Recently, the Senate Subcommittee on Consumer Protection held a hearing on the issue. Reflecting the sentiment of panel colleagues, Sen. Dean HellerDean HellerMnuchin weathers stormy confirmation hearing Live coverage: Senators grill Trump's Treasury pick Five things to watch for in Mnuchin hearing MORE (R-Nev.) said he intended to collaborate with Senate Majority Leader Harry ReidHarry ReidFranken emerges as liberal force in hearings GOP eyes new push to break up California court The DC bubble is strangling the DNC MORE (D-Nev.) on legislation to regulate this rapidly-growing industry.
“Patchwork state and tribal regulations have sparked a regulatory race to the bottom,” Heller said. “Congress needs to provide clarity and guidance on these issues. If we do not, this illegal market will continue to grow where millions of consumers are put at risk and criminals can act freely.”
Money laundering is a clear risk that needs to be addressed. The potential size of the Internet gambling market — and the discrepancies in how it is regulated and policed — is a lure for those who want to cleanse illegal monies, and evade taxes and currency controls.
This risk can be controlled when financial institutions, in partnership with licensed operators, are required to vet origins of transactions, track cross-border movement, report suspicious as well as large transactions and deploy secure financial processing technologies. In fact, the capacity to implement these controls is greater in Internet gambling than it is in other forms of e-commerce and certainly land-based casinos where cash is often king and customer identities can go unknown.
Only carefully-crafted federal regulation can mandate a safe and secure system. And a key to making this work is the use of credit cards within a regulated industry.
The experience of my firm in providing protective frameworks for financial transactions, such as those used in Internet gambling in regulated European jurisdictions, makes clear that credit cards are essential to curtailing money laundering because financial institutions vet money sources that service those credit card accounts.
In fact, while working in Europe, I did not see even one instance of money laundering associated with regulated Internet gambling.
That’s why it’s troubling that Rep. Joe Barton (R-Texas) has introduced legislation banning the use of credit cards for Internet gambling, expressing a fear that individuals could go into debt to make wagers. This understandable concern is misplaced. Anyone can get a cash advance from their credit card to fund debit and prepaid cards. And no other form of financial transaction comes close to the security offered by credit cards.
In addition to credit cards, sound federal regulation should include:
➢ Operator vetting, to ensure licensed gambling operators, money invested in the business and the systems they use fully comply with all regulations. Gambling software providers should also be subject to strict licensing and testing processes to ensure their games cannot be rigged and that fair play exists. And all individuals investing or involved in the running of an Internet gambling business should be thoroughly vetted.
➢ Player vetting, so that those wishing to gamble undergo a similarly rigorous application process as is required when opening a bank account. Operators should also be required to verify the identity of each player whenever they go online and to ensure they are in a legal jurisdiction. These requirements are also essential for rooting out underage and problem gambling.
➢ Financial transaction oversight. The formalized account relationship between the player and Internet gambling operator in the registration and verification process, combined with the online environment, makes it easier to maintain oversight of all financial activities. Operators can also impose a valuable safeguard by capping the amount players can deposit or withdraw at any one time.
The bottom line is that when you have sensible regulations such as these, which are the basis of legislation introduced by Rep. Peter King (R-N.Y.), there is no question we can have a healthy Internet gambling industry where fraud and other illegal activities are properly policed.
Thom is chairman of Secure Trading, Inc., a company offering a complete suite of services that ensure safe financial transactions and consumer protections. He previously served for 11 years as Chief Risk Officer at MasterCard.