As a contingent of House Democrats scramble to push a framework for legalizing and taxing online gambling, Internet poker parlors and other betting sites are bracing for June 1 – the effective date of a 2006 U.S. law that restricts the use of credit cards and other payment methods for placing illegal online bets.
The law was enacted by the Bush Administration with the intent of cracking down on financial transactions that enable the growing popularity of online gambling by Americans.
Federal regulators had extended the law’s compliance deadline from Dec. 1, 2009 to June 1, 2010 to allow credit card payment processors Visa and MasterCard and U.S. banks to come up with guidelines that would prevent gamblers from placing bets.
“In particular, the six month extension …will facilitate the establishment of policies and procedures that require gambling businesses to document the legality of their activities to regulated entities,” the Federal Reserve and the U.S. Treasury said in a statement at the time of the extension.
Earlier this year, online poker rooms and other gambling websites started to report that Visa and MasterCard were already blocking transactions for placing bets. The actions by the card networks have forced many sites to secure, if not already implemented, alternate payment services.
This past week, House Democrats pushing two bills that would legalize and tax online poker rooms in the United States testified before the House Ways and Means Committee. The new laws would, in effect, repeal the 2006 legislation.
The most influential of the Demorcats is Rep. Barney Frank, of Massachusetts, chairman of the House Financial Services Committee, who wants to create a regulatory framework for online betting, primarily for poker sites, the most popular venue among the estimated 10 million Americans who play online for money.
The law that takes effect June 1 does not apply to state-sanctioned online betting on horse and dog racing. Some even allow the purchase of lottery tickets. Many lawmakers now concede that law does not clearly distinguish between legal and illegal Internet betting.
Offshore Internet gambling by Americans is expected to climb to $5.7 billion in 2010 from $5.4 billion last year, reports H2 Gambling Capital, an industry researcher based in the United Kingdom.
Frank’s bill, the Internet Gambling Regulation, Consumer Protection and Enforcement Act, creates a legal framework for licensing and regulating online gambling sites.
Gambling operators would be subject to review of their financial condition and corporate structure, and criminal background checks. They would also have to agree to be subject to U.S. jurisdiction.
“Some adults will spend their money foolishly, but it is not the purpose of the Federal Government to prevent them legally from doing it,” Barney testified. “We should ensure that they have appropriate consumer protections and information, but otherwise allow people to pursue activities that they enjoy which do not harm others.”
A bill sponsored by Rep. Jim McDermott, D-Washington – the Internet Gambling Regulation and Tax Enforcement Act. – would be a companion bill with the one introduced by Frank.
McDermott’s bill would impose taxes on online wagers, generating about $42 billion for the federal government over 10 years, according to the Joint Committee on Taxation.
“Prohibition hasn’t prevented the millions of Americans who want to gamble online from doing it,” McDermott testified, also before the House Ways and Means Committee. “It has forced internet gambling operators to work offshore, it has put consumers at risk, and it sends billions in dollars of revenue to other nations.”
McDermott’s bill has some Republican support, but both proposed laws face stiff competition from conservative groups who say legalizing online betting would fuel gambling addictions and expose minors to the these betting websites.