse racing, and it ensures that all of the interests, the states through their racing commissions, the racetracks, and the horse owners, are participants in that process.

REP. TAUZIN: Okay. But that's a special act for horse racing.

MS. PAULSON: Yes.

REP. TAUZIN: Now, let me go back to the other two -- jai alai and dog racing -- which is -- I'm sorry. You would --

MR. DiGREGORY: I'd like to comment on the Interstate Horse Racing Act, if I might.

REP. TAUZIN: Please.

MR. DiGREGORY: Now, first of all, the Interstate Horse Racing Act, as was correctly stated, is a civil regulatory act. It's not a criminal prohibition. And what the Interstate Horse Racing Act does allow, it allows an interstate offtrack wager, but it's defined in the Act as a legal wager placed or accepted in one state with respect to the outcome of a horse race taking place in the other state.

So it allows an intrastate bet. And, actually, there's nothing in 1084 which prohibits an intrastate bet. 1084 -- and I would submit to you the interstate -- 1084 prohibits an interstate bet from being placed.

And I'd also like to read to you, if I may, the legislative history of 1084.

REP. TAUZIN: So you're saying that the statute passed in '78 only permits the calling inside a state to place a bet inside that state of an event that's happening in another state.

MR. DiGREGORY: Yes.

REP. TAUZIN: It does not permit the calling into the other state to place a bet on the event occurring in that state. Is that your interpretation?

MR. DiGREGORY: That's right. That's our interpretation.

REP. TAUZIN: Do you disagree with that, Ms. Paulson?

MS. PAULSON: What I'd like to do actually, I mean, is to read you how we interpret that act.

REP. TAUZIN: Good. Let's do that.

MS. PAULSON: And what it's supposed to do.

REP. TAUZIN: Please do.

MS. PAULSON: If that's all right with you.

REP. TAUZIN: Please do.

MS. PAULSON: Congress enacted the federal statute specifically dealing with interstate gambling on horse racing. That act made clear that a racetrack controlled wagering on its races in interstate and international commerce and provided for industry and regulatory approvals before betting was permitting between jurisdictions where the wagering was legal.

The findings of the Interstate Horse Racing Act, Congress said that states have the primary responsibility for determining what forms of gambling may take place within their borders, but that the Federal Government should prevent interference by one state with the gambling policies of another.

In the IHRA, Congress provided that, with respect to the limited area of interstate offtrack wagering on horse racing, "There is a need for federal action to ensure that states will continue to cooperate with one another in the acceptance of legal interstate" --

REP. TAUZIN: All right. Let me stop you there. Then, I hear disagreement on the interpretation of the '78 Act. That's what I'm hearing. You interpret it to say that you can make the interstate call, place a bet where the event is happening in another state, if both states permit that.

MS. PAULSON: Yes, I agree with that.

REP. TAUZIN: You are saying no.

MR. DiGREGORY: Right.

REP. TAUZIN: You can only make a call inside the state, to place a bet inside the state on the event that's happening in the other state. And I take it that's -- that's the best way I can describe the disagreement. Has it been tested in court?

MS. PAULSON: No.

REP. TAUZIN: So we don't have a -- have you tried to make a case? Mr. DiGregory, have you tried to make a case on your interpretation? Have you tried to prosecute anyone for --

MR. DiGREGORY: No, we haven't prosecuted anyone.

REP. TAUZIN: Okay.

MS. PAULSON: And one other -- pardon me. Go ahead.

REP. TAUZIN: I'm sorry. I didn't mean to interrupt you. You go ahead.

MS. PAULSON: You know, one of the things that we'd specifically like to bring up is that these activities have been highly visible. Interstate simulcasting, pools, account wagering have been practiced for over 20 years. And it is strictly regulated and --

REP. TAUZIN: Well, interstate simulcasting is one thing. I mean, watching an event in another state and placing a bet on it in the state you're watching it in is one thing. We're being told he agrees with you that that's clearly covered by your Act.

What I hear the dispute on is not the simulcasting into states of an event in one state. It's whether the bet is placed over the state line into the other state. And you seem to have a legitimate difference of opinion on that, and that's what I was trying to get.

MS. PAULSON: And, again, not once in 30 years has the Justice Department or any federal prosecutor --

REP. TAUZIN: I just heard that, too. They've never prosecuted anybody.

MS. PAULSON: -- the Wire Act --

REP. TAUZIN: Why haven't you prosecuted someone over all this time, Mr. DiGregory?

MR. DiGREGORY: Well, I can't answer for the last 30 years. I can only tell you that this debate that began at least a couple of years back to me -- back a couple of years ago for me, has highlighted this issue to -- has highlighted this issue for us at the Justice Department.

And we are paying attention to it, and we are aware of at least one offtrack betting association which does its mightiest to avoid taking phone calls interstate because of a belief, at least on the part of some of folks there, that -- REP. TAUZIN: We're going to get to dog and jai alai in a minute. I just want to close this out, because I really have to move on. I've got to give other members a chance. I want to tie this down before I move.

So we don't have this settled in court. We have a dispute of interpretation, and that obviously means that maybe either a court or Congress has to settle it somewhere. That's the first thing I conclude.

But let's go to dog racing and jai alai racing now.

MS. PAULSON: Can I just make one statement before you --

REP. TAUZIN: Yes, if you will quickly, Ms. Paulson.

MS. PAULSON: The problem is, the logical conclusion of what the Justice Department is saying is that it would render interstate wagering illegal on legal state-regulated horse racing, which would cripple our entire industry.

REP. TAUZIN: Well, that's your argument. I understand.

MS. PAULSON: But it's important that --

REP. TAUZIN: Saying that it's bad for them to do it or interpret it that way is not concluding -- is not settling the question what's legal and not legal. I think what I'm saying is that we've got a dispute here, very clearly.

MS. PAULSON: We do.

REP. TAUZIN: Somebody is probably going to have to settle it one day. Either somebody is going to get prosecuted and it gets settled, or we may have to settle it here.

Let's go to dog racing and jai alai racing.

MR. DiGREGORY: Before we do that, there is one --

REP. TAUZIN: I want to go to the dogs.

MR. DiGREGORY: I know you do.

REP. TAUZIN: Okay.

MR. DiGREGORY: There is one case that I'm aware of that deals with the subject of the Interstate Horse Racing Act. It was not based upon a prosecution brought by the Justice Department. We didn't have a chance to argue that case, and it is a case -- I think it was a civil reco claim that was brought, and we can get you all of the information on that case.

REP. TAUZIN: Please submit that for the record.

MR. DiGREGORY: Including a copy of the case.

REP. TAUZIN: Thank you, sir.

Let's go to --

MR. WILLIAMS: Mr. Chairman?

REP. TAUZIN: No, no. I'm going to the dogs right now, and if you can help me, Mr. Williams.

MR. WILLIAMS: Is there any way we can get bingo on the agenda also?

REP. TAUZIN: On the what? Yes, we're going to talk bingo in a second. I promise you. I'm trying to get to bingo.

MR. DiGREGORY: Can I make one final --

REP. TAUZIN: We've got to get through --

MR. DiGREGORY: Can I make one final comment?

REP. TAUZIN: -- the horses and the dogs here. Yes.

MR. DiGREGORY: Can I make one final comment on horses? And this applies to dogs as well.

REP. TAUZIN: Okay.

MR. DiGREGORY: It's in the legislative history of 1084, when they discuss the transmission of information assisting between Nevada and New York. But nothing in the exemption --

REP. TAUZIN: Yes.

MR. DiGREGORY: -- says the legislative history, however, will permit the transmission of bets and wagers or money by wire as a result of a bet or wager from or to any state, whether betting is legal in that state or not. That's the legislative history of 1084.

REP. TAUZIN: Okay. That bolsters your argument.

Now, let's go to dog and jai alai. We know what the new bill would propose. Tell me what the current law is. Can I place a call in interstate commerce to bet on dog racing, on jai alai racing? Does anybody say I can do that legally today? No. So it's illegal to bet MR. DiGREGORY: Well, again, you can place -- depending upon the state you're in, you can place the call. It's illegal under current federal law to accept a bet and operate a business, based upon the acceptance of such bets.

REP. TAUZIN: Oh, I understand. So it's illegal to conduct betting operations through interstate calls on jai alai and dog racing today. Does anybody disagree with that?

MS. PAULSON: There's nobody here to represent them, but it's my understanding that you can on dog racing but you cannot on jai alai.

REP. TAUZIN: You can on dog racing. Is there a special dog racing statute that we need to look at?

MS. PAULSON: I'm not familiar with it, but it's my understanding through the industry that that is -- and we'll be happy to provide that with --

REP. TAUZIN: Yes, please do.

Do you know, Mr. DiGregory, whether there's a special statute?

MR. DiGREGORY: I don't believe there is. And I think you can look to 3125 for some instruction on that, because when 3125 talks about the exceptions for horse racing, dog racing, and jai alai, it refers to live horse racing made in accordance with the Interstate Horse Racing Act, and then live dog racing subject to regulatory consent agreements that are comparable to those required by the Interstate Horse Racing Act, and live jai alai subject to regulatory consent agreements that are comparable to the Interstate Horse Racing Act.

REP. TAUZIN: All right. Staff is instructed to research the state of the law when it comes to both dog racing and jai alai racing, and to provide the committee with information on that.

MS. PAULSON: We did state earlier that the Interstate Horse Racing Act is the only federal legislation out there for --

REP. TAUZIN: I think it is. I think it's the only other law that we have to deal with. I don't think there's a special dog law, but we're going to check it out.

Now, let's go from those three categories to lotteries and bingos and other forms of gambling. Okay?

Mr. Williams makes a claim that this bill before us would diminish his capacity to conduct his Indian gaming and bingo from the state of the current law. Does anybody dispute that? Is he correct that current law gives him more rights to conduct bingo operations than will this Internet Gaming Act that is presented to us?

Let me ask you, please, Mr. Williams -- Mr. Waldron, do you want to answer that?

MR. WALDRON: Well, if I might just say, is the question whether he could provide -- and I was not clear what position he is taking now. IGRA, which is the Indian Gaming Regulatory Act, regulates gaming on Indian lands, whether -- the suggestion is that one can gamble, and whether it's bingo or some other type of gaming, off of Indian lands. I think that is clear.

REP. TAUZIN: And what's not --

MR. WALDRON: The IGRA does not permit that. I can't address whether it's --

REP. TAUZIN: Well, let me ask Justice, can I place a long distance call, or a local call for that matter, can I use the wire to place a bet on an Indian reservation at one of its gaming institutions? We have one in Carrington, Louisiana. Can I, in Tibedo, call Carrington, and place a bet?

MR. DiGREGORY: No, you can't make an interstate call to place a bet at an Indian reservation. In fact --

REP. TAUZIN: Interstate. How about intrastate?

MR. DiGREGORY: If it's intrastate and the call is placed on Indian lands, I think it -- well, it has to -- it depends upon the kind of gambling that is permitted in the state and that the Indians and that the tribe has compacted for.

REP. TAUZIN: Okay. So the answer is it depends.

MR. DiGREGORY: That's always a good prosecutor's answer when you don't know all the facts.

REP. TAUZIN: Mr. Williams is pointing out that he has some rights to do that under some compacts that may be compromised by this bill. Is that correct, Mr. Williams?

MR. WILLIAMS: Correct.

REP. TAUZIN: And you can perhaps get your counsel to the table. I want you to be as concise and as specific as you can. What in this new bill compromises your current rights to provide gaming opportunities to people off the reservation?

MR. ROSETTE: Well, under the Indian Gaming Regulatory Act, it only requires that Class 2 bingo be conducted entirely on Indian lands. And at the same time, it -- the Indian Gaming Regulatory Act exempts tribal bingo from the anti-lottery statutes which deal with the interstate transportation of tickets.

And, secondly, in the legislative history, it specifically brings up the fact that it would -- the legislative history of the Indian Gaming Regulatory Act brings up the fact that Congress would like to see Indian tribes, and in the bill itself, use current technology and telecommunications devices to expand player participation between the different states.

REP. TAUZIN: I take it in your testimony you have those things cited.

MR. DiGREGORY: Yes.

REP. TAUZIN: I would very much like, Mr. DiGregory, if your office could examine those arguments that are made, that Congress did intend, according to his arguments, did intend them to use these new technologies to provide gaming opportunities off reservation. And if that is -- if you can, give us the Justice Department position on those items.

MR. DiGREGORY: I can tell you that I do not believe that Congress intended to provide the technological opportunities for off- reservation gaming. I can tell you that those technological opportunities were restricted to Class 2 gaming.

And I can tell you that nowhere in the Indian Gaming Regulatory Act does it say that the prohibition with respect to Indian lands, or the provision that the gaming take place on Indian land, applies only to Class 2 gaming.

Just very briefly, Class 2 gaming refers to bingo and similar games. You're aware of that because you're from --

REP. TAUZIN: Louisiana.

MR. DiGREGORY: -- Louisiana. And if you want to engage in Class 3 gaming, and a lottery is a form of Class 3 gaming, you need to enter into a compact with the state in which the reservation sits.

Now, in order to enter into the compact, the game that is being played -- that you want to play must be the same kind of game that the state wants to play. And let me give you an example of a recent case where this issue of whether or not the game was being played on Indian lands occurred.

The Coeur D'Alene Tribe in Idaho wanted to operate an interstate lottery using a telephone line and also using the internet. Thirteen state Attorneys General, using provision 1084(d), notified AT&T that the activity that the Coeur D'Alene wished to engage in, if they engage in that activity in their states, operating a gambling business in their states, would be violative of state law.

AT&T denied service to the Coeur D'Alene. The Coeur D'Alene had a remedy. The remedy was to go to Federal District Court to seek relief. The Federal District Court denied them that relief. So there's an instance where you see 1084(d) in play, which is one of the sections --

REP. TAUZIN: Please submit that case for our record as well.

MR. DiGREGORY: -- we'd like to see amended. Certainly.

REP. TAUZIN: You want to respond to it. Go ahead.

MR. ROSETTE: Yes. Our position is that we clearly agree with the Department of Justice with regard to Class 3 gaming, and the Coeur D'Alene game is indeed a Class 3 game. What the tribe purports to do is Class 2 bingo, which occurs entirely on Indian lands.

And through the legislative history of the Indian Gaming Regulatory Act, giving tribes the opportunity to use technological devices to expand player participation, and also providing Indian tribal governments with holders, you can indeed conduct Class 2 bingo entirely on Indian lands, which is completely distinguishable from Coeur D'Alene.

REP. TAUZIN: Okay.

MR. DiGREGORY: And that's right. If you're talking about Class 2 bingo, entirely on Indian lands, that kind of a situation is distinguishable from Coeur D'Alene. But it's --

REP. TAUZIN: Finally, let's talk lotteries. Real quick because we're going to get all this analyzed once all the documents are submitted.

Where the lottery is concerned, what is the current law? Can I, under current law, use the wires to purchase lottery tickets in interstate calls?

MR. DiGREGORY: No.

REP. TAUZIN: Anybody disagree with that? Can I use --

MR. DiGREGORY: You said interstate.

REP. TAUZIN: Interstate, across state lines. One jurisdiction to the next. Can I call Maryland and purchase a Maryland lottery ticket from Virginia? The answer is no?

MR. DiGREGORY: Mr. Chairman, we don't know because -- it's similar to the horse racing question, because no one has tried it yet. And, again, the Department of Justice says one thing and it doesn't do it. So we know that we're on the verge of having multi-states coming online, so the question will be, what are they going to do?

REP. TAUZIN: Aren't people making calls and doing that today?

MR. DiGREGORY: No, not on lottery yet. There's no internet on the lottery at this time. There's not a single state that has authorized that. I don't think that that is a problem.

REP. TAUZIN: How do you know whether people are using their telephone to buy lottery tickets?

MR. DiGREGORY: They're not.

REP. TAUZIN: They're not.

MR. DiGREGORY: I just don't think that we've ever -- I don't think anyone is aware that it has ever been done. I mean, these are states, so --

REP. TAUZIN: So there is nothing in current law that permits at least, and you think it's outlawed.

MR. DiGREGORY: Well, it depends on -- it would depend on -- not 1084, though, on 1955, which prohibits the operation of a gambling business, because 1084, as currently written, at least an argument can be made is that it only applies to sports betting and not to contests like a lottery.

REP. TAUZIN: I've got it.

And then, finally, did we have any disagreement on sports betting? Just shut that down? Was that pretty clear from here, everybody here?

MR. WALDRON: Well, we didn't hear any, and I don't think there has been any objections raised to that.

REP. TAUZIN: Okay. Thank you very much. I'm not sure everything is clear, but at least we know where the disagreements are.

The gentleman from Tennessee, Mr. Gordon.

REP. BART GORDON (D-TN): Thank you, Mr. Chairman.

Mr. Nestel, do you think that the states could do a better job of regulating this gambling on the internet than having a federal legislation?

MR. NESTEL: The whole reason that we got involved in this effort was, in part, because the national Attorneys General came to Congress after throwing up their hands saying they couldn't regulate it. And once Senator Kyle and Representative Goodlatte got involved, we saw a federal solution as the only way to go.

REP. GORDON: Do you think that's the camel's nose on the tent and other federal kinds of regulation to athletics?

MR. NESTEL: Well, in this case, we already have a federal law, at least when we talk about the 1992 Professional and Amateur Sports Protection Act, which prohibits sports gambling in 49 out of 50 states. And we're working on that 50th state.

We've got circumvention now of federal law when it comes to sports gambling in this country. And the Federal Government has already gotten involved when it comes to sports gambling. And I think this is a surgical strike when it comes to the internet. And really, given the global communications medium that the internet is, really the only way to address this problem.

REP. GORDON: So you think it's better to have federal legislation than state legislation, and that doesn't set a bad precedent?

MR. NESTEL: Well, I'm not a prosecutor. I can only go on what the Attorneys General have been saying for the past three and a half years.

REP. GORDON: But as far as the NCAA, is it your position that it's better to have the continuity of federal legislation rather than individual state legislation?

MR. NESTEL: The NCAA wants definitely to keep in force and in compliance with the 1992 Professional and Amateur Sports Protection Act, and this doesn't do it. And our concern is is that, if the Attorneys General are throwing up their hands, that this is the only way to do it.

REP. GORDON: So you think it's better to have federal legislation rather than state legislation?

MR. NESTEL: From what I'm hearing from law enforcement, yes.

REP. GORDON: Okay. Well, let me -- if the Chairman would indulge me just on a quick collateral issue. As you know, if a sports agent is -- talks to an athlete in certain states, offers them money, suit of clothes, whatever, to sign a contract, that's -- under NCAA rulings, then that athlete would lose his eligibility, and the school would be penalized. But often times the agent would have no penalty against them. Are you aware of that?

MR. NESTEL: Absolutely.

REP. GORDON: Okay. So why on earth, when legislation was proposed on a federal level to punish those agents, and not let them get by with those few states that would allow that, even though coaches all around the country supported it, even though the junior college equivalent of NCAA supported it, why on earth would your organization be opposed to it, saying that it was a bad precedent, that it was federal legislation, and you were afraid that that would lead to other federal legislation, when here you're today asking for federal legislation?

MR. NESTEL: Well, I know that when you have 1,000 members, you have varying opinions.

REP. GORDON: This was the board. I think the board had a discussion.

MR. NESTEL: We had a special committee --

REP. GORDON: Yes, you had a special meeting; the board discussed it.

MR. NESTEL: We had a special committee who looked at the problem, and as our members as -- did look very long and hard at the problem. And they felt a uniform state law was the approach to go. That was the approach.

We have been working for four years to develop a uniform state law with the National Conference of Commissioners on uniform state laws. I can't say any more than that, except that that's what our membership chose to do in terms of the approach of --

REP. GORDON: Well, I was told it was the camel's nose under the tent. So it looks to me like the camel is already in there now. And so I will be discussing that legislation with your board again, and I hope that you will follow your members and the coaches all around the country, rather than just a few board members' suggestions, and maybe try to be some help to the athletes and the schools that you represent.

MR. NESTEL: Congressman, I really thank you for being interested in this issue, and we want to continue to work with you, because we're very appreciative of your --

REP. GORDON: Well, we've got a bill and --

MR. NESTEL: And I will --

REP. GORDON: -- and I would like for you to work -- so far, you've worked against me. It's time to -- I hope that we -- you would like to work together.

MR. NESTEL: Well, I will certainly bring that back to our membership.

REP. GORDON: Thank you.

And, Mr. Chairman, I appreciate your indulgence on that.

REP. TAUZIN: Will you throw in a little Tennessee whiskey? We can close this deal right now.

(Laughter.)

Thank the gentleman.

The gentleman from California, Mr. Cox.

REP. CHRISTOPHER COX (R-CA): Thank you, Mr. Chairman.

I wonder if, with Mr. DiGregory, I could go over some of the questions that I have about the way the statute is put together. It's my reading of the bill -- not yet a statute, may never be a statute -- that it places a requirement on, at a minimum, an internet service provider to take down a site after notice based on probable cause.

Is that burden one that is imposed on internet service providers alone, or is it also imposed on search engines?

MR. DiGREGORY: On search engines?

REP. COX: Yes. Let me tell you why I ask the question. The dissenting views from the Judiciary Committee read as follows. I need my reading glasses, unfortunately. This is awfully fine print.

"The bill's enforcement scheme is premised on several broad notice and takedown, blocking, and injunctive requirements, which principally rely on so-called interactive computer service providers to act as surrogates for law enforcement. Presumably, this would include internet service providers such as AOL or the Microsoft Network, but could potentially a far broader range of companies such as search engines and portals."

And then there is a footnote that is truly so small I can't read it without a magnifying glass.

MR. WALDRON: Mr. Cox?

REP. COX: Yes.

MR. WALDRON: May I take a stab at that?

REP. COX: Sure.

MR. WALDRON: Section 1085(a)(6) defines interactive computer service. And one of the changes that was actually added during the Judiciary Committee process was to put in in a subparagraph (b) there, "refers to search engines." So search engines are included in that group of internet service providers that would both be subject to a notice and also enjoy immunity under that provision.

REP. TAUZIN: Would the gentleman yield for a second?

REP. COX: Yes.

REP. TAUZIN: Because if the gentleman will look at that definition with me, it also says, "Interactive computer service means an information service or a system." Could that be interpreted to mean a telco? What does that mean? That's a new kind of definition.

And one of the concerns we got from -- in dissenting views was that it was so broad it could conceivably incorporate a telco.

MR. WALDRON: This definition, Mr. Chairman, was taken from the WIPO bill. And I would suggest that "system" modifies "information service," that the system information service, information system, or access software provider. I think that's the better way of parsing it. And that language was borrowed directly from the WIPO bill.

REP. COX: Now, the copy of the legislation that I have -- the bill, pardon me -- doesn't say anything, if I'm in the right place, in the definition of "interactive computer service" -- that I can see -- about search engines. Can you --

MR. WALDRON: 6(b). The version that I have --

REP. COX: Oh, here it is. I'm sorry. Yes. "Is engaged in the business of providing an information location tool, which means a service that refers or links users to an online location, including a directory index." So if you are a service that links users to an online location, you have this obligation.

Now, I include links in my e-mails all the time. What does that make me?

MR. WALDRON: Well, you would not be engaged in the business of providing an information location tool.

REP. COX: Is that because I'm not in business?

MR. WALDRON: That's correct.

REP. COX: But if I were sending e-mail and I were in business, would that --

MR. WALDRON: Well, but you would not be in the business of being a search engine. I mean, my understanding is -- and perhaps the Judiciary Committee staff would be better at addressing this -- but this language was suggested by the search engine members of the internet service provider to describe the business that they're engaged in.

REP. COX: Well, Mr. Chairman, we don't have any members of the internet community on this panel. But one of the reasons, as I read through this with my lawyer's hat on, that I'm concerned about the bill is that it's non-complicated. It raises enormous questions, and I would think that if we were to enact the bill in its present form that we could truly say that we had enacted the first thorough-going regulation of the internet. Something we've been able thus far to avoid.

The Communications Decency Act that the Senate added some years back, that we in the House had an antidote for, was struck down by the Supreme Court on First Amendment grounds. But it had other problems as well; chiefly, that it relied upon a government industry partnership to try and track down the content of web sites. And we've got a similar system here that concerns me greatly.

In the DOJ formal testimony, the point is made that we would be wise to adopt a statute here that is technologically neutral. And I want to congratulate the Department of Justice for that approach because I think that is a very, very important principle in drafting legislation in this area.

A few years ago, we didn't have an internet. And it's my hope that a few years from now we will not have one either, that we will have progressed to something that we can't even think of right now, in the same way we couldn't have thought of the internet a few years ago.

If we write into legislation defined terms that are technical in nature, such as "rammer frammer," you've got to have a certain kind of compliance of your rammer frammer with the statute that we're writing here, then what are the lawyers going to tell the techies?

They're going to say, "Well, we realize that the rammer frammer is becoming outdated, but it's referred to in the statute, and we want to make sure, because it may be years before Congress can revisit this, we want to make sure that we can counsel you that you're in compliance with the law," particularly if this is a criminal statute. "So we would like you to continue to have in your system a rammer frammer."

Otherwise, we don't know what in the world the statute is going to mean, whether the judge will permit us to draw an analogy to the son of rammer frammer that we've invented. And, as a result, our legislation, which is technologically specific, will slow down the pace of technology.

We've got to find a way to draft a bill like this without mentioning the internet. We've got to find a way to build on the statute that we already have, which, after all, for the most part covers what we're talking about here anyway.

The laws of the 50 states, for starters -- and I'm going to now put this in the form of a question, because I believe it to be true, but I'm not sure that it is, so I want to be corrected if I'm wrong. The laws of the 50 states, to a greater or lesser degree, prohibit gambling within the jurisdictions of those states.

Some jurisdictions, like New Jersey and Nevada, have especially liberal regimes, but for the most part the states have created these problems.

Second, we have a federal statute, which you have referred to in your testimony -- 18 U.S.C.

Section 1084, and there's been a recent successful prosecution of internet gambling under that statute -- that deals with interstate and foreign problems.

So that we've got state regulation and we've got federal regulation that collectively cover gambling, by whatever means, including the internet, within the jurisdiction of a state or conducted overseas, but somehow involving the United States.

So existing law, if I'm not mistaken, without mentioning the internet because it was written before Al Gore invented the internet, somehow manages to cover all this? Isn't that right? I'm sorry. Go ahead.

MR. NESTEL: I just wanted to mention, if it's done through wire communication. As we mentioned, and as you read from the gambling industry, this industry is going wireless. The gambling industry has made -- entered into agreements with Ericsson to bring this to a cell phone. I believe that the current Section 1084 would not cover wireless communication.

REP. COX: Well, I understand that there are tweaks that are necessary, and, in fact, the Department of Justice has specifically proposed legislative language to tweak Section 1084. My point is simpler than that.

It is that we had a prosecution of an internet gambling case under a statute that -- and a successful one -- under a statute that was written before the invention of the internet. So somehow we managed to reach that conduct with, definitionally, technologically neutral language, because the Congress that wrote it didn't know about the internet. And so it is possible to do.

That's my question. Is it your view that it's possible to improve this statute to cover the new technologies that we can't even imagine yet, without being technologically specific?

MR. DiGREGORY: We believe that it can be done. Absolutely. And that's, hence, our proposal.

REP. COX: Now, I didn't assist you in writing your testimony. We just happen to agree on the point of technological neutrality.

I've given you one reason of mine that I think it's important to be technologically neutral. I don't want to slow down the development of technology.

What were your reasons behind that assertion that we should be technologically neutral?

MR. DiGREGORY: One of the reasons was we felt that when you're legislating criminal prohibitions, you shouldn't focus on the means to perpetrate the crimes. You should focus on the conduct involved and not on the telephone or on the internet or anything else. And that for consistency's sake, you needed to be technologically neutral.

REP. COX: So by way of analogy, we don't have a murder statute for death by knife and another one for death by bowling pin and another one for death by gun, and so on.

MR. DiGREGORY: Except that there are enhancements if you use a firearm in certain jurisdictions.

REP. COX: Right.

MR. DiGREGORY: But that's right.

REP. COX: Well, should we have a stricter penalty if you gamble by internet?

(Laughter.)

Well, those are my main concerns, Mr. Chairman, and I very much appreciate the Department of Justice raising them in this hearing.

REP. TAUZIN: Would the gentleman yield just quickly again? I want to point out that the answer we got on the definitional section, interactive computer service, the definition that was modeled after WIPO seems to be inaccurate. And so we don't know what an interactive computer system is.

The only definition provided in the WIPO was a service provider under 512(k)(1), which is much narrower. And so one of the concerns that those of you who are supporting the legislation should take into account is that this definition seems to be much broader than anything we've seen before. That while the notice and takedown provisions seems to be modeled after WIPO, who gets noticed and who is told to take down seems to be considerably broader.

It could include whole systems as well as subscribers to those systems. And that could pose a substantial problem. I call it to your attention.

The gentleman from Massachusetts, Mr. Markey.

REP. MARKEY: Thank you, Mr. Chairman, very much.

Ms. Paulson, let me ask you this. I understand there is some disagreement between you and Mr. DiGregory over the issue of whether or not it is currently legal under the Federal Wire Act to accept telephone wagers over state lines. You say it is legal; he says it isn't legal. Could you tell us which facilities that are part of your association that --

MS. PAULSON: I'm sorry?

REP. MARKEY: Could you tell us who -- Mr. DiGregory wants to know who it is --

(Laughter.) association making bets, wagers, across state lines using wires.

MS. PAULSON: Who is making those?

REP. MARKEY: Yes, who is doing that.

MS. PAULSON: It's a state-by-state determination, as we've said before, on account wagering and --

REP. MARKEY: Do you understand what I'm saying? Do you see --

MS. PAULSON: I'm sorry.

REP. MARKEY: You say it's state by state. So we're trying to -- I think Mr. DiGregory is making a point that you can't make a call from another state into -- from one state into a second state in order to gamble. It is possible within a state to make a bet within that state on an event outside of the state. Which of those two are you talking about? Are you saying that the first is also legal, in your opinion, that you can make a bet from across state lines?

MS. PAULSON: Yes. It's being done currently.

REP. MARKEY: Being done. A phone call made from Massachusetts to a place in New York State.

MS. PAULSON: If the states allow it, yes.

REP. MARKEY: Do you agree with that, Mr. DiGregory?

MR. DiGREGORY: Well, it may be being done, but that doesn't make it legal. And as I stated before, if you're talking about account wagering, and if you're talking about an interstate telephone call, it is illegal under 1084 for a gambling business or someone who holds himself out as a gambling business to accept a bet.

REP. MARKEY: So, Ms. Paulson, could you provide us the names of the -- MS. PAULSON: Sure.

REP. MARKEY: -- facilities that are presently engaging --

MS. PAULSON: I mean, New York State does it. It runs -- you know, it has its own system set up, and has for some 30 years, of providing account wagering.

And, you know, we have the other states that have the account wagering where you can do this. The whole purpose of the Interstate Horse Racing Act -- that's why it's called the Interstate Horse Racing Act of 1978, which we've already discussed, followed the Wire Act.

So there had to be some coordination along those lines to have had one follow the other to allow this to be occurring. So, you know, it's been an ongoing, highly visible system. It's the basis of --

REP. MARKEY: Mr. DiGregory says it's an ongoing, highly visible, non-prosecuted, illegal activity.

MS. PAULSON: I mean, we did discuss that, because it has been 30 years that this has been going on. And there hasn't been a single prosecution by the Justice Department or a federal prosecutor of this issue. And the reason being, you've got the legislative history of the Wire Act, you've got the Interstate Horse Racing Act, and you've got --

REP. MARKEY: Okay. So let's let Mr. DiGregory reconcile the Wire Act and the Racing Act. How do you reconcile those two, the Interstate Racing Act with the Wire Act?

MR. DiGREGORY: You reconcile it by looking to the definitions in the Wire Act. And you reconcile it by noting that the definition of "interstate offtrack wager" is defined in Section 30023 as a legal wager placed or accepted in one state with respect to the outcome of a horse race taking place in another state.

And then you look to the language in 1084, and you look to the legislative history, which says 1084 prohibits the interstate transmission of bets or wagers on sporting events.

REP. MARKEY: Ms. Paulson says that in New York State there has been open, continuous, notorious, public --

MS. PAULSON: I didn't say it was notorious.

(Laughter.)

REP. MARKEY: No, just meaning highly visible, you know, engagement of that kind of conduct.

Okay. We absolutely are going to need some kind of written statement from you with regard to the conduct that Ms. Paulson is referring to, so that we have some kind of understanding as to whether or not we are breaking new ground or not. And if they think it's legal already, why do we need the bill?

Why do we need a bill, if, under the Horse Racing Act, Ms. Paulson says they have been doing it, it is legal, and why are we wasting our time? So it seems to me that there is some reason why we're here reconciling these differences.

MS. PAULSON: I can tell you from the horse racing perspective that one of the reasons we feel the bill is important is to deal -- is that the legislation deals with the unlicensed and unregulated vendors, whether they are offshore or --

REP. MARKEY: Yes. But you don't think you need permission to do this. Is that right?

MS. PAULSON: Pardon?

REP. MARKEY: You don't think that you need any permission to go across state lines.

MS. PAULSON: We believe that that's -- that we've been practicing it, and that it's allowed under the --

REP. MARKEY: You think that's already current law.

MS. PAULSON: We do.

REP. MARKEY: And Mr. DiGregory does not believe that's already current law.

MR. DiGREGORY: And I take your point. If the horse racing industry is permitted to do what it says it's permitted to do, then why do we need --

REP. MARKEY: That's right.

MR. DiGREGORY: -- 1085's exemption?

REP. MARKEY: Right. We don't need an exemption. We don't have to have them in the language of the bill at all. We don't have to mention them. And I would make the amendment to delete them if it's already legal, because it would be a redundancy.

MR. DiGREGORY: Well, we'll --

REP. MARKEY: We might have to -- we could deal with offshore people, but we don't have to deal with them.

MR. DiGREGORY: We, of course, would dispute the point that --

REP. MARKEY: No, that's what I'm saying. I'm saying if your interpretation is correct, then they don't -- we don't have to mention them at all. Just those that we don't want to be able to do it.

MS. PAULSON: Well, we do believe that it provides an umbrella for us, for the existing practices. Simply because of the type of thing that's coming up with Justice, I think that we need to have that umbrella of protection of the existing practices that are there.

And that's why we've been pushing for the provisions that are currently there, in light of the Justice Department's -- what we would consider a new position and not one that clearly --

REP. MARKEY: I understand. You see, much of what we have to do in this committee is to take the values of the old world and to build them into this new world.

MS. PAULSON: Of course.

REP. MARKEY: The first thing we have to do, however, is establish what were the values of the old world, and we can do that. And we have a significant dispute here as to what those rules were. And this hearing has not resolved it. We're going to have to ensure that we do so before we mark up, if we do mark up.

MR. WILLIAMS: Also, the --

REP. MARKEY: But it's a lot like -- yes, sir.

MR. WILLIAMS: Also, Mr. Markey, the socially accepted game of bingo should also be held in that category because of IGRA and its Class 2 --

REP. MARKEY: Because of that?

MR. WILLIAMS: Because of IGRA, Indian Gaming Regulatory Act, which specifically states that we should be allowed to produce a Class 2 game on the -- using technology. So, therefore, bingo I think should be held in that same category.

REP. MARKEY: Okay. Well, this is, for me, helpful, to the extent to which I understand that there is still an atmosphere of ambiguity which characterizes this entire area. That clearly was not resolved definitely in the Judiciary Committee, and I think it will be the responsibility of the Commerce Committee to ensure that we do understand exactly what laws we are modifying.

I bring to this subject many visits to Wonderland and Suffolk Downs as a young man. So a Congressional expert is, of course, an oxymoron. Compared to real experts, we're not, but -- but if personal experience counts, I'm going to be able to I think engage in this debate as a fully informed participant.

So I thank you, Mr. Chairman.

I yield back the balance of my time.

REP. COX: Thank you.

I would just ask each member of the panel, if you would be willing, to get back to the subcommittee in writing, if you are interesting in doing so, because we are interested in your views, with your evaluation of the legislative language that was proposed by the Department of Justice.

That legislative language is appended to their testimony, and that testimony was distributed at this hearing. If for any reason you haven't been able to lay your hands on it, the subcommittee staff will be pleased to provide it to you. But if you could do that within, let us say, 10 days, that would greatly facilitate our consideration of these issues because our referral is time limited.

And with respect to that language, I'd ask, Mr. DiGregory, if you could satisfy my curiosity on a couple of points. There is a long definition in the legislation of fantasy sports league or rotisserie leagues. It's exceptionally detailed. And I wonder about the wisdom of making that valiant attempt, for the same reasons that I was concerned about technological neutrality in writing, particularly, a criminal statute.

I'm a bit concerned that we have gone to such great lengths in this proposed legislation that you have submitted to nail these colors to the mast. I'd ask, for example, what would happen if a rotisserie league awarded de minimis prizes on a quarterly basis, it would fall, without the definition that you've got here in the statute -- and surely you didn't mean for that inconsequential detail to determine whether or not it fell within or without the definition.

MR. DiGREGORY: Well, we were concerned when we put that language together with the concept of gambling involving consideration, chance, and prize, or reward. And because there were a number of fantasy sports leagues that we were aware of which did give out de minimis prizes -- for example, one of the prizes that we discussed, I believe, was a hockey cap being given out by a hockey fantasy sports league on a regular basis. Whether it was quarterly or monthly, I don't recall.

And we wanted to try to eliminate the situation where someone could argue that that de minimis prize would kick in this consideration, chance, and reward aspect of the definition of gambling.

There is considerable debate, we found in our research, over whether or not fantasy sports leagues do constitute gambling, or whether they are simply a contest. And we tried to resolve the matter in our legislation by excluding fantasy sports leagues, or actually having -- defining bets and wagers in such a manner, and defining the fantasy sports leagues we think would be appropriately played, making sure that those fantasy sports leagues were outside the scope of the definition of bets or wagers.

REP. COX: And in your description just now, you said that you were not sure whether in the example it was monthly or quarterly. But in your statute, in your proposed bill, if it were quarterly, it would fall without the definition. It wouldn't be a rotisserie league. If it were monthly, it would.

And it just seems to me that's one of the perils of trying to do it this way, because you wouldn't want, I don't think, intellectually, to exclude from your definition someone who is giving away de minimis prizes on a quarterly basis.

What's the prosecutorial policy of the Justice Department with respect to fantasy sports leagues right now?

MR. DiGREGORY: I don't believe we have engaged in any prosecutions of fantasy sports leagues. As I said, the issue of whether --

REP. COX: Is anybody else doing that?

MR. DiGREGORY: I known that there are laws on the books in some jurisdictions, and Montana comes to mind, although I may be wrong about which state. But Montana comes to mind, which prohibits fantasy sports leagues. And state governments, as they have always been, are, of course, going to regulate in their own states the kind of conduct that they consider gambling and regulate it accordingly.

REP. COX: All right. Well, I don't want to abuse the opportunity that I have as the only member of the panel remaining to ask an endless line of questions of all of the panel. You've been very good to be here with us for many hours today, and we appreciate it very much.

This is a very complicated topic where we are all trying to do good, and we want to make sure that while we're doing good we don't mess it up. So we will -- pardon me? And we will keep the record open for the period of time between now and whenever you can submit responses in writing to that final question.

And if you could remain for just a moment, I'm going to yield the gavel to the Chairman.

REP. TAUZIN: Ladies and gentlemen, let me thank you. Generally, at the end of a long day like this, where we've all had a lot of questions and a lot to say, there's always something on somebody's mind that they just want to add to the record. If you have a final statement you'd like to make, the last thing you want us to remember, here's a good chance to do it.

Mr. DiGregory?

MR. DiGREGORY: Only that we believe that legislation in this area can be much more simply done by utilizing the proposal that we have submitted.

REP. TAUZIN: Thank you.

Mr. Bowman?

MR. BOWMAN: I would just encourage the committee to address the problem this year in internet gambling and get something done.

REP. TAUZIN: Okay.

MS. PAULSON: I think the horse racing industry feels the same way, that we need to move this thing forward and that particularly for us it's important to the preservation of the very cornerstone of our industry.

REP. TAUZIN: Okay.

Mr. Nestel?

MR. NESTEL: I'm just going to echo what everybody on the panel has already said. We need a bill this year, and we're not going to probably get an opportunity to do anything in the future.

MR. ROSETTE: I'd just like to say that while the Department of Justice and I had both agreed that Class 2 bingo is conducted legal with technology like internet gaming, Mr. Goodlatte's bill does make that activity illegal.

REP. TAUZIN: Okay.

Mr. Williams, do you want to --

MR. WILLIAMS: I would just like to reassure you that the tribes are always available to any subcommittee and that these government-to- government talks need to be upheld and continue.

REP. TAUZIN: Thank you, Mr. Williams.

MR. DiGREGORY: Mr. Tauzin, may I -- only because of something that was said. I did not mean to agree that Class 2 gaming can be conducted through internet gaming. There are technological aids were are permissible, and whether or not the internet can be used is dependent upon the circumstances of the game that the tribes are trying to play. So I just wanted to make that point before we --

REP. TAUZIN: I would very much appreciate both of you elaborating in that area to us in writing, because I need to fully understand the two arguments.

For the record, too, I would ask the Department of Justice, how for the record reply to us, how do you think Justice would enforce the blocking provisions in the bill for offshore web sites? You can submit it in writing. How burdensome for the 7,000 ISPs would it be to block each and every one? And how would they get the information? How frequently would they need to update that information?

Those are some of the questions we'd like you to kind of come back to us on. The record will stay open for 30 days. Now, you heard a lot from each other. That's why I like big panels, by the way. You can listen to each other and kind of react to each other.

If you don't mind, use the time in the next 30 days to send us any new information or clarifying information you think needs clarifying. I'll also keep the record open -- if members wish to submit questions to you, the record will stay open.

We will have an announcement as to procedure or strategy, what is to happen with the bill, probably sometime next week. So stand by.

We deeply appreciate your testimony, and, as I said, please respond in writing to whatever written questions we send to you in the future. Thank you so much.

The hearing stands adjourned.

END

LOAD-DATE: June 20, 2000

Document 33 of 142.


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