Sept. 30 (Bloomberg) -- Congress passed legislation today that curbs financial payments from banks to offshore Internet casinos that are illegal under U.S. law.

``Basically we are shutting down the payment system for Internet gambling,'' said Representative James Leach, an Iowa Republican. ``It is has an enormous effect.''

The measure, added to unrelated legislation providing $3.4 billion for U.S. port security, makes it unlawful for credit-card companies to collect payments for transactions with online-gaming sites. Congress passed the port security plan before recessing to campaign for the Nov. 7 elections.

Gambling on the Internet is a $12 billion-a-year business that is growing rapidly offshore. Internet-based casinos such as PartyGaming Plc and 888 Holdings Plc, operating in locations such as Gibraltar and Antigua, take in billions from U.S. gamblers.

The Justice Department has been pursuing wire fraud charges against executives and operators of online casinos.

Frist gave his support to the legislation at a hearing in Cedar Rapids, Iowa, with Leach on Sept. 1, saying Republicans in Congress had ``a responsibility to act.'' Frist, a Tennessee Republican, is weighing a run for the Republican presidential nomination in 2008 and is courting Iowa voters.

``Internet gambling has been illegal since inception of the Internet, but there has been no way to enforce it,'' Leach said. By making it ``illegal to use a financial instrument to settle an Internet wager,'' Congress is ``putting responsibility on the financial community,'' Leach said.

Defense Measure

Earlier this month, Republican leaders considered attaching the anti-online gaming bill to a pending defense measure. That was blocked when Senate Armed Service Committee Chairman John Warner of Virginia objected to the addition of any non-defense measures to the legislation.

The American Gaming Association, which represents major U.S. casino operators based in Las Vegas and elsewhere, had asked Congress to fund a federal commission that would study whether online gambling can be regulated and taxed in the U.S. The lobby group's hope is a study may eventually let major casino operators such as MGM Mirage and Harrah's Entertainment Inc. enter the online business.

Credit Cards

``If someone goes out and runs up a big credit card debt on one of these online casinos, they can't come back and say you have to pay us now,'' said Senator Jon Kyl an Arizona Republican and co-sponsor of the measure with Leach. ``The bank says, `We can't pay you.' In fact it's illegal for the bank to pay.''

The measure provides for fines and imprisonment up to five years for violations. A specific exemption of the prohibition is provided for online gambling on horse racing, which is legal under a separate federal statute, fantasy sports games and betting that takes place only within or between Indian tribal lands.

The legislation directs the Federal Reserve and Department of Justice to issue regulations within nine months to banks establishing policies and procedures for blocking online gaming transactions.

Adding the anti-gambling measure to the $3.4 billion port legislation helped ``grease the wheels,'' said Senator Trent Lott, a Mississippi Republican.

The measure was supported by the NCAA, the NFL and other U.S. professional sports leagues, along with Christian church groups and state and federal law enforcement authorities.

To contact the reporter on this story: William Roberts at wroberts@bloomberg.net.

Last Updated: September 30, 2006 00:38 EDT