A Hearing Impaired

“I think the real reason for this legislation [i.e., the Unlawful Internet Gambling Enforcement Act of 2006] is that people don’t like gambling and don’t think other people ought to gamble. There is a moral disapproval of gambling . . . .” -- Congressman Barney Frank (D-MA)

Rep. Frank uttered this statement -- one he’s made many times before -- about two-thirds of the way through Friday’s House Financial Services Committee hearing on the question “Can Internet Gambling be Effectively Regulated to Protect Consumers and the Payments System?” Frank here acknowledges fundamental differences between those who oppose gambling and believe laws should be made to prohibit it and those who do not oppose gambling and/or do not think the government should be imposing such prohibitions.

A little later in the hearing, Frank pointed out that even if there were a “100% foolproof” way to prevent minors from accessing online gambling sites, “the [opposing] sides wouldn’t change” their positions. “That is,” continued Frank, “I believe the motivation for trying to further restrict the ability of people to gamble is based on a moral disapproval of gambling [and] fear about addiction,” and such disapproval isn’t going to be mitigated by any arguments about regulation or control.

In a sense, Frank here seems to be acknowledging his own Don Quixote-like status as someone on a quest -- i.e., to see his proposed Internet Gambling Regulation Enforcement Act (H.R. 2046) be passed into law -- that cannot possibly be realized. Frank knew that before and during Friday’s hearing, but his decision to withdraw the IGREA (reported in this morning’s Cleveland Plain Dealer) further demonstrates his understanding that Congress isn’t ready for such a bill. Frank had said previously that he wouldn’t put the IGREA up for a House vote until he was assured it would pass. He now knows his bill currently has small hope of making it out of committee, and so has decided to go back to the drawing board.

Even if the IGREA is no longer on the table, Friday’s hearing was of use for those interested in seeing where debates about online gambling in the U.S. presently stand, as well as in the shape those debates might be taking in the near future.

Having watched the hearing, I thought I’d share some of what was said with a few reactions thrown in along the way. The first 35 minutes were taken up with ranking committee members’ statements; then the invited witnesses were allowed to speak for the next 40 minutes or so; then the committee members spent about 45 minutes more asking the witnesses questions.

What I’ve decided to do here is to present the positions and personalities of the five committee members who offered opening statements and of the six invited witnesses. (I’m not here referring to the two committee members who arrived late to ask questions.) When discussing the Congressmen, I’ve combined references to their opening statements and to their questions of the witnesses.

* * * * *First, the witnesses:

Radley Balko, Senior Editor, Reason magazine

Besides being editor of Reason, Balko also keeps a popular blog called The Agitator. He was once a policy analyst for the CATO institute. Balko essentially made the standard libertarian argument that “What Americans do in their own home, with their own money, on their own time is none of the government’s business.” In the context of talking about online gambling, he specifically alluded to poker and its significance to American history and culture, arguing that the online version is simply an extension of the same game.

To those with moral objections to gambling (online or otherwise), Balko says simply “don’t gamble.” He concluded his statement by citing some of the benefits of regulation. Balko was a worthwhile contributor to Friday’s discussion, even if all of his points have already been made many times by those who oppose the UIGEA (including Frank and Rep. Ron Paul).

Gerald Kitchen, CEO, SecureTrading Ltd.

Kitchen was called as an expert on internet commerce. His company is based in the U.K., and through an authoritative-sounding British accent insisted that “it is only in a licensed and regulated world that we participants are able to enforce such policies to protect all participants.” He explained how the U.K.’s regulation of online gambling had largely achieved the goal of protecting consumers.

While Kitchen spent more time speaking of the benefits of regulation than actually demonstrating the feasibility of regulation, he did state that his company can determine with “99.9% accuracy” the identity of its customers with identifying IP addresses. He pointed out how being able to KYC -- Know Your Customer -- is much more difficult in a prohibition environment (such as we have in the U.S.)

Jon Prideaux, CEO, Asterion payments

Prideaux has been an independent payments consultant with VISA, although (as he pointed out) he’s never specifically done any consultant work with regard to online gambling. Like Kitchen, Prideaux spoke in favor of “control processes” that ensure online sites can know their customers. He believes the state plays a role in ensuring such controls are in place, as has been demonstrated in the U.K.

Prideaux made an interesting observation that drew on his experience as a consultant. In his experience, “regulated internet gambling is significantly less dispute-prone than other digital sales, such as music downloading or internet service provider subscriptions.” He stated that he had never received complaints regarding online gambling, nor had his company ever uncovered what might appear to be money-laundering or other such “suspicious” activities in the world of online gambling. All of these benefits, he concluded, stemmed from operating under a “regulation regime” and not a “prohibition regime.”

Jeff Schmidt, CEO, Authis

Schmidt has worked with Microsoft and was once the Chief Information Officer at Ohio State University. His recent experience has focused on identity verification. Schmidt professed not to have any opinion regarding gambling, but was only present to speak about the reliability of age and identity verification and geographic verification (or “IP geo-location”). “These technologies,” argued Schmidt, “are not reliable in their current form today.”

Schmidt claimed that at present attempts to verify online users fail on the order of around 20%. He mentioned how fake ID’s and the like are a significant problem in bars and other establishments, and that online the problem is even worse. He then illustrated his position with what seemed to me to be needlessly silly examples. In the first, he handed a piece of paper with his username and password to a fellow witness in order to show how difficult it is to verify identity over the internet. In the second, he spoke of having checked IP locators from his Washington, DC hotel room and discovered them locating him elsewhere.

Rev. Gregory Hogan, American Baptist pastor

Rev. Hogan was called as a witness to share the sensational story of -- as he put it -- his son’s “descent into the black hole of addiction to internet gambling, especially poker.” I won’t rehearse the sordid details of the pastor’s son’s story (you can read it here). For those who oppose online gambling, young Jr.’s fall from star student to bank robber (he currently is serving a jail sentence for his crime) is the nuts.

Hogan moved through the example of his son rather quickly, made a reference to how he was glad his son only ended up in prison and not a suicide, then cited a study stating 5% of all college students “will become compulsive gamblers when exposed to online gambling.” He concluded with a reference to Paul’s epistle to the Romans to whom he asked “Shall we continue to do evil that good may prevail?”

Michael Colopy, Senior V.P. of Communications for Aristotle, Inc.

Aristotle, Inc. is the leading provider of verification technology for most elected officials. Indeed, at one point Rep. LaTourette acknowledged that he used Aristotle’s services. As might be expected from a V.P. of Communications, Colopy was quite well spoken, and began by explaining how a lot of claims about the inadequacy of verification systems (such as had been made by Schmidt) were no longer valid. “While time flies,” Colopy remarked, “technology rockets forward.”

Colopy then showed a clip from that 60 Minutes episode of November 2005 about online gambling, the one in which Nigel Payne, the CEO of Paradise Poker, was interviewed. Colopy’s point was to say that even though we are only 18 months down the road from that story, much of what it reported is no longer the case. Later, during the question period, Colopy would directly refute Schmidt’s claims about the failure rates of verification systems: “What was said earlier about how reliable it is does not square with the facts of 2007, but it probably is relevant to the facts of 2001.”

* * * * *And now, the Congressmen:

Rep. Barney Frank (D-MA)

Frank’s opening remarks contained nothing those of us who have followed the issue had not already heard. He referred to John Stuart Mill’s On Liberty and its argument that it should not be the goal of government to threaten its citizens to become better adults. Rather, when it comes to moral behavior, citizens simply have to be allowed to decide for themselves. He stated that, in his opinion, the UIGEA represented “the most substantive interference of the internet that has ever been enacted into law.”

During the question period, Frank challenged Schmidt to clarify his 20% failure rate claim. (Schmidt’s response shed only modest light on his earlier claim.) He asked Rev. Hogan if he would be in favor of restricting other forms of online gambling, too, like betting on horse races. (Hogan didn’t really respond to the question.) Frank also questioned the relevance of geographically identifying users.

Rep. Spencer Bachus (R-AL)

If online poker players were not aware of Rep. Bachus prior to Friday’s hearing, they certainly are now, as his performance Friday has most certainly provided them with a new enemy.

Bachus began by reading (somewhat unsteadily) from a prepared statement in which he insisted the UIGEA “does not prohibit anything that was not already illegal.” And, as he subsequently made clear, Bachus believes that online gambling has always been illegal, even if many legal scholars beg to differ. He then cited a study conducted by the University of Connecticut Health Center that claims 74% of those who use the internet to gamble have “serious, chronic problems with addiction” and that many of those resort to criminal activities to support their habit.

I took a peek at the 2002 study to which Bachus refers, and indeed it does identify 74% of those who participated in the study who had experience gambling online as being either Level 2 (problematic) or Level 3 (pathological) gamblers. Of course, if one looks a little closer at the findings, one sees that the study was not specifically about internet gambling, but about gambling behaviors among individuals who require free or reduced-cost health care. All of those studied had come to the University of Connecticut Health Center seeking medical attention yet did not possess adequate insurance or money to pay for the costs of their care. Most were dental patients. So we’re not exactly talking about a random sample here.

Only 389 individuals’ questionnaires were used, and of those, only 31 of those studied had any experience with online gambling. So basically what we are talking about here are 23 people -- most of whom are dental patients without insurance -- who have gambled online and who also could be considered “problematic” or “pathological” gamblers. Hardly an adequate sample size for Rep. Bachus to claim unflinchingly that 74% of all of those who gamble online have “serious, chronic problems with addiction.”

Bachus cited another Harvard study that found those who gamble at an early age are more likely to become problem gamblers. He referred to a third study conducted my McGill University that found one-third of teenaged compulsive gamblers attempt suicide. He questioned whether existing technology could adequately verify the age of those who attempt to gamble online. He then concluded by saying he saw “no compelling reason to change the course that Congress wisely charted last year when it passed” the UIGEA.

Bachus’s questions of the witnesses were mostly baffling, and largely inappropriate. Howard Lederer had been scheduled to testify as a witness earlier in the week, though ended up cancelling his appearance. (His presence in Event No. 11, the $5,000 Seven Card Stud event, explains why he didn’t make the hearing.) Perhaps anticipating Lederer’s participation, Bachus read from a few excerpts from player Full Tilt biographies that appear on the Full Tilt Poker website. He started out by reading from the bio of Ross Boatman (a member of the Hendon Mob), highlighting references to his having started playing poker at the age of 10. “I guess the age verification didn’t work,” said Bachus with a smirk. It was pointed out to him by one of the witnesses that there was no such thing as online poker when Ross Boatman was ten years old. (Boatman was born in the mid-1960s.)

(Incidentally, following Friday’s hearing Full Tilt revised Boatman’s biography, removing all references to his having played poker as a minor.)

Bachus then read from bios of “Howard” and “Allen” -- he didn’t bother to mention last names -- focusing on Lederer’s early struggles and Cunningham’s decision not to pursue a college degree. He again tried to imply somehow that these Full Tilt pros were playing online poker illegally prior to turning 18 -- a ludicrous claim with regard to Lederer (born in 1964), and highly unlikely with regard to Cunningham (born in 1977).

Bachus then said to Gerald Kitchen, CEO for the U.K.-based SecureTrading Ltd. (a financial transaction provider) “You actually make a lot of money processing the payments of these illegal gambling sites,” a charge which Kitchen easily denied. “The companies that we process for do not take U.S. bets,” Kitchen replied.

Bachus introduced a letter from the National Coalition Against Gambling Expansion, sharing aloud its reference to Jack Abramoff, the lobbyist who had fraudulently campaigned against earlier versions of what became the UIGEA. Frank would later take issue with Bachus’s pointless dropping of Abramoff’s name: “That kind of McCarthyite guilt-by-association has no place in this discussion,” said Frank. Rep. LaTourette would agree that Bachus’s attempt to bring Abramoff into the discussion was “disgusting.” Bachus concluded by pointlessly asking the panel if they were aware of a 1992 law passed regarding sports betting. (They were not.) He then left the hearing, not bothering to stay for his colleagues’ questions.

The impression Bachus left was of an utterly obtuse, uncomprehending Congressman who not only refuses to budge when it comes to his support of the UIGEA, but doesn’t seem capable even of understanding arguments about any of the issues raised by the law.

Rep. Jim Wexler (D-FL)

Rep. Wexler’s statement was brief. He made two essential points. One was to clear up the misunderstanding (perpetuated by Rep. Bachus) that all forms of online gambling are illegal. Obviously they are not. Secondly, Wexler spoke of “parental responsibility” and how the government should not be in the business of watching over children to make sure they don’t do anything like gamble online.

Wexler is an animated speaker, and punctuated his points with a lot of hand-waving and a voice filled with indignation. He made multiple references to games like poker and mahjong -- those games identified as “skill” games in his recently-introduced Skill Game Protection Act -- and how the government should not restrict citizens from being able to place bets on such games. I frankly thought his comments about skill games seemed out of place at the hearing, particularly since Frank’s bill makes no distinction between different forms of gambling.

Wexler did not stay for the question period.

Rep. Ron Paul (R-TX)

Rep. Paul is one of the few Republicans on the Financial Services Committee in favor of the IGREA. Paul presented himself as being for freedom of choice and keeping the government out of citizens’ private lives as much as possible. He believes Frank’s bill, as a genuine regulatory instrument, protects the internet in a needed way.

Paul made what I thought to be a somewhat contradictory statement. He was speaking of the right of individuals to spend their own money how they wish, but added “I’d like to see the day when the individual has an economic right to spend all their money and not just the money left over after the government took their share.” A nice thought. However, the IGREA, if passed, would then open the door to such taxation. Not sure if Paul completely appreciated the effect of his words here.

Paul also did not stick around for the question period.

Rep. Steven LaTourette (R-LA)

Rep. LaTourette spoke with an even tone, but he nevertheless struck me as lacking the sort of gravitas one would expect in a Congressman. Referring at one point to the fact that one can only withdraw $200 at a time from an ATM, LaTourette actually said “it pisses me off.” He also shared the information that his choice of college had depended on that state’s lower drinking age. Not really how a Congressman should be presenting himself, I’d say.

LaTourette revealed his position on Frank’s proposed law by stating that he was “saddened that before the regulations [stipulated by the UIGEA] were written we are attempting to adjust” the law. Referring to his own inability to prevent his children from obtaining credit cards, LaTourette extrapolated that it is not possible at present to prevent minors from accessing online gambling sites.

LaTourette did make one insightful remark when he said to the witnesses “We very often have people come in with different opinions. Unless I’m wrong, we have people [today] coming in with different facts.” He then gave Schmidt and Colopy opportunities to address their differences of opinions. (The witnesses both essentially held to their original positions.)

* * * * *
In the end, the hearing did manage at least to highlight some of the key issues associated with regulating onling gambling, though I think little was concluded along those lines. Much as Frank believes those who originally helped pass the UIGEA were motivated primarily by moral arguments, so, too, did Friday’s hearing get somewhat derailed by those wishing to impose moral judgments.

Hope at least some of those who matter nevertheless heard what Frank and others who oppose the UIGEA had to say.