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US Regulation
Congress Could Vote Soon to Legalize Online Gambling
By James R. Hood
Sep 21, 2010, 11:03

Call it a long shot, but there's a chance Congress could vote to legalize online gambling. The House Financial Services Committee passed a measure that would lift the existing prohibition last month, making it at least possible the full House could vote on the bill despite opposition from Republicans.

With the government scrambling for funds, it's becoming increasingly difficult to look the other way as billions of dollars in potential tax revenue slips away. Congress' Joint Committee on Taxation estimates legalizing online gambling could bring in more than $40 billion in new tax revenue over the next decade.

Stacked up against a deficit in the trillions, that might not sound like much but a few extra billion here and there certainly couldn't hurt.

Officially known as the Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009 (H.R. 2267), the bill sponsored by Rep. Barney Frank (D-Mass.) would set up a federal regulatory and enforcement authority that would license gambling operators to accept bids from consumers in the United States.

“We now make it illegal for adults to gamble on the internet,” Frank said in a recent appearance on the Jay Leno Show. “If you have some guy who wants to play poker on the Internet, we say it’s illegal. Why [anybody] thinks that’s the government’s business is beyond me. We could make billions of dollars a year by making it legal and taxing it.”

Under Frank's bill, gambling sites would be required to maintain "effective protections against underage gambling, compulsive gambling, money laundering and fraud, and enforce prohibitions or restrictions on types of gambling prohibited by states, and Indian Tribes."

Online gambling has been illegal ever since October 2006, when Congress passed the Unlawful Internet Gambling and Enforcement Act. There are those who say the law hasn't done much other than starve the government of tax revenue, since gambling -- like drug usage, drinking, prostitution, rolling past stop signs and other human vices -- continues to occur, even when it's illegal.

Lately, however, the feds have been moving aggressively against financial institutions tied to online gambling, using the provisions of the Unlawful International Gambling Enforcement Act (UIGEA), which went into effect in June. The law, passed in 2006, aims to stop online gambling by preventing credit card companies and banks from processing funds transfers for unlawful internet gambling.

Just last week, Goldwater Bank in Scottsdale, Ariz., agreed to forfeit $734,000 in assets tied to money laundering and illegal online gambling operations, the FBI said. The one-branch bank was accused of transferring funds for several online gambling sites, including PokerStars, the world’s largest online poker room. At least $13 million was transferred in the first half of 2009 according to federal reports.

“Although Goldwater Bank denies guilty knowledge of its role in facilitating an illegal online gambling business, it was paid to execute transactions that were essential to the operation of this criminal enterprise,” said Janice Fedarcyk, the FBI’s Assistant Director in charge, in a statement. “The forfeiture settlement means the bank won’t profit by providing this service.”

Underground, under-regulated
Prohibiting online gambling has simply forced it underground, critics say. Most Web sites have stopped accepted advertising for gambling sites and credit card issuers have stopped processing payments from gambling sites located in the U.S. But since gambling is legal in much of the rest of the world, online sites continue to operate and can be easily accessed by any American armed with a keyboard and a mouse. The problem, as Frank and others see it, is that without effective licensing and regulation, U.S. gamblers lack even the most basic protections.

Of course, all bets could be off if the Republicans gain control of the House in the upcoming midterm elections, since most of the opposition to legalized gambling comes, oddly enough, from conservatives who say government should stay out of citizens' private lives. There's also opposition from some but not all casinos.

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