WASHINGTON - A last-minute objection by the Independent Community Bankers of America to a bill designed to curb Internet gambling wrecked the legislation's chances of passing last week and could hurt its prospects this year, a senior House lawmaker charged.
A clearly angered Rep. Jim Leach minced no words in condemning the group, saying it had tarnished its own reputation on Capitol Hill and misrepresented his legislation.
The Iowa Republican's objections came as the ICBA and others in the industry expressed renewed fears that the bill could leave banks subject to criminal penalties.
Rep. Leach dismissed that idea in an interview last week as "preposterous," and said the group's concerns are not shared by the banking industry at large.
"What you have here is a circumstance that the ICBA staff is taking a position in opposition to the professional judgment of all the major banks in America … and is presenting a straw-man concern … that has no credibility," Rep. Leach said.
He continued: "We almost were able to bring this out in the Senate this week and one organization in Washington caused that not to happen. … I am absolutely astonished that the ICBA would be lining up with the Internet gambling lobbying group to block this legislation."
Camden Fine, the ICBA's president, said in an interview that the group is not trying to derail the bill. However, he said, the "legislation is targeting community banks as the enforcer of this."
"What we are saying is we are glad to help, but don't lay legislative requirements on our banks that are unworkable or that will paralyze the financial system," Mr. Fine said.
At issue is a bill that would require financial institutions to block payments to online gambling companies and give the Treasury Department and the Federal Reserve Board the authority to determine what types of payment mechanisms banks would have to block. The House passed the legislation, co-sponsored by Rep. Leach, last month, and a similar bill was expected to be brought up last week by Sen. Jon Kyl, R-Ariz.
The bill had caused consternation in the financial services community when it was first raised more than six years ago, but it was thought most issues had been worked out. It has also been opposed by several gambling interests, which has delayed consideration of a Senate bill.
On July 28, however, the ICBA and the Chamber of Commerce sent letters raising additional concerns about the bill and urging Senate leaders to make changes to soften its impact on the financial services industry.
The turmoil coincided with a Justice Department action against betonsports.com that renewed fears about how well financial services companies were protected under the bill.
The injunction blocked betonsports from operating, but also "appears to enjoin people from processing payments, which appears it could affect the banking industry," said Oliver Ireland, a partner with Morrison & Foerster LLP, which has been involved with negotiations on Internet gambling legislation.
Because betonsports has ceased operations, no financial institutions are immediately affected by the restraining order. But the situation seemed to contradict Justice Department promises that it would not seek injunctions that would affect financial companies.
"This is the kind of thing that institutions were worried about in Internet gambling legislation to begin with - that it would be enforced on institutions by injunctive proceedings from courts scattered around the country on very little notice," Mr. Oliver said.
Industry sources said that the spirit of the House bill was to prevent such injunctions from being brought against banks, but that it only addresses an exemption for financial institutions under the Wire Act. The betonsports injunction approved by a Missouri federal court on July 17 cites the Wire Act and other laws that are not covered by the Internet gambling bill. That leaves banks vulnerable, some industry representatives said.
Financial institutions fear that failing to stop payments to Internet gambling sites under a court's injunction could lead to criminal penalties.
"The recent use of the injunction by Justice does raise other questions that haven't been addressed in this particular legislation," said Floyd Stoner, the head lobbyist for the American Bankers Association.
Mr. Stoner said it is "unclear" what impact the injunction action will have on financial institutions.
Mr. Fine said the injunction was "the very thing that we warned" could occur.
"Will all of a sudden federal judges in districts all across the country start slapping injunctions on banks and paralyzing our financial system? I mean these are the kinds of issues that need to be addressed," Mr. Fine said.
Diane Casey-Landry, president of America's Community Bankers, said that because of ongoing negotiations with congressional staff she would not comment.
The ICBA letter brought up additional issues, asking lawmakers to add more exemptions for certain payment types and preempt any state laws.
The bill "should include a provision ensuring that financial institutions have a national standard under which to operate with respect to preventing Internet gambling transactions," Mr. Fine wrote.
The letter sparked a public and personal dispute with Rep. Leach.
Rep. Leach said all of the group's objections were groundless. He personally wrote a letter to Mr. Fine on the same day he received the letter and attempted to reject the ICBA's issues point by point and said it supports the Internet gambling industry. Sen. Kyl's office also circulated a paper that disputed many of the community banking group's arguments.
The ICBA letter "has kernels of judgmental wisdom but misses the mark on key points and on the big picture," Rep. Leach wrote in a July 28 letter.
In a written response to Rep. Leach sent Thursday, Mr. Fine said he was just trying to ensure bankers were not subject to additional regulatory burden.
"ICBA is not allied with the gambling industry and is not attempting to defeat the bill," Mr. Fine wrote.
In the interview, which was conducted before the lawmaker received Mr. Fine's reply, Rep. Leach went even further, remarking that "ICBA's reputation on Capitol Hill has suffered immensely from this letter." He said most community bankers would side with him.
"Timing is often as important as substance, and the fact that we couldn't get it done this week is deeply unfortunate," he added. "If we can't get this passed this year ... the actions of the ICBA will look more and more awkward as time goes on."
