BILL ANALYSIS �
SJR 14
Page 1
( Without Reference to File )
SENATE THIRD READING
SJR 14 (Wright)
As Amended September 6, 2011
Majority vote.
SENATE VOTE :37-0
GOVERNMENTAL ORGANIZATION
(vote
not available)
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SUMMARY : SJR 14 urges the members of California's
Congressional delegation to preserve the right of the State of
California to opt out of any federal Internet gambling system,
and retain the right to operate its own intrastate Internet
gambling system as currently permissible under the federal
Unlawful Internet Gambling Enforcement Act (UIGEA), or opt into,
any federal Internet gambling system. Specifically, this
resolution makes the following legislative findings:
1) States leading gaming consultants estimate that in 2005,
United States citizens illegally wagered $4 billion online at
off-shore, non-United States Internet gambling Web sites, and
that every week more than 1.5 million Californians participate
in illegal online gambling on the Internet.
2) States currently hundreds of Internet gambling Web sites
operate outside the United States, unregulated by any United
States governmental entity and in violation of United States
laws. Questions often arise about the honesty and the fairness
of the games played on these Internet Web sites, and about the
true purpose for, and use of, proceeds generated by these
unregulated Internet Web sites, particularly since the United
States Department of Justice has indicted the owners and
operators of several of the leading Internet gaming Web sites
for money laundering, bank fraud, and other federal felony
offenses.
3) In October 2006, the United States Congress passed, and the
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President signed, the SAFE Port Act to increase the security of
United States ports. Embedded within the language of that bill
was a section called the Unlawful Internet Gambling Enforcement
Act of 2006 (UIGEA), which prohibits the use of banking
instruments such as credit cards, checks, or fund transfers for
interstate Internet gambling. The statute, however, has not
eliminated illegal, unregulated Internet gambling, nor has it
provided any increased protection for participants from game
operators and others who would impair the integrity of online
gambling activity.
4) Provides Congress included specific provisions in UIGEA for
individual states to permit intrastate Internet gambling,
provided that state laws permitting and regulating that activity
could impose reasonable protections against participation by
underage persons or by persons located outside the boundaries of
the states authorizing that activity. While the federal Indian
Gaming Regulatory Act balanced the interests of three sovereign
governments, the state, Indian tribes, and the federal
government, UIGEA was designed to balance the federal interest
in secure financial transactions with the state power to
determine how online gambling should take place within the
states.
5) States the Legislature has held numerous hearings and taken
hours of testimony over the past 18 months on the issues and
challenges surrounding intrastate Internet gaming, and those
hearings have been instrumental in identifying problems and
solutions that have narrowed the differences among various
stakeholders. Witnesses have testified that a state regulated
Internet gaming framework will ensure that the games
Californians are authorized to play are honest, that winners are
paid when and in amounts due, and that the state and its
citizens, rather than illegal off-shore companies operating
outside the reach of, and contrary to, state and federal laws,
will benefit from economic activity in this state.
6) Declares the Legislature has made a significant amount of
progress on intrastate Internet gaming to the point where,
absent unforeseen circumstances, a sound and objective proposal
is fully expected to be developed for consideration by the
Legislature during the 2012 portion of the 2011-12 Regular
Session.
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7) States that Congress currently has pending before it several
bills that would authorize and regulate certain forms of online
gaming that could be a disservice to all Californians and place
the state at a severe regulatory, competitive, and financial
disadvantage; now, therefore, be it Resolved by the Senate
and the Assembly of the State of California, jointly, that the
Legislature respectfully urges the members of California's
Congressional delegation to preserve the right of the State of
California to opt out of any federal Internet gambling system,
and retain the right to operate its own intrastate Internet
gambling system as currently permissible under UIGEA, or opt
into any federal Internet gambling system.
EXISTING LAW :
1) The Gambling Control Act of 1997 established the California
Gambling Control Commission (CGCC) which has licensing
jurisdiction over the operation of card clubs and of all persons
having an interest in the ownership or operation of card clubs.
2) Article IV, Section 19, subdivision (e) of the California
Constitution permits Indian tribes to conduct and operate slot
machines, lottery games, and banked and percentage card games on
Indian land if (1) the Governor and an Indian tribe reach
agreement on a compact; (2) the Legislature approves the
compact; and (3) the federal government approves the compact.
3) Existing federal law, the Federal Indian Gaming Regulatory
Act (IGRA) of 1988, established the jurisdictional framework
that presently governs Indian gaming. Under IGRA, before a tribe
may lawfully conduct class III gaming (games commonly played at
casinos, such as slot machines and black jack), the following
conditions must be met: (1) The particular form of class III
gaming must be permitted in the state; (2) The tribe and the
state must have negotiated a compact that has been approved by
the Secretary of the Interior; and (3) The tribe must have
adopted a tribal gaming ordinance that has been approved by the
chairman of the National Indian Gaming Commission.
4) Existing federal law, UIGEA, prevents U.S. financial
institutions from processing payments to online gambling
businesses. The UIGEA does exempt three categories of
transactions: intra-tribal, intrastate, and interstate horse
racing. The UIGEA defines intrastate transactions are bets or
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wagers that are made exclusively within a single state, whose
state laws or regulations contain certain safeguards regarding
such transactions, expressly authorize the bet or wager and the
method by which the bet or wager is made, and do not violate any
provisions of applicable federal gaming statues.
5) Existing California law, The Gambling Control Act of 1997
established the CGCC to regulate legal gaming in California and
the Bureau of Gambling Control within the Department of Justice
to investigate and enforce controlled gambling activities in
California. It prohibits gambling in a city or county that does
not have an ordinance governing certain aspects of the operation
of gambling establishments, including the "hours of operation"
of gambling establishments.
FISCAL EFFECT : This bill is keyed non-fiscal by Legislative
Counsel.
COMMENTS :
Author's Purpose : The author's office notes that the Senate
Governmental Organization Committee has held numerous hearings
and has taken hours of testimony over the past 18 months on the
issues and challenges surrounding intrastate Internet gaming and
those hearings have been instrumental in identifying problems
and solutions which have narrowed the differences among various
stakeholders. Witnesses have testified at those hearings that
well over a million Californians are playing online games and
those players are going to illegal offshore sites where they are
at the mercy of unscrupulous operators and are occasionally
cheated out of their money with absolutely no recourse.
Additionally, witnesses have affirmed that a state regulated
Internet gaming framework will ensure that the games
Californians are authorized to play are honest, that winners are
paid when and in amounts due, and that the State and its
citizens, rather than illegal off-shore companies operating
outside the reach of, and contrary to, state and federal laws,
will benefit from economic activity in this State.
The author's office points out that a significant amount of
progress on intrastate Internet gaming has been made over the
past year however many fiscal, legal, technical and policy
related questions remain unresolved. According to the author's
office, absent unforeseen circumstances, a sound and objective
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proposal is fully expected to be developed for consideration by
the Legislature during the second year of the 2011-12
Legislative Session.
The author's office also notes that several proposals are
currently pending in Congress which would authorize and regulate
certain forms of online gaming that could be a disservice to all
Californians and place the state at a severe regulatory,
competitive, and financial disadvantage. According to the
author's office, SJR 14 is simply intended to preserve the right
of the State of California to opt out of any federal Internet
gambling system and retain the right to operate its own
intrastate Internet gambling system, or opt into, any federal
Internet gambling system.
Background : The size of the online gambling market is difficult
to gauge because so much of it is conducted by privately held
entities operating from lightly regulated jurisdictions. It has
been estimated that more than 2,000 iGaming web sites operate
outside the United States, unregulated by any governmental
entity and in violation of federal and state laws. Questions
often arise about the honesty and the fairness of the games
played on these Internet Web sites, and about the true purpose
for, and use of, proceeds generated by these unregulated
Internet Web sites.
According to studies, Americans illegally wager more than $10
billion at off-shore, non-United States Internet gambling Web
sites. It has been estimated that 15 million Americans wager on
iGaming sites and more than one million Californians play poker
via the Internet. United States players make up between 50 and
70 percent of iGaming players worldwide, despite the fact that
Internet gambling is illegal in the United States (except on
horse racing).
Additionally, studies show that two of iGaming's fastest growing
areas are betting exchanges and online poker. Poker accounts
for nearly a quarter of Internet gaming revenues; sports betting
and online casinos each account for 35 percent of revenues.
To date, no state has legalized iGaming operations within its
borders.
Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South
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Dakota, and Washington prohibit Internet Gambling and some
expressly prohibit Internet wagering by individual players.
Additionally, Washington law provides that a person that
transmits or receives gambling information by the Internet is
guilty of a felony.
iGaming legislation in other states: In January 2011, New
Jersey Governor Chris Christie vetoed a measure that would have
made New Jersey the first state in the country to legalize
online gambling. The bill would have allowed New Jersey
residents to place bets through websites run by casino companies
in Atlantic City. Governor Christie stated that he believed the
bill would violate New Jersey's constitution, and his veto
message said he was concerned that the bill would expand
gambling "in a manner that is contrary to public sentiment," and
face "several significant legal obstacles."
In recent years, legislation has been introduced in Nevada,
Florida, North Dakota, and Iowa to establish an intrastate
iGaming framework but all failed to move forward for various
reasons.
Federal legislation to regulate iGaming : On the federal level,
2011 legislation has been introduced in Congress to establish a
federal regulatory system for Internet gaming. Congressman John
Campbell (R-CA), introduced HR 1174, the "Internet Gambling
Regulation, Consumer Protection, and Enforcement Act," which
grants the Secretary of the Treasury regulatory and enforcement
jurisdiction over the Internet gambling licensing program
established by the Act. Although it provides for federal
regulation and oversight, it does provide the states with the
opportunity to opt-out of iGaming activities within their
respective jurisdictions. HR 1174 prohibits licensees from
engaging in the operation of an Internet gambling hub that
knowingly accepts bets or wagers initiated by persons who reside
in any opt-out state or the tribal lands of any opt-out Indian
tribe.
Similar federal measures were introduced in the past but none
managed to move forward. In 2010, a bill sponsored by
Representative Barney Frank (D-MA) would have superseded UIGEA
and legalized, taxed and regulated online gambling but the bill
stalled in the House. During the "Lame Duck Congress" of 2010,
there was attempt by Senate Majority Leader Harry Reid (D-Nev.)
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to move legislation to institute federal regulation of a
legalized system of Internet gaming. However, the proposed
legislation failed to advance.
Related Legislation : SB 40 (Correa) 2011-12 Session. Would
establish a framework to authorize Internet poker, as specified.
(Pending in Senate G.O. Committee)
SB 45 (Wright) 2011-12 Session. Would enact the "Internet
Gambling Consumer Protection and Public-Private Partnership Act
of 2011" for the stated purpose of authorizing, implementing,
and creating a legal system for intrastate Internet gambling in
order to: (a) protect the millions of Californians who gamble
online; (b) allow state law enforcement to ensure consumer
protection; and, (c) keep iGaming revenue in California.
(Pending in Senate G.O. Committee)
AJR 19 (Hall), 2011-12 Session. Would respectfully urge the
members of California's Congressional delegation to preserve the
right of the State of California to opt out of any federal
Internet gambling system, and retain the right to operate its
own intrastate Internet gambling
system, or opt into any federal Internet gambling system.
(Pending in Assembly Rules)
Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531
FN: 0002900