Barton's HR 2366 vs Reid/Kyl Bill

[Thew92]

I thought it might be useful to compare and debate the two bills in it's own thread.

Barton Bill Cliffs from PokerXanadu

The Constitutional Authority cited for HR 2366 is the Commerce Clause of the US Constitution.

Who Licenses and Regulates

Most of this bill is about the relationship between the new Office of Internet Poker Oversight in the federal Commerce Department, the state agencies authorized by the Commerce Department to license and regulate poker sites and the licensed sites. The bill defines the general requirements, but leaves much of the licensing and regulatory details up to the state agencies.

Prohibited Internet Gambling

All Internet Gambling will be prohibited except:

Sites licensed under this bill for Internet poker.
Sites operating outside the US that don't take wagers from the US.
Horseracing sites legal under the Horseracing Act
Intrastate Lotteries
Skill Game sites that are legal under existing laws.
Intratribal I-gaming
Intrastate I-gaming that was licensed by a state before enactment of this bill.

The penalty on site operators for prohibited I-gambling is fines and up to 3 years imprisonment. This bill does not make it illegal for players to play on prohibited sites.

Unlicensed Internet Poker

The civil penalty for operating any site that is required to get a US license but doesn't have one is up to the total amounts wagered, or $1M/day of operation, whichever is greater. Criminal prosecution under other laws can apply as well.

There are no player penalties for unlicensed play.

State Agencies

Any state that wishes to license I-poker sites can request authorization from Commerce for their designated agency to become an authorized State Agency for licensing and regulation. Commerce will examine the qualifications of the agency for approval, including such things as experience, size and qualifications of staff, enforcement and regulatory authority of the agency and conflicts of interest.

Site Licensing

Sites will apply to the State Agency for a license in the state where their gaming servers are located.

Sites must locate all their remote gaming equipment (gaming, customer interface, financial, etc.) within the US. The licensing State Agency can require all such equipment to be located within their state for purposes of regulation.

Initially, the only entities eligible for a license are applicants that own or are owned by one of these on the date that is 10 days before enactment of the bill or for five years before applying for the license:

Casino Gaming Facility: Operating 500 or more gaming devices (slots, vlts, etc., but not parimutuel wagering machines) in one location.

Qualified Card Room: licensed for at least 250 tables.

Qualified Race Track: licensed for 500 or more gaming devices in one location, or $200M or more bets on horse racing during 3 of the last 5 years before enactment.

In addition, slot machine or mobile gaming (those used at b&m casinos) manufacturers that have been supplying Casino Gaming Facilities for at least 5 years are eligible.

Two years after issuance of the first license, Commerce can expand this (any way that want) at their discretion, with public notice and comment.

All suppliers for the sites must apply for a Certificate of Suitability from the State Agency.

Licenses last 5 years, and can be renewed.

Licensed sites must agree to US jurisdiction.

Licensing Qualifications

This is pretty much up to the State Agencies. The bill just requires normal licensing standards like honesty of the persons, criminal background, experience, financially qualified, etc.

The State Agencies are required to consider the scope of any unlicensed I-gaming operated by the applicant prior to enactment of this bill (e.g., offshore sites), but no prohibition against them is specified.

Licensee Requirements

Licensees must comply with all State Agency regulations.

Licensees must have systems in place for:

Age verification (21+).
Location verification.
Taxes collected or reported on payment of proceeds (details below).
Payment of site taxes.
Prevention of fraud, money laundering and terrorist financing.
Player privacy and security protection.
Honesty and fairness of games.
Prevention of cheating. collusion, use of cheating devices, use of bots.

Licensing Fees

State Agencies can assess user fees on license applicants to cover the costs of investigations.
State Agencies can assess user fees on licensees to cover the costs of licensing and regulation, plus an amount for the feds to cover their costs.

All state fees collected are held by the US Treasury, accessible to the state for payment of costs.

These fees are just to cover costs.

State Opt-Outs

States are opted-in unless they opt out. Opt outs are by notice of the state governor or chief executive. No details are specified as to whether any action is required by a state legislature to authorize the governor to opt out. This would probably fall to state law whether the governor or the legislature has this authority under their state constitution.

Sites cannot accept play from anyone who resides in an opt-out state.

*Warning Bells*: The state opt out provision is written in a way that indicates that a state can limit the games offered, not just a straight opt-in/opt-out. However, the provision wording also specifies that licensed sites are not allowed to accept bets from anyone residing in a state that limits the games. It doesn't specify that a site has to limit play accordingly to those residents. The site can't take any play from those residents. This provision is contradictory.

Player Issues

The State Agency determines what game is acceptable as "Internet Poker" for a licensee. Another state agency or licensee can file a challenge with Commerce. Commerce decides within 30 days. Licensee or state agency can challenge decision in United States District Court for the District of Columbia

If a license is revoked, site must return player funds within 30 days to all players. Funds not returned must be placed in escrow under control of the Commerce.

Sites must have in place protections for compulsive gaming, including self-exclusion option. If a player self-excludes from one site, they will be excluded from all licensed sites.

If a court or related state agency makes notice of a child support delinquent, they will be put on the exclusion list. Only the same court or agency can remove them.

No use of credit cards allowed.
No Internet poker parlors allowed (i.e., live venues offering public play on Internet poker).

Cheating

The following forms of cheating are prohibited:

Violating site rules of play for the purpose of obtaining prohibited or unfair advantage.
Use of software or other device violating site rules to obtain advantage.
Use of cheating device to cheat or defraud any licensee or player.
Bots forbidden.

Penalties possible upon conviction:
Permanent ban from play.
Fines.
Up to 3 years imprisonment.

Site Taxes

This bill does not specify any taxes on licensed sites. I assume this will come in the form of a companion bill, such as the McDermott bill, or by later amendment to this bill.

Player Income Taxes

This bill does not make any changes to income taxes for players. It only specifies that sites must do tax collecting or reporting at the time of "any payment of proceeds". Players will continue to be liable for US income tax on all their poker winnings just as they are now (see this thread).

The only federal income tax collecting and reporting currently required of gaming establishments for poker is:

As with live play, US players are not subject to withholding if they provide their Taxpayer ID Number (likely a W-9 Form to the site indicating that you are not subject to income tax withholding). Otherwise, poker players will be subject to 31% backup withholding on tournament winnings of 5K or more. This is withholding of taxes, not necessarily equal to the amount of taxes owed on winnings when filing - overpayments can be refunded.

Foreign players will be subject to 30% withholding on all poker winnings unless they provide the proper documentation that they are from a country with a tax treaty on gambling winnings, just as with live play.

UIGEA-Strengthening

Requires the Treasury to publish a list of unlawful Internet gambling sites. This list will be used by payment processors (banks, etc.) to block transactions to the sites.

Non-US Players

It is possible under the provisions of this bill that players located outside the US will be allowed on the US licensed sites. The bill provisions specifically authorize licensed sites to accept bets from US players. The sites must also ensure that players are located in a jurisdiction where it is legal (e.g., no players from opt-out states). The bill does not have a provision that specifically forbids or outlaws licensed sites from taking bets from non-US players who are located in a jurisdiction where it is legal.

This does not necessarily mean that non-US players will be allowed. The regulations developed for implementation of this bill might forbid it. But the door is left open by the wording of this bill to allow it.

Other Legal Matters

Specifies that this act supersedes all state and tribal laws with regards to Internet Gambling and Internet Poker.

Specifies Wire Act does not apply to this act and horseracing act.

Specifies UIGEA does not apply to licensed play.

Commerce has 6 months to issue regulations to implement this bill.

This bill takes effect 30 days after enacted.

Reid/Kyl Summary

The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012

1. The bill undoes the impact of the recent Justice Department Office of Legal Counsel (OLC) opinion that the Wire Act only covers sports betting and it further clarifies the prohibitions on Internet gambling in the Wire Act, the Illegal Gambling Business Act, and the Unlawful Internet Gambling Enforcement Act (UIGEA). In particular, the bill updates the 1961 Wire Act and the 1970 Illegal Gambling Business Act so that they clearly apply to modem technologies and to all forms of unlicensed Internet gambling. The bill also makes those two laws consistent with a modified UIGEA that is enhanced with stronger enforcement tools (described below).

2. Under the bill, all Internet gambling, whether interstate or intrastate, would be prohibited, except offtrack horse-race wagering under the Interstate Horseracing Act of 1978 and licensed poker. State and tribal lotteries could sell lottery tickets online but could not create online games that mimic a slot machine or other casino games. Offering unlicensed Internet gambling would constitute an express crime under the bill- subjecting the offender to up to 10 years’ imprisonment and accompanying fines – and under the Wire Act, the Illegal Gambling Business Act, and UIGEA.

3. The overall effect of the bill is to strengthen federal prohibitions on Internet gambling by expanding those prohibitions to include the vast majority of the expansive Internet gambling that the OLC legal opinion effectively permits and wholly intrastate “closed-loop” or other remote gambling. The bill also increases the capacity of law enforcement agencies to prevent illegal gambling activity.

Additional Law Enforcement Tools

4. The bill adds important tools to aid law enforcement in preventing illegal Internet gambling. Among these tools is a list of licensed online poker enterprises. Financial transactions providers may only process U.S. transactions for online poker enterprises that are on that list.

5. To deter U.S. players from patronizing illegal sites, the bill makes explicit that any property involved in or traceable to a gambling transaction in violation of the new act (including winnings) is subject to forfeiture. That same provision also clarifies existing forfeiture laws by providing that all operator proceeds from such unlawful Internet gambling activity similarly are subject to forfeiture.

6. The bill prohibits the establishment of Internet poker cafes or other locations created principally for the purpose of accessing Internet gambling, thereby ensuring that substantial gambling in public places remains confined to traditional, licensed facilities.

Limited Exception for Online Poker Only for Those States That Choose to Participate

7. The bill permits online poker, but only for persons physically located in states or on tribal lands that choose to opt in to the bill’s regime. The bill provides a voluntary election procedure by which states and tribes may choose to participate. A state or tribe may opt out simply by doing nothing. To opt in, a state must elect to participate by a simple majority vote of each chamber of the state’s legislature. A tribe may opt in if its principal chief or other chief executive officer or designated authority provides written notice to the Secretary of the Commerce Department of this election. However, a tribe may not elect to opt in if its tribal lands are within the territory of a state that has not opted in. Offering bets or wagers to or accepting bets or wagers from persons located in any state or tribal land that does not opt in is prohibited. Similarly, no licensee or other U.S. person may accept bets or wagers from persons located in other countries.

8. Online poker will be subject to stringent licensing requirements and to oversight by a new Office of Online Poker Oversight (OOPO), established within the Department of Commerce, that will have oversight of state and tribal regulatory bodies and may issue licenses directly to state-controlled entities or tribes that themselves want to operate online poker. (Those state or tribal entities also may seek licensure from a state or tribal regulatory body, provided that such body is not owned or controlled by the entity it regulates or any other online poker licensee.)

9. The bill’s principal regulatory structure is state-focused. The bill directs the Commerce Department to designate qualified bodies, which will act, along with the OOPO, as regulators of licensed online poker operators. The qualified bodies may be state agencies or tribal regulatory bodies, must possess substantial experience in regulating land-based gaming, and must meet rigorous standards set out in the bill that are designed to ensure accurate identification of customers, age and location verification, data security, and protections against collusion, fraud and compulsive gambling. The safeguards expressly mandate the use of self-exclusion lists and of biometric and GPS or materially equivalent technologies to address gambling by minors or by persons in excluded jurisdictions as well as to ensure that online poker operators use appropriate technologies. Violations of these or other requirements entail substantial civil penalties (up to $750,000 per violation) and loss of license.

10. The bill directs the Commerce Department to designate at least three “benchmark” qualified bodies that meet the requisite criteria to serve as initial regulators along with the OOPO. The benchmark qualified bodies designated by the Commerce Department must have reputations as regulatory and enforcement leaders in the gaming industry, must adhere to a strict regulatory regime, and must have sufficient staff, experience, and resources to regulate this new activity.

11. The bill requires strict scrutiny for suitability of operators and significant vendors (those who provide certain types of goods or services – such as software or intellectual property – to operators). For the first two years, in order to ensure a baseline level of expertise and experience, licensees must already be regulated operators (or affiliates of operators) of licensed land~based gambling facilities of a certain size and type (including commercial gaming operators, tracks and tribal operators) or manufacturers of certain types of regulated gaming devices.

12. In addition, licensing of persons (or use of their assets) that were involved in offering Internet gambling to United States residents after 2006 (following enactment of UIGEA) is prohibited for five years after enactment of the bill, subject to a rebuttable presumption that state or federal laws were violated by their post-UIGEA gambling activities in the United States. A person covered by this prohibition may seek relief from this sanction, but unless that person can establish to a court by a preponderance of the evidence that no state or federal laws were violated, the prohibition will stand. After the expiration of that five-year period, any such person can participate in licensed activities only jf they pass muster under the stringent suitability review that may be conducted only by the OOPO or by a benchmark qualified body.

13. The bill prescribes time frames for issuance of the regulations necessary to implement its provisions and specifies that no licensee may begin operations until at least 15 months after the date of the bill’s enactment. The bill envisions establishment of the OOPO within 6 months of enactment and the appointment of benchmark qualified bodies and issuance of regulations three months thereafter. Failure by the Commerce Department to issue regulations by that date will result in automatic adoption of the first benchmark qualified body’s regulations until the Department has prescribed its own regulations. Taken together, these time frames ensure a level playing field and prevent any one licensee from acquiring a “first mover’s advantage.”

14. The authorization for online poker is strictly limited and the bill contains a mechanism to create barriers to future expansion into other forms of Internet gambling.

Substantially All Revenue Is Dedicated To States

15. The bill establishes a 16% online poker activity fee payable by licensees on a monthly basis – 14% payable to the states or tribes and 2% to the federal government with an adjustment mechanism to redirect any unused portion of the federal fee to the states or to establish additional funds – up to a maximum of 3.5% – if necessary to fund the permitted federal uses. The federal share of the online poker activity fee will be dedicated to OOPO, law enforcement, Native American, and responsible gaming efforts. The activity fee is calculated as a percentage of eligible online poker receipts. The fee will be administered through a Treasury Department trust fund, with state and tribal receipts distributed to the respective states or tribes that have opted-in.

16. The state and tribal shares of the online poker activity fee will be apportioned based on two factors. 70% of the state and tribal portion of the online poker activity fee will be allocated based on the location of the customers from whom the licensee’s online poker receipts are generated. The remaining 30% will be paid to the state or tribe in which the licensee’s qualified body is located. (For licensees regulated directly by the OOPO, that portion will become part of the federal share.)

17. The bill requires licensees to report and to withhold online poker winnings consistent with existing federal tax law, to ensure that players’ income attributable to poker winnings are reported and applicable taxes paid.

18. The bill also allows qualified bodies and the OOPO (when acting as a qualified body) to assess user fees from applicants for licenses or significant vendor certifications in order to cover the costs of administration of the application process.

Lotteries

19. The bill imposes strict limitations on online lotteries, while respecting the right of states and tribes to sell lottery tickets online and otherwise to retain regulatory authority over their lottery activities. As noted, states and tribes will only be able to sell “tangible” tickets online, in games where winners are determined not more frequently than daily. The games themselves cannot be played online and cannot mimic online games.

Tribes and States

20. The bill treats Indian tribes fairly. Tribal regulatory bodies can become qualified bodies subject to the same criteria as state regulatory agencies. Like states, tribes can opt in to the bill’s regime, and tribes receive shares of the online poker activity fee on the same basis that applies to the states. Tribes with gaming facilities may participate as online poker operators subject to the suitability and other criteria identified above. However, tribes may not regulate themselves. Any tribe that serves as a qualified body may not also be an online poker operator for its own operation. A tribe that is precluded from opting in because the state in which it is located has not done so nevertheless may apply for designated as a qualified body.

21. The bill further provides that no decision or action taken by a tribe or state in connection with online poker activities or their participation in the regulation or operation of an online poker facility shall have any effect on non-Internet gaming activities under the Indian Gaming Regulatory Act or on any related tribal-state compact and shall not require a tribe or state to negotiate any new compact.

22. Existing gaming that is authorized, licensed, and regulated by states or tribes as of May 1,2012 is preserved.

WTO Issue

23. Finally, the bill directs the United States Trade Representative to conclude the long-stalled process of withdrawal of U.S. remote gambling commitments under the General Agreement on Trade in Services (WTO) within 180 days of enactment or, if unable to meet that deadline, to initiate WTO arbitration.

[Thew92]

1. Actual bill title
Barton’s - H.R. 2366: Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011
Reid/Kyl - The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012
2. Other Gambling Probation
Barton’s - All Internet Gambling will be prohibited except:

Sites licensed under this bill for Internet poker.
Sites operating outside the US that don't take wagers from the US.
Horseracing sites legal under the Horseracing Act
Intrastate Lotteries
Skill Game sites that are legal under existing laws.
Intratribal I-gaming
Intrastate I-gaming that was licensed by a state before enactment of this bill.

Reid/Kyl - Under the bill, all Internet gambling, whether interstate or intrastate, would be prohibited, except offtrack horse-race wagering under the Interstate Horseracing Act of 1978 and licensed poker. State and tribal lotteries could sell lottery tickets online but could not create online games that mimic a slot machine or other casino games. Offering unlicensed Internet gambling would constitute an express crime under the bill- subjecting the offender to up to 10 years’ imprisonment and accompanying fines – and under the Wire Act, the Illegal Gambling Business Act, and UIGEA.
The overall effect of the bill is to strengthen federal prohibitions on Internet gambling by expanding those prohibitions to include the vast majority of the expansive Internet gambling that the OLC legal opinion effectively permits and wholly intrastate “closed-loop” or other remote gambling. The bill also increases the capacity of law enforcement agencies to prevent illegal gambling activity.

3. Play on Unlicensed Sites

Barton’s - The civil penalty for operating any site that is required to get a US license but doesn't have one is up to the total amounts wagered, or $1M/day of operation, whichever is greater. Criminal prosecution under other laws can apply as well.

There are no player penalties for unlicensed play.

Reid Kyl - To deter U.S. players from patronizing illegal sites, the bill makes explicit that any property involved in or traceable to a gambling transaction in violation of the new act (including winnings) is subject to forfeiture. That same provision also clarifies existing forfeiture laws by providing that all operator proceeds from such unlawful Internet gambling activity similarly are subject to forfeiture.

4. State Opt-in and Outs
Barton’s - States are opted-in unless they opt out. Opt outs are by notice of the state governor or chief executive. No details are specified as to whether any action is required by a state legislature to authorize the governor to opt out. This would probably fall to state law whether the governor or the legislature has this authority under their state constitution.
Sites cannot accept play from anyone who resides in an opt-out state.

Reid/Kyl - The bill permits online poker, but only for persons physically located in states or on tribal lands that choose to opt in to the bill’s regime. The bill provides a voluntary election procedure by which states and tribes may choose to participate. A state or tribe may opt out simply by doing nothing. To opt in, a state must elect to participate by a simple majority vote of each chamber of the state’s legislature. A tribe may opt in if its principal chief or other chief executive officer or designated authority provides written notice to the Secretary of the Commerce Department of this election. However, a tribe may not elect to opt in if its tribal lands are within the territory of a state that has not opted in. Offering bets or wagers to or accepting bets or wagers from persons located in any state or tribal land that does not opt in is prohibited. Similarly, no licensee or other U.S. person may accept bets or wagers from persons located in other countries.

5. Taxes
Barton’s not addressed
Reid/Kyl - The bill establishes a 16% online poker activity fee payable by licensees on a monthly basis – 14% payable to the states or tribes and 2% to the federal government with an adjustment mechanism to redirect any unused portion of the federal fee to the states or to establish additional funds – up to a maximum of 3.5% – if necessary to fund the permitted federal uses. The federal share of the online poker activity fee will be dedicated to OOPO, law enforcement, Native American, and responsible gaming efforts. The activity fee is calculated as a percentage of eligible online poker receipts. The fee will be administered through a Treasury Department trust fund, with state and tribal receipts distributed to the respective states or tribes that have opted-in.

The state and tribal shares of the online poker activity fee will be apportioned based on two factors. 70% of the state and tribal portion of the online poker activity fee will be allocated based on the location of the customers from whom the licensee’s online poker receipts are generated. The remaining 30% will be paid to the state or tribe in which the licensee’s qualified body is located. (For licensees regulated directly by the OOPO, that portion will become part of the federal share.)

[fnord_too]

Originally Posted by BobbyDD

i dont understand the federal fee.

I don't think anything has been released or leaked that details the specifics. It could be reasonable or unreasonable depending on the details.

[NYC_Jon]

I don't like the 21+ part.

[flight2q]

Reid released the Reid/Kyl summary as part of an attack on Heller for being a lightweight. Essentially saying Heller can't even get GOP votes using these bullet points. There might be some additional points in there, reflecting stuff the public actually wants - things like funds security and game integrity (more detailed than described).

But if the present bullet points are accurate it should make the FoF real happy. It will amend Wire Act to put Worldwinner out of business, fantasy sports too.

[RAHZero]

Originally Posted by NYC_Jon

I don't like the 21+ part.

There's not going to be a viable federal bill that's not 21+ anytime in the foreseeable future. It's simply not going to happen.

[NYC_Jon]

Originally Posted by RAHZero

There's not going to be a viable federal bill that's not 21+ anytime in the foreseeable future. It's simply not going to happen.

Why is that? There are plenty of tribal properties that are 18+

[repulse]

Lowering what is perceived as "the gambling age" is politically difficult regardless of actual laws and of precedent, especially for such a degenerate and invasive form of gambling such as internet gambling, you know, casinos in every dormitory and such. The world's very gradual progress towards understanding how poker is a game of skill and distinct from other gambling activities has a looooooong way to go before it could ever overcome this.

[ScreaminAsian]

Originally Posted by NYC_Jon

Why is that? There are plenty of tribal properties that are 18+

waitresses give free alcoholic drinks to people as they gamble. an 18-year-old with a computer in his bedroom at his parents house could completely game this system, that, until now, has been normalized by only letting adults aged 21+ gamble. how are we supposed to keep 18 to 21-year-olds off drugs and alcohol if now all they need is a COMPUTER to gamble?! computers are everywhere! they're getting smaller, they're in every kid's pocket, they're taking over!! we need to PROTECT the constitution, NOT destroy it!!!

[repulse]

Originally Posted by ScreaminAsian

waitresses give free alcoholic drinks to people as they gamble. an 18-year-old with a computer in his bedroom at his parents house could completely game this system, that, until now, has been normalized by only letting adults aged 21+ gamble. how are we supposed to keep 18 to 21-year-olds off drugs and alcohol if now all they need is a COMPUTER to gamble?! computers are everywhere! they're getting smaller, they're in every kid's pocket, they're taking over!! we need to PROTECT the constitution, NOT destroy it!!!

Essentially this, really.

[NYC_Jon]

Thanks guys. It makes a lot of sense in a very non-nonsensical way.