U.S. Rep. Barney Frank introduced legislation today to legalize and license online gambling in the United States. The proposal would reverse a law approved by Congress last year that effectively bans online gambling for Americans.

The Internet Gambling Regulation and Enforcement Act of 2007 would establish a federal regulatory and law enforcement scheme to license companies to accept online wagers from individuals in the U.S. According to Frank (D-Mass.), the licenses would require protections against underage and compulsive gambling, money laundering and fraud.

Individual states and Indian tribes would be allowed to prohibit online gambling with their respective borders.

With online gambling sites already barred from operating on U.S. soil, Congress passed and President Bush signed a new law last October requiring banks and credit card companies to block payments to the estimated 2,300 online gambling sites located outside U.S. jurisdiction.

"The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone," Frank said in a statement, noting traditional forms of gambling exist in almost every state.

Last year's law, he said, left Americans who choose to gamble online with no meaningful consumer protection.

Under Frank's bill, applicants for an online gambling license would have to provide financial statements and corporate structure documents to the Treasury Dept. Applicants would also agree to be subject to all U.S. laws related to online gambling.

The bill would prohibit licensing anyone convicted of a criminal violation of any law relating to gambling, money laundering, fraud or other financial statutes. Approval and enforcement of the licensing process would be processed through Treasury's anti-money laundering arm, the Financial Crimes Enforcement Network.

Frank said existing technology allows gambling sites to filter against underage and compulsive gamblers. Potential customers would be required to provide information including name, address, date of birth, telephone number and details of an identity document. The information would then be sent to a payment processor to confirm the data matches against several separate sources of information.

Frank promised a hearing on the bill by this summer.

Under U.S. law, the Wire Act prohibits making gambling wagers over the telephone. Approved by Congress in the 1960s, the legislation did not anticipate the Internet, creating a legal gray area for online gambling. The Department of Justice (DoJ) maintains the Wire Act also covers placing bets over the Internet.

With that legal interpretation, the DoJ has pursued a number of cases against offshore operators of gambling sites, most recently arresting in March Gary Kaplan, one of two fugitive founding co-owners of BetonSports sought by U.S. authorities. Kaplan was arrested in the Dominican Republic.

Kaplan, 48, faces 20 U.S. felony charges related to the operation of BetonSports, the British-based, publicly traded wagering site. In 2005, the DoJ arrested David Carruthers, the 49-year-old former CEO of BetonSports, while en route from England to Costa Rica, where BetonSports once maintained its Web operations.

The arrests, combined with the new U.S. law against payments to offshore gambling, forced several publicly traded gambling companies to stop taking bets from U.S gamblers.