seems a me that the Federal Government ought to be able to work with the various State officials to see if there is a way that legal gambling could be conducted aboard these vessels. After all, we have legal gambling in Atlantic City and Las Vegas.

With regard to constructing cruise ships in American shipyards, needless to say ail of us would rejoice in seeing some of these beautiful ships built here in the United States. I will look forward to hearing the testimony of the individuals inwaived in the shipbuilding industry to see if they believe that it would be possible to build these ships here and if operators will be able to compete on an equal financial footing with operators who have less expensive foreign-built vessels.

Mr. Chairman, this should be an interesting hearing. It involves issues we will want to pursue.

Mr. JONES. I would also offer a statement by Mrs. Bentley for the record.

Without objection, so ordered.

[The statement of Mrs. Bentley follows:]

STATEMENT OF HON. HELEN DELICH BENTLEY, A U.S. REPRESENTATIVE

FROM MARYLAND

Thank you, Mr. Chairman. I want to thank you and Mr. Lent, the Ranking Minority Member, for holding this hearing today on two bills that could serve as the impetus for the rebirth of the cruise ship industry under the United States flag.

Mr. Chairman, as it was pointed out before this Subcommittee during previous hearings that addressed cruise ships safety issues, more than 100 cruise ships operate out of U.S. ports in a trade that generates $4 billion to $5 billion in revenue annually. All but two of these vessels fly the flags of foreign nations, and all offer casino gambling as one of their primary entertainment attractions to lure prospective passengers.

The two U.S. cruise ships-the S.S. Constitution and the S.S. Independence-ply the waters of the Hawaiian Islands, and are prohibited by existing laws from offering casino gambling.

I want to point out that both of these vessels are in excess of 37 and 38 years old, respectively, and are able to survive only because they operate in the protected domestic trade. If the Jones Act were eliminated or relaxed today to permit the operation of foreign-flag cruise ships with casino gambling in the intra-Hawaiian Island trade, those two remaining U.S. ships would be out of business tomorrow.

Cruise ships are not gambling ships. Gambling is only one of the many entertainment activities offered. However, casino gambling is viewed by the traveling public as one of the more important entertainment features when considering on which cruise ship to book passage.

Mr. Chairman, according to a recent study of shipboard gambling by Temple, Barker & Sloane, the average passenger on a seven-day cruise spends $4 per day on gambling. While this seemingly does not represent a significant revenue generating feature compared to a ship's overall entertainment activities, the availability of casino gambling dictates, as market studies have proven, the success or failure of a ship's participation in the international cruise vessel industry.

Shortly after the introduction of this bill by our colleague, Mr. Taylor, I was visited by one of today's witnesses, Mr. John Rogers, of World City Corporation. World City proposes to construct the first luxury passenger ship in the United States in more than 30 years.

Their proposed ship, the Phoenix World City, is of revolutionary design, a floating city and convention center that is unlike anything traveling the high seas anywhere in the world today.

As Mr. Rogers and Ronald McAlear, Director of Ship Marketing with Avondale Industries, will testify this morning, this is not a grandiose idea, with little chance for success.

The time is ripe for entrepreneurs to enter the international cruise ship industry, and it is about time that American shipyards, American component manufacturers, American seamen, American hotel and restaurant workers, and many other American entities profit from an already flourishing industry here in the U.S.

If business ventures like the Phoenix World City are to succeed, they must be given the tools with which to succeed. Shipboard casino gambling is one of the more important competitive tools presently denied U.S. operators.

It is time to remove such impediments and allow U.S. operators to compete in a US market monopolized by foreign operators.

I want to commend our Committee colleague, Mr. Taylor of Mississippi, for his leadership on this issue. I am proud to be an original co-sponsor of both of his bills that seek to correct the inequities imposed on U.S. operators.

Thank you, Mr. Chairman.

Mr. JONES. Our first witnesses this morning are John C. Keeney, from the Department of Justice and U.S. Coast Guard Captain James M. MacDonald.

Mr. Keeney, you are recognized.

STATEMENTS OF JOHN C. KEENEY, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE; AND CAPTAIN JAMES M. MACDONALD, UNITED STATES COAST GUARD, CHIEF MERCHANT VESSEL INSPECTION AND DOCUMENTATION DIVISION, HEADQUARTERS, UNITED STATES COAST GUARD, DEPARTMENT OF TRANSPORTATION

Mr. KEENEY. Thank you, Mr. Chairman.

I have a statement. I offer it for the record in its entirety and I would like to take a few minutes to hit some of the highlights in the statement, if I may.

Mr. JONES. Without objection, so ordered.

Mr. KEENEY. Mr. Chairman and Members of the Subcommittee, I am pleased to be here today to present the views of the Department of Justice on two bills, H.R. 5533 and H.R. 5534.

Taken together, the bills would greatly loosen the laws controlling gambling on both United States and foreign-flag vessels on the high seas.

We oppose the bills because the casino gambling they would allow on the high seas would be an inviting target for infiltration by organized crime for such activities as skimming and money laundering.

Moreover, the bills do not provide for the type of controls necessary to prevent such infiltration.

In my prepared statement, I discuss the existing laws on this subject, the Gambling Ship Act and the Gambling Devices Act.

Mr. Chairman, we are aware, as Mr. Taylor has pointed out, of the argument that these two statutes work to the detriment of the American cruise ship industry and United States citizens who work in the industry.

As I noted, the Gambling Ship Act prohibits a United States citizen or corporation from owning or operating, in whole or in part, a ship, if the ship is used on a particular trip for the principal, rather than the incidental, purpose of gambling.

H.R. 5533 would not repeal any part of the Gambling Ship or the Gambling Devices Act, but would provide that, subject to State laws concerning vessels operating in waters subject to State jurisdiction, only a documented vessel of the United States may operate as a gambling ship in the territorial sea of the United States.

The term "territorial sea" is defined as a 12-mile coastal zone extending outward from the low water mark.

A "gambling ship" would be defined as a ship that carries and operates gambling devices for the use of its passengers or otherwise provides facilities for gaming or gambling.

If this bill were enacted by itself, without the simultaneous enactment of H.R. 5534, it would simply restate current law forbidding the use of foreign-flag vessels in inland transportation.

H.R. 5534 would repeal 18 U.S.C. 1081 to 1084, and I might at this point state that I assume that the sponsors of the bill did not intend to amend 18 U.S.C. 1084, which has nothing to do with maritime gambling.

It would permit casino gambling on both American and foreignflag vessels on the high seas without restriction.

H.R. 5533 apparently is intended to make it clear that the repeal of the Gambling Ship Act does not operate to repeal existing restrictions on foreign-flag vessels operating in inland waters.

Mr. Chairman, we are opposed to shipboard casino gaming and we consequently oppose these bills.

They would in effect allow floating casinos-ships whose only real purpose is for the type of gaming that is legal in Nevada and Atlantic City, New Jersey-as well as part-time casino operations on more conventional cruise ships.

We realize that many forms of gambling are legal and that legal gambling seems to be on the increase.

Many States have pari-mutuel wagering on horse and dog races and jai alai, and an increasing number have lotteries, but the States typically have elaborate regulatory mechanisms in place for these industries to determine the suitability of persons running them and to guard against skimming, tax evasion, money laundering and various types of fraud.

The regulatory schemes in Nevada and New Jersey to regulate casino gambling are, of necessity, extremely elaborate and complex, primarily to guard against organized crime infiltration.

Casino gambling, always played with cash or a cash equivalent like chips, is an industry that without proper regulation will draw the attention of organized crime like a magnet.

Without the type of controls that the casino States employ, organized crime figures would likely have access to casinos and a clear field for skimming, money laundering, and numerous other offenses.

We anticipate that if the proposed changes are enacted, criminals will find it easy to arrange for transfer of cash offshore, making money laundering easy to accomplish.

There would be no way to effectively regulate what occurs offshore or to trace monetary transfers.

Mr. Chairman, let me emphasize that our opposition to these bills is not related to the issue of the morality of gambling.

The Department of Justice has not opposed gambling in States that want it, and we are not concerned that persons who can afford a vacation on a cruise ship may lose a few dollars gambling.

Our concern is strictly with keeping criminals from controlling the management, the counting room, or any other aspect of a shipboard casino.

Since H.R. 5533 and H.R. 5534 would have just the opposite effect and increase the opportunities for criminal penetration, we oppose

them.

That concludes my statement, Mr. Chairman.
Mr. JONES. Thank you, Mr. Keeney.

[The prepared statement of Mr. Keeney can be found at the end of the hearing.]

Mr. JONES. The Chair recognizes Captain MacDonald.

STATEMENT OF CAPTAIN JAMES M. MACDONALD

Captain MACDONALD. Thank you, Mr. Chairman.

I am Captain James M. MacDonald, Chief of the Coast Guard's Merchant Vessel Inspection and Documentation Division, and I am very happy to be able to testify before this Subcommittee on this important matter.

There are presently about 100 foreign-flagged passenger ships operating from U.S. ports. Virtually all of them offer gambling.

H.R. 5533 would reserve shipboard gambling activities in U.S. territorial waters, defined as 12 nautical miles from shore, to U.S. vessels.

H.R. 5534, repealing the Gambling Ship Act, 18 U.S.C. 50, would remove current Federal restrictions on gambling and the carriage of gaming devices aboard U.S. vessels.

The pending legislation could result in significant new construction of U.S. passenger vessels specially designed for gambling such as we have seen on the rivers where States have legalized gambling.

Further, there are about 1,000 "large" small passenger vessels that probably have enough deck area now to offer gambling.

By allowing the gambling near shore, the smaller U.S. vessels can be used, and operators can safely operate their vessels in the sheltered areas.

There have been three U.S.-flagged passenger vessels that have switched to foreign-flags, not to avoid Coast Guard inspection, but solely to be able to offer gambling.

The Coast Guard's main interest in these bills is to ensure the safety of the persons embarked onboard passenger vessels.

We will continue to conduct our inspections to ensure that passenger vessels are maintained, equipped and operated in the safest manner possible, whether or not gambling is permitted onboard.

We will continue to review, inspect and issue the certificates necessary for all U.S. passenger vessels to operate.

We will continue to inspect foreign-flag cruise vessels as well, under different but comparable international standards.

Even though we feel the international standards are comparable to ours, understandably, we would be most comfortable dealing with U.S. vessels in this trade because we would have direct control over them.

Mr. Chairman, that concludes my prepared remarks. We realize that H.R. 5533 and H.R. 5534 have a significant impact on the enforcement of Federal gambling laws.

We defer to the Department of Justice on this important aspect of these bills.

I would be happy to respond to any questions you or the Subcommittee might have.

Mr. JONES. Thank you very much, Captain.

Mr. Keeney, have you any data to support your statement that the costs of shipboard gambling regulations, if passed along to the

cruise ship operators, would significantly decrease the profitability of such operations?

Mr. KEENEY. The only data we have is comparing the situation to the extensive regulatory procedures that are in effect in Nevada and Atlantic City, New Jersey.

In both cases, the States have an extensive regulatory scheme and extensive investigatory and other procedures that cost a great deal of money which apparently those States feel are necessary to control the gambling to keep out unsavory elements and to keep the money from these casinos from being skimmed off and the casinos themselves being used for laundering purposes.

The short answer is the experience in Nevada and in Atlantic City, New Jersey suggests that an extensive regulatory scheme and an expensive regulatory scheme is necessary to control who runs these operations and to make certain that they are being run in a fair and in a legal manner.

We have had enough experience, particularly in Nevada, to know that that is, even with the best of controls, a difficult problem.

Mr. JONES. Mr. Keeney, in view of your concerns regarding criminal penetration into cruise ship gambling, why do you not propose making gambling illegal on foreign-flag ships serving the U.S. market from U.S. ports?

Mr. KEENEY. As a practical matter, the extent to which foreignflagged vessels can operate effectively as gambling ships in U.S. waters is very limited because we bring into play the Gambling Devices Act. I think Captain MacDonald can explain this better than I, but the most profitable and most attractive part, according to my understanding of casino gambling, are things like roulette and slot machines. Those come within the Gambling Devices Act and a foreign-flagged vessel is not allowed to operate them in waters near the shoreline that are beyond State jurisdiction but still in the admiralty and maritime jurisdiction of the U.S.

I understand that the devices are in effect sealed by Customs when they come in, and until they leave, U.S. waters.

Captain, do you want to add to that?

Captain MACDONALD. The only thing I may add is that as the States pass their own laws allowing gambling on the rivers and waters subject solely to the States' jurisdiction, it is my understanding that these foreign-flag vessels can now open their casinos in State waters that allow gambling as soon as they leave the dock and not have to wait until they get to the international waters.

I can't comment, I am afraid, on how that interacts with Federal law. Perhaps State laws preempt Federal law in that area.

Mr. JONES. Are you confident that none of the criminal activities you anticipate might result if these measures are enacted are occurring in the foreign-flag ships operating from U.S. ports today? Mr. KEENEY. I can't. We don't know.

The Department of Justice has no jurisdiction over foreign-flag vessels except to the limited extent, say, that they would violate the Gambling Devices Act or the Gambling Ship Act, and I am not aware of any extensive violations of those Acts.

Mr. JONES. Is there any reason to believe organized crime would infiltrate U.S.-flag ships, but not foreign-flag ships?