24 March 2010
The European institutions continue to debate how Member States should regulate remote gambling within their national territories. Whether new EU Commissioner for the Internal Market Michel Barnier will continue the work commenced by Charlie McCreevy ensuring Member States comply with EU laws when regulating the gambling sector within their countries is still unknown. The most recent European Court Advocate General Opinions closely follow the views outlined in the BWin/Liga v Santa Casa judgment and make clear that Member States have a wide discretion to impose restrictive rules (often seeking to prevent remote operators from gaining access to national markets) where adequately justified. We report on these Opinions and the potential impact they will have if adopted by the European Court in the coming months.
We also report on Member States currently in the process of opening their gambling markets to commercial competition (France and Italy) and also those beginning the process of agreeing national rules to regulate the online gambling sector (Spain). Meanwhile other Member States remain firmly opposed to commercial competition in any form and continue to impose further controls on remote gambling operators and/or to protect national monopoly providers (Sweden, Finland and Poland). Norway has recently become the first European country to introduce payment blocking legislation though it remains to be seen how successful this proves in practice. Estonian authorities have also begun blocking unlicensed gaming sites in a bid to deter illegal gaming within the territory.
New Commissioner calls for consultation on gambling regulation in EU
Newly-appointed Internal Market Commissioner Michel Barnier announced on 11 February that he wants gambling in the EU to be regulated in a "coherent" way. In response to a question by Conservative MEP Malcolm Harbour (who is the chair of the Internal Market Committee) about the status of online gambling following the European Court's BWin/Liga v Santa Casa judgment, Barnier commented that he wants to "launch a constructive dialogue with the Parliament and Member States and concerned stakeholders".
The last Commissioner for the Internal Market, Charlie McCreevy, commenced a number of infringement actions against Member States which had in some way restricted cross-border trade of online gambling services breaching Article 56 of the Treaty on the Functioning of the European Union (TFEU) (formerly Article 49 of the EC Treaty). Nine of these Commission infringements proceedings are still active, although it is currently unclear whether Barnier will continue with the actions. Two MEPs (representing Germany and the Netherlands) recently called for these infringement proceedings to be stopped on the basis that they believe Member States should be free to decide how they regulate their own gambling markets.
New Commissioners normally bring new ideas and wish to make their mark. If Barnier wants to harmonise the regulation of the gambling sector during his five year term as Commissioner, he will have a hard task ahead of him. He considers that an EU Green Paper will be the first step and he intends to consult Member States on this matter: something which has not been done since the Services Directive was debated in 2006. It was interesting to see that both sides (i.e. associations representing the national monopoly gambling operators and the European Gaming and Betting Association representing commercial operators) concluded that Barnier was supportive of their positions. The European Gaming and Betting Association commented that it "strongly supports the Commissioner's intention to engage in a broad consultation with stakeholders and to work on a political document based on reliable figures and a clear diagnosis of the situation in Europe".
The European Parliament has, to some extent, already made clear its position on this matter. As we reported in May last year, the European Parliament passed a resolution by an overwhelmingly large majority which stressed the rights of Member States to be able to regulate their national gambling markets in line with the specific cultural and social mores and traditions.
Meanwhile, the Council of the European Union has also been addressing the issue of gambling enforcement. We have previously reported about a working group established under France's EU presidency and continued under the Czech and Swedish presidencies. The presidency of the Council of the European Union is rotated between Member States every six months and Spain has the current presidency for the period up until June 2010.
The deputy director of Sweden's Ministry of Finance (and the working group's leader while Sweden held the EU presidency) recently commented that the BWin/Liga v Santa Casa judgment had enabled the group to begin discussions about blocking mechanisms (either ISPs or targeting financial transactions) in order for Member States to control online gambling within their national territories. Sweden presented a second progress report to the EU's Competitiveness Council in December last year. Despite reported objections from the UK and Malta (believed to have called for the working group to be disbanded), further discussions driven by the working group are set to continue under the Spanish EU presidency. Meetings of the group may take place this month and in May. In July the EU presidency will pass to Belgium, which is likely to want to continue these discussions given that it has introduced measures to prevent operators not licensed in Belgium from providing their services to Belgian citizens.
An important point to note is that the European Commission (as the executive arm of the EU) has the exclusive power to enforce the TFEU rules and to take decisions on gambling policy. It remains to be seen whether the opinions of the Council and the Parliament have an impact on the Commission's activities.
Two ECJ Opinions published concerning Member States' powers to control gambling
The Opinions of two Advocates General were published in February: both concerned the rights of Member States (Austria and Sweden) to regulate gambling within their national territories and indicated that Member States must apply the rules in a non-discriminatory way. However, in each case the Advocates General did not challenge the broad right of EU Member States from maintaining state monopolies in the gambling sector. The ECJ will publish judgments in these cases later this year.
The Austrian case (Staatsanwaltschaft Linz v Engelmann C-64/08) was referred to the ECJ by a Linz court in 2008. The regional court sought guidance on whether Austrian authorities could legitimately prosecute Engelmann (a German national) for operating two gaming establishments in Austria without a licence. Advocate General Mazák concluded that rules which required operators to be Austrian established companies are a form of direct discrimination (contrary to EU rules which protect the freedom of EU nationals to establish businesses in other Member States) and that licences in the gaming sector ought to be awarded in a transparent way. AG Mazák further argued that he believed the Austrian authorities had not presented sufficient evidence to establish that the licensing requirements were justified. He noted that the national court must decide if Austria's policy on restricting gambling was "inconsistent" and also stated that Member States can treat two gambling sectors differently (i.e. the State can restrict some gaming activities whilst promoting others).
Advocate General Bot's Opinion concerned the application of the Swedish Lotteries Act which bans national newspapers from advertising gambling operators which are not licensed in Sweden (Sjöberg v Åklagaren and Gercin v Åklagaren C-447/08 and C-448/08). Newspapers which breached the advertising ban, including Expressen and Aftonbladet, faced fines for advertising commercial operators such as Ladbrokes and Unibet (based in Malta and the UK). The penalties imposed for infringing the rules differ depending on whether the "unlicensed operators" were established in Sweden or outside Sweden. A Stockholm court referred questions to the ECJ to ascertain whether the Swedish rules complied with EU laws.
AG Bot referred a number of times to the BWin/Liga v Santa Casa judgment in his Opinion and reiterated that due to the perceived "risks of consumer fraud associated with online gambling", Member States can apply local advertising bans to protect consumers. However, AG Bot considered that unlicensed operators established within Sweden carried the same level of risk and therefore the penalties enforced on operators should be no more extreme than those enforced against Swedish operators offering services without a licence.
Later in this piece on recent events affecting the gambling sector in Germany, we report on three other Advocate General Opinions concerning questions referred by German national courts.
New online gaming products soon to be introduced in Italy but online bingo faces legal challenge
In our last update, we reported that the Italian regulatory authority, AAMS, had conducted a tender for licences to operate video lottery terminals ("VLTs"). These VLT machines may shortly be introduced throughout the country. Within the next few weeks or months, AAMS is likely to begin the long awaited process to grant additional licences to allow online gambling.
The Abruzzo law, which permitted the introduction of new online gaming products, has already been approved by the European Commission and the Comunitaria law (which will allow AAMS to make available 200 new remote gaming licences) is likely to be approved this month when the three month standstill period has ended. The head of AAMS commented in December last year that he expected the online gaming regime to come into effect by June or July this year. As soon as AAMS has clearance from the Commission, it will start selecting candidates for the additional 200 remote gaming licences (carrying a €360k price tag) and will allow current licensees to begin adapting their systems in accordance with the new rules. One of the new requirements will be that details of all new customers must be individually checked by AAMS before the operator can accept them. Furthermore, operators will need to supply AAMS with all financial transaction details to allow AAMS to carry out fraud and money laundering monitoring.
The introduction of online bingo at the end of December last year has been, and continues to be, at the centre of litigation in Italy. An administrative court of the Lazio region annulled the legislation AAMS had introduced on 9 February, upholding a complaint by Assobingo (a federation of bingo operators). The court ruled that the decrees regulating online bingo did not comply with procedural formalities, including a consultation process under Italian law. Assobingo also claimed that the legislation was discriminatory and drafted in a way likely to benefit larger bingo operators. When this judgment was published only one operator, Gioco Digitale which is owned by BWin, had begun offering online bingo and it subsequently stopped offering these services.
At the beginning of March, the Administrative Court of Appeal ordered the temporary suspension of the February judgment until the final decision is published after a hearing scheduled to take place on 23 March.
French legislation approved by Senate with few amendments
In December, we reported on the key features of the draft bill to regulate online gambling in France. The bill was adopted by the National Assembly last autumn and received the, somewhat narrow, approval of the Senate on 25 February. The Senate made a number of minor amendments to the bill, which must be resubmitted to the National Assembly before being reviewed again by the Senate. The amendments include:
- ARJEL (the new gambling authority) must take into consideration licences granted by other EU Member States when considering applications for French licences. This amendment was inserted following a request from the European Commission.
- Enforcement powers have been strengthened: operators offering their services to French citizens without a local licence will potentially be liable to fines of up to €200k and/or seven year custodial sentences. ARJEL will also have the power to freeze all financial transactions of bank accounts controlled by unlicensed operators.
- Players will be able to buy pre-paid cards, available in tobacconists, worth up to €100 to credit online accounts.
- Operators already accepting bets from French citizens will no longer be required to close down player accounts between the date on which the legislation is enacted until the new licences are awarded. However, operators will not be able to transfer accounts over (thereby benefiting from a head start) and instead must open new accounts from a zero basis.
French Minister Eric Woerth (responsible for introducing the legislation) commented on 25 February that the French government remains hopeful that the licensing regime will be in place by the start of the World Cup in June. This is an extremely tight timetable and assumes that the draft law will be adopted by the end of March. The final text will be enacted the following month with the implementing decrees published shortly thereafter. Operators will be able to submit licence applications to ARJEL on the same day that the implementing decrees are enacted. It is anticipated that around 50 operators will apply for licences and that ARJEL will grant licences within a month of receiving applications.
Deals have already been agreed which will allow the current monopoly providers to enter into the online market. Betting software provider LVS will provide a fixed odds sports betting platform for Française des Jeux (FdJ), available both online and via terminals in FdJ's 26,700 retail outlets. Paddy Power will provide B2B services for Pari Mutuel Urbain (PMU), which will also offer fixed odds sports betting online.
Meanwhile, Stanleybet announced on 5 March that it would be challenging the legality of the French proposals. John Whittaker (Stanleybet CEO) has argued that the majority of betting will remain in the hands of FdJ and PMU and stated, "The French state's desire to push forward its online gambling bill has left us no option but to challenge these plans before the [French] Council of State".
Proposals to regulate online gambling in Spain
In mid-January, representatives of State-owned lottery operator Loterias y Apuestas del Estado (LAE) discussed proposals to regulate online gaming with national and local government officials. This meeting came over two years after a congressional motion was passed calling for legislation to be drafted to license and regulate online gambling in Spain. This original motion included principles that the online regulation would regulate operators already licensed in other EU Member States and should be established in accordance with EU principles. LAE was granted responsibility for drafting the online gambling rules in mid-2008.
It is still unclear what criteria the draft legislation will contain, thought it is believed the Spanish will adopt a local licensing system similar to that implemented in Italy and soon to be introduced in France. It has been suggested that LAE might be divided into two departments (one regulatory and one commercial). Once this separation had taken place, the commercial part of LAE could compete in the newly liberalised remote betting and gaming market.
Currently each of the 17 regions is responsible for regulating (and, importantly, taxing) all gambling activities which take place exclusively within its territory. However, the current legislation is not suitable for regulating online gambling services and it is widely agreed that national legislation must be implemented to regulate the sector effectively. Nevertheless, a growing number of regions (including Catalonia, the Canary Islands, Madrid, Murcia and Castilla y León) have announced plans to introduce regional legislation governing online gambling in the absence of national legislation. Some of the regions, such as Catalonia, favour the introduction of licensing which would allow gambling operators to provide services to citizens located within their own regional borders only whereas others favour local licences which would allow operators to accept bets throughout the whole of Spain.
Some commentators believe that in proposing local licensing regimes, the regional governments are primarily seeking to put pressure on the national government to come up with solutions to the licensing issue. One of the most controversial aspects of any national gambling regulation is likely to be that of tax rates and how revenues will be shared between national and regional governments. Negotiations are likely to take some time and national legislation is unlikely to be enacted until some time in 2011.
Recent judgments make Germany an increasingly hostile territory for online gambling operators
Since Germany's Interstate Treaty on Gambling (ITG) came into force on 1 January 2008, national and regional courts have seen a flow of cases brought by both State operators (seeking to enforce the rules) and by commercial operators (seeking to challenge the application of the rules). Recent months have been no exception and gambling operators licensed outside of Germany which have been flouting the ITG rules (on the basis that they breach EU laws) may now be re-thinking their commercial strategy in this territory, particularly in light of further Advocate General Opinions discussed below.
In December last year, a Higher Administrative Court in North Rhine Westphalia (NRW) upheld a ban against 888-owned "Pacific Poker" and a number of other claimants. As a result of this judgment, Pacific Poker was required not to accept bets from players located in NRW using geo-location software and to lock down any players' accounts where it is not possible to verify their location. Pacific Poker was given four weeks in which to comply with the ruling: clearly this will have an impact on Pacific Poker's business and any other operators who have been allowing NRW citizens access to its services. Also in December last year, an Administrative Court in Baden-Württemberg similarly held that local betting shops were banned from brokering sports bets from operators based and licensed in Malta and Gibraltar.
On 26 January Advocate General Yves Bot's Opinion in Winner Wetten GmbH v Mayor of Burgermeistern (C-409/06) was published. The Opinion concerned questions referred by the Administrative Court of Cologne, in October 2006, about the compatibility of German gambling laws with EU law. Winner Wetten was established in Germany where it placed sports bets on behalf of Malta-based Tipico. The lady mayor of Burgermeistern prohibited Winner Wetten from carrying out sports betting because Tipico was not authorised to carry on sports betting in that region of Germany. Only the monopoly operator WestLotto was licensed to operate betting activities. Winner Wetten argued that this sports betting monopoly in the region was contrary to Article 56 of the Treaty on the Functioning of the EU (seeking to rely on the Gambelli judgment).
In this case, AG Bot essentially confirmed the primacy of EU law and concluded that a national court cannot uphold national legislation (even on a temporary basis) if it believes that such legislation constitutes an unjustified restriction of the freedom to provide services. AG Bot referred to his Opinion in the joined Betfair and Ladbrokes cases challenging the Dutch gambling legislation (published in December last year) and stated that he has proposed "that the Court rules that Member States have a broad discretion [as to how they implement gambling legislation]". AG Bot also provided the German regional court with the following guidance: (i) legislation which restricts the provision of sports betting must be applied in a consistent and systematic way; (ii) the national court must decide whether this condition is met, having regard to a Member State's broad discretion; and (iii) the referring court should take into account guidance provided in the judgment of Markus Stoss and Others. This last point is particularly interesting because national courts maintain the discretion to decide how they apply the law on the specific facts but clearly AG Bot considers that the final judgment should not conflict in any way with the following judgments all concerning German gambling laws.
On 4 March Italian Advocate General Paolo Mengozzi published two Opinions concerning the application of EU rules to the ITG: Carmen Media Group Ltd v the Länder Schleswig-Holstein (C-46/08) and six joined cases Markus Stoss v Wetteraukreis and Others (C-316/07, C-48/07, C359-07, C-360/07, C-409/07 and C-410/07).
In the Carmen Media case the Administrative Court of Schleswig essentially asked whether a gambling operator established and licensed within one Member State should be permitted to provide its services in another Member State. Carmen Media is established in Gibraltar and holds a licence for "remote gambling/fixed-odds bets for offshore bookmaking". AG Mengozzi considered that the refusal of the authorities in Schleswig-Holstein to allow Carmen Media to offer sports betting was justified because the Gibraltar licence did not allow Carmen Media to provide its services within Gibraltar. Therefore, Carmen Media could not rely on the free movement principles under EU laws. He considered that it was "essential" that the licence provided by a Member State grants it the right to offer the service in question within that Member State.
In the joined cases of Markus Stoss and Others, the Administrative Courts of Stuttgart and Giessen lodged broadly the same two questions with the ECJ. Firstly, whether EU laws protecting the fundamental freedoms of establishment and the freedom to provide services preclude national monopolies on certain gambling activities, including sports betting and lotteries, where there is no consistent and systematic policy to limit gambling and the monopoly operators are able to encourage participation in licensed gambling (with the same or a higher suspected potential danger of addiction); and, secondly, whether EU laws should be interpreted as meaning that licences to operate sports betting activities in one Member State ought to allow operators to provide their services in other Member States without requiring additional national authorisations.
AG Mengozzi concluded that the EU laws are compatible with public monopolies of certain gambling activities and declared that it was not realistic for such monopoly operators not to advertise their services. He repeated the position accepted in numerous ECJ judgments that the national court must decide if the conditions are met which can justify a derogation from the free movement rules. In relation to the second question, he responded in the negative relying on three factors: (i) it is accepted that monopolies and other restrictions on the freedom to provide services may exist in the gambling sector; (ii) there is an absence of harmonisation; and (iii) offshore licences (which are used in Malta and Gibraltar) are not suitable for mutual recognition.
If the ECJ follows AG Mengozzi's Opinions (and generally AG Opinions are followed), this could have a significant impact on offshore gambling operators' businesses. Many such operators may not be comfortable relying on the supremacy of EU law in order to justify breaching national gambling rules (commonly referred to as the "EU defence"). Furthermore, those Member States wanting to retain monopoly gambling operators will argue that the European Court has clearly acknowledged their rights to do so. As always, it will be for the national courts to interpret the ECJ judgments and to decide if the Member States' arguments and behaviour justify the application of a derogation from the fundamental EU principles. The ECJ judgments will be published later this year.
Poland under pressure from EU
In our December update, we reported on new gambling laws which had just received the approval of the Polish government. The European Commission subsequently commenced an inquiry into Poland's failure to notify the draft legislation and await comments before the legislation was enacted in line with requirements under Directive 98/34 as amended. At the beginning of February, the European Commission sent a second letter of complaint to the Polish Ministry of Finance (responsible for the legislation) giving them one month to respond. A spokesperson for the Ministry of Finance has publicly stated that the first part of the legislation (which has been enacted) concerned land-based gaming and did not require European Commission notification. Further, the second part concerns online gambling and technical regulations for land-based gaming and this will be the subject of a notification to the Commission.
Not surprisingly, gaming operators are aggrieved by the legislation, which will significantly reduce the number of slot machines and the availability of online gambling. In addition, licensed operators will face increased tax rates. The Chamber of Commerce of Polish Producers and Operators of Entertainment Devices has submitted a complaint to the Commission which requests that the new laws are suspended until the new measures have been properly assessed. If Poland failed to respond to a suspension order, it could face large fines before the European Court of Justice.
In response, the Polish government has sought to rely on the ECJ's BWin/Liga v Santa Casa judgment to justify its prohibition on online casino and poker games, which will be enforced by ISP blocking mechanisms. Echoing the method of regulation in other EU Member States, online sports betting will be prohibited unless operators have a local licence, use Polish domain names and have their bank accounts and servers based within Poland.
The practical implications of the new gambling laws are already being felt by some. It had been thought that football sponsorship deals would be excluded from advertising restrictions but this has not been the case. Unibet has been forced to suspend its sponsorship of the second football league (valued at US$4m annually). The Unibet logo must be removed from players' shirts and football stadia. At least two leading football teams in Poland currently sponsored by Bet-At-Home and BetClick will also lose revenue as a result of the new gambling laws.
Finland permits national monopoly operators to provide online gaming
The Finnish government announced at the beginning of February that the Finnish Slot Machine Association ("Ray") will be permitted to offer online poker and casino games to Finnish citizens under a licence which will come into force on 1 March 2010. The Finnish National Lottery ("Veikkaus") has also received permission to provide online bingo and number games. Both Ray and Veikkaus must adhere to strict rules, including verifying the identity and address of every player (in order to ensure minors cannot take part) and other measures to prevent gambling addiction. The justification for allowing the national operators to provide online gaming services is in order to compete with private operators.
A public meeting was held to debate the proposed amendment to national gaming rules. It is reported that Unibet was the only commercial operator invited to attend the meeting. Unibet's business in Finland now includes the provision of a sports betting platform to Paf (the legal operator of gambling services established on the semi-autonomous Aland islands). The head of the Western Europe division of Unibet argued that the Finnish government ought to be considering alternative liberalisation models such as those adopted or currently under debate in other Member States, including Italy, France and Denmark. This sentiment is likely to be shared by commercial operators throughout the EU.
To date the national courts have upheld the legitimacy of the highly restrictive Finnish gambling rules on the basis that they are necessary to protect citizens. It may be more difficult to maintain this justification once the State monopolies can offer services which are designed to compete with commercial operators. Until it is made illegal to market gambling services (something which is also currently under debate), this new legislation is unlikely to affect the ability of commercial operators to offer their gambling services to Finnish citizens.
Norway goes ahead with payment processing ban
Back in September last year, we reported on Norwegian plans to prohibit banks and financial service processors from processing unauthorised gambling transactions. Notwithstanding a warning published by the European Free Trade Association Surveillance Body that such legislation would "constitute an unjustified restriction of the freedoms of the internal market for gambling services", the Payment Act was adopted into Norwegian legislation on 19 February.
The Payment Act (which seeks to replicate the US Unlawful Internet Gambling Enforcement Act (UIGEA)) will mean that banks and financial institutions which process payments to be made by Norwegian citizens to remote gambling operators established outside of Norway will be guilty of "accessory involvement" in unlawful gambling. The Payment Act will come into effect on 1 June 2010 which is the same day as the UIGEA is also due to come into effect. Some commentators believe that the payment ban will have little effect in practice because players using digital wallets or "e-wallets" for transactions will still be able to use gambling sites without detection. In addition, Norwegians will not be breaking local laws by continuing to use the websites of gaming operators. Nevertheless, the legislators believe the new legislation will deter some players.
Estonia begins blocking "unlicensed" gambling sites
In mid-March the Estonian Customs and Excise Board circulated a black-list of 175 domain names to ISP operators requesting that they begin blocking access to gambling sites which do not possess an Estonian online gambling licence. This blocking measure comes following the recent introduction of new laws which require operators to hold a local gambling licence in order to provide their services to Estonian citizens. In this respect the Estonian government wishes to replicate the system operating in Italy and soon to be introduced in France. Currently only one operator has received a local licence, Olympic casino based in Talinn, and began operating a service in February.
New gambling bill in the Isle of Man
There is currently a new bill before the Tynwald (the Parliament of the Isle of Man) entitled the Gambling Supervision Bill 2009, which addresses the constitution, functions and status of the Isle of Man Gambling Supervision Commission (the "GSC"). The bill's explanatory notes state that its main purpose is to make the GSC a Statutory Board and to restate the regulatory objectives of the GSC and the bill contains provisions that will allow GSC to draft regulations that provide for players' funds deposited with gambling operators in the Isle of Man to be held as if on trust so that if an operator goes into liquidation the funds are protected. If this bill is approved by the Legislative Council, the responsibility for the GSC will move from the Department of Home Affairs to the Isle of Man's Treasury.
The Manx eGaming Association ("MeGA"), a group of online gambling companies based in the Isle of Man, announced this month the results of its annual survey into the online gambling sector in the Isle of Man. This showed an increase of 18% during 2009 in the number of employees working in the online gambling sector and MeGA projects that employment will rise by a similar rate this year. The survey also showed that £11.2 million in taxes were paid by Isle of Man online gambling operators in 2009, which was more than a 100% increase on 2008's figure. MeGA estimates that taxes generated by the online gaming industry in 2010 will amount to £19.1 million.
