House Panel Passes Measure to Legalize Some Internet Gambling

A House committee yesterday approved legislation that would legalize some Internet gambling, allowing U.S. residents to place online wagers with companies the Treasury Department has licensed.

The measure, sponsored by Representative Barney Frank, chairman of the House Financial Services Committee, would roll back a law designed to block such betting. That four-year-old law, which took effect in June, bars banks from processing payments to offshore gambling websites.

“My primary goal is Americans ought to be free to do what they wish without this kind of intrusion,” said Frank, a Massachusetts Democrat whose committee passed the legislation 41-22, with one lawmaker voting “present.”

“The intrusive regulation is a problem for the financial institutions,” Frank said.

Frank and other proponents, such as the Poker Players Alliance, say licensing and regulating online gambling will protect consumers who are placing a growing number of bets with offshore operators.

A separate measure that depends on full House passage of Frank’s plan would impose taxes on online poker and other Internet gambling, bringing the federal government as much as $42 billion over 10 years, according to a congressional analysis.

“This is money sitting on the table,” Michael Waxman, a spokesman for the Washington-based Safe and Secure Internet Gambling Initiative, said in an interview. The group represents financial services companies such as U.K.-based payment processor UC Group.

Bill’s Foes

Opponents of Frank’s bill included Representative Spencer Bachus of Alabama, the top Republican on the Financial Services Committee who said the gambling legalizing would harm society and that Congress has more pressing issues to tackle.

Bachus has said the measure would “fleece” Americans by removing restrictions on online gambling and exposing them to “unwise and harmful financial choices.”

“With this bill, in one broad stroke, we will allow every child in America to gamble on their home computer or in their dorm room,” Bachus said.

Bachus says the revenue estimates for the proposed taxes on gambling are bloated because they assume all states would participate.

Amendments

The committee passed amendments to prohibit operators that have violated U.S. laws from getting licenses and to ensure betting on sports such as football isn’t allowed. The panel also approved amendments to help prevent minors from gambling online and prohibit advertising that targets youth.

Another amendment prohibits using credit cards to make bets. Gamblers could use debit cards or prepaid accounts.

“I have opposed this bill for years, but I am slowly changing, said Representative Brad Sherman, a California Democrat. “The best reason for this bill is the prospect for revenue.”

With both Democrats and Republicans supporting the bill in yesterday’s committee vote, the bipartisan backing adds momentum to the legislation, said John Pappas, executive director of the Poker Players Alliance. The focus now shifts to the legislation to tax the betting, which is before the House Ways and Means Committee, he said.

Senate Measure

Senator Robert Menendez, a New Jersey Democrat, introduced a bill in the Senate last year that would legalize fewer forms of gambling, including poker. The House legislation “may be a little too broad for the Senate to tackle,” said Pappas.

The U.S. offshore Internet gambling market is expected to climb to $5.7 billion in 2010 from $5.4 billion last year, according to U.K.-based H2 Gambling Capital, which supplies data on the industry.

If the U.S. legalizes the gambling, the market could grow to $24 billion in five years, according to H2. That excludes most sports betting, which wouldn’t be allowed under House proposals.

The global market now is about $30 billion.

The biggest offshore gambling sites for U.S. players include PokerStars, based in Isle of Man, and Full Tilt Poker, based in Ireland, according to H2.

Critics of the 2006 law designed to bar the wagers say it makes no distinction between legal and illegal online betting. Some states allow online betting on horse and dog racing, for example.

Safeguards Required

Under Frank’s proposal, licensed gambling companies would be required to have safeguards to protect against underage and compulsive gambling and to prevent people from placing bets online in states that prohibit it. Such oversight is designed to protect consumers against fraud, identity theft and other crimes.

The bill to tax online gambling is sponsored by Representative Jim McDermott, a Washington Democrat and member of the tax-writing Ways and Means Committee.

McDermott’s proposal would require Internet gambling operators to pay a 2 percent tax to the federal government on betting deposits and a 6 percent tax to states. The federal treasury also would collect taxes on gaming-company profits, and bettors would pay taxes on winnings.

To contact the reporter on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net

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