WASHINGTON - Financial services industry officials raised a red flag Tuesday over legislation that would bar U.S. financial institutions from settling online gambling transactions.

"Using financial institutions to control Internet gambling would be of limited effect," Michael L. Farmer, a senior vice president at Wachovia Bank Card Services, told a House Financial Services subcommittee.

The panel was examining various bills aimed at shutting down online betting, either by requiring Internet providers to block access to gambling sites or by prohibiting the use of credit cards and other bank instruments for Web gambling.

"As Wachovia and other credit card issuers deny authorization for Internet gambling transactions, there are considerable incentives for merchants to circumvent this policy," Mr. Farmer testified. "For example, Internet casinos may seek to conceal the true nature of their transactions by altering the data message to make themselves appear to be a merchant type other than gambling. In cases such as this, Internet gambling charges may be unknowingly approved in the [bank's] authorization system."

Former House Banking Committee Chairman Jim Leach testified about the social threat posed by online gambling, which critics say is too easily accessible to compulsive gamblers and minors.

The Iowa Republican said that he introduced a bill that would prevent financial institutions from settling transactions involving illegal Internet gambling operations because bank instruments are "the one, true effective tool" for stopping it.

Though "it does involve a slight burden on the industry, it's a slight one compared" with the impact gambling has on society, he said.

The outlook for the Leach bill is uncertain. It could be combined with one Rep. Bob Goodlatte, R-Va., plans to introduce that, like a bill sponsored by Sen. Jon Kyl, R-Ariz., would require Internet service providers to block gambling sites.

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