Bills Would Bring Back Internet Poker
Written by I. Nelson Rose | Wednesday, May 20th, 2009
Representative Barney Frank (D-Mass.), with a little help from his friends, has introduced three bills in Congress that would legalize, regulate and tax Internet poker.
The Bills Will Pass, But Years to Come
The bills will pass, although not exactly as they are now written. It will be a couple of years before the bills become law and implementing regulations are promulgated. After that happens, gamblers in states like Utah will still not be able to make bets online. But residents of California, New York and probably even Texas may once again have the right to play poker for real money on the Internet, without having to worry whether they, or the operators, are breaking federal law.
Delaying the UIGEA for 1 Year
The proposals, in numerical order, start with HR 2266. Frank, powerful chairman of the House Financial Services Committee, knows how to get bills passed. He gave HR 2266 the imposing name, the “Reasonable Prudence in Regulation Act,” although all it actually does is delay implementation of one minor set of regulations. Under the Unlawful Internet Gambling Enforcement Act (“UIGEA”), rammed through Congress without being read, by then-Senate Majority Leader Bill Frist (R.-TN), federal agencies issued rules to make it difficult for financial institutions to send money for illegal online gambling. The regulations go into effect on December 1, 2009, unless this bill passes, delaying them for one year.
The Big Bill, HR 2267
HR 2267 is the heart of this attempt to bring back not only poker, but most other forms of Internet gaming. It would amend current statutes to “provide for the licensing of Internet gambling activities by the Secretary of the Treasury, to provide for consumer protections on the Internet, to enforce the tax code, and for other purposes.” As if that weren’t clear enough, he named the bill the “Internet Gambling Regulation, Consumer Protection, and Enforcement Act.”
Fox News and a few right-wing Republicans decried the bill as allowing “the Treasury Secretary to license and revoke licenses of Internet gambling Web sites under the guise of protection [sic] Americans’ personal freedoms to gamble and consumer protection concerns.” If anything, this will help the bill pass. Is there really anyone in the U.S. who thinks that gambling should not be regulated?
But let’s make it clear – this only looks like a bill setting up federal licensing. The federal government has no experience or expertise in regulating gambling. The closest it has ever come are parts of the Indian Gaming Regulatory Act (“IGRA”), which is not exactly a model of government control.
No, public policy toward gambling, including questions of prohibition or regulation, have always been left up to the individual states. Even IGRA says that tribal gaming is limited to states where that particular form of gambling is permitted.
So, although the Secretary of the Treasury will technically be issuing licenses, good for five years, HR 2267 has these neat little provisions buried deep in its middle:
Any State or tribal regulatory body with expertise in regulating gambling may–
(i) notify the Secretary of its willingness to review prospective applicants to certify whether any such applicant meets the qualifications established under this subchapter; and
(ii) provide the Secretary with such documentation as the Secretary determines necessary for the Secretary to determine whether such State or tribal regulatory body is qualified to conduct such review and may be relied upon by the Secretary to make any such certification.
The bill then gives the Secretary only 60 days to determine whether he should rely on these state or tribal regulators in issuing licenses for Internet gambling operators:
RELIANCE ON STATE OR TRIBAL CERTIFICATION- Any applicant may provide a certification of suitability for licensing made by any State or tribal regulatory body under paragraph (2), together with all documentation the applicant has submitted to any such State or tribal regulatory body, to the Secretary, and any such certification and documentation shall be relied on by the Secretary as evidence that an applicant has met the suitability for licensing requirements under this section.
In fact, the federal government will end up doing nothing, except for a little unnecessary duplication of effort to make it seem like there is federal oversight:
RELIANCE ON QUALIFIED REGULATORY BODY FOR OTHER PURPOSES- At the discretion of the Secretary, the Secretary may rely on any State and tribal regulatory body found qualified under this subsection for such other regulatory and enforcement activities as the Secretary finds to be useful and appropriate to carry out the purposes of this subchapter.
The bill does allow states and tribes to opt out. If a governor notifies the Secretary within 90 days of this bill becoming law that his state has opted out, licensed operators cannot knowingly accept bets from players in that state. Utah will probably be able to reach a political consensus in 90 days that it wants to block all Internet gambling. But states like California might have trouble making a decision like this in 90 months, let alone 90 days. There is a complicated provision allowing states to opt out after the first 90 days, but it involves waiting at least until January 1 of the next year.
Gambling Sites are Breaking US Law Currently
The bill contains a large number of other provisions. It has the now standard language about protecting underage and problem gamblers. It clarifies that unlicensed operators who are still accepting Internet poker players from the U.S. are violating federal law, although it does not explain how prosecutors are supposed to go after a website in another country. And it would be the first federal law that I know of that would make cheating at gambling a crime.
But its basic purpose is to allow states to authorize their licensed gambling operators to take bets from all other states.
The bill should protect operators from state anti-gambling laws. It creates a federal preemption: “A licensee may accept bets or wagers from persons located in the United States, subject to the limitations set forth in this subchapter, so long as its license remains in good standing.” This means a licensed online poker operator can take bets from every state, except those that have notified the Secretary they want to opt out.
Why would Frank and his co-authors propose a law like this? Barney Frank is viewed as a left-wing liberal, but he is really a libertarian when it comes to government intervention in private lives. He feels the federal government in particular should not be deciding what people do in the privacy of their own homes.
Senate and the President Don’t Really Care
Frank has so much seniority, and the Democrats have such an overwhelming majority, that he can get any bill he wants through the House of Representatives. But to become law, the bill also has to pass the Senate, and be signed by the President. Obama has no interest in Internet gambling. In fact, almost no one else in Congress cares about the issue, except one man: Harry Reid, the Majority Leader of the Senate, Democrat from Nevada.
Reid claims he is personally opposed to Internet gambling. But what do Nevada casinos want? Most want to run the games themselves.
Frank’s 19 co-sponsors in the House include people like Robert Wexler (D.-Fl.), who also feel that Internet poker should be made legal. But they also include Shelley Berkley (D.-Nev.), the former national director for the American Hotel-Motel Association, who represents the city of Las Vegas and the adjacent Las Vegas Strip.
Sportsbetting is Still Excluded
However, HR 2267 does not give Nevada’s casino companies everything they would like. Sports betting, for example, is expressly excluded. But the bill does seem to cut out the existing and former competition from foreign operators.
What About Gambling Sites Currently Operating
The Secretary has to deny a license to anyone who “is delinquent in filing any applicable Federal or State tax returns or in the payment of any taxes, penalties, additions to tax, or interest owed to a State or the United States.” This is potentially bad news to every Internet gaming site that ever took bets from the U.S., whether or not they stopped when the UIGEA was passed. It is possible that the Secretary of the Treasury, who also runs the Internal Revenue Service, could find that an operator that had American players was doing business here, and should have been paying federal, and maybe even state, taxes.
Of course, American companies, like Harrah’s, which desperately wants to get into the Internet gaming business, but have never had online gaming for money, would have no trouble.
More Taxes on US Players
But even Nevada casino companies may not rush to go online. The problem is the last of the three bills, HR 2268. This would impose a federal fee of 2% of the money deposited by players. Operators cannot pass this fee on to players. Of course, operators don’t make any revenue off of deposits, only from wagers. So poker sites that now are constantly encouraging players to reload will have to figure out ways to gets players to make more bets without keeping large deposits in their accounts.
The bills have another hidden trap: There is no limit on what taxes the states can impose on operators.
But if the states and federal government don’t get greedy, these bills can be made to work. The federal 2% fee should be on gross gaming revenue, not deposits. And the Australian model could work for the states: A licensed operator in one state would have to send tax revenue, at a reasonable rate, back to the state where the player is located. So Harrah’s, for example, in Nevada would send some portion of the money it earned from Californian poker players back to California.
That may be the only way to get the other states not to opt out.
And the low tax rate has to be written into the federal statute. Because every state that has ever legalized gambling has raised its taxes or fees once the money started pouring in.
END
© Copyright 2009. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant to players, industry and government. His latest books, Internet Gaming Law (2nd edition just published), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.
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· Written by I. Nelson Rose · Filed Under Poker Gossip · 1 Comment
June 3rd, 2009 at 7:58 pm
I live in Nevada. Interestingly I can find nothing published concerning whether Nevada unions support or oppose Rep. Barney Frank’s bill H.R.2267 to legalize online gambling?
I have not been able to determine which if any “casino/hotel employee unions” support or oppose Rep. Frank’s bill H.R.2267. This bill if passed would repeal the “Unlawful Internet Gambling Enforcement Act of 2006” and legalize Online Casino Gambling. Online casinos don’t hire Casino/hotel employees; bartenders, kitchen workers; bellhops and card dealers.
Legalization of Internet gambling will provide millions of Americans lawful access to online gambling; any home with a computer has the potential of becoming a 24/7 Casino. It is problematic “legalized online gambling” might take market share from Nevada’s brick and mortar casinos e.g., if California gamblers elect not to travel when they can gamble in comfort at home. Has Nevada conducted studies to determine if the national legalization of online gambling—will economically injure Nevada workers dependent on the gaming industry for employment? Less affected by legalized online gambling might be gambling industry workers in other states where many industries offer diverse employment. Unfortunately Nevada remained dependent on the gaming industry for jobs after many other states legalized casino gambling.
If Congress does legalize national online casino gambling, passes H.R.2267, could some Nevada “casino employers” opt to instead own “online casinos” where far less employees and health insurance are required to operate a casino?