Testimony from Former FBI Director Louis Freeh submitted to Subcommittee Hearing: Internet Gaming: Is there a safe bet?
The issue of illegal gambling and its impact on individuals, businesses and our country has been ubiquitous throughout the many different roles I have played in my career: working law school student, FBI agent, prosecutor, Federal judge, FBI Director and now private practice attorney. My perspective into the issue has differed throughout those forty years with each new role, but the main lesson I learned has not: without clear laws, strong regulation and adequate tools for law enforcement, illegal gambling – and today that increasingly means illegal internet gambling – can very easily put consumers at risk and support broader criminal enterprises that undermine a safe and secure society.
While my first exposure to gambling was as a law school student watching my coworkers play games on a Teamsters platform in Jersey City, it was when I was a young FBI agent that I first began to understand that true impact of illegal gambling. I was assigned early in my career to an organized crime squad focused, in large part, on enforcing illegal gambling statutes. Raiding wire rooms and taking numbers operations down seemed small time to me and other less experienced agents. But, the more experienced agents explained to us how the small bets we were trying to disrupt ultimately funded a huge criminal enterprise that included racketeering, organized murder and narcotics trafficking on a global scale.
I took the lessons about illegal gambling I learned as a FBI agent into the prosecutor’s office, where we focused extensively on using illegal gambling statutes to support Racketeer Influenced and Corrupt Organization Act (RICO) prosecutions against organized crime. It was in this role that I learned the corollary lesson about illegal gambling: if the illegal gambling statutes are not clear and do not provide effective tools for law enforcement, successful prosecutions become very difficult and the criminal enterprise can continue uninterrupted.
While illegal gambling has largely changed venues from the backroom to the internet since the decades I learned these lessons, the threats and ultimate impact is still the same. Today illegal internet gambling has ballooned into an industry on which Americans spend an estimated $4 to 6 billion annually. These billions of dollars flow almost exclusively to an estimated 1700 websites run by shady offshore operators, often outside the effective reach of U.S. law enforcement. This environment is rife with opportunity to defraud players and launder money for much more dangerous operations.
Consumers – and often minors – are most immediately at risk. As a father of six, I know how difficult it can be to monitor children’s activities and this problem has only gotten worse with the rise of wireless access to the internet. That statistic demonstrates that a large and growing number of children are gambling online. A recent Washington Post story found that “16 percent of college-age males — 1.7 million young men — gambled on the internet at least once a month.” The same story cited a 2008 study that found college students were twice as likely to gamble as older adults.” These statistics are reported alongside alarming stories about instances of massive fraud on some illegal gambling sites.
Addressing a growing threat that can mutate as rapidly as illegal internet-based gambling operated outside of the country is challenging in-and-of-itself for Federal law enforcement. But the challenge is even greater at present because the principal law covering illegal internet gambling – the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) – while well-intentioned only goes so far in defining what is prohibited and assigns banks and financial institutions with enforcement responsibilities instead of law enforcement agencies.
The good news is that UIGEA offers a good platform that enhancements can make into a very effective law. The first such enhancement is to very clearly define what constitutes illegal internet gambling. This clarity can make UIGEA consistent with other statutes defining illegal gambling, as well as demarcate the difference between illegal internet gambling on games of chance and legal internet gambling on games of skill like online poker.
Online poker stands apart because it’s a game that millions of Americans play at home with friends and family, or even at charity fundraisers. Unlike most games, it’s played against other players rather than against the house and relies on set of practiced skills. Unlike most other games, it is also not defined as illegal in other statutes.
Clarifying which online games are illegal also creates an opportunity to establish a strict and transparent regulatory regime for online poker that allows adult consumers to play safely and securely, while ensuring accountability to tax and law enforcement authorities.
Finally, there is a need to reprioritize enforcement to move away from banks and financial institutions to appropriate federal, state and local authorities with strengthened authorities. When I left government service, I served as the general counsel for a very large bank. We spent lots of ineffective time trying to assist the government in enforcing criminal prosecutions and investigations of illegal internet gambling. Based on my experience there, and prior to it as FBI Director, I know very well that bankers are not the best suited for those purposes.
The amazing changes that have taken place in both the internet and the global financial transactions system since UIGEA was passed in 2006 offer incredible challenges, but also important opportunities to combat illegal internet gambling and regulate online poker. But, to take advantage of those opportunities the law must be updated to incorporate some fundamental changes that provide vital clarity and rational legal authorities.
This Hearing represents an excellent way to begin the consideration necessary to pursue those changes. I look forward to continuing to be a part of this dialogue going forward.