The Proof is in the Pudding…Regulation Trumps Prohibition

The House Oversight & Government Reform Committee will hold a hearing this week entitled “A Casino in Every Smartphone – Law Enforcement Implications.” The insidious title comes as little surprise given that the committee chairman, Rep. Jason Chaffetz (R-Utah), is the lead sponsor of a bill to ban states from regulating online gaming. Mr. Chaffetz’s bill, H.R. 707 the Restoration of America’s Wire Act (RAWA), has often been referred to as the “Adelson Bill” named after casino billionaire and political mega-donor Sheldon Adelson. This description is well deserved.  Not only did one of Mr. Adelson’s lobbyists write the bill language (per reporting from the New York Times), but the billionaire himself has said that he will “spend whatever it takes” to stop states from regulating online gaming.

Let’s be clear, this hearing is taking place because it fulfills the wishes of Mr. Adelson, not because of any law enforcement implications. However, there are implications for law enforcement should Messrs. Adelson and Chaffetz get their online gaming prohibition. Law enforcement will be forced to try to control an unregulated industry that operates in the shadows, rather than a regulated one that is transparent and accountable.

Nevertheless, they continue to press for this misguided approach. To bolster their case they invoke letters from the Federal Bureau of Investigation (FBI) — dated from 2009 and 2013 – which they claim argue that online gaming should be banned. However, the truth is the FBI letters actually make a compelling case for licensing and regulating online gaming and highlight the vulnerabilities of an unregulated marketplace.

Regulated online gaming is not a theoretical. It is reality. Today, three states – Nevada, New Jersey and Delaware — have authorized and are regulating online poker and other casino-style games. These states’ respective legislatures painstakingly debated and perfected legislation over a number of years and the state gaming regulators established regulatory systems that put consumer protection first. The cornerstone of state regulated online gaming is a thorough vetting of potential operators. The leading U.S. Internet gaming operators are a combination of companies that are household names in the gaming industry, and state-run lotteries, not fly-by-night, offshore companies that pose any risk to law enforcement.

In these regulated markets, it is required that companies consent to audits, implementation of anti-money laundering compliance programs and multi-step identity verification processes, Know-Your-Customer compliance and other regulatory measures. If operators fail to implement proper safeguards or to abide by state laws, regulations and even federal law, they risk state and federal prosecution which would mean losing their license in that state (and likely others) and tarnishing their reputations.

It is important to note that the FBI has not issued a complaint or raised a concern with local law enforcement, regulators or lawmakers in these regulated jurisdictions. That’s because our federal law enforcement agencies wisely are focusing their attention on illegal and unregulated online gaming not state authorized gaming that has proven time and time again to be a safe and effective way to  protect consumers and eliminate fraud and abuse.

Despite all the evidence to the contrary, Mr. Chaffetz claims that a ban is necessary because there is no way that online gaming can be safely regulated. This claim is particularly mind-numbing when you consider that Mr. Chaffetz’s bill contains a carve-out that exempts fantasy sports and horse racing from the ban. Why does state-regulated online poker have “law enforcement implications” when unregulated daily fantasy sports supposedly have none?  The fact is that both daily fantasy sports and online poker can be effectively regulated. In fact, across the country there is an active debate in state legislatures on the best way of achieving consumer protection for fantasy sports players. Not surprisingly, they are looking at regulated online gaming for the solutions.

Chairman Chaffetz has every right to hold a hearing on this subject. His committee has wide latitude in its oversight. The hearing can go one of two ways. It will focus on the facts, which make a clear case for regulation over prohibition. Or it will focus on unfounded rhetoric, which is exactly what you get when a billionaire spends “whatever it takes.”

John Pappas is the executive director of the Poker Players Alliance.

Morning Consult