Consumer Fraud, Money Laundering More Likely Without Federal Online Gambling Law, Senators, Experts Say
Congress should consider federal online gambling legislation as states are passing and implementing their own laws, said members of the Senate Commerce Subcommittee on Consumer Protection during a hearing Wednesday, echoing those who testified. Between concerns about protecting vulnerable consumers -- including children -- and concerns about the use of online gambling by terrorists to launder money, “I hope this is something that we move on very quickly,” Sen. Kelly Ayotte, R-N.H., said. “Shame on us if we don’t get something done on this.” Lawmakers at the hearing also received a demonstration of verification software that relies on biometric data, including voiceprint and facial recognition, from Thomas Grissen, CEO of biometric security company Daon.
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The Obama administration changed the legality surrounding online gambling by reinterpreting the federal Wire Act to prohibit only interstate sports-betting, Subcommittee Ranking Member Dean Heller, R-Nev., said. The White House made this change “unilaterally” and without “calling a single member of Congress,” he said. “And that’s why we're here, having this conversation today.” As states, now free from the old federal interpretation, pass their own online gambling laws, “my concern is that we're back to the Wild West now,” Heller continued.
Without the Wire Act, “law enforcement does not have the means to effectively identify and shut down” offshore online gambling entities that harm consumers and are often used to launder funds for organized crime and terrorist groups, Chuck Canterbury, national president of the Fraternal Order of Police, told lawmakers. “Law enforcement won’t be able to attack money laundering” if they're operating under a patchwork of state laws, he said. “I think it has to happen at the federal level, it has to be sophisticated.” Canterbury suggested the creation of a federal online gambling licensing entity that’s “financed by the people who seek licenses.” Licensing online gambling operations should not fall to already overburdened agencies, such as the IRS, which “just doesn’t have the resources or the capacity,” he continued. Jack Blum, a D.C.-based attorney who focuses on money laundering, called for “sophisticated federal regulation, and it should happen sooner rather than later."
The use of biometric data -- and the accompanying privacy concerns -- “certainly adds a new wrinkle” to the online gambling debate, said Subcommittee Chairwoman Claire McCaskill, D-Mo. Some online gamblers -- especially those who are using the Internet to avoid being seen in casinos -- may not want to have to submit a voiceprint and picture of themselves every time they want to gamble online, she said. “It’s fascinating that we would open a whole new treasure trove of data,” creating “some real friction” between the desire to protect privacy and participate in online gambling, she said. Privacy concerns are especially pertinent now, “when we're talking abut big data” and NSA surveillance programs, she said.
Should legislation require online gambling entities to use verification technology like Daon’s and online gamblers to own devices -- such as computers and smartphones -- that have the equipment to provide that verification? she asked. That technology “hasn’t been adopted [by the] mainstream yet” to the point where every potential online gambler would necessarily have the needed device, she said. Users would need a device with a camera and microphone, but verification technology like Daon’s is being adopted more frequently, Grissen responded. “Biometrics are a very powerful tool” for identity verification, and institutions around the world are realizing that, he said. States that have legalized online poker have not written the use of verification technology into their laws, he told lawmakers. “I've not seen any overtures to try to look aggressively at this technology.” A federal online gambling law should be “flexible enough” to keep up with the changing technology, he said.
Data security is also a concern about online gambling entities, Sen. Richard Blumenthal, D-Conn., said. “Even the most established and trusted of institutions,” such as banks and multinational corporations, “have been subject to data breaches,” he said. “The chances are highly likely that the more online gambling is, the more data breaches” there will be.
Congressional action is needed as there is a “gambling expansion free-for-all about to take place at the state level,” American Gaming Association CEO Geoff Freeman said in a statement. “Internet poker is a reality that is here to stay,” he continued. “The question is whether Congress will ensure minimum regulatory standards of online poker, protect consumers, exclude bad actors from the American market and provide Native American tribes with an appropriate regulatory framework.” Safe and Secure Internet Gambling Initiative spokesman Michael Waxman said in a statement that he is optimistic Wednesday’s hearing “sets the stage for the Senate to take on this issue and put needed protections in place.” Rather than letting state governments create an Internet gambling legal framework, Congress “should seize the opportunity to create consistent oversight of the industry, reinforcing state and tribal rights and utilizing existing expertise of established gambling regulatory bodies,” he said.