Talking Online Poker: House Hearing Today

In a little under two hours, the House Financial Services Committee will be holding that hearing to discuss Rep. Barney Frank’s two UIGEA-related bills -- the Reasonable Prudence in Regulation Act (H.R. 2266) and the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2267), both first introduced back in the spring.

As you recall, the Treasury and Federal Reserve granted a six-month delay for the enforcement of the final regulations of the Unlawful Internet Gambling and Enforcement Act of 2006, meaning banks and other financial institutions do not have to prohibit transactions with what they determine to be “unlawful” online gambling sites until June 1, 2010. (That doesn’t mean they cannot do so, if they wish, but only that they do not face UIGEA-mandated penalties for not doing so at present.)

The first bill, H.R. 2266, seeks a one-year delay, and so would push the deadline for compliance even further ahead to December 1, 2010. The second bill outlines a comprehensive system for licensing and regulating online poker in the United States.

Looks like the hearing will be featuring a number of witnesses with particular interest in and/or knowledge of the gambling industry (generally speaking), online gambling, internet safety, and the banking industry. Their testimony has already been posted over on the House Financial Services Committee’s website, so we can go ahead right now and get a decent idea what sorts of topics will be discussed later this morning.

The first witness, the Hon. Robert Martin, Chairman of the Morongo Band of Mission Indians opposes both bills. According to his testimony, Martin’s tribe, located in southern California, has employed as many as 2,500 (most of which are not tribe members) in its live casinos. He views H.R. 2266 as merely providing a further “safe harbor to those currently engaged in illegal online gaming” -- that’s his interpretation of the UIGEA’s characterization of offshore sites that allow U.S. customers. H.R. 2267 he views as posing a threat to the welfare his industry, paving the way for an unfair landscape in which tribes like his would not be able to compete.

The next witness is Ms. Parry Aftab, Executive Director of WiredSafety, “the largest internet safety and help group in the world.” She speaks in support of H.R. 2267 (and against the UIGEA), arguing that “the best way to protect families and consumers in connection with cyber gambling is by legalizing it, not outlawing it entirely.” Her testimony endorses the functionality of age verification when it comes to online gambling.

Then comes Professor Malcolm K. Sparrow of the JFK School of Government at Harvard University. (Is this a witness list or a game of Clue?) He’ll be addressing the question “Can Internet Gambling Be Effectively Regulated?” His written testimony consists of a lengthy (nearly 100-page) academic essay which I assume he’ll be summarizing for the Committee. The study was commissioned by WiredSafety, and essentially builds upon Ms. Aftab’s testimony that yes, indeed, online gambling can be regulated, and yes, in the opinion of Prof. Sparrow and his co-authors, the “establishment of a well-regulated industry under U.S. jurisdiction would offer a far better protection against online gambling’s potential social harms than outright prohibition.”

Mr. Jim Dowling of the Dowling Advisory Group is next on the list. Dowling is a fellow with some experience with trying to prevent fraud and money laundering. He appears “neither as an advocate nor a foe of Internet gaming,” but rather to share his view “that the current legislation prohibiting Internet gambling-related payments is lacking in regulatory support, and to be successful, the government -- probably the Justice Department—needs to provide banks an OFAC-like list of illegal sites that then could be blocked relatively easily.” (By the way, OFAC refers to the Office of Foreign Assets Control.) This question of providing a list of forbidden sites has been addressed before, and the feds have remained fairly steadfast in their unwillingness to commit to any such task. Dowling isn’t necessarily saying H.R. 2267 is going to make for a safer landscape, either, as he still maintains “legalizing Internet gambling poses significant money laundering and terrorism threats.”

After Dowling, Mr. Samuel A. Vallandingham, CIO and VP of the First State Bank, will speak as a representative of the Independent Community Bankers of America. Much as other representatives of the banking industry have done in past hearings on the UIGEA, Vallandingham is going to be explaining how arduous and unfeasible it is for the banks to be expected to enforce the UIGEA as it is written, and thus will be endorsing both of Frank’s bills.

The last witness on the list is Mr. Michael Brodsky, Executive Chairman of YouBet.com, a site that accepts wagers on pari-mutuel horse racing. Brodsky will speak in support of Frank’s bills as well, noting how he wants online gambling licenced and regulated. Skimming his testimony, I’m not seeing him specifically referring to the UIGEA’s “overblocking” of bets -- a great concern to sites like YouBet.com, which is why the horse racing folks got behind the petition to delay compliance with the UIGEA.

I’m sure we’ll be hearing from various Congressmen along the way, too, including Frank and the ever obtuse Rep. Spencer Bachus (R-AL), the highest-ranking minority member of the House Financial Services Committee who usually tries to link online gambling with suicide, terrorism, or other horrors plaguing our fragile, godless world.

While today’s hearing will produce a lot of news stories about the UIGEA and online gambling, it will be most interesting to see what (if anything) happens over the next couple of weeks with regard to either of Frank’s bills. While I wouldn’t mind seeing H.R. 2266 make it through and the delay get extended to a full year, I remain somewhat hesitant about H.R. 2267 and the idea of federally licensed and regulated online poker in the U.S.

My buddy the Poker Grump believes “federal licensure and regulation of gaming will eventually choke the life out of online poker,” and while I’m not entirely ready to commit to that as a certainty, I do have a lot of reservation about what such a regulated and licensed world might be like. (In particular, I fear those state opt-outs which might result in my not being able to play at all.) I do agree that online poker under the IGRCPEA (or whatever we want to call H.R. 2267) ain’t gonna be preferable to what we have now. But it doesn’t seem as though what we have now is going to be an option beyond some, ever-nearing deadline.

If Frank’s bill doesn’t pass and the UIGEA eventually does get implemented, that will spell some serious short-term damage to online poker in the U.S., probably followed by a court challenge to the UIGEA (which may well be successful). Thus, the UIGEA could get “overturned” without our having a bill like Frank’s get passed, although I can’t imagine that happening without the industry having to endure a few years of big time hurtin’ during the interim.

Stuck between a rock and a hard place. That’s where we be, I think.