WASHINGTON — Supporters of a federal law that would require financial institutions, including credit unions, to block transactions involving Internet gambling faced contentious questioning as regulators and financial institution representatives testified at a hearing designed to look into the law and its regulations.

But credit union industry executives present at the hearing were cheered to hear Representative Barney Frank (D-Mass.), chairman of the House Financial Services Committee, reassure them that, in his view, Congress will be unwilling to go along with the Treasury Department recommendations to overhaul the regulatory scheme that would eliminate the credit union charter.

Frank temporarily chaired the hearing before the Committee's Subcommittee on Domestic and International Monetary Policy, Trade and Technology, because Rep-resentative Louis Gutierrez (D-Ill.) was unavailable. As chair, Frank welcomed Harriet May, CEO of GECU in El

Paso and secretary of CUNA's board with the reassurance of congressional support.

“Before we begin, please convey to Dan Mica, my good friend and former colleague, that we would never abolish credit unions, irregardless of what Mr. Paulson might have recommended,” Frank said.

Even though the hearing had been called to discuss the implications of regulations being drafted to implement the Unlawful Internet Gambling Enforcement Act, it quickly became clear that one focus of the hearing would be the act itself versus a bill authored by Frank that would effectively repeal the new law in favor of an approach that would legalize many forms of Internet gambling.

Stuck in the middle of the waves of conflicting and sometimes emotional opinion were the two witnesses from the government agencies tasked with drawing up regulations to implement the act.

Louise Roseman, director, Division of Reserve Bank Operations and Payment Systems with the Federal Reserve, and Valerie Abend, Treasury deputy assistant secretary for Critical Infrastructure Protection and Compliance Policy, were mostly restricted in their comments to pointing out that their agencies had received many comments about the proposed regulations and were hard at work developing final rules.

“Nothing has been finalized yet,” said Roseman and Abend agreed.

But that did little to quiet the discussion. Representative Spencer Bachus (R-Ala.), the ranking Republican on the House Financial Services Committee and one of the authors of the law, spoke in the defense of the law, noting that the attorneys' general from 45 states wrote to support the legislation and in opposition to the Frank measure aiming to repeal it.

Bachus pointed out that since the act has passed, Internet gambling has fallen off among college age youth and that the FBI and Department of Justice has testified that Internet gambling has been a vehicle to launder money and finance terrorism.

Frank spoke against both the current law and the proposed regulations, noting that he disapproved of the attempt to “regulate the leisure activities of adult Americans.” He noted that even backers of the law should want to clear up the problems with the impending regulations implementing the act.

This seemed to be a theme running through the hearing as some legislators expressed reservations about how the authors of the legislation envisioned enforcement.

Bachus tried to stem the tide of doubt when questioning the witnesses.

One of the chief complaints from credit unions and other financial institutions was that, unlike other similar laws, the proposed regulations did not include or seem to contemplate the provision of a list of companies or entities involved in Internet gambling for which transactions would be blocked. The lack of such a list would leave the burden of investigating and identifying such transactions to financial institutions.

Bachus asked Roseman and Abend why there was no list when the government had similar lists for the enforcement of 17 other federal statutes that involved financial transactions and seemed disinclined to accept their response that, unlike laws that generated similar lists, the Internet gambling act sought to restrict an activity rather than a certain entity.

“A company which may be involved in Internet gambling might have lines of business entirely unrelated to Internet gambling,” Roseman said. To which Bachus replied that other sorts of criminal enterprises might likewise have branches of their business that are illegal and other branches that are legal but that did not stop them from having their transactions blocked.

But soon he came up against another problem in that the act is unclear on a definition of Internet gambling and different federal laws do not seem to agree on a definition.

“If it is not clear that law enforcement officials would know how to enforce this law, I am not sure how we can expect financial institutions, which are already burdened, to do it,” Frank said.

Almost lost in the clashing opinions and questions was any input from credit unions themselves. Harriet May, CUNA secretary to the board, delivered her prepared statement about the challenges credit unions faced if they tried to follow the proposed regulations and was not asked any follow up questions. But she did indicate that if there had to be a law, credit unions might find Frank's law easier to follow.

May said that Frank's bill, the Internet Gambling Regulation and Enforcement Act, would require Internet gaming businesses to be licensed and pay user fees to the Financial Crimes Enforcement Network. The bill could be the vehicle for the Department of Justice to take the lead in not only monitoring the entities that are complying with registration, but also developing a list of businesses or individuals involved in illegal Internet gambling activities.

“Such an approach would promote compliance for institutions by providing them a much greater level of certainty as to whether a transaction for a particular entity should be prevented. Exemptions and safe harbor provisions would help provide a regulatory framework that might actually be able to work.”

–dmorrison@cutimes.com

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