Order Code RS21487
Updated November 29, 2004
CRS Report for Congress
Received through the CRS Web
Internet Gambling: A Sketch of Legislative
Proposals in the 108th Congress
Charles Doyle
Senior Specialist
American Law Division
Summary
The last legislative action on Internet gambling in the 108th Congress occurred
when the House Committee on Financial Services included a revised version of House
passed H.R. 2143 (Representative Bachus) in its report on the 9/11 Recommendation
Implementation Act (H.R. 10), H.Rept. 108-724, pt.3 (2004)(§§2131-2135). No further
action was taken on the provisions. H.R. 2143, the “Unlawful Internet Gambling
Funding Prohibition Act,” which passed the House earlier called upon federal regulators
to devise and implement a regulatory scheme to identify and block financial transactions
related to illegal Internet gambling and that was akin to similar provisions in S. 627
(Senator Kyl), 149 Cong.Rec. H5136-153 (daily ed. June 10, 2002). It was a stripped
down version of H.R. 21 (introduced by Representative Leach and reported by both
House Judiciary and Financial Services Committees, H.Rept. 108-51). Like H.R. 21,
S. 627 contained regulatory provisions as well as criminal and civil enforcement
mechanisms. Like H.R. 2143, S. 627 exempted financial transactions relating to a
gambling business licensed or authorized under state law, like a state lottery or horse
racing track, even if the transactions concerned Internet gambling where wagers were
placed in states in which the gambling was illegal. This is where the H.R. 10 provisions
differed from those of H.R. 2143, for H.R. 10 exempted financial transactions relating
to a licensed gambling business only if the gambling were lawful both in the state in
which the business operated and the state where the bet initiated. H.R. 21, and with
minor exceptions S. 627, were identical to legislation passed by the House during the
107th Congress (H.R. 556). A final proposal, H.R. 1223 (Representative Conyers),
established an Internet gambling licensing and regulation study commission.
Related CRS products include CRS Report RS21275, Internet Gambling: A Sketch
of Legislative Proposals in the 107th Congress (from which much of this report is
drawn); CRS Report 97-619, Internet Gambling: Overview of Federal Criminal Law;
and CRS Report RS20485, Internet Gambling: A Sketch of Legislative Proposals in the
106th Congress.
Congressional Research Service ˜ The Library of Congress

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Background. Wagers amounting to an estimated $4.2 billion a year pass through
the 1,800 sites available for Internet gambling.1 Critics contend that gambling on the
Internet offers a particularly addictive and child-alluring form of gambling; one that
makes personal bankruptcy more likely; one that provides a convenient environment for
fraud and money laundering by organized crime and terrorists; one that is beyond the
effective reach of state regulators; and one that is frequently operated offshore making it
more resistant to law enforcement efforts.2
Although state and federal laws prohibit most Internet gambling,3 enforcement has
proven difficult. Our extradition treaties ordinarily cannot reach offshore operators.4 The
federal Wire Act (18 U.S.C. 1081-1084), which features a number of enforcement
advantages, also suffers from limitations. It does permit communication service providers
to deny service to gamblers at the request of state and federal law enforcement officials,
and Internet communications generally rely on wire communications in whole or in part
and thus come within the scope of the act. Yet the Wire Act’s coverage of anything other
than matters involving sports gambling is uncertain. Read literally, the act seems to reach
more than sports gambling. The Justice Department, however, has rarely prosecuted a
case that did not involve sports and consequently there is little case law on the point.5
1 Proposals to Regulate Illegal Internet Gambling: Hearing Before the Senate Comm. on
Banking, Housing, and Urban Affairs, 108th Cong., 1st Sess. (2003)(statement of Dep.Ass’t
Attorney General John G. Malcom).
2 Unlawful Internet Gambling Funding Prohibition Act and the Combating Illegal Gambling
Reform Act: Hearing Before the Subcomm. on Crime of the House Comm. on the Judiciary, 107th
Cong., 1st Sess. (2001) (Judiciary Hearings); H.R. 556- The Unlawful Internet Gambling Funding
Prohibition Act and Other Internet Gambling Proposals: Hearing Before the Subcomm. on
Financial Institutions and Consumer Credit of the House Comm. on Financial Services, 107th
Cong., 1st Sess. (2001) (Financial Services Hearings); Proposals to Regulate Illegal Internet
Gambling: Hearing Before the Senate Comm. on Banking , Housing, and Urban Affairs, 108th
Cong., 1st Sess. (2003).
3 See generally, Internet Gambling: Overview of Federal Criminal Law, CRS Rept. 97-619A.
4 Moreover, late in the 108th Congress, a panel of the World Trade Organization concluded that
application of U.S. gambling laws to offshore Internet gambling establishments would be
contrary to our treaty obligations under the General Agreement on Trade in Services (GATS),
World Trade Organization, United States – Measures Affecting the Cross-Border Supply of
Gambling and Betting Services: Report of the Panel, WT/DS285/R, at 272 (Nov. 10, 2004).
5 A few courts have found violations of the Wire Act in cases involving other forms of
gambling, People ex rel. Vacco v. World Interactive Gaming Corporation, 185 Misc.2d 852, 714
N.Y.S.2d 844 (N.Y.S.Ct. 1999)(Internet casino offering slots, blackjack and roulette); AT&T
Corp. v. Coeur D’Alene Tribe, 45 F.Supp. 2d 995 (D.Idaho 1998)(on-line lottery), rev’d on other
grounds, 283 F.3d 1156 (9th Cir. 2002); United States v. Smith, 390 F.2d 420 (4th Cir.
1968)(numbers); United States v. Chase, 372 F.2d 453 (4th Cir. 1967)(same), but see, In re
MasterCard International, Inc. Internet Gambling Litigation, 132 F.Supp.2d 468 (E.D.La. 2001),
aff’d, 313 F.3d 257 (5th Cir. 2002)(in the context of a Racketeer Influenced and Corrupt
Organizations (RICO) civil suit, the Wire Act held to apply only to sports gambling).

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Internet gambling proposals seeking to overcome these difficulties in one manner or
another have been working their way through the Congress since the 105th Congress.6 The
Senate approved an Internet gambling ban as part of the Commerce-Justice-State
appropriations bill in 1998, 144 Cong.Rec. S8801-803 (daily ed. July 23, 1998), but the
provision died in conference. The following year, the Senate passed the Internet
Gambling Prohibition Act of 1999 (S. 692)(Senator Kyl), 145 Cong.Rec. S14870 (daily
ed. November 18, 1999); see also, S.Rept. 106-121.7 In the House, Representative
Goodlatte introduced H.R. 3125, a similar bill with the same name. The House Judiciary
Committee reported it favorably, H.Rept. 106-655 (2000). It was brought to the floor
under suspension of the rules, but failed to secure the necessary two-thirds vote, 145
Cong.Rec. H6057 (daily ed. July 17, 2000). These bills outlawed Internet gambling in
a separate statute. Other proposals sought (1) to deny Internet gambling entrepreneurs
the benefits of access to their customers’ checks, credit cards, and electronic fund
transfers, H.R. 4419 (Representative Leach), or, (2) at the suggestion of the Justice
Department, to clarify the Wire Act’s ban on Internet gambling, H.R. 5020
(Representative Conyers). In the 107th Congress, the House Judiciary Committee
approved a Wire Act amendment bill that included a credit card ban, H.R. 3215
(Representative Goodlatte) (H.Rept. 107-591), while the House Financial Services and
Senate Commerce, Science and Technology Committees endorsed free standing credit
card bans, H.R. 556 (Representative Leach)(H.Rept. 107-339); S. 718 (Senator
McCain)(S.Rept. 107-16). Other proposals included one to deny the use of credit cards
and the like in relation to both legal and illegal Internet gambling (the other proposals
address only the financing of illegal Internet gambling), H.R. 2579 (Representative
LaFalce), and a Senate proposal that featured the credit card ban as part of a Wire Act
amendment, S. 3006 (Senator Johnson). The House ultimately passed a compromise
version of H.R. 556 (Leach-LaFalce) that added some amendments to the Wire Act to its
free standing credit card ban.
The proposal that passed the House in the 107th Congress was essentially
reintroduced in 108th Congress, as H.R. 21 (Representative Leach) in the House and S.
627 (Senator Kyl) in the Senate. A related study commission bill, H.R. 1223
(Representative Conyers), also surfaced. H.R. 21 was reported out favorably and without
6 H.R. 4419, The Internet Gambling Funding Prohibition Act: Hearing Before the House Comm.
on Banking and Financial Services, 106th Cong., 2d Sess.(2000); Internet Gambling Prohibition
Act of 1999: Hearing Before the Subcomm. on Crime of the House Comm. on the Judiciary, 106th
Cong., 2d Sess. (2000); H.R. 3125, the Internet Gambling Prohibition Act of 1999: Hearing
Before the Subcomm. on Telecommunications, Trade & Consumer Protection of the House
Comm. on Commerce, 106th Cong. 2d Sess. (2000); Internet Gambling: Hearing Before the
Subcomm. on Technology, Terrorism, and Government Information of the Senate Comm. on the
Judiciary, 106th Cong., 1st Sess. (1999); Internet Gambling: Hearing Before the Senate Comm.
on Indian Affairs, 106th Cong., 1st Sess. (1999); Internet Gambling Prohibition Act of 1997:
Hearings Before the Subcomm. on Crime of the House Comm. on the Judiciary, 105th Cong., 2d
Sess. (1998); Internet Crimes Affecting Consumers: Hearing Before the Subcomm. on
Technology, Terrorism, and Government Information of the Senate Comm. on the Judiciary,
105th Cong., 1st Sess. (1997); The Internet Gambling Act of 1997: Hearing Before the Subcomm.
on Technology, Terrorism, and Government Information of the Senate Comm. on the Judiciary,
105th Cong., 1st Sess. (1997).
7 The same year, the National Gambling Impact Study Commission recommended a ban on
internet gambling and related financial transactions, Final Report, at 5-12 (1999).

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amendment by the House Committee on Financial Services, H.Rept. 108-51, pt.1 (2003);
as was H.R. 2143, H.Rept. 108-133 (2003). The House Committee on the Judiciary
reported a somewhat different version of H.R. 21, H.Rept. 108-51, pt.2 (2003). The
Financial Services Committee version contained an exception for lawful financial
transactions involving state licensed or authorized businesses that the Judiciary
Committee version did not. H.R. 2143 (Representative Bachus), as ultimately passed by
the House, was limited to a demand for regulations that permitted financial transactions
involving illegal Internet gambling to be identified and blocked, 149 Cong.Rec. H5136-
153 (daily ed. June 10, 2003). The Financial Services Committee added the language of
H.R. 2143, with a modified version of the exception for state licensees, to its report on the
9/11 Commission implementation legislation (H.R. 10), H.Rept. 108-734, pt.3, at 13-16
(2004). The modification narrowed the exception so that it no longer permitted state
licensed gambling businesses to accept bets initiated in states where the gambling is
illegal. The Financial Services Committee provisions, however, never appeared in later
versions of H.R. 10 or its successor S. 2845.

Issues. Although over the years Congress has enacted a number of statutes
designed to protect the states from the unwelcome intrusions of interstate or international
gambling, some resist further federal gambling legislation even for this limited purpose.8
Others clearly favor federal legislation which reenforces the prerogative of the states to
effectively determine which forms of gambling, if any, will be permitted within their
borders.9 And some favor additional federal proscriptions of Internet gambling, whether
legal or illegal under relevant state laws.10
Beyond the question of whether federal legislation is appropriate lies the question
of what form any such legislation should take. To compensate for the difficulties
involved in prosecuting offshore Internet gambling operations, the proposals in this
Congress seek to deny them the benefits of American financial services. In addition to
a general prohibition, the proposals generally contain a mechanism enabling state and
federal law enforcement officials to secure a court order to deny service to at least certain
Internet gambling operations.11 Critics have argued that this could expose credit card
8 E.g., H.Rept. 107-339 at 16 (2001) (Dissenting Views of Rep. Paul)(“the Federal Government
has no constitutional authority to ban or even discourage any form of gambling”); Judiciary
Hearings, at 49 (prepared statement of Lisa S. Dean and J.Bradley Jansen, Free Congress
Foundation)(Internet gambling proposals “fly in the face of conservative principles of federalism,
individual responsibility, and limited government”).
Contemporary construction of the Constitution’s commerce and necessary and proper
clauses seems to recognize Congress’s legislative authority over commercial activities and over
activities that utilize the instrumentalities of interstate and foreign commerce such as the Internet
and other forms of communications, United States v. Lopez, 514 U.S. 549, 558-60 (1995); United
States v. Morrison, 529 U.S. 598, 608-9 (2000).
9 E.g., H.Rept. 107-591 at 6 (2002)(This legislation “does not, however, supersede the
traditional leadership roles of States in enforcing gambling laws within their borders. It addresses
a growing problem that no single State, or collection of States, can adequately address. Because
of the unique interstate and international nature of the Internet, [this legislation] is necessary”).
10 E.g., Financial Services Hearings, at 10 (comments of Reps. LaFalce and Leach).
11 Whether because of litigation costs, the perils of collection, or anticipation of federal
legislation, some financial institutions have already begun to limit service, Financial Services

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companies and others to a series of inconsistent and conflicting court orders.12

Although it endorsed the approaches taken in the Goodlatte, Leach and McCain bills
in the 107th Congress, the Justice Department has consistently urged that Internet
gambling be treated the same as gambling accomplished through use of the telephone and
prefers amendments to the Wire Act in order to expand or clarify the act’s coverage of
Internet gambling.13 Opening the Wire Act for amendment, however, potentially
unleashes a number of other issues unrelated to Internet gambling.14
H.R. 2143 and S. 627 (but not H.R. 10) exempted from their regulatory scheme
financial transactions involving Internet gambling operated by race tracks, state lotteries,
Nevada casinos and other state licensed or authorized business (but apparently not Indian
tribes) – even if the transactions involve gambling that were illegal in the state where the
bettors were located. In doing so, they left enforcement of the underlying illegal Internet
gambling to federal and possibly state authorities.
H.R. 21, S. 627, H.R. 2143 and H.R. 1223. Although organized a bit differently
and with minor modifications, the Leach (H.R. 21) and Kyl (S. 627) bills were essentially
the same. They:
- prohibited anyone engaged in a gambling business (“business of betting or
wagering”) from accepting credit cards, checks, electronic fund transfers, or the like
in connection with illegal Internet gambling;
- subjected offenders to imprisonment for not more than five years and/or a fine
under title 18, and possibly to a ban on future illegal Internet gambling;
Hearings, at 25 (statement of Michael L. Farmer, Wachovia Bank Card Services);(“Wachovia
developed a policy to decline internet gambling charges in order to mitigate our losses”); Citi to
Block Online Gambling Payments, American Banker, 24 (June 17, 2002)(reporting that Citibank,
Bank of America, MBNA Corp., and J.P.Morgan Chase & Co. have begun to block credit card
transactions with online gambling operations); eBay Goals for PayPal, American Banker, 1 (July
9, 2002 (reporting that eBay plans to close down its PayPal Internet gambling business); see also,
Cheyenne Sales, Ltd. v. Western Union, 8 F.Supp.2d 469 (E.D.Pa. 1998)(Wire Act precludes
customer’s suit following Western Union’s termination of its electronic fund transfer account
used to make payments to offshore Internet gambling operations); The Enforceability of Internet
Gambling Debts: Law, Policies, and Causes of Action, 6 VIRGINIA JOURNAL OF LAW &
TECHNOLOGY 6 (2001); General Accounting Office, Internet Gambling: An Overview of the
Issues, GAO-03-89 (Dec. 2002)(describing efforts to prevent the use of VISA, MasterCard,
Discover, and American Express credit cards to finance internet gambling).
12 H.Rept. 107-591, at 124 (Dissenting Views of Rep. Conyers, Scott, Watt, and Waters)(“Credit
card companies such as Visa and MasterCard have raised concerns with the bill because it could
subject them to injunctions in numerous jurisdictions that require different – or even conflicting
– remedies to prevent the payment of Internet bets or wagers. The result will be a hodge-podge
of inconsistent court orders, rather than a cohesive enforcement scheme”).
13 Judiciary Hearings, at 8-9 (statement of Rep. Goodlatte); at 48 (prepared statement of Ass’t
Attorney General Michael Chertoff).
14 Financial Services Hearings, at 11 (testimony of Sen. Kyl).

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- excluded lawful transactions with a state licensed or authorized business from the
definition of “betting or wagering”(in the Financial Services Committee but not the
Judiciary Committee version);
- exempted financial institutions and Internet service providers from the definition
of gambling business unless they conduct or control an unlawful Internet gambling
site;
- authorized federal courts to enjoin violations at the behest of the Attorney General
or state attorneys general;
- listed aggravating factors to be considered before financial institutions are exposed
to a corrective court order;

- adjusted the powers given bank regulatory authorities to permit them to require the
establishment of policies and practices designed to identify and prevent prohibited
transactions, enforceable by both the regulators and the Federal Trade Commission
(FTC);
- limited the civil remedies available against Internet service providers for their
assistance;
- urged diplomatic action to encourage international cooperation for the enforcement
of its provisions and to identify any connection between Internet gambling and
money laundering; and
- expanded Wire Act coverage to satellite and microwave transmissions.
House-passed H.R. 2143 essentially contained only the demand for regulations to
permit the identification and blocking of financial transactions that involve illegal Internet
gambling. It included the exception for lawful business transactions found in S. 627, as
well as a rule of construction not found in S. 627 that made it clear that the bill was not
intended to change any other gambling-related law.
The Conyers bill (H.R. 1223) outlawed neither Internet gambling nor the acceptance
of credit cards or the like in connection with Internet gambling. Instead it established an
Internet Gambling Licensing and Regulation Study Commission.

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