BILL ANALYSIS
AB 2026
Page 1
Date of Hearing: April 16, 2008
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Alberto Torrico, Chairman
AB 2026 (Levine) - As Introduced February 15, 2008
SUBJECT : Internet Poker
SUMMARY : Requires the California Gambling Control Commission,
in conjunction with the Department of Justice, to perform a
study and report its findings to the Legislature by June 30,
2009, regarding authorizing intrastate Internet poker, pursuant
to the federal Unlawful Internet Gambling Enforcement Act of
2006. The study must include, but is not limited to, the
following subjects: regulatory oversight and licensing,
technological issues, underage and problem gambling matters,
methods of play and types of games that may be legally offered,
economic benefits to state and local governments, and the means
by which those games and forms of gambling may be conducted and
operated.
EXISTING LAW :
1) The federal Unlawful Internet Gambling Enforcement Act of
2006 (UIGEA), prohibits a person engaged in the business of
betting or wagering from accepting methods of payment, including
credit cards, electronic fund transfers, and checks in
connection with the participation in "unlawful Internet
gambling." Unlawful internet gambling is defined as a bet or
wager that knowingly involves the use of the Internet where such
a bet is unlawful under any applicable Federal or State law in
the State or Tribal lands in which the bet or wager is
initiated, received, or otherwise made. UIGEA exempts certain
transactions from this prohibition, including bets or wagers
that are initiated and received exclusively within a single
State and the bet or wager is expressly authorized and played in
accordance with the laws of that State. The state law must
include age and location verification requirements and data
security standards designed to prevent access to minors and
persons located outside of that State. The law additionally
stipulates that the bet or wager may not violate four separate
federal laws: the Interstate Horseracing Act; the Professional
and Amateur Sports Protection Act; the Gambling Devices
Transportation Act, and the Indian Gambling Regulatory Act
(IGRA).
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2) The California Constitution: 1) authorizes the Legislature
to regulate horse races and wagering on the results; 2)
authorizes the Legislature by statute to authorize cities and
counties to permit bingo games for charitable purposes and to
conduct raffles; 3) authorizes the California State Lottery; 4)
prohibits the Legislature from authorizing casinos of the type
operating in Nevada and New Jersey; and 5) authorizes the
Governor to negotiate tribal-state gaming compacts, subject to
ratification by the Legislature, for the operation of slot
machines and the conduct of lottery games and banking and
percentage card games by federally recognized Indian tribes on
Indian lands in California in accordance with federal law.
3) Prohibits the play of any game of faro, monte, roulette,
lansquenet, rouge et noire, rondo, tan, fan tan,
seven-and-a-half, twenty-one, hokey-pokey, or any banking or
percentage game played with cards, dice, for money, checks,
credit, or other representative of value. Existing law
additionally prohibits any person from engaging in the play of
any "controlled game," without first obtaining all federal,
state and local licenses. Controlled game is defined as "any
poker or Pai Gow game, and any other game played with cards or
tiles, or both, and approved by the Department of Justice?"
4) The Gambling Control Act, requires the licensure and
regulation of various legalized gambling activities and
establishments (card clubs) by the state Gambling Control
Commission and the enforcement of those activities by the Bureau
of Gambling Control within the Department of Justice.
FISCAL EFFECT : Unknown
COMMENTS :
By most estimates, the popularity of poker and, in particular,
Internet poker, has paralleled the increase in popularity of
other forms of gambling in this country. Since the mid-1990's,
however, Congress has considered whether it should act and
attempt to prohibit gambling on the Internet, given the
then-significant availability of off-shore internet gambling
sites and the unregulated nature of those businesses, which in
the opinion of some members of Congress placed the public at
risk of fraud and other criminal activity. Accordingly,
Congress passed UIGEA in 2006 as part of the Safe Ports Act,
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thus representing an attempt by Congress to attempt to police
this activity by prohibiting the use of payment instruments by
U.S financial institutions to handle the processing of any form
of Internet gambling that is illegal under U.S. federal or state
law. Interestingly, despite the fact that this bill only took
effect in 2007, H.R. 2046, the Internet Gambling Regulation and
Enforcement Act of 2007, has already been introduced to repeal
this prohibition and instead establish a federal regulatory and
enforcement framework to license companies to accept bets and
wagers online from individuals in the U.S.
The author maintains in support of this bill that because
offshore gambling websites are not licensed or regulated,
Californians who play poker on these sites have no way of
protecting sensitive personal information when they use their
credit card or provide other financial information to such a
site. AB 2026 would study the ability of the state to protect
Californians by licensing and regulating intrastate poker
websites. Authorizing online poker would not only allow
California to protect its consumers, but it would also allow law
enforcement agencies in the state to work with the industry in
preventing participation by minors, identity theft and fraud.
Furthermore, AB 2026 would look at economic opportunities for
the state, in that by possibly licensing and regulating this
activity the state could potentially charge fees and raise
revenue from the public interested in accessing these systems to
play Internet poker.
Legislative Counsel Opinion
At the request of the author, Legislative Counsel issued a
written opinion (#0808054) that addressed four legal questions
related to the possible authorization by the Legislature of
intrastate Internet poker. The opinion was based on several
qualifications, including the presumption that the form of
Internet poker under consideration would be similar to the rules
of those games currently authorized for games played at card
clubs in California, the operator of the Internet web site
offering online poker would be required to hold a license issued
by the state and would be subject to state regulation, and
player participation would require the payment of a flat fee (no
banked or percentage games).
The first question was whether, under federal and state law, the
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Legislature could authorize the operation of Internet web sites
offering online poker. As noted above, UIGEA exempts from its
definition of unlawful Internet gambling any bet or wager that
occurs exclusively within a state and in accordance with the
laws of that state, so long as the state law includes age and
location verification and data standards and does not violate
the four federal laws specified in UIGEA. On this point,
Legislative Counsel opined that the operation of online poker
for intrastate transactions qualifies under the UIGEA exemption
and does not violate the four federal acts referenced in UIGEA,
nor could any other federal law (e.g., the Wire Act) be
reasonably construed to prohibit the conduct of online poker in
the manner contemplated in this discussion.
On the matter of whether state law prohibits this type of
gambling, Legislative Counsel suggests that so long as the
online poker is played with the same rules (non-house banked or
percentage) that applied to the forms of poker available in card
rooms in 1984 (the year that the Lottery Act passed and amended
the state Constitution to prohibit casinos of the type currently
operating in Nevada and New Jersey), the Legislature's
authorization of online poker would not violate the casino
prohibition or the California Supreme Court's holding in Hotel
Employees and Restaurant Employees v. Davis (1999), which
invalidated Proposition 5 and in doing so elevated the statutory
prohibitions against "banked table games and slot machines" to a
constitutional level, thus precluding the Legislature from
authorizing those activities by statute. Furthermore,
Legislative Counsel goes on to dismiss the suggestion that
because online poker would be played on computer terminals that
it would be sufficiently similar to a slot machine and
consequently fall within the casino prohibition, relying instead
on the premise that it's not the medium used to play a game but
rather the rules by which the gambling games are played that
determine its legality.
The second question relates to whether the Legislature's
authorization of online poker could violate the exclusivity
provisions contained in amendments to tribal-state gaming
compacts that were approved in 2007. These exclusivity
provisions protect the tribe's exclusive right to operate slot
machines and banking and percentage card games in exchange for
increased revenue sharing with the State. On this point
Legislative Counsel suggests that because the type of online
poker under consideration in this discussion would not
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constitute a lottery or banked percentage card game, and is not
a slot machine, it would not violate the exclusivity provisions
of these tribal-state gaming compacts.
The third and fourth questions the author requested Legislative
Counsel to consider related to what impact such authorization
would have on federally recognized tribes within California in
terms of its ability to offer online poker to persons located
outside the boundaries of the tribe's Indian lands, and whether
the authority of a federally recognized tribe to offer online
poker to persons outside the boundaries of Indian lands would
depend upon whether the server and other hardware used to
support the online poker were located on the tribe's Indian
lands.
Regarding both these questions, Legislative Counsel suggests
that IGRA would not govern the operation by an Indian tribe of
an Internet Web site offering online poker to persons located
outside the boundaries of the tribe's Indian lands the online
game (since the wagers would not be initiated on Indian lands),
and that a federally recognized Indian tribe within California
would be authorized to offer online poker to persons outside of
the tribe's Indian lands if it complied with the applicable
licensing and regulatory laws enacted by the state. Legislative
Counsel notes, however, that the state may not be able to
enforce its licensing and regulatory laws without an express
waiver of sovereign immunity from the respective tribe.
In Opposition . The California Coalition Against Gambling
Expansion opposes this bill arguing that legalizing internet
poker could increase the problems of residents that have
psychological predispositions and pathological tendencies
towards gambling, and that California should instead be
considering ways of decreasing access to gambling, especially to
youth, rather than increasing such opportunities through the use
of the Internet.
Previous Legislation
AB 471 (Hertzberg, Ch. 198, Statutes of 2001) - Authorized the
California Horse Racing Board (CHRB) to allow the state racing
industry to accept "advance deposit wagering" on horse races
through state-licensed betting systems communicated either via
the use of the telephone or through other electronic media
(e.g., the Internet). The bill additionally required the CHRB to
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adopt rules to license and regulate all phases of operation of
advance deposit wagering, including specific rules requiring
betting systems to establish security access policies that
include the use of CHRB-approved third party services to perform
identity, residence, and age verification services and the use
of personal identification numbers.
Support
Poker Voters of America
Opposition
California Coalition Against Gambling Expansion
Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531