Congressional Committee Favors State-Based Legalization of Online Gambling

Wednesday’s hearing was not good for those hoping to make a case for a national online gambling prohibition. While the House Oversight Committee hearing was supposed to breathe life into the languishing proposal to ban online gambling, it ended up being more like a group dead-horse beating. Members on both sides of the aisle seemed well-informed and well-opposed to the idea of the federal government intervening where the states have been doing a good job of regulating this nascent industry.

In his opening remarks, Chairman Rep. Jason Chaffetz (R-Utah)—who sponsored the bill to create a federal online gaming ban—stated that a the DOJ’s 2011 opinion that the 1961 Wire act applied online to sports betting, resulted in “anything connected to the internet, desktops, laptops, tablets, smart phones—no matter your age—potentially becoming a casino.” He stated that “the internet doesn’t have neat walls around it,” and that “nobody with a straight face is going to come before the American people and say ‘well the internet it’s just for the people of Nevada or it’s just for the people of Rhode Island.” However, that’s exactly what many people during the hearing—witnesses and fellow committee members—did.

Rep. Bonnie Watson Coleman (D-N.J.) declared that her state’s budding online gambling industry provides proof that regulated online gambling can be ring-fenced into one state and poses no greater risk to consumers or law enforcement challenges than brick-and-mortar casinos. She also noted, as many others did, that regulated online gaming in the U.S. is much less risk than black market online gambling. Witness Mark Lipparelli a state Senator and the former Chairman of the Nevada Gaming Control Board said much the same when he testified that “from a regulatory and law enforcement perspective, Nevada, New Jersey and Delaware have been successful…Where there were concerns over licensing, protecting children and the vulnerable, player protection, taxes, money laundering, and geolocation, these states have had good success.”

Rep. Thomas Massie (R-Ky.) asked two of the witnesses if state could simply pass laws to prevent their own citizens from gambling online. He followed it up by airing his concern that if they pass a national online gambling prohibition under the presumption that it’s necessary for federal legislation to overturn state laws to deal with a state problem, couldn’t the same logic be used to ban other things such as gun sales. That concern was echoed by Rep. Mick Mulvaney (R-S.C.), who noted that Rep. Watson had introduced a bill that would ban internet gun and ammunition sales. “That’s what I’m worried about,” Rep. Mulvaney said. “We’re going to go through regulation and expanding the role of the federal government instead of limiting it.” He also targeted his questions at fellow South Carolinian, AG Wilson for his apparent inconsistency regarding federalism. “You’ve taken some positions that I support in other areas, from health care to gay marriage to EPA regulation you’ve been taking the position against federal control…then to have you come up and take a position here that sounds like you’re for federal control, I can’t square those two things,” he stated.

Ranking Member Elijah Cummings (D-Md.) went just about as close as anyone in the hearing to bringing up the 30 billion dollar elephant in the room—casino owner and the driving force being the push to ban online gambling—Sheldon Adelson. He asked, “It’s about money. Would you agree that if we were to outlaw online gambling that the bricks and mortar people would make more money?” Cummings also raised the idea that online gambling that was regulated would steer consumers away from unregulated, illegal sites. “Some of today’s testimony criticized the DOJ opinion for opening the door for internet gambling in the states, but illegal unregulated internet gambling existed in the states well before 2011 opinion and continues to pose a risk of harm to citizens, is that correct?”

Rep. Jody Hice (R-Ga.) a former Southern Baptist pastor, said that he is opposed to gambling in all its forms, but noted that he’s also a supporter of the 10th Amendment to the Constitution and federalism. “The people of Georgia voted to have a lottery…the federal government should not be dictating to the states how they operate their state lotters or casinos—state sanctioned casinos—if those states have chosen to go that route. We’ve got to protect the 10th Amendment whether or not we like the gambling issue as a whole.”

Rep. Stacey Plaskett (D-Vt.) who has worked in the DOJ, noted that “over the past decade the government of the U.S. Virgin Islands has really been handcuffed by incorrect interpretation, they believe, of the Wire Act.” She also bristled at the idea that Office of Legal Counsel decisions are made “in the middle of the night” considering how long it usually takes an opinion to come out of OLC. Rep. Plaskett, like Ranking Member Cummings, addressed the Appellate Court ruling determining the Wire Act applicable only to sports-related gambling. She also brought up the many proposals introduced in Congress prior to 2011 that attempted to amend the Wire Act to expand its prohibition beyond sports betting.  

Rep. Ken Buck (R-Co.) asked Campbell if there are other statutes the federal government could use to prosecute unregulated illegal online gambling. Campbell noted illegal gambling business act, the travel act, various money laundering statutes, bank fraud, mail fraud, wire fraud among others. When asked if there was evidence of regulated online gambling or brick-and-mortar casinos being used to launder money, Campbell couldn’t provide a definitive answer. But Rep. Buck interjected that he had prosecuted such offenses. Most interestingly, Rep. Buck asked AG Wilson if he was concerned that if Congress criminalized online gambling at the federal level they might legalize it at the federal level. Oddly, Wilson answered that the Congress has always left such matter up to the states.

Rep. Carolyn Maloney (D-N.Y.) quoted a letter sent to the Committee from the National Fraternal Order of Police, which urged Congress to preserve the right for states to create their own strong regulatory frameworks for online gambling to assist law enforcement and drive illegal operators out of the market.

 Rep. Gary Palmer (R-Ala.), who is not one of the three RAWA co-signers on the Committee, was the one member (aside from Chaffetz) who raised concerns about gambling on the Internet. One case he raised was the Apple settlement resulting from in-app charges racked up by kids on their parents’ cell phone plans and asked if the DOJ considered the right of families to keep online casinos out of their homes and off their children’s cellphones.

Rep. Clay (D-Mo.) introduced for the record 31 letters supporting federalism in online gaming regulation and asked the witnesses if there’s any full-proof method developed by the states to keep minors off online gambling sites?

Rep. Buddy Carter (R-Ga.) asked about geolocation technology and noted that his state stands to lose 10 million in revenue for education. “If able to control where online gambling and age…then how is it the federal government’s problem?” he asked.  

The last 10 minutes of the hearing consisted of comments and questions from Chairman Chaffetz. Oddly, he recognized the fact that anyone in America, right now, could gamble on illegal off-shore websites. Even more odd, he asserted that the DOJ’s decision (which simply gave states the right to legalize online gambling) convinced some of these off-shore operators that they have the legal right to “bypass the states at the federal level and be able to offer their gambling sites in states across the country” though he nor any of the witnesses could attest to this happening within the United States.

He also tried to paint his Restoration of America’s Wire Act (H.R. 707) as bipartisan, mentioning two of the four Democratic cosponsors of his legislation in both houses of Congress (he neglected to mention Rep. Brad Ashford of Nebraska and Rep. Pedro Pierluisi of Puerto Rico).

Of the “expert” witnesses only one actually seemed to have more than a surface level of understanding of online gambling—that was State Sen. Mark Lipparelli of Nevada, who remained informative and composed throughout the hearing. By the end one almost felt bad for the FBI’s Mr. Campbell who was asked some questions that shouldn’t have been asked of him (such as, what the DOJ does or was thinking), but who also seemed woefully unfamiliar with the issue of online gambling—which he was there to testify about. He was, at least, an expert at giving the “non-answer.” Mr. Kliene and AG Wilson both seemed content to repeat talking points and conflate the dangers of legal online gambling with illegal off-shore gambling, but Wilson was at once more forceful and inconsistent. Ultimately, it seems that the more attention Chaffetz’s RAWA bill gets and the more familiar members of Congress become with the bill, the less favor it has. While this hearing might not be the nail in the coffin for RAWA, it’s certainly one of the nails sealing the fate of this ill-conceived proposal.