Preventing underage gambling dominated the discussion at Friday morning's House Financial Services Committee hearing on Internet gambling.
Key witnesses offered conflicting reports on the effectiveness of identity verification measures. Jeff Schmidt, CEO of the identity-verification firm Authis, testified that current technology is inaccurate, failing 20 to 25 percent of the time.
Michael Colopy, Senior Vice President of Communications for another identity-verification firm named Aristotle, disagreed with Schmidt. He said that the technology is maturing, employing a multi-layered approach that is nearly 100-percent reliable.
The conflicting testimony will do little to ease congressional fears about Internet gambling in the U.S., prompting Buffalo State Business Law Professor Joseph Kelly to say that more hard data is necessary for regulation to gain traction.
"The only way you can resolve this is with an objective commission," Kelly said. "Once the study is in place, you can have data accepted by everyone, instead of conflicting data reports from interested parties."
A measure that is calling for a one-year independent study of the effects of online gambling in the U.S. was introduced by Rep. Shelley Berkley (D-Nev.) in April.
Friday's hearing focused on House Financial Services Committee Chairman Barney Frank's Internet Gambling Regulation and Enforcement Act (IGREA). The bill aims to create a regulated environment for online gambling to take place legally in the U.S.
The measure would repeal the Unlawful Internet Gambling Enforcement Act (UIGEA), passed last October, a law that makes it illegal for financial institutions to process U.S. transactions with online gambling firms.
Frank called the UIGEA "one of the stupidest laws ever passed," and has been arguing since the law's inception that the U.S. government should not pass measures that compromise personal freedoms because of moral stances.
"I have no energy left to protect people from themselves," Frank said. "Adults have to do that themselves."
Frank said other so-called morality regulations, such as those which restrict the purchase of alcohol, cigarettes and pornography, provide a regulatory environment that supports personal freedom, yet still protects minors.
"I agree with Rep. (Barney) Frank that prohibitions don't work," Rep. Ron Paul (D-Texas) said at the hearing. "I'm not in favor of gambling, but responsibility is the job of the individual, the family and the church."
UIGEA proponents argue that online gambling is a danger to society because it brings the casino into the home and tempts underage gamblers into addictive patterns and in some cases, criminal activity.
Pastor Greg Hogan, a father of four and a witness at the hearing, told the panel the tale of his son Greg, a good college student who "fell prey to the evils of gambling." His son stole money from the family and borrowed from college friends to gamble on the Internet, racking up a debt that eventually led him to rob a bank and serve prison time.
"The World Series of Poker (currently running in Las Vegas) is glamorous, but the life of an addicted gambler is not," Hogan said. "Instead of proudly watching my son graduate from college, I will proudly watch my son be released from prison."
Rep. Spencer Bachus (R-Ala.) was the UIGEA's strongest proponent at the hearing, arguing that the earlier a young person begins gambling, the more likely it will lead to addiction and criminal activity.
Frank empathized with Hogan, but countered by saying that his son was of legal age to gamble. He also traded barbs with Bachus, saying that regulation is necessary to help identify underage gambler and potential gambling addictions.
Gerald Kitchen, the CEO of Internet financial processor SecureTrading said tracking Internet transactions is impossible without regulation.
"It takes a regulated world to ensure these financial processes can provide protected services," Kitchen said. "Under prohibition, unregistered processors will make transactions harder, if not impossible to track."
That argument was also brought up by Radley Balko, Senior Editor of Reason Magazine. He testified that if online gambling goes unregulated, it goes underground, causing the potential for more gambling misconduct.
Frank and other IGREA proponents, like Rep. Robert Wexler (D-Fla.) argue that the UIGEA is hypocritical by nature, allowing online wagers for horse racing, but disenfranchising other types of gamblers under the guise of societal protection.
The hearing ground to virtual halt on this issue, when Rep. Julia Carson (D-IN) asked the witnesses if people in Indiana could bet on the Kentucky Derby over the Internet, why couldn't they make other sorts of wagers?
The witnesses - and the committee - sat in stunned silence waiting for someone to answer the question - but all that came was a feeble mumble from someone on the panel that it should be legal.
Minutes later, Carson repeated the question and once again received no answer. She then declared her support for the IGREA and said she was wrong to vote for the UIGEA.
Friday's hearing marked the end of a busy week on the online gaming legislation front. Yesterday, Rep. Jim McDermott (D-Wash.) introduced the Internet Gambling Regulation and Taxation Enforcement Act, a companion act to Frank's IGREA that provides a way to collect taxes from licensed U.S. online gambling companies.
"If we decide as a nation to enable gambling online, the billions of dollars flowing out of the country should remain here to help us fund schools and bridges, and a host of social programs that need more than luck to succeed," McDermott told House members Thursday.
Wexler introduced the Skill Gaming Protection Act on Thursday as well. The measure would create UIGEA carve outs for poker, chess, bridge, backgammon, Mah jong and other games of skill.
Legislative future of Internet gambling
Kelly argues that the four proposed legislative pieces are solid, but that Berkley's was the most important and the most likely to succeed. He believes that Congress needs hard data to make this "hard choice." Berkley is calling for a study by the National Research Councils of the National Academy of Sciences, an independent research group with no ties to online gambling.
Facts from this group would help erase the unease caused by the conflicting testimonies of internet verification experts Schmidt and Colopy, allowing Congress members to make an informed decision about regulating online gambling, Kelly said.
"The average member of Congress just isn't going to vote for this (Frank's bill), because in the end, it boils down to uncertainty about minor exclusion etc.," Kelly said. "You need objective data before the average member of Congress will change their mind."
The American Gaming Association is also in favor of more studies and more hearings.
"The AGA is on the record in support of further study of this issue," the AGA said in a statement. "We believe hearings on Chairman Frank's legislation will provide a valuable opportunity for gathering the facts about the many issues surrounding Internet gambling, including the ability to prevent underage gambling and other regulatory safeguards. We look forward to monitoring the hearings."