108th CONGRESS
1st Session

To prevent the use of certain bank instruments for unlawful Internet gambling, and for other purposes.

January 7, 2003

Mr. LEACH (for himself, Mr. OXLEY, Mr. ROGERS of Michigan, Mr. PICKERING, Mr. NORWOOD, Mr. GOODLATTE, Mr. BACHUS, Mrs. KELLY, Mr. WOLF, Mr. SPRATT, Mr. OSBORNE, Mr. PITTS, Mr. BERRY, and Mr. GILLMOR) introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To prevent the use of certain bank instruments for unlawful Internet gambling, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Unlawful Internet Gambling Funding Prohibition Act'.

SEC. 2. FINDINGS.

The Congress finds as follows:

(1) Internet gambling is primarily funded through personal use of bank instruments, including credit cards and wire transfers.

(2) The National Gambling Impact Study Commission in 1999 recommended the passage of legislation to prohibit wire transfers to Internet gambling sites or the banks which represent them.

(3) Internet gambling is a major cause of debt collection problems for insured depository institutions and the consumer credit industry.

(4) Internet gambling conducted through offshore jurisdictions has been identified by United States law enforcement officials as a significant money laundering vulnerability.

SEC. 3. PROHIBITION ON ACCEPTANCE OF ANY BANK INSTRUMENT FOR UNLAWFUL INTERNET GAMBLING.

(a) IN GENERAL- No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling--

(1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card);

(2) an electronic fund transfer or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of the other person;

(3) any check, draft, or similar instrument which is drawn by or on behalf of the other person and is drawn on or payable at or through any financial institution; or

(4) the proceeds of any other form of financial transaction as the Secretary may prescribe by regulation which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of the other person.

(b) DEFINITIONS- For purposes of this Act, the following definitions shall apply:

(1) BETS OR WAGERS- The term `bets or wagers'--

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of greater value than the amount staked or risked in the event of a certain outcome;

(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance);

(C) includes any scheme of a type described in section 3702 of title 28, United States Code;

(D) includes any instructions or information pertaining to the establishment or movement of funds in an account by the bettor or customer with the business of betting or wagering; and

(E) does not include--

(i) any activity governed by the securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934) for the purchase or sale of securities (as that term is defined in section 3(a)(10) of such Act);

(ii) any transaction conducted on or subject to the rules of a registered entity or exempt board of trade pursuant to the Commodity Exchange Act;

(iii) any over-the-counter derivative instrument;

(iv) any other transaction that--

(I) is excluded or exempt from regulation under the Commodity Exchange Act; or

(II) is exempt from State gaming or bucket shop laws under section 12(e) of the Commodity Exchange Act or section 28(a) of the Securities Exchange Act of 1934;

(v) any contract of indemnity or guarantee;

(vi) any contract for insurance;

(vii) any deposit or other transaction with a depository institution (as defined in section 3(c) of the Federal Deposit Insurance Act);

(viii) any participation in a simulation sports game or an educational game or contest that--

(I) is not dependent solely on the outcome of any single sporting event or nonparticipant's singular individual performance in any single sporting event;

(II) has an outcome that reflects the relative knowledge and skill of the participants with such outcome determined predominantly by accumulated statistical results of sporting events; and

(III) offers a prize or award to a participant that is established in advance of the game or contest and is not determined by the number of participants or the amount of any fees paid by those participants; and

(ix) any lawful transaction with a business licensed or authorized by a State.

(2) BUSINESS OF BETTING OR WAGERING- The term `business of betting or wagering' does not include, other than for purposes of subsection (e), any creditor, credit card issuer, insured depository institution, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, stored value product transaction, or money transmitting service, or any participant in such network, or any interactive computer service or telecommunications service.

(3) DESIGNATED PAYMENT SYSTEM DEFINED- The term `designated payment system' means any system utilized by any creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, or money transmitting service, or any participant in such network, that the Secretary, in consultation with the Board of Governors of the Federal Reserve System and the Attorney General, determines, by regulation or order, could be utilized in connection with, or to facilitate, any restricted transaction.

(4) INTERNET- The term `Internet' means the international computer network of interoperable packet switched data networks.

(5) INTERACTIVE COMPUTER SERVICE- The term `interactive computer service' has the same meaning as in section 230(f) of the Communications Act of 1934.

(6) RESTRICTED TRANSACTION- The term `restricted transaction' means any transaction or transmittal involving any credit, funds, instrument, or proceeds described in any paragraph of subsection (a) which the recipient is prohibited from accepting under subsection (a).

(7) UNLAWFUL INTERNET GAMBLING- The term `unlawful Internet gambling' means to place, receive, or otherwise transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State in which the bet or wager is initiated, received, or otherwise made.

(8) OTHER TERMS-

(A) CREDIT; CREDITOR; AND CREDIT CARD- The terms `credit', `creditor', and `credit card' have the meanings given such terms in section 103 of the Truth in Lending Act.

(B) ELECTRONIC FUND TRANSFER- The term `electronic fund transfer'--

(i) has the meaning given such term in section 903 of the Electronic Fund Transfer Act; and

(ii) includes any fund transfer covered by Article 4A of the Uniform Commercial Code, as in effect in any State.

(C) FINANCIAL INSTITUTION- The term `financial institution' has the meaning given such term in section 903 of the Electronic Fund Transfer Act.

(D) MONEY TRANSMITTING BUSINESS AND MONEY TRANSMITTING SERVICE- The terms `money transmitting business' and `money transmitting service' have the meanings given such terms in section 5330(d) of title 31, United States Code.

(E) SECRETARY- The term `Secretary' means the Secretary of the Treasury.

(c) CIVIL REMEDIES-

(1) JURISDICTION- The district courts of the United States shall have original and exclusive jurisdiction to prevent and restrain violations of this section by issuing appropriate orders in accordance with this section, regardless of whether a prosecution has been initiated under this section.

(2) PROCEEDINGS-

(A) INSTITUTION BY FEDERAL GOVERNMENT-

(i) IN GENERAL- The United States, acting through the Attorney General, may institute proceedings under this subsection to prevent or restrain a violation of this section.

(ii) RELIEF- Upon application of the United States under this subparagraph, the district court may enter a preliminary injunction or an injunction against any person to prevent or restrain a violation of this section, in accordance with Rule 65 of the Federal Rules of Civil Procedure.

(B) INSTITUTION BY STATE ATTORNEY GENERAL-

(i) IN GENERAL- The attorney general of a State (or other appropriate State official) in which a violation of this section allegedly has occurred or will occur may institute proceedings under this subsection to prevent or restrain the violation.

(ii) RELIEF- Upon application of the attorney general (or other appropriate State official) of an affected State under this subparagraph, the district court may enter a preliminary injunction or an injunction against any person to prevent or restrain a violation of this section, in accordance with Rule 65 of the Federal Rules of Civil Procedure.

(C) INDIAN LANDS-

(i) IN GENERAL- Notwithstanding subparagraphs (A) and (B), for a violation that is alleged to have occurred, or may occur, on Indian lands (as that term is defined in section 4 of the Indian Gaming Regulatory Act)--

(I) the United States shall have the enforcement authority provided under subparagraph (A); and

(II) the enforcement authorities specified in an applicable Tribal-State compact negotiated under section 11 of the Indian Gaming Regulatory Act shall be carried out in accordance with that compact.

(ii) RULE OF CONSTRUCTION- No provision of this section shall be construed as altering, superseding, or otherwise affecting the application of the Indian Gaming Regulatory Act.

(3) EXPEDITED PROCEEDINGS- In addition to any proceeding under paragraph (2), a district court may, in exigent circumstances, enter a temporary restraining order against a person alleged to be in violation of this section upon application of the United States under paragraph (2)(A), or the attorney general (or other appropriate State official) of an affected State under paragraph (2)(B), in accordance with Rule 65(b) of the Federal Rules of Civil Procedure.

(4) LIMITATION RELATING TO INTERACTIVE COMPUTER SERVICES-

(A) IN GENERAL- Relief granted under this subsection against an interactive computer service shall--

(i) be limited to the removal of, or disabling of access to, an online site violating this section, or a hypertext link to an online site violating this section, that resides on a computer server that such service controls or operates; except this limitation shall not apply if the service is subject to liability under this section pursuant to subsection (e);

(ii) be available only after notice to the interactive computer service and an opportunity for the service to appear are provided;

(iii) not impose any obligation on an interactive computer service to monitor its service or to affirmatively seek facts indicating activity violating this section;

(iv) specify the interactive computer service to which it applies; and

(v) specifically identify the location of the online site or hypertext link to be removed or access to which is to be disabled.

(B) COORDINATION WITH OTHER LAW- An interactive computer service that does not violate this section shall not be liable under section 1084 of title 18, except this limitation shall not apply if an interactive computer service has actual knowledge and control of bets and wagers and--

(i) operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are offered to be placed, received, or otherwise made; or

(ii) owns or controls, or is owned or controlled by, any person who operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are offered to be placed, received, or otherwise made.

(5) FACTORS TO BE CONSIDERED IN CERTAIN CASES- In considering granting relief under this subsection against any payment system, or any participant in a payment system that is a creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, or money transmitting service, or a participant in such network, the court shall consider the following factors:

(A) The extent to which such person is extending credit or transmitting funds knowing

the transaction is in connection with unlawful Internet gambling.

(B) The history of such person in extending credit or transmitting funds knowing the transaction is in connection with unlawful Internet gambling.

(C) The extent to which such person has established and is maintaining policies and procedures in compliance with regulations prescribed under subsection (f).

(D) The feasibility that any specific remedy prescribed in the order issued under this subsection can be implemented by such person without substantial deviation from normal business practice.

(E) The costs and burdens the specific remedy will have on such person.

(6) NOTICE TO REGULATORS AND FINANCIAL INSTITUTIONS- Before initiating any proceeding under paragraph (2) with respect to a violation or potential violation of this section by any creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, or money transmitting service, or any participant in such network, the Attorney General of the United States or an attorney general of a State (or other appropriate State official) shall--

(A) notify such person, and the appropriate regulatory agency (as determined in accordance with subsection (f)(5)) for such person, of such violation or potential violation and the remedy to be sought in such proceeding; and

(B) allow such person 30 days to implement a reasonable remedy for the violation or potential violation, consistent with the factors described in paragraph (5) and in conjunction with such action as the appropriate regulatory agency may take.

(d) CRIMINAL PENALTY-

(1) IN GENERAL- Whoever violates this section shall be fined under title 18, United States Code, or imprisoned for not more than 5 years, or both.

(2) PERMANENT INJUNCTION- Upon conviction of a person under this subsection, the court may enter a permanent injunction enjoining such person from placing, receiving, or otherwise making illegal bets or wagers or sending, receiving, or inviting information assisting in the placing of bets or wagers.

(e) CIRCUMVENTIONS PROHIBITED- Notwithstanding subsection (b)(2), a creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, or money transmitting service, or any participant in such network, or any interactive computer service or telecommunications service, may be liable under this section if such creditor, issuer, institution, operator, business, network, or participant has actual knowledge and control of bets and wagers and--

(1) operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are offered to be placed, received, or otherwise made; or

(2) owns or controls, or is owned or controlled by, any person who operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are offered to be placed, received, or otherwise made.

(f) POLICIES AND PROCEDURES TO IDENTIFY AND PREVENT RESTRICTED TRANSACTIONS IN PAYMENT FOR UNLAWFUL INTERNET GAMBLING-

(1) REGULATIONS- Before the end of the 6-month period beginning on the date of the enactment of this Act, the Secretary of the Treasury, in consultation with the Board of Governors of the Federal Reserve System and the Attorney General, shall prescribe regulations requiring any designated payment system to establish policies and procedures reasonably designed to identify and prevent restricted transactions in any of the following ways:

(A) The establishment of policies and procedures that--

(i) allow the payment system and any person involved in the payment system to identify restricted transactions by means of codes in authorization messages or by other means; and

(ii) block restricted transactions identified as a result of the policies and procedures developed pursuant to clause (i).

(B) The establishment of policies and procedures that prevent the acceptance of the products or services of the payment system in connection with a restricted transaction.

(2) REQUIREMENTS FOR POLICIES AND PROCEDURES- In prescribing regulations pursuant to paragraph (1), the Secretary shall--

(A) identify types of policies and procedures, including nonexclusive examples, which would be deemed to be `reasonably designed to identify' and `reasonably designed to block' or to `prevent the acceptance of the products or services' with respect to each type of transaction, such as, should credit card transactions be so designated, identifying transactions by a code or codes in the authorization message and denying authorization of a credit card transaction in response to an authorization message;

(B) to the extent practical, permit any participant in a payment system to choose among alternative means of identifying and blocking, or otherwise preventing the acceptance of the products or services of the payment system or participant in connection with, restricted transactions; and

(C) consider exempting restricted transactions from any requirement under paragraph (1) if the Secretary finds that it is not reasonably practical to identify and block, or otherwise prevent, such transactions.

(3) COMPLIANCE WITH PAYMENT SYSTEM POLICIES AND PROCEDURES- A creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local network utilized to effect a credit transaction, electronic fund transfer, or money transmitting service, or a participant in such network, meets the requirement of paragraph (1) if--

(A) such person relies on and complies with the policies and procedures of a designated payment system of which it is a member or participant to--

(i) identify and block restricted transactions; or

(ii) otherwise prevent the acceptance of the products or services of the payment system, member, or participant in connection with restricted transactions; and

(B) such policies and procedures of the designated payment system comply with the requirements of regulations prescribed under paragraph (1).

(4) NO LIABILITY FOR BLOCKING OR REFUSING TO HONOR RESTRICTED TRANSACTIONS- A person that is subject to a regulation prescribed or order issued under this subsection and blocks, or otherwise refuses to honor, a restricted transaction, or as a member of a designated payment system relies on the policies and procedures of the payment system, in an effort to comply with this section shall not be liable to any party for such action.

(5) ENFORCEMENT- This subsection shall be enforced by the Federal functional regulators and the Federal Trade Commission under applicable law in the manner provided in section 505(a) of the Gramm-Leach-Bliley Act.

SEC. 4. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.

(a) IN GENERAL- In deliberations between the United States Government and any other country on money laundering, corruption, and crime issues, the United States Government should--

(1) encourage cooperation by foreign governments and relevant international fora in identifying whether Internet gambling operations are being used for money laundering, corruption, or other crimes;

(2) advance policies that promote the cooperation of foreign governments, through information sharing or other measures, in the enforcement of this Act; and

(3) encourage the Financial Action Task Force on Money Laundering, in its annual report on money laundering typologies, to study the extent to which Internet gambling operations are being used for money laundering.

(b) REPORT REQUIRED- The Secretary of the Treasury shall submit an annual report to the Congress on the deliberations between the United States and other countries on issues relating to Internet gambling.

SEC. 5. AMENDMENTS TO GAMBLING PROVISIONS.

(a) AMENDMENT TO DEFINITION- Section 1081 of title 18, United States Code, is amended--

(1) by designating the five undesignated paragraphs that begin with `The term' as paragraphs (1) through (5), respectively; and

(2) in paragraph (5), as so designated--

(A) by striking `wire communication' and inserting `communication';

(B) by inserting `satellite, microwave,' after `cable,'; and

(C) by inserting `(whether fixed or mobile)' after `connection'.

(b) INCREASE IN PENALTY FOR UNLAWFUL WIRE TRANSFERS OF WAGERING INFORMATION- Section 1084(a) of title 18, United States Code, is amended by striking `two years' and inserting `5 years'.

END