The iGamingBusiness European Legal Outlook

THE EUROPEAN LEGAL OUTLOOK THE CURRENT STATE OF PLAY IN THE EUROPEAN iGAMING MARKET

MARKET UPDATES: Denmark, France, Germany, Greece, Italy, the Netherlands, Romania, Spain and the United Kingdom

JURISDICTION UPDATES: Gibraltar, the Isle of Man and Malta

Social Gaming

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• • • • • • • • •

Social gaming overviews by region Areas of opportunity Factors affecting growth in the industry The mobile revolution and how it is affecting social gaming offerings Best business models Monetisation and marketing strategies Regulatory issues Demographics of players The future of the social gaming market

To order your copy today or request a free executive summary email Reports@iGamingBusiness.com and quote 11soc01

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iGaming Business European Introduction Legal OUTLOOK

T

he European iGaming market is a changing landscape. On the positive side, the willingness of an increasing group of Member States to address remote gaming, begrudgingly

CONTENTS 04............Introduction

in some cases, is bringing regulation to our industry. More

negatively for iGaming businesses, it is clear that in the absence of a common European-wide law (or even a set of guidelines), these Member States are employing vastly different domestic licensing regimes that will

iGaming Markets 06............Denmark

ask huge questions of any operator seeking a multi-region presence.

10............France

The common ground these regimes share (the UK now included,

12............Germany

it would seem) is that they demand operators to hold licences for each individual Member State in which they seek to operate. The implications for operators are wide ranging and concern costs

20............Greece 28............Italy

(including double or even multiple taxation risk), business flexibility and strategy and would potentially require businesses with truly international aspirations to suffer the cost of multiple licensing whilst accommodating the various tax thresholds each market imposes.

36............Netherlands 38............Romania 42............Spain

It is a complex patchwork of regulation that will, arguably, only become more complex with the addition of every new Member State to the iGaming market. In light of this, the European Legal Outlook offers an in-depth guide to, and analysis of, the previous and current regulatory frameworks as well as forward-looking projections for those Member States and jurisdictions at the forefront of today’s maturing iGaming sector.

46............United Kingdom

Jurisdictions 16............Gibraltar 24............Isle of Man

We sincerely hope you find this supplement insightful, analytical and enjoyable.

32............Malta

James McKeown, Editor

Managing Editor: Michael Caselli, michaelc@igamingbusiness.com Editor: James McKeown, james@igamingbuiness.com Contributing Editor: Hillary Stewart-Jones Art Editor: Stewart Henson Production Manager: Craig Young, craig@igamingbusiness.com Production Assistant: Laura Head, laura@igamingbusiness.com Publisher: Alex Pratt, alex.pratt@igamingbusiness.com Head of Operations: Shona O‘Donnell, shona@igamingbusiness.com Senior Sales Executive: Ian Larcombe, ian@igamingbusiness.com Print: Printed in the UK by Pensord Press, www.pensord.co.uk Published by: iGaming Business Ltd, 33-41 Dallington Street, London EC1V 0BB T: +44 (0)20 7954 3515 F: +44 (0)20 7954 3511 www.igamingbusiness.com iGaming Business is published Bi-monthly © iGaming Business Ltd 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without prior written permission, except for permitted fair dealing under the Copyright Designs and Patents Act 1988. Application for permission for use of copyright material including permission to reproduce extracts in other published works shall be made to the publishers. Full acknowledgement of author, publisher and source must be given.

The paper used within this publication has been sourced from a Chain-of-Custody certified manufacturer, operating within international environmental standards such as ISO14001 and EMAS. This is to ensure sustainable sourcing of the raw materials, sustainable production and to minimise our carbon footprint.

ISSN 1756-3437

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Introduction

THE EU DIRECTIVE ON ONLINE GAMBLING: THE “ODE TO LESS JOY”?

When Beethoven composed the “Ode to Joy”, he would never have imagined that it would one day serve as the national anthem for a “united” Europe. Nor would he believe the artificial divisions created within the EU to celebrate unity in diversity (or is it diversity within unity?). Because when it comes to online gambling, the latter appears to be the case. The long journey that started with EU freedoms to provide services has somehow ended up with national licensing regimes; and instead of EU consumer protection, we have Memoranda of Understanding (MoUs). With so much ‘diversity’ going on, who would have thought that there would be an EU Directive on online gambling?

But the writing on the wall in Brussels is clear: the EU Directive is on its way to protect EU consumers through national licensing regimes which, in turn, were set up to protect national taxation in the name of EU consumers. How did EU freedoms regress into national tax regimes? How do MoUs digest EU Directives? And how is this protecting consumers and assisting EU harmonisation? Confused? Read on and enjoy the journey...

First stage of the journey: European freedoms The freedom of establishment and the freedom to provide cross border services are two of the ‘fundamental freedoms’ that are central to the effective functioning of the EU Internal Market.

The pioneers in online gambling were also pioneers of European freedoms and felt free to enter European markets, regardless of restrictive gambling monopolies or local prohibitions, in the knowledge that EU law was on their side. These pioneers were able to grow and prosper, having had the luxury of entering unexplored virtual territories without having to pay local taxes or abide by local laws.

These Wild West days of European online gambling witnessed considerable growth in players, operators, innovations, games – and profit. In a way, these ideal conditions gave birth to all of today’s major European online gambling operators. Most of them started as young entrepreneurs with a vision and little money and managed, through hard work and brilliance, to achieve the American dream in the Old World.

4 iGamingBusiness European Legal Outlook n

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Needless to say, most gambling monopolies and their respective member states were less pleased about this ‘new frontier’ spirit, especially when it meant the loss of control and the loss of tax revenue. Luckily for them, EU freedoms can be restricted on the grounds of public policy and public interest and so it was no surprise that EU Member States prepared to take the EU gloves off and battle it out in European courts instead.

Second stage of the journey: national licensing regimes This battle has resulted in some gambling monopolies crumbling under the pressure of EU law (France and Italy) while others (Germany) are still experiencing indigestion, with SchleswigHolstein deciding to go its own way, throwing the country into some ‘minor’ constitutional problems.

There are also some die-hard bastions that are still playing monopoly, unwilling or unable to surrender to economic realities and the various changes caused by the Internet.

France and Italy have set the tone, with Spain, Belgium and Denmark following suit. In addition, the UK is going through the pains of contemplating the introduction of remote gambling licences for overseas operators. The European Commission has endorsed this multiple licensing model, whereby each Member State can issue its own gambling licences and set its own rules and taxes; the result is that operators will have to apply for a gambling licence in each jurisdiction in which they wish to operate.

Gone, therefore, are the days when gambling operators could rely on EU law and enter monopoly markets with the full knowledge that these monopolies were ‘illegal’ and so restrictions cannot apply. Also gone are the days where no local taxes had to be paid and no local restrictions and (some might say) ludicrous technical, administrative and regulatory standards were imposed.

Instead, the new licensing regimes, deemed legal

by European institutions, will cost operators dearly and will result in financial losses and a reduced appetite to enter these markets in the first place.

Publicly listed gambling operators must satisfy

their listing authorities that they are not conducting unlawful business and it assists their argument if local laws are contrary to EU law. This line of argument can no longer be applied to new national licensing regimes which have received EU blessing and where high local taxes must be paid.

It is, therefore, no surprise that many operators derive a significant percentage of their turnover from current monopolies where the EU law defence still works – and where no taxes are paid.

So, why are online gambling operators in favour of national licensing regimes, MoUs and further regulation, even though they started as pioneers of EU freedoms? The answers are: pure profits, market share, consolidation and elimination of competition.

Because, with the protection of regulatory hurdles and high taxation across Europe, only a select few can manage to survive, and national licensing regimes are somehow assisting large scale operators in drying out the competition and restricting the market to the ‘big boys’ only. Small scale operators cannot afford 27 licences, let alone deal with 27 regulatory bodies and their different requirements.

For the time being, therefore, large gambling operators will sit this round out until most of the competition is eliminated, or on its knees, and ready for a ‘friendly’ take-over. Once the market is limited to a few giants, the tide may change again.

Third stage of the journey: EU competition law With EU freedoms out of the way and national licensing regimes firmly established, EU competition law enters centre stage.

This is a natural consequence of ‘emerging’ markets, where previous monopolies have to compete in a newly liberalised online gambling market: once previous monopolies liberalise their markets, they will doubtlessly be in a dominant position, which in itself may lead to anti-competitive behaviour. In addition, if tax rates between online and land-based gambling differ, we may have a Danish “to be or not to be” tragedy. Finally, with the constant itch from sports bodies and sports rights on every street corner, state aid claims will prosper and flourish.

Introduction

Competition is a new way to look at emerging markets. With gambling regulations across EU Member States, any future EU consensus on gambling regulation will increasingly need to recognise the importance of competition concerns in newly regulated markets.

Fourth stage of the journey: Memoranda of Understanding (MoU) As the words already indicate, ‘national licensing regimes’ are by their nature ‘national’ and have little or no regard for EU harmony or consistency. The current legal, political and regulatory framework for online gambling operators to operate across EU Member States is far from satisfactory: with national licensing regimes regulating without regard to licence conditions in other jurisdictions, operators are faced with administrative hurdles and additional fragmentation. Gambling operators have long called for gambling regulators to take a more active role, and now they have got what they asked for: MoUs between regulatory bodies across EU Member States.

All now depends on what regulators intend to do, as well as on what they actually do. Unfortunately, most MoUs are ‘top secret’ and not accessible to the consumers they are intended to protect. From the little information that is available, however, MoUs will assist regulators in protecting sports integrity, player protection, exchange of information on licensees and the fight against illegal gambling. In other words, rather than make life easier for gambling operators by streamlining the licensing procedure, or by allowing shared liquidity to increase profits, the rise of the MoU will, instead, assist regulators in policing licensed gambling operators. And if this model spreads across 27 EU Member States, we will soon have a data protection nightmare on our hands, just waiting to be uncovered. Nevertheless, the current stated restraints of the MoU can be seen as a first step to increased integration, which may then lead to a streamlined licence application procedure or even a fast-track application for existing licensees. Here again, it will depend on the nature and spirit of the MoU; however, once both parties agree to issues such as streamlining their licensing application procedure or even automatically accepting licensees regulated by the other regulators, we may have achieved a first breakthrough that reflects EU roots. That closer cooperation and harmonisation between regulators is needed, is without doubt. It is also true that the MoU may bring about a better life for all concerned, especially when it combines regulatory concerns with commercial benefits. But let’s be clear about this: regulatory bodies are set-up to protect consumers and not to encourage commerce. Any benefit the operators derive from this is incidental and is in no way intentional.

EU Directive on Online Gambling – the Emerald City at the end of the Yellow Brick Road?

The EU has already agreed a common definition of ‘illegal gambling’ as “gambling in which operators do not comply with the national law of the country where the services are offered, provided those national laws are in compliance with EU treaty principles”. This definition is not about legalising online gambling, but is about “serious concerns about illegal gambling and its negative impact on European citizens”. The definition of ‘illegal gambling’ does not differentiate between licensed and unlicensed operators. Following Mr (Michel) Barnier’s announcement of a Green Paper on gambling, the Council of the European Union has unanimously backed EU online gambling regulation.

This means that all the main EU institutions, the Council, the Commission and the Parliament, now back the regulation of online gambling at EU level.

This development was also welcomed by sports bodies and online gambling operators.

This unprecedented harmony amongst all parties is encouraging at first sight. However, all parties have different, sometimes incompatible interests to protect.

As a first indicator of things to come, it should be borne in mind that the Commission’s move to launch the Green Paper followed pressure from EU Member States and the EU Parliament, not from gambling operators. In addition, the sports industry has ensured that it will be included in the Green Paper on gambling to formalise its requests at EU level and to obtain a larger share of gambling profits, including the introduction of sports organisers’ intellectual property rights.

With a report and a Green Paper on online gambling being fully supported and called for by the EU Parliament, Member States and sports bodies, why have gambling operators received these announcements so favourably, while the liberal jurisdictions in which they operate have taken a far more cautious approach? The intentions of both sides are clear: one wants to protect its gambling monopolies, impose restrictions, national licences, taxation and introduce new sports rights, while the other wants the EU ‘blessing’ to enter gambling markets throughout the EU and restrict competition.

In October 2011, The European Parliament’s online gambling report, which includes a call for an EU-wide directive, received almost unanimous backing. The Report is its response to the EU Commission’s Green Paper. Significantly, it calls for a European Directive on online gambling based on greater regulatory cooperation to combat illegal gambling and the black market. It also envisaged the introduction of common standards – although not on technical or other requirements, but for consumer

protection and to combat crime and match fixing (the sports body itch again…).

In addition, the Report recommends that operators violating the laws of one Member State should lose their licence in other Member States too. And so finally we have it in black and white: the missing link between EU freedoms, MoUs and the underlying nature of the EU Directive. Bravo!

What next?

European online gambling has gone through a remarkable journey in a short period of time, and the end of that journey will be the EU Directive on online gambling. In the meantime, the current state of national licensing regimes and MoUs will hold the EU gambling market together and will allow current players to consolidate their positions, while newcomers and smaller operators will not be able to compete. The pressure on regulators will increase from the operators’ side, because they need a level of commercial and technical harmonisation to accompany the consumer protection and matchfixing surveillance network that is closing in on them (otherwise we’re all out of business) and data protection will become a major concern, with information on gambling operators and players being exchanged amongst regulators.

At present, Europe, with all its flaws, is still a profitable market for online gambling operators. But with increasing demands from all sides, there is a risk that EU regulators and EU Parliamentarians may focus on fattening up the golden goose of consumer protection, but may inadvertently lose the golden egg to more flexible and larger economies – Asia is on the doorstep and the United States is gearing up to liberalise its online gambling markets. Should the US market open at federal level, can operators really be asked to go through 27 licence applications, governed by 27 regulators and supervised by MoUs under the umbrella of an EU Directive to protect the consumer? That seems an unwelcome set of options.

Perhaps (because EU Directives tend to focus on the lowest common denominator) it will be sensible for the interested parties to be assertive in moulding its final form. As one blonde grocer’s daughter once demonstrated to the pre-Thatcher world, sometimes it’s necessary to bang your handbag on the table and demand your rights; the alternative may be to sink under the weight of regulations and witness a real recession within iGaming’s ‘united’ Europe.

Marcos Charif is an Associate Solicitor at Harris Hagan, a specialist UK iGaming law firm. He specialises in e-commerce and Information Technology for the online gaming industry and is a dually qualified English and German Lawyer.

iGamingBusiness European Legal Outlook 5 n

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iGaming Business European Legal OUTLOOK

DENMARK The current legal landscape The Danish gambling legislation is, ultimately, based on a complete gambling prohibition that dates back to the 18th Century, and on a series of acts introducing exceptions.

The operation of terrestrial casinos and slot machine halls is permitted if the operator has been granted a licence. Thus, the terrestrial gambling market in Denmark has been an open competitive market for decades.

Furthermore, licences to operate class lotteries have been granted to three state owned companies and small scale lotteries and terrestrial bingo can be offered for the purposes of raising funds for charities and/or sports associations provided that a permit has been obtained from the local chief of police.

The public offering of any other game is in accordance with the Danish Act on certain games, lotteries and bets (Lov om visse spil, lotterier og væddemål), restricted to one public limited liability company owned by the Danish state, Danske Spil A/S. The actual offering of games and more specific content of the licence, such as the specification of the games which can be offered as well as their rules, is regulated directly by an agreement between the Danish government and Danske Spil.

According to the Act on certain games, lotteries and bets, pigeon races, track bicycle racing (banekørsel), offline casinos and slot machines are excluded from the licence. However, Danske Spil also holds a licence to operate slot machines under the Danish act on slot machines.

6 iGamingBusiness European Legal Outlook n

The current legislation was challenged by Ladbrokes, who has questioned the conformity of the Danish Act with the EU Treaty in litigation proceedings before the Eastern Division of the Danish High Court, adding to the pressure on the current Danish gambling legislation.

Due to a constant threat of a law suit from the EU Commission before the ECJ, the pressure was already very high. Further, the Danish government had provided the beneficiaries of “Tipsmidlerne”, which is the part of Danske Spil’s profit that is distributed to charities and sports associations, with a guarantee that annual funds would amount to 1.8 billion DKK. With Danske Spil losing market share and revenue rapidly, this guarantee added economic pressure to the political and legal pressure already on the current Danish gambling legislation.

In April 2009, the Danish government announced it was going to reform the Danish gambling legislation and liberalise sportsbetting and online casino gambling. With this announcement, Ladbrokes chose to withdraw its appeal before the Supreme Court of the Eastern Division of the High Court’s ruling of November 15, 2006, where it decided that the current Danish legislation and, thereby, the Danish state monopoly, are in conformity with the EU legislation and case law from the European Court of Justice. Furthermore, the EU Commission also relieved the pressure it had placed on the Danish government regarding its gambling legislation.

Since April 2009, the government and the Danish Gambling Control Board have been busy

drafting legislation and regulations that take into consideration the government’s need to protect its players, develop a system with efficient fraud and money laundering protection measures and, at the same time, create a regulatory regime that makes it possible for the operators to run their businesses in a way that is commercially viable.

This will now be the case with effect from January 1, 2012, when the new Danish gambling legislation enters into force.

The new gambling legislation has been delayed by almost a year. This has been caused by a complaint filed with the EU Commission by the Danish Association of Slot Machine Operators. The main submission of the complaint was that a difference in the level of gambling taxation to the benefit of betting operators and online casinos constitutes illegal state aid pursuant to European Union law.

On September 20, 2011, the EU Commission decided that the differentiation in taxation does constitute illegal state aid, but that the benefits of liberalisation, with particular regard to player protection and responsible gaming, outweighed the negative effects of the disturbance of competition. Therefore, the EU Commission ruled that it was not in violation of European Union law. As a consequence, the Danish Gambling Authority immediately started accepting gambling licence applications to be granted with effect from January 1, 2012.

Until the end of 2011, the private operators, which are operating today in what is known as the ‘grey’ market, will be tolerated until the new legislation

It will still be considered a criminal offence for unlicensed operators to offer and market games to Danish players, punishable by large fines and, in severe cases, imprisonment. enters into force, provided that they continue on a ‘business as usual’ level. Any attempt to take advantage of the situation and secure a headstart on the new market through extensive and intensified marketing will not be tolerated, and the official message from the Danish Gambling Authority is that such behaviour will (severely) negatively impact any licence application pending with the Gambling Authority as well as on any potential future licence application submitted by such an operator.

Poker The offering of betting and online casino games is not the only area of the Danish gambling market which has been reformed in recent years.

After a couple of remarkable decisions from the Danish supreme court, the Danish government reached the conclusion that it was necessary, at least to some extent, to allow live poker in Denmark outside of casinos. As a consequence, the Danish government initiated the first step towards a more modern and flexible gambling legislation. To accommodate the operation of live land-based poker tournaments for recreational purposes in Denmark, a new act was drafted. The drafting was initiated during the Eastern Division of the High Court’s review of the case, as the politicians wished to maintain control of the expansion of live poker in case poker was found to be a game of ‘skill’, but, on the other hand, wished to ensure that live poker could be played outside of casinos in case the courts would find poker to be a game of ‘chance’ under the

Danish Criminal Act. This act, the Danish act on public games of chance played as tournaments (Lov nr. 1504 af 27. December 2009 om offentligt hasardspil i turneringsform – hereinafter referred to as the poker tournament act), was passed on December 27, 2009, and entered into force on January 1, 2010.

The act permits the offering of live poker tournament games. The exclusion of cash game poker from the scope of this act is the result of an attempt to eliminate the element of chance as far as possible, mainly by removing the possibility to withdraw after winning one large pot and by ensuring a large number of hands are played before a winner is found, thereby increasing the element of skill.

The new system is based on a licensing framework in order to secure effective control of poker tournaments for the purpose of minimising the risk of fraud (etc), to ensure that the tournaments are arranged without intention of profit for the operator and to protect players from developing compulsive behaviour.

Legal framework As a result of the announcement to reform the Danish gambling legislation, four new acts were passed by the Danish parliament, Folketinget, on June, 4, 2010. These new acts, as well as the executive orders issued pursuant to these acts, will enter into force on January 01, 2012.

The Gambling Act comprises a liberalisation of mainly betting services and online casino

games in Denmark, and licensed gaming operators will, therefore – once the act has come into force – legally be able to offer and market sportsbetting (except betting on horse and dog races) and online games such as poker, roulette, baccarat, punto banco, blackjack and online slot machines in a controlled but free competitive Danish gambling market.

The national lotteries will remain monopolised by the same government-owned operators.

Furthermore, Danske Spil A/S will maintain a monopoly on the offering of bingo, keno, scratch cards as well as horseracing and greyhound betting. However, if Danske Spil A/S also wishes to offer games on the new liberalised market, it will have to do so through a separate legal entity which, financially, must be completely separated from the monopoly company.

Only licensed operators Only operators who have obtained a licence from the Danish Gambling Control Board are allowed to offer and market the liberalised games in the Danish market. It will still be considered a criminal offence for unlicensed operators to offer and market games to Danish players, punishable by large fines and, in severe cases, imprisonment.

In order to protect licensed operators from unlicensed competition, the Gambling Act authorises the Danish Gambling Control Board to obtain injunction orders forcing banks to block money transfers and forcing the Internet providers to block Danish players’ access to the websites of unlicensed operators.

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iGaming Business European Legal OUTLOOK

Henrik Norsk Hoffmann is a Lawyer with LETT, one of the largest full-service law firms in Denmark. He has worked in Germany and has throughout his career mainly provided services to foreign and in particular German businesses. Thereby, Henrik Norsk Hoffmann acquired huge knowledge of the cultural and commercial challenges which companies tend to meet when they start up business in new countries.

As a leading specialist within gaming law, Henrik Norsk Hoffmann is a member of the organisation International Masters of Gaming Law and he frequently holds presentations on game-related subjects at international conferences.

If the licensee holds a licence to offer betting as well as a licence to offer online casino games, two annual fees would have to paid – one for each license.

Obtaining a licence All gaming operators, regardless of nationality, may apply for a licence. However, if the operator is based outside the EU/EEA, the operator must have a representative in Denmark. The representative and the licensee are jointly and severally liable for payment of gambling taxes. The fiscal representative can be a company or a person.

The Gambling Act distinguishes between two different kinds of licences: a betting licence and an online casino licence. In order for an operator to offer both betting and online casino games, two licences would be needed. Each licence is granted for up to five years.

The fees have been settled as follows:

If the licensee holds a licence to offer betting as well as a licence to offer online casino games, two annual fees would have to paid – one for each licence.

In addition to the annual fees, the licensee shall pay a weekly gaming tax of 20 percent of the gross gambling revenue.

Important features of the new Danish gambling legislation There are no limitations on the number of available gambling licences, and any operator who fulfils the requirements to obtain a licence will be able to secure one. In contrast to other newly liberalised markets, the Danish gambling legislation does not operate a system of so-called ‘open windows’ in which licence applications must be submitted. In other words, any operator is free to apply for a licence at any point in time, and will be granted a gambling licence if that operator fulfils the requirements set out in the Danish legislation.

Denmark, with a population of 5.5 million people, is a rather small country and, therefore, a rule prohibiting Danish players from playing against players from other countries would make it hard to offer some types of games, such as poker, in a way that would be interesting both for operators and players. Therefore, the new Danish legislation allows for open liquidity network playing.

(fees in DKK, 7.45 DKK = 1 EUR)

Betting

Casino

Application Fee*

250,000

250,000

Combined Betting and Casino 350,000

* = one time fee Gross Gambling Revenue (Turnover ÷ Winnings)

Annual license fee per license

Up to 5 Million DKK (670,000 EUR)

50,000 DKK (6,700 EUR)

5 – 10 Million DKK (670,000 – 1.34 Million EUR)

250,000 DKK (33,500 EUR)

10 – 25 Million DKK (1.34 – 3.36 Million EUR)

450,000 DKK (60,400 EUR)

25 – 50 Million DKK (3.36 – 6.71 Million EUR)

650,000 DKK (87,250 EUR)

50 – 100 Million DKK (6.71 – 13.42 Million EUR)

850,000 DKK (114,100 EUR)

100 Million DKK and more (13.42 Million EUR)

1,500,000 DKK (201,350 EUR)

Future forecast One of the main problems with the old Danish gambling legislation is that it was drafted at a time when the Internet did not exist. To accommodate the speed of development in new technologies in online gambling, the new Danish Act has been drafted to make it sufficiently flexible to serve as useful set of regulations in an ever-changing market.

However, the incorporation of such flexibility in the legislation means that a lot of ‘gap filling’ will be necessary in the years to come. This is with particular regard to addressing rake back, bonuses, loyalty programmes and other systems used to promote gambling services and maintaining existing customer portfolios in regard to the calculation of tax will most likely see a lot of ‘gap filling’ for the rules and procedures of promotion. Furthermore, the fact that bingo, scratch card games and horserace betting are being kept under the jurisdiction of Danske Spil A/S’ monopoly, is likely to cause further challenges to the new Danish gambling legislation. Indeed, it is questionable as to whether it is in compliance with European Union law to exclude these games from the liberalised market. Based on the reasoning of the European Court of Justice in (numerous) previous cases decided on the free movement of gambling services within the European Union, there is still good basis for challenging this part of the new Danish gambling legislation.

Finally, under Danish law, duties such as the annual licence fee must correspond to the actual costs of administration of the legislation. When determining the size of the fees it was assumed that Danske Spil A/S has a market share of approximately 60 percent of the Danish market.

Further, it was assumed that there would be ten to 15 private operators applying for a licence. On October 17, 2011, no less than 43 applications for a gambling licence in Denmark had been filed with the Danish Gambling Authority. This is an indication that the assumptions made when determining the annual licence fee were too conservative. Therefore, it would be of little surprise if the license fee is reconsidered once the new market has established itself.

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Mobile Gambling:

A Comprehensive Strategy and Market Review

Bringing together a selection of major industry participants and commentators, this new report combines the collective learning and experiences of operators and suppliers to present you with in-depth insight and analysis on the key areas now defining mobile gambling.

Mobile Gambling: A Comprehensive Strategy and Market Review addresses the entire mobile marketplace from technological considerations to the market potential.

Supported by over thirty interviews and case studies, you’ll see what others are doing right, what they’re doing wrong as well as what still needs to be corrected.

• • • • • • • •

Mobile Gambling – Past, Present and Future What do we mean by “Mobile Gambling”?

Mobile Devices Markets Technology M-Commerce and Payment Processing Mobile Marketing Case Studies - Suppliers & Operators

To order your copy today or request a free executive summary email Reports@iGamingBusiness.com and quote 11MR03 To see a full list of iGaming Business Intelligence visit www.iGamingBusiness .com/content/research

iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

FRANCE Until the French Online Gambling Act of May 12, 2010 (the Online Gambling Act) which opened to competition for three online gambling activities, La Française des Jeux, a public corporation, and le Pari Mutuel Urbain used to have a monopoly on gambling. The consequence was that 75 percent of online gambling occurred illegally, thus, circumventing state control and taxation.

Additionally, the connection between illegal gambling and international criminality was frequently emphasised by French authorities.

However, the French government’s decision to modify its online gambling legislation was instigated mainly because of case law from the European Court of Justice (ECJ). The ECJ strongly urged European Union Member States to reform their national legislations regarding online gambling, The French government’s decision to modify its online gambling legislation by the Act of May 12, 2010. A year and a half after the Act, legal online gambling represents 80 percent of the market. In 2011, the general trend seems to be that gambling activity is slowing down.

A controlled liberalisation of French law

listed in a regulation issued by the Minister of Agriculture, or on sports mentioned in a regulation issued by the French online gambling regulatory authority, ARJEL. French online gambling licences are granted for a renewable five year term.

ARJEL controls and regularly monitors the licensed operators. If they fail to comply with their obligations, ARJEL’s Commission of Sanctions may decide upon the attribution of penalties. The penalties can either be a simple warning, a one year reduction of the licence term, a three month licence suspension, the withdrawal of the licence or a fine (a maximum of five percent of the operator’s turnover).

Pursuant to Article 61 of the Online Gambling Act, the ARJEL may also notify unlicensed operators to cease and desist conducting business in France. If they do not comply with an injunction issued by the ARJEL to stop their illegal activity within eight days, the ARJEL can petition the President of the Paris Civil Court to order:  Internet Service Providers and hosting providers to block the access to the illegal website;  any measures in order to prevent any directory or search engine from indexing the unlicensed operators.

The Online Gambling Act opened three online gambling activities to competition (horserace betting, poker and sportsbetting), However, the Act did not put an end to the dominance held by La Française des Jeux, Pari Mutuel Urbain and terrestrial casinos, as games and bets offered in stores and the remaining online gambling authorities are still under their monopoly.

The legalised online gambling activities include (i) pari-mutuel horserace betting, (i.e. all wagers are gathered into a common pool and redistributed to the winners in proportion of their wager), (ii) two types of poker (Texas Hold’em and Omaha) and (iii) sportsbetting that is live, ‘mutuel’, or fixed odds.

Additionally, bets can only be made on horse races

Two preliminary judgments have been issued by the Paris Civil Court. On August 6, 2010, the Court ordered Numericable, Orange France, France Telecom, SFR, Free, Bouygues Telecom, Darty Telecom and Auchan Telecom to take all necessary measures, without delay, in order to prevent access to Stan James Gibraltar Ltd’s gambling operation, accessible at www.stanjames.com. The online gambling operator in this case was conducting unlicenced business in France and had failed to comply with the ARJEL injunction.

In this case, the defendants (i.e. French Internet Service Providers) appealed the decision claiming that Article 61 of the Online Gambling Act,

10 iGamingBusiness European Legal Outlook ■

contravened with the presumption of innocence provided in Article 9 of the French Declaration of Human Rights. According to them, the provision was thus unconstitutional as it does not require the ARJEL to demonstrate that the concerned online gambling website is illegal and does not allow the online gambling operator to challenge the ARJEL’s claim in a fair trial.

The defendants thus introduced a ‘priority preliminary ruling on constitutionality’, which allows the submission of a question regarding the constitutionality of a provision to the Constitutional Council. In this case, the Paris Court of Appeal in a decision on June 28, 2011, discarded their claim on the ground that it lacked “seriousness”.

In a similar case, on April 28, 2011, the Court ordered the same Internet Service Providers to take all available measures in order to prevent access to Fivedimes’ illegal gambling offer accessible at http:// www.5dimes.com and http://www.fivedimes.com.

Unless they complied with the injunction within 15 days of the Court’s decision notification, they had to pay a €10,000 daily penalty during the month following such notification.

Since the creation of the ARJEL, 550 online gambling websites have been issued cease and desist notices regarding the conduct of their business in France and have complied with these injunctions by preventing access to their websites to players located in France. The President of the Paris Civil Court has been petitioned over fifteen times regarding websites which failed to comply with the ARJEL’s injunctions immediately; only in the two cases mentioned have the websites had their access blocked following a Court order as the others have complied with the injunctions during the proceedings.

This illustrates that the ARJEL is actively enforcing the Online Gambling Act and that the sanctions specified by the law appear to be an effective deterrent for illegal online gambling

operators. Additionally, upon the proposal of the ARJEL, the Minister of Budget may decide to prohibit any transfer of funds to or from accounts identified as held by unlicensed operators. This ban can last six months and is renewable.

Licensing criteria and requirements are very strict, and are sanctioned accordingly, thus demonstrating that the Online Gambling Act creates a controlled and restricted liberalisation of online gambling. Any unlicensed operator engaging in online gaming activity in France is subject to a three year prison sentence and a €90,000 fine. If the operator is a corporate body or acting in an organised group, the amount of the fine and the prison sentence shall be increased. Moreover, any advertisement by unlicensed operators shall be punished by a €100,000 fine.

These strict conditions and sanctions are justified by the legislator’s intention to protect certain overriding interests as specified in the Act, namely:  preventing gaming addiction;  preventing fraud, the funding of criminal activities and money laundering;  protecting the under aged;  ensuring the integrity, reliability and transparency of gaming operations;  ensuring the balanced and equitable development of different types of games to avoid destabilising the concerned economic sector.

In order to protect those interests, the legislator has implemented (in the Act) numerous mandatory guidelines that online gambling operators must comply with.

These mandatory guidelines include, for instance, to prevent gaming addiction, that operators must (i) implement mechanisms enabling players to exclude themselves, moderate or limit wagers, (ii) constantly communicate to them the balance of their account, and (iii) warn them of the risks of excessive or

pathological gambling; and in order to protect under aged, that operators (i) must bar them from online gambling websites, and (ii) are not allowed to fund or sponsor any event targetting under aged persons.

According to ARJEL, since the implementation of the Online Gambling Act, €10.14 billion in bets has been accounted for from around three million player accounts. According to the figures published

by ARJEL in June 2011, over a year after the opening of the market to competition, the French online gambling market appears to have slowed down. The decrease mainly concerns sportsbetting, for which ARJEL assesses a 26.5 percent fall in wagers during the first quarter of 2011. On the contrary, horserace betting has slightly increased and wagers on online poker have remained even.

recommends:  to increase ARJEL’s powers and efficiency regarding its investigative prerogatives;  that the label ‘licensed by ARJEL’ should be systematically visible on licensed online gambling websites;  in order to fight against professional players participating in the illegal gambling market, to encourage the tax administration to search and disclose any information pertaining to the illegal nature of the earnings of such players;  to subject illegal operators to a tax on online gambling wagers;  to grant ARJEL’s President the ability to bring proceedings against all advertisements promoting illegal online websites.

The future of online gambling in France

The French government concluded its report by stating that it shall implement, without delay, all its recommendations and shall amend the Online Gambling Act and its associated regulations accordingly. However, no such revision has been officially announced and there is no foretelling what the French Parliament will implement.

Pursuant to the Online Gambling Act, two reports shall be established by the French government and submitted to the French Parliament before December 31, 2011; one on the implementation of the Act and the second on the pathological gambling prevention policy.

In 2011, the French Parliament has contributed to the government’s reflection on this matter by issuing two reports on the implementation of the Online Gambling Act. They identified various topics to be addressed such as the low level of profitability for licensed operators, the cause of which could be, according to the operators, the applicable tax regulation. The government’s report regarding the implementation of the Act was submitted to the French Parliament in October 2011, and details 49 recommendations, including the following: With respect to the tax regulation applicable to licensed operators, the report does not, at this stage, opt for any modification of the current system.

Concerning the reinforcement of the prevention of illegal online gambling, the government

Anne-Sophie Lampe is an associate at DLA Piper in France. She is a member of the Paris Bar and advises French and foreign companies on issues relating to IT, e-commerce, Internet, and intellectual property law.

She also and has experience in IP/IT litigation. She has authored several articles in the fields of IT law, published in France and abroad.

Jeanne Dauzier is an associate at DLA Piper in France. She is a member of the Paris Bar and has a Bachelor of Law (King’s College London) and a Master’s Degree in IT Law (University Paris XI). She specialises in Intellectual Property and IT Law.

iGamingBusiness European Legal Outlook 11 ■

iGaminG Business european LeGaL ouTLooK

GERMANY “It is possible to fail in many ways... while to succeed is possible only in one way”, Aristotle wrote in his Nicomachean Ethics. This ancient wisdom is an apt reflection of the situation of gambling regulation in Germany in recent times. Admittedly, there is no single way to reasonably regulate gaming and betting but, clearly, we have seen more examples across Europe and in the US of how gambling should not be regulated than how it should be done.

The past decade illustrates how the federal states of Germany have failed in many ways to implement regulated gaming and betting which converts the long-established ‘grey’ market into a prosperous and regulated one which, thereby, makes protection of players a reality. In the wake of European Court of Justice (ECJ) judgments made on September 8, 2010, the German state monopoly in the organisation of lotteries and sportsbetting collapsed before German courts by the end of 2010, and the state Prime Ministers and their fellow Heads of the State Chancelleries attempted to piece together a new State Treaty on Gambling throughout 2011 – which again failed on July 18, 2011, when the European Commission objected to core stipulations of the draft. In contrast, the Gambling Act, which was advanced in a parallel procedure and enacted on September 14, 2011 by Schleswig-Holstein in Northern Germany, could turn out to be a successful way to regulate online gambling in Germany.

The current legal landscape is changing The legal landscape in Germany is undergoing a major change. From the beginning of 2008, gambling law was mainly shaped by the State Treaty on Gambling, which established a monopoly in the organisation of sportsbetting (except horserace

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wagering) and state lotteries; the various state Casino Acts further limit the operation of land-based casinos to a relatively small number of licensees, which in ten out of 16 States are directly operated or predominantly controlled by the federal states themselves; furthermore, operating sportsbetting and casino games online was legally banned. In contrast, licences for operating slot machines in privately owned arcade halls and restaurants are federally regulated by the Gambling Ordinance and are not limited by number; as a consequence, the number of installed slot machines has risen to approximately 235,750 by the end of 2010.

Thus, it is safe to say that a place to legally gamble offline can be found at almost every turn in Germany, whereas gambling online is almost completely outlawed – notwithstanding the fact that a considerable number of German citizens enjoy gambling online (estimates in online poker range from approximately 580,000 to several million active German players).

Impact of ECJ judgments on legal developments in 2011 As indicated earlier, the ECJ judgements of September 8, 2010, in cases Carmen Media (case C-46/08), Stoss (joined cases C-316/07 et al) and Winner Wetten (case C-409/06) triggered the collapse of the state monopoly in the organisation of sportsbetting and lotteries. The ECJ held that the legislation on sportsbetting and lotteries does not regulate games of chance in a consistent and systematic manner and, therefore, contravenes EU law, specifically the freedom of establishment and the freedom to provide services (meanwhile stipulated in Article 49 and Article 56 of the

Treaty on the Functioning of the EU – TFEU). In a subsequent judgment by the Federal Administrative Court of November 24, 2010 (file no. 8 C 15.09), which influenced judgments of lower-instance administrative courts in sportsbetting matters throughout 2011, the requirement of cross-sector consistency deriving from EU law was confirmed, meaning that games of chance with a higher addictiveness must be regulated as strictly as games of chance with lower levels of addictiveness. It was confirmed by the overwhelming number of judgements of national administrative courts in 2011 that the State Treaty on Gambling does not fulfil this requirement and, thus, sportsbetting operations cannot be prohibited by regulators.

In regard to online sportsbooks, interpretation of the ECJ judgments was subject to legal debate until the middle of 2011. In last year’s edition of the iGaming Business European Legal Outlook, we expressed the view that said judgments may be construed as allowing a prohibition of online gambling, excluding the contravening monopoly on the offline operation and distribution of sportsbetting - however, it might be more convincing to say that the regulation of online gambling cannot be considered separately from the regulation of offline gambling. In a judgment of June 1, 2011 (file no. 8 C 5.10), it was confirmed by the Federal Administrative Court that said ECJ judgments do not affect the online ban stipulated in the State Treaty, because this ban is independent from the monopoly and so, online distribution of sportsbetting is unlawful. Since the state Prime Ministers have already decided to extend the duration of the current State Treaty until a new regulation is in place, this will be the state of play in most Federal states for the next few months.

Representatives of Schleswig-Holstein commented that the 15 Prime Ministers supporting the draft State Treaty “hopelessly gambled away” and characterised the detailed opinion as the “resounding slap of Brussels” Piecing together a draft State Treaty Shaping – or rather, piecing together – such new regulation is the big issue of this year. Different drafts prepared in interstate negotiations show that the interests of the federal states were – and still are – diverging in regard to core aspects, such as licensing of private operators and taxation.

Following a special conference in April, the Prime Ministers of 15 federal states announced the concept for a draft State Treaty, including regulation of online gambling from 2012 onwards (often referred to as “E-15 Treaty”, where ‘E’ refers to the German word ‘Entwurf’, meaning draft). Pursuant to this draft, licences for private sportsbetting operators would have been limited to seven and a gambling duty of 16.66 percent imposed on stakes, whereas operating online casino games would have been limited to licensees of land-based casinos.

This concept was objected to by the European Commission in the aforementioned detailed opinion of July 18, 2011, during the notification process for the draft. Such notification initiates a three-month standstill period for national legislation pursuant to directive 98/34/EC, during which the Commission may make comments or raise objections to a draft act. Hence, notification is not an approval procedure for draft acts (misreported by some online journals), yet, it puts the Commission in the position to review national legislation. As a consequence of the Commission’s objections, the Heads of the State Chancelleries are currently revising the E-15 Treaty.

A new legal framework Representatives of Schleswig-Holstein commented that the 15 Prime Ministers supporting the draft State Treaty “hopelessly gambled away”

and characterised the detailed opinion as the “resounding slap of Brussels”. During 2011, the Schleswig-Holstein government pursued the realisation of its own Gambling Bill – against all odds. The Bill was enacted on September 14, 2011, by the parliament of Schleswig-Holstein in a heart-stopping 46 to 45 vote. Providing for a market opening in online casino games and sportsbetting, the Gambling Act sets a precedent in German gambling regulation.

The Schleswig-Holstein Act both fits well into the European framework and provides a new framework for private gambling operations in Germany itself. In principle, it is based on the so-called ‘Danish model’, including a continued monopoly of the state in the organisation of lotteries and a market opening in sportsbetting as well as online casino games. The draft Act was not objected to by the European Commission during the notification preceding parliamentary procedure.

Hence, it is seen by many German gambling lawyers as a (broadly) EU law-compliant model which could work for Germany as a whole – maybe not an ideal, but nevertheless an agreeable way to gambling regulation in Germany.

Regulation of licensing under the Gambling Act Compared to the E-15 Treaty, a major difference and one reason why the Gambling Act was not objected to by the Commission is that the number of licences in sportsbetting and online casino games is not limited. In principle, the Gambling Act distinguishes between licences for the operation and for distribution of games of chance. The organisation of lotteries is subject to the monopoly

of the Schleswig-Holstein state, whereas distribution of the state lottery products may be undertaken by private businesses. ‘Lottery products’ include tote (or pari-mutuel) betting, which under German gambling law is traditionally considered a lottery due to the totaliser principle.

A betting licence covers the organisation or distribution of betting on sports events online and offline, including in-play betting, whereas betting on other (society or political) events is not licensable; “No betting on the Royal Wedding”, you could say as a mnemonic. Distinct from sportsbetting, operating land-based casinos remains subject to the Casino Act of Schleswig-Holstein and to the monopoly of the state-controlled casino operator, Spielbank SH GmbH, established in this act. By a last-minute amendment in § 2 sec. 2 of the Gambling Act during the legislation procedure, casino games involving a banker, namely blackjack, roulette and baccarat (so-called “banking games”) were assigned to the scope of the Casino Act. In conclusion, operating such banking games online and offline is reserved to the state-controlled casino operator in Schleswig-Holstein. No reason was given for this last-minute amendment, and it appears difficult to make this exclusion of (online) banking games from licensing under the Gambling Act consistent with the requirements of EU law. In comparison, the licensing of all other online casino games, specifically online poker and online slots, is not restricted under the Gambling Act. With regard to the outlined particulars of licensing, operators interested in applying for an operation or distribution licence (or both) are recommended to check early which parts of the product portfolio are licencable.

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iGaming Business European Legal OUTLOOK

Economic aspects of the new framework Operators will also have to check whether the regulatory framework the Gambling Act provides is commercially viable for their products. § 36 sec. 1 of the Gambling Act prescribes a gambling duty of 20 percent on gross profits – certainly no peanuts, but still far better than the tax rate suggested in the E-15 Treaty. Being the responsible regulatory agency, the Ministry of the Interior is supposed to impose a ‘onetime fee’ for proceeding licence applications (handling fee) and an annual fee for supervising licensees (controlling fee); the rate for these fees is not yet fixed, but will be determined by separate ordinance. Operators will be pleased to hear that neither an establishment nor a server located in Schleswig-Holstein or in Germany is legally required under the Gambling Act itself, but that residence in an EU or EEA-state (European Economic Area) is sufficient. Whereas operators resident in Alderney or the Isle of Man might have to relocate their residence into the EU, said facilitation will certainly save costs for operators already resident in Gibraltar or Malta.

Future forecast: finding the way via Schleswig-Holstein Before and after enacting the new legislation, the government of Schleswig-Holstein announced that it would leave the door open for a joint solution with the rest of the federal states – based on the main aspects of the Schleswig-Holstein concept.

The latter is essential, because a joint solution – an ‘E-16 Treaty’ – then would require monopolyfriendly states to concede to the main aspects of Schleswig-Holstein’s concept, including reasonable taxation and licensing of private operators. Unless that happens, the Gambling Act is going to enter into force on January 1, 2012, and licences issued under the Gambling Act are going to become valid as of March 1, 2012 as determined in § 48 of the Gambling Act. Some comments assessing the Gambling Act as ‘powerless’ until March 2012, therefore, might not be correct; the mentioned transitional clause should rather be considered as goodwill towards the rest of the states. At the beginning of January 2012, an ordinance with further specifications on licensing procedure and technical requirements to operations is intended to be issued by Schleswig-Holstein. Hence, licensing could start as soon as such ordinance is in force.

At the moment, it seems rather unlikely that a majority of the states will concede to the conditions of Schleswig-Holstein; a reliable assessment of the range of opinions held among the Prime Ministers will be possible after conferences scheduled

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for mid-December 2011. The Head of the State Chancellery of Rhineland-Palatinate, Mr Martin Stadelmaier, reportedly said that a revised draft State Treaty is planned for the end of this year and that ratification of the states’ parliaments could be accomplished by Easter 2012.

Possible scenario: two German regulations in 2012 In this event, two German regulations will be in place by spring 2012: the German market then will be divided into a smaller jurisdiction open to online operations, covering the territory of Schleswig-Holstein (at least) and eventually some fellow states, and a larger rather restrictively regulated jurisdiction consisting of the rest, presumably the entire South.

The geographical scope of a Schleswig-Holstein licence is of particular interest. It has already been in dispute before passage of the Gambling Act in parliament, although the Federal Administrative Court had clarified in a 2006 decision (file no.

6 C 19/06) that, in principle, a licence is only valid for the territory of the issuing state (unless such licence is recognised by another state). The discussion was further fuelled by a last minute amendment in § 35 sec. 2 of the Gambling Act. This clause prescribes that games of chance offered under a Schleswig-Holstein licence within Germany, but outside the territory of SchleswigHolstein, are deemed to be distributed within Schleswig-Holstein. However, this clause does not regulate the scope of a licence, but the taxation of licensees. It is intended for safeguarding tax revenue for Schleswig-Holstein from profits made by licensed operators outside the territory of that state – other states will most likely be enraged about such tax absorption. However, the ambiguous German wording of said ‘transitional clause’ still could turn out to be helpful in the event of litigation.

diverging regulations in Germany. Inconsistent restrictions to the freedom to provide services again cannot be justified and are inapplicable insofar as they contravene EU law. By obtaining a licence in Schleswig-Holstein, an operator can further prove the intention to comply with the applicable laws and the will to act lawfully in Germany. A Schleswig-Holstein licence, finally, could turn out to be a must-have for any operator willing to establish themselves in the German market.

Dr Joerg Hofmann is a senior partner at Melchers. He started advising clients in gambling law in 1995. Being an internationally renowned expert in the field, Dr Hofmann is a frequent speaker at international conferences on gambling law and was recently elected Vice President of the International Masters of Gaming Law (IMGL).

Matthias Spitz is co-heading the gaming law boutique of Melchers with his colleague Dr Hofmann and specialises in gaming and betting law. He is a frequent contributor to leading journals of the industry, guest writer to the Sports Betting Community (SBC) and represents the law firm at international conferences, such as BetMarkets 2011.

Melchers Law Melchers have been advising gaming industry companies for more than thirty years and, thereby, gambling law was cultivated as one of the law firm’s core competences.

Generally, Melchers is a business-oriented law firm and is capable of providing advice in all areas of business law by specialised lawyers. The professional expertise in the area of gambling law makes Melchers one of the prime addresses in Germany for the development of forward-thinking legal strategies to successfully introduce and sustain gambling products in the

A sophisticated legal strategy Apparently, operators would not be enthusiastic about limiting their activities to SchleswigHolstein or a piece of the German market, but might want to target the entire market with their products. Accordingly, a sophisticated legal strategy is required. EU law, again, will be of major importance for such a strategy. Operators resident within the EU would be able rely on their freedom to provide services pursuant to Article 56 TFEU to react against restrictions in the said larger jurisdiction in Germany. A core argument might be that regulation in its entirety would be inconsistent given a parallel existence of two

highly regulated German market or, in the event of regulatory measures, to ensure adequate legal reaction. Melchers’ attorneys are experienced in lobbying and enjoy consistent communication with regulators, which in many cases may be helpful in avoiding litigation. As a full-service law firm, Melchers’ advice in gambling-related matters covers all corresponding areas of law, such as competition, company, administrative and tax law. Melchers is committed to substantial relationships with leading national and international gaming companies. At a national level, Melchers is represented by its three offices in Berlin, Frankfurt and Heidelberg at the heart of German economy, and at international level, Melchers is a member of ALLIANCE, a world-wide network of business-oriented law firms.

More information: www.melchers-law.com Contact: gaming@melchers-law.com

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iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

GIBRALTAR The current legal landscape Gibraltar has grown into one of the online gaming jurisdictions of choice since the 1990s, when well-known UK bookmaker Victor Chandler moved its entire operation to Gibraltar. In those days, Gambling was licensed by the Financial and Development Secretary for Gibraltar under the provisions of the antiquated Gaming Act 1958.

The low corporate tax rates of the time made Gibraltar a very attractive jurisdiction which, subject to various conditions, allowed operators to reap the benefits of the exempt company regime. Since then, Gibraltar has had to adapt to the needs of the industry and modernise its gambling legislation in order to cope with the legal and regulatory issues posed by the wider online gambling business. In 2005, the Gibraltar legislature brought into force a modernised and much needed piece of legislation in the form of the Gibraltar Gambling Act 2005 (the Act). The Act brought with it a robust legal and regulatory framework designed to cater for the modern needs of the industry which enabled a continued and sustainable growth of the local iGaming sector to where we are today. The Act strikes a fine balance between regulatory and reputational concerns and the need for the industry to respond rapidly to a highly competitive and fast moving environment as we have seen (and continue to see) with the major regulatory developments across the world. Today, Gibraltar’s iGaming industry has cemented itself as one of the pillars of the local economy. The timely introduction

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of the UK Gambling Act, which led to Gibraltarbased providers being able to advertise in the UK, also proved significantly positive, and it is quite common nowadays to see adverts from most of the major gaming companies on UK prime time television. However, this situation may change in the short to medium-term, given recent developments in Europe and the UK (discussed later) which will no doubt have an impact on how Gibraltar-based operators branch out into the European markets and where they physically establish themselves.

At present, there are just over 20 licensed iGaming operators in Gibraltar. The number of licensees may seem low when compared to other offshore gaming jurisdictions but this is not so much due to a lack of popularity, but rather to the high standards imposed by the local licensing bodies who, since the early days, have chosen to focus on quality rather than quantity. Some will argue that this has been instrumental to the Gibraltar success story, and long may it continue.

Legal framework Gibraltar is the only UK overseas territory that is part of the EU. Gibraltar was excluded from certain parts of the EC Treaty (Treaty of Rome 1957) by virtue of the UK’s Treaty of Accession to the EU (1973). Gibraltar does not form part of the customs territory of the EU and is treated as a ‘third country’ for the purposes of the common agricultural policy. Gibraltar is excluded from the common market in agriculture and trade and

At present, EU operators have to work within a patchwork of national state-imposed restrictions which continue to hamper a free choice iGaming model for European consumers and operators from EU rules on VAT and other turnover taxes and, thus, makes no contribution to the EU budget. For all other purposes, including the freedom to provide services and freedom to establish, it forms part of the EU. In its simplest form, Gibraltar is part of the European Economic Area (EEA).

The Licensing Authority for Gibraltar is responsible for (amongst other things) the grant, renewal and revocation of remote gambling licences under the Act. The Gambling Commissioner is Phil Brear (the Commissioner). The Act requires the Commissioner to ensure that licensees act within the terms of their licence agreements so as to maintain the good reputation of Gibraltar.

The maintenance of this reputation underpins the licensing and regulatory criteria followed in Gibraltar, which means that if an iGaming operator is considered by the Licensing Authority to be likely to put the reputation of Gibraltar at risk, then that operator risks losing its licence.

Generally, the Act deals with remote gambling specific areas such as: safeguarding and integrity of equipment; software suppliers; responsible gambling; registration of participants and information; confidentiality; aborted transactions; site content; anti-money laundering; duty to publicise rules; minimum ages; record keeping and audited accounts; approved banking and payment processing arrangements; complaints; and payment of fees and gaming taxes.

There is also a Generic Code of Practice issued by the Commissioner which serves to supplement

and provide interpretive guidance on the Act, primarily to assist operators in complying with the same. The generic Code of Practice is legally binding under the Act and also under the terms of the individual licences applicable to Gibraltar regulated operators.

The policy of the local licensing bodies has always been to allow its operators to conduct their business in a controlled and responsible manner whilst adhering to the highest standards of regulation. The general view in Gibraltar is that operators are sophisticated and responsible enough to ensure that they do not operate, or offer their services to persons in jurisdictions where online gambling is illegal. For example, a Gibraltar licensee is legally obliged under the terms of its individual licence to ensure that all advertising, promotion and sponsorship activity of whatever type and through whatever medium (including the Internet) be truthful and accurate and exclusively targeted at adult players – and not designed, in any way, to appeal to minors.

Operators are also prohibited from advertising, promoting, operating or linking their sites to those containing violent or immoral content or content which may be designed for access by minors. In addition, a Gibraltar remote gambling licence is issued on the basis that the advertising and promotion of gambling activities can only be directed to citizens of nations in which it is legal for such activities to be undertaken and, thus, a Gibraltar licensee is not allowed to provide gambling activities to any person where the

provision of such services by the licensee would be illegal under applicable law. Furthermore, under the Act, a licence holder must inform every customer that it is the customer’s responsibility to ensure that, under the laws of the jurisdiction to which he is personally subject (by virtue of residence or otherwise), it is lawful for such customer to use facilities provided by the licence holder.

Therefore, from a Gibraltar perspective, so long as the operator complies with the terms of its licence and the Act, it should be able to offer its services to any person over the legal age and it is up to that person to ensure that he/she complies with the laws which they are subject to. Given that a Gibraltar licensee is licensed within the EEA with all the legal consequences that this brings, a Gibraltar operator is free, at least in principle, to provide its services throughout the EU. However, the practice is somewhat different; with some Member States introducing their own licensing regimes, operators have been faced with the conflicting choice of obtaining licences in those European countries in order to access those markets on the one hand, whilst on the other, challenging the basis of such measures by the individual Member State in the EU courts.

A situation which is far from satisfactory to consumers and operators alike as the cost and rate of losing customers from one platform to another is increased, whilst the range of online offerings is restricted all in the name of consumer protection and national interests.

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iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

Future forecast Since the Gambelli ruling of the European Court of Justice (ECJ) in November 2003, the regulatory climate in the EU has been the subject of much debate across the iGaming industry. Gambelli confirmed that national EU market restrictions are acceptable so long as they are not considered to further protectionist objectives and meet strict consistency criteria bringing more EU states to move from a monopoly regime towards a regulated system.

Instead of continuing along the road of EU harmonisation to the establishment of the sort of level playing field emerging in most consumerfacing industries, the gaming industry might be sleepwalking towards the regulatory abyss At present, EU operators have to work within a patchwork of national state-imposed restrictions which continue to hamper a free choice iGaming model for European consumers and operators. We have seen some countries such as France, Italy and more recently Spain moving towards a system of ‘dot country’ (.es/.fr/.it) regulation/taxation rather than to a harmonised free market system within

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the EU. The UK, a long-standing champion of the free market principle, has also taken a step in what some will say is the ‘wrong’ direction, by announcing that it intends to amend its much heralded Gambling Act to provide for a licensing requirement to be imposed on any operator looking to access the UK market and, as a result, a tax on a point of consumption basis. We have already heard the comments made by the French regulator about the increase in black market activity as a result of the French model being brought into force and this is in respect of a market which was closed and has now been opened. With regard to the sheer size of the UK market and the fact that it has been open for business for so long (and with regard to the cost-conscious population faced with increasing austerity measures), the possibility of rouge operators thriving in the UK when the market is closed off in this manner, should raise serious concerns.

It is also ironic that protectionist measures justified by some EU Member States on the grounds of protection of consumers could cause a marked increase in black market offerings rather than bolster consumer safeguards. Time will tell, but it may be a difficult question for the UK parliament to deal with if they choose to proceed with such changes with the unhappy consequence of reputable operators losing out to less reputable competition. Players looking for a bargain bet (or value for money) might not be that concerned about who is providing the service. How can the UK, after seemingly encouraging operators to move away to lower tax jurisdictions and after creating a white list and allowing EEA licensed operators to

access the UK market without a UK licence, now effect a U-turn of such magnitude on the sector?

The net effect on reputable operators then, in the context of the legal and technological efforts stemming from compliance with the relevant legal/regulatory changes, is, for all practical intents and purposes, a punishment for good behaviour.

Surely this is not what the legislature intended.

These developments herald a rather sobering prospect: instead of continuing along the road of EU harmonisation to the establishment of the sort of level playing field emerging in most consumerfacing industries, the gaming industry might be sleepwalking towards the regulatory abyss.

Today, Gibraltar’s iGaming industry has cemented itself as one of the pillars of the local economy

Called to the Gibraltar Bar in 2002, Steven Caetano has particular expertise in e-commerce and online gaming law as well as corporate, trust, intellectual property, and financial services. Steven is a regular advisor to a number of well known Gibraltar-based online gaming companies on areas relating to e-commerce, intellectual property, corporate, technology, gaming, licensing and regulatory matters.

isolas-gaming:Layout 1 10/7/11 3:07 PM Page 1

www.gibraltarlawyers.com

At the top of our game ISOLAS have been at the forefront of Gibraltar's success story as a leading jurisdiction for online gambling for over a decade with particular expertise on licensing & regulation, Intellectual Property, Corporate, technology and e-commerce law.

Contact Partner Steven Caetano on: gaming@isolas.gi Portland House Glacis Road PO Box 204 Gibraltar.

Tel +350 200 78363/+350 2000 1892

iGaming Business European Legal OUTLOOK

GREECE Historic development of iGaming in Greece In Ancient Greece, gambling had the support of an Olympian God, namely Mercury otherwise known as ‘Hermes’, who was also, among others, the God of commerce.

Contemporary Greece has an infrastructure for gambling-tourism and casinos, and it is viewed by many as the best spot for casinos in Europe. Online gambling has gown rapidly in Greece during the past few years but despite this, Greek legislation, while permitting gambling inside casinos, prohibited interactive gambling and betting outside casinos in 2002. This could be attributed to the fact that the Greek state can take no less than 20 to 30 percent of a casino’s profits pursuant to Law no 2206/1994 article 2 paragraph 8. Lottery and sportsbetting are controlled by a company known as OPAP (Organisation of Football Prognostics) which has exclusive rights to all sportsbetting and lotteries in Greece until 2020. This company was founded in 1958, and has been publicly-traded since 2001; however, Greece maintains control of a third of the company. OPAP’s monopoly was argued to be anti-competitive under EU regulations.

Simultaneously, the illegal gambling market in Greece has an estimated value of €4 billion per year following the complete ban on gaming machines back in 2002. Back then, gambling games and computer games played in public places (in hotels, cafeterias and in any other public or private place), were banned. This rather controversial law was enacted to fight illegal gambling, and was extended to all gaming because the government could not differentiate between

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‘regular’ games and gambling machines.

If anything, this law established that the Greeks are fond of gambling. At the time of the law’s implementation, there was arguably a certain amount of social caution as to teenagers spending all of their money on slot machines and families losing their savings, added to the fact that quasicasinos were commonplace. (It has to be noted that the 3037/2002 law came as a reaction to a member of the ruling political party being videotaped in an illegal gambling establishment.)

The law instantly eradicated the arcade videogame market of that time. Internet cafes were allowed to operate, providing no gaming took place in their establishments.

There were several disputes to this law, given that it prohibited even playing chess in Internet cafes. On January 14, 2004, the police raided Internet cafes in Larissa. The European Commission argued that the law was in conflict with EU legislation and that the European Court of Justice could take action against Greece. On February 10, 2005 the European Commission referred Greece to the ECJ.

The current legal landscape Given that Greece is a member of the EU, it is subject to the requirements of the EU’s free passage for trade and services from other EU states’ policy.

However, gambling outside casinos remains OPAP’s monopoly. OPAP had threatened in the past to prosecute Greek citizens who attempt to avoid its services and bet directly with foreign gaming companies online. In 2008, the EU Commission gave Greece a final warning before court action

over restrictions in its gambling market. The European Gaming and Betting Association (EGBA) said that national gambling legislation not serving “any genuine consumer protection or public order interest has no future”. The European Commission ruled that Greece’s 3037/2002 law was against EU law on free trade and a fine of €31,500 per-day was imposed.

In 2010, things began to change. The online gambling market in Greece was then estimated at €2 billion per year, an amount that the Greek government could not afford to lose out on. George Christodoulakis, the Ministry of Finance senior official said: “The propensity for gaming in Greece is among the highest in Europe and the world…

This has to do with our temperament and culture...

The only thing one can do is set rules”. Following the financial crisis, the Finance Minister said: “Our country today finds itself in the extremely unpleasant condition of paying around a million Euros a month as a fine”, and added, “We want a regulatory framework that is modern, compatible with European regulation, and that fortifies against illegal activity.”

It seemed only natural to announce the imminent release of a draft law on electronic gaming and Internet betting. Betfair sent company representatives in Greece to discuss the proposed incoming online gambling legislation with government officials.

The new regulatory framework The new Law (no. 4002/2011) was voted in by the Greek Parliament on August 4, 2011, and applies to technical leisure games and games of chance

If not all of the announced licences are awarded, those licences that remain shall be put out to tender again by the Minister of Finance played on gaming machines or online. In contrast with Law no. 3037/2002, all forms of technical leisure games shall be permitted provided that the lawful conditions are complied with. The Law sets as a general rule, the prior authorisation of all activities providing gambling and betting services.

The law refers to the competent authority for issuing licences and certificates and for supervising and controlling the running and operating of games, namely the Commission for Game Supervision and Control (CGSC). The CGSC sets the compulsory operating conditions and specifications of the servers and software for online gaming licence holders so as to ensure compliance with all provisions concerning the protection of players and the public interest.

The Law follows the principles of ‘responsible gaming’ and, consequently, gambling and gaming techniques should be adjusted to be consistent with the rules laid down in the Law. Pursuant to article 29, paragraph 4, advertising should provide a strict level of consumer protection, and should not be aimed at encouraging active participation via advertising relying on ambiguous expected profits.

Pursuant to article 32, paragraph 1, the legal age for individuals allowed to participate in games of chance is determined at 21 years of age.

The minimum amount payable for participating in games of chance played using gaming machines is €0.10 and the maximum is €2. Those amounts may change following the CGSC’s decision. According to the law, in order to play games of chance via gaming machines or online, the players will have to obtain an Individual Player Card (IPC) to ascertain their

age and tax registration number, and ensure that any additional restrictions imposed by the player himself are observed. The IPC may be issued by licence-holders pursuant to the procedure and terms and conditions laid down in a CGSC decision published in the Government Gazette. Gaming without an IPC is strictly prohibited. It becomes evident (and important to emphasise) that when it comes to player protection, Greece is a pioneer in the European market through the compulsory implementation of the Individual Player Card.

Article 39, paragraph 2, provides for 35,000 game machines (video-lottery terminals – VLTs).

Moreover, OPAP, in article 39 has a vital role given that it is granted a licence for 35,000 game machines of which it controls 16,500, with 15,000 (VLTs) placed by OPAP in its agencies exclusively, 1,500 will be provided for operation to agencies of ODIE SA (Hellenic Organisation of Horseracing), and the remaining 18,500 are given by OPAP to international tenders following a highest bidder tender procedure for up to ten licensees. Pursuant to article 42, paragraph 2a, OPAP’s shops are considered as exclusive shops if they follow terms and conditions set by the Code of game Conducting and Monitoring.

Pursuant to article 39, paragraph 4, the licence lasts for ten years, 12 months following its award.

Licences are personal and non-transferable and they are issued on certain conditions (the CGSC determines the amounts the licensees should have in a credit or in payment institutions located and legally operating in Greece). Article 38, paragraph 3, determines that non-profit legal entities are not eligible for a licence for technical entertainment

games with game machines. As it concerns online betting, the licence holder is obliged to comply with the player account’s terms and conditions as laid down in the Gaming Operations and Control Rulebook. Moreover, pursuant to article 30 paragraphs 5 and 6, the licensee is obliged to maintain the information he receives from the game machines or the online game for at least ten years in a safe medium allowing for the accurate reproduction of the stored data by the CGSC. The online gaming licensing procedure provides that the Minister of Finance shall publish a decision announcing a contest for licences for running online games of chance. The licences shall be granted following an international highest bidder tender procedure. Participation is open to capital companies with a paid-up share capital of at least €200,000 submitting a guarantee letter (participation bond) for €100,000 from a bank established and operating lawfully in Greece. In addition, websites used to host online games are under obligation to have a domain name ending in ‘.gr’. The Gaming Operations and Control Rulebook shall lay down the minimum content of the homepage for online gaming websites. If not all of the announced licences are awarded, those licences that remain shall be put out to tender again by the Minister of Finance after (at least) a one year period. The licence for running online games shall be valid for five years from the date of award. At least one year before the end of each valid licence, the licence-holder may submit an application to the CGSC requesting an extension for a period of time equal to, or shorter than, its term. No licences may be announced above the number for which

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iGaming Business European Legal OUTLOOK

the tender procedure was held, if within a five year period from the publication of this Law. No one company can have more than one licence, and licences are personal and non-transferable and the leasing or joint exploitation of a licence with thirdparties is prohibited.

In any case, licence-holders shall be legal entities whose registered offices or permanent place of establishment is within Greece and shall be taxed in accordance with the general provisions of Law 2238/1994 as in force at any given time.

Affiliated companies are prohibited. The Law provides that any ‘inter vivos’ transfer of shares in a company holding a licence for games of chance played on gaming devices equal to or greater than two percent of its share capital, shall be notified to the CGSC within a 15 day period from such transfer. If a transfer could lead to a direct or indirect change in control of the company, it will require the prior approval of the CGSC, and where no such approval is provided, the transfer shall not be deemed lawful. The same obligation to notify the CGSC applies when shares in the company are transferred on the basis of hereditary succession.

The Law requires that operators are obliged to cease all forms of activities in Greece for six months before they can apply for a licence Payments of the amounts bet and the payouts resulting from participating in games of chance shall be made through financial institutions with head offices in Greece. Licence holders’ account numbers shall be assigned a special code which shall be notified to the CGSC. Every banking transaction concerning online games of chance shall be independently recorded by the related financial institutions. The amount deposited in player accounts must, at least, be equal to the total amount which is credited to the online player accounts. If the amount deposited is below the total amount credited to the online player accounts held by the licence holder, the licence holder will supplement that shortfall within three days. The amount bet by a player to be able to participate in an online game of chance shall be paid to the authorised licence holder in a way safeguarding the identity of the player, in the manner specifically laid down in the Gaming Operations and Control Rulebook. Financial institutions whose registered

22 iGamingBusiness European Legal Outlook n

head offices are located in Greece in accordance with the general provisions of Law 2238/1994, as in force at any given time, are prohibited from making payments of bets and winnings from illegal online gaming providers named in the relevant ‘black list’ kept by the CGSC.

With this Act, Greece seems on a collision course with the EU, given that it favours the protection of Greek companies by providing a significant advantage to the Greek state owned gambling monopoly

are fully aware of the fiscal pressures on the Greek authorities at present, but they do not justify the imposition of anti-competitive tax provisions which benefit the existing monopoly gambling provider over private online operators soon to be licensed in Greece”.

It is true that the new Greek legislation may not be appealing, but we have to bear in mind the situation before this Law and after. Before the Law, iGaming in Greece was illegal; now, it is not, and it has been methodically regulated. Although offshore businesses may find many obstacles or complications when conducting gambling activities in Greece, it has to be noted that the country is an unexplored market with huge untapped potential.

Contemporary Greek legislation may appear unattractive for entrepreneurs; however, “Fortuna audaces iuvat” – “fortune favours the bold”.

Future forecast The Law requires that operators are obliged to cease all forms of activities in Greece for six months before they can apply for a licence, a requirement providing a hugely unfair advantage to OPAP. Greek officials stated that the privatisation of the state-owned online gambling monopoly will not occur; on the contrary, it may be strengthened and given an advantage over private companies.

With this Act, Greece seems on a collision course with the EU, given that it favours the protection of Greek companies by providing a significant advantage to the Greek state owned gambling monopoly. The European Commission objected that the Act is contrary to EU practices, given that it limits the presence of foreign companies in the country, because it requires each company wishing to operate in Greece to use Greek financial institutions for all of their transactions.

There was also heavy criticism over the fact that online gambling organisations are required to pay a 30 percent tax rate on gross profits while OPAP, being an offline organisation, will be exempt from such tax. Moreover, there is a ten percent tax on player winnings, while OPAP’s consumers are only taxed if their winnings exceed €100.

The first company to react against the Greek Law is the British gambling company, Betfair, having filed a complaint to the European Commission indicating that the Act is extremely protectionist and infringes EC legislation. Greece is expected to appear before the ECJ to face infringement proceedings. The Remote Gambling Association (RGA) has also questioned the legality of the new gambling legislation in Greece. Clive Hawkswood, Chief Executive of the RGA, said: “We

Constantinos N Couccoullis, is an Attorney at Law by the Supreme Court and the Council of State in Greece. He is the founder and the managing partner of the Law Offices Constantinos N. Couccoullis and Associates. He is legal counsel to banks, insurance companies as well as leading gaming companies and represents Greek and International clients in a full range of legal practice areas and issues, providing comprehensive solutions and legal information and support. His areas of expertise are: gaming law, tax law, corporate law, commercial law, M&A, banking and investment law. He is a General Member of the International Masters of Gaming Law (IMGL). He participates in international gaming conferences and writes articles to international gaming magazines. He is fluent in Greek and English.

Alexia Couccoullis has studied in the Faculty of Law at the University of Athens. She is a researcher of the Institute of Advanced Legal Studies, University of London, and specialised on the European Company (Societas Europaea) with a comparison focus to the legal systems of Greece, Cyprus and England. She is an Attorney at Law to the Athens Bar Association, and a partner of the Law Firm Constantinos N. Couccoullis and Associates.

She is independently active as a lawyer in Greece and Cyprus and is an Affiliate Member of the International Masters of Gaming Law (IMGL). She speaks Greek, English, German and French.

iGaminG BusinEss EuropEan LEGaL ouTLooK

ISLE OF MAN The current legal landscape The Isle of Man is one of the world’s foremost jurisdictions in regulating online gambling. The island is not just a Tier 1 licensing jurisdiction but is also home to premier software development companies, hosting companies and other companies servicing the online gambling industry. This success has come as a direct result of legislation passed during the last decade to facilitate the growth of gambling business on the island whilst at all times ensuring the protection of consumers. The Gambling Supervision Commission (GSC) is an independent statutory board established in 1962. The constitution of the GSC is set out in the terms of the Gambling Supervision Act 2010 and consists of a Chairman (who must be a lawyer or barrister) and four other members. The GSC regulates all forms of gambling on the Isle of Man, which includes both land-based and online operations. The GSC is statutorily charged under the Gambling Supervision Act 2010 to ensure that gambling is conducted in a fair and open way; to protect the young and vulnerable; to prevent gambling from being a source of crime or disorder or used to support crime. The GSC undertakes due diligence on new applicants, undertakes post-licensing reviews, ensures that player protection mechanisms are appropriate and investigates complaints from players. The GSC is the regulator of the online gambling sector on the Isle of Man and is not involved in the promotion of the sector. Rather, the Isle of Man’s Department of Economic Development is responsible for the promotion and development of online gambling on the island.

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Performing online gambling business in any jurisdiction requires an excellent source of advisers and service providers, so it is reassuring to potential online gambling companies that the Isle of Man is a Tier 1 jurisdiction with many excellent legal, accountancy and fiduciary firms available. The island’s IT infrastructure is world-class with leading-edge fixed and mobile telecoms networks, numerous disaster recovery and hosting facilities and highly-resilient bandwidth connectivity. Furthermore, it offers a number of economic benefits, from a zero percent tax regime to structured financial assistance for relocating businesses. For 2010/2011, the corporate tax rate for non-banking and non-property related companies on the Isle of Man (including online gambling companies) is zero percent (although duty is payable for online gambling companies).

There is no capital gains tax, no stamp duty, and no inheritance or succession tax on the island.

Furthermore, despite international economic turmoil, the island has retained its triple-A ratings from both Standard & Poor’s and Moody’s. The Isle of Man government and the private sector have worked hard to ensure that the island has a world-class infrastructure and full range of support services in place for the gambling industry.

The primary legislation regulating the online gambling industry is the Online Gambling Regulation Act 2001 (OGRA). In 2001, the Isle of Man government was one of the first jurisdictions in the world to introduce legislation specifically designed to regulate online gambling. Following further recent changes, the licensing and regulatory controls are now more responsive to the needs of

the gambling and online gambling industries.

It is also worth noting that the island has an adequacy finding by the European Commission in relation to data protection which aids the transfer of personal data in and out of the island under the eighth data protection principle. The island has its own data protection supervisor and its legislation (the Data Protection Act 2002) is based on Directive 95/46/EC of the European Parliament and of the Council of October 24, 1995, on the protection of individuals with regard to the processing of personal data and on the free movement of such data. Now accounting for five percent of the island’s economy, the online gambling industry was last year responsible for pumping £150 million into the local economy and employing approximately 700 people. The online gambling sector reportedly grew by almost 24 percent in 2010.

The GSC recognises the importance of having a clear licensing framework and clarity in relation to its law. Accordingly, in February 2010, new regulations were put in place which set out explicitly what actions amounted to licensable activity. The Online Gambling (Exclusions) Regulations 2010 make it legal for online gambling companies to locate their non-gambling related activities (such as marketing, administration, software downloads, customer support, and relay servers) on the island without the need for an OGRA licence. Operators that are not licensed on the Isle of Man can also make use of the island’s premier IT infrastructure in relation to disaster recovery services under the terms of the Online Gambling (Disaster Recovery) (No. 2) Regulations 2007.

Now accounting for five percent of the island’s economy, the online gambling industry was last year responsible for pumping £150 million into the local economy and employing approximately 700 people On July 20, 2011, the Online Gambling Regulation (Amendment) (Network Services) Regulations 2011 came into effect and further details of these regulations are noted in the following chapter.

Legal framework As noted above, the GSC regulates all forms of gambling on the Isle of Man. The GSC has a duty to protect the reputation of the Isle of Man but must also, where possible, ensure that the island’s online gambling companies can compete effectively throughout the world.

OGRA covers all online games, online betting and online lotteries:  that use telecommunications (phones, Internet, servers, etc); and  that involve players betting money (or money’s worth); and  that incorporate any element of randomness or chance.

In addition to compliance with OGRA, operators who intend to establish on the Isle of Man must satisfy the following criteria:  they must establish a Manx company;  they must have at least two local directors, who must be individuals and not corporate entities;  they must appoint at least one resident designated official, or where the designated official cannot reside on the Isle of Man, an operations manager;  they must register players on the Isle of Man and their servers, where the bet is struck, must also be on the island; and  gambling and trading accounts should be with a bank on the Isle of Man.

The online offerings below require OGRA licences:  sportsbooks  betting exchanges  casino games (roulette, blackjack, slots)  live dealing  peer to peer games (poker, bingo, backgammon, Mahjong)  mobile phone betting  financial trading (but not spread betting which would be regulated by the Island’s Financial Supervision Commission)  pari-mutuel and pool betting  network gaming  lotteries  certain spot-the-ball style games The foregoing list is not exhaustive and the GSC remains receptive to all proposals.

The Online Gambling Regulations (Amendment) (Network Services) Regulations 2011 (the Regulations), which came into effect in July 2011, introduced a further type of activity that can be conducted under licences granted by the GSC as they allow the operation of network gambling on Isle of Man infrastructure.

A network services licence must be obtained if the operator wishes to allow one or more foreign registered players on to its Isle of Man server without re-registering the player details. All of the benefits of a full OGRA licence are available to the holder of a network services licence (for example, a network services licensee could offer games directly to the world market and offer sub-licensing opportunities for its business partners in addition to offering its networks to foreign operators).

Under the Regulations, where a network services licence is held by an Isle of Man licensed operator, it may add a product which allows non-Isle of Man operators’ players to be supplied to the Isle of Man server without obliging the Isle of Man licence holder to register those players.

Such networks allow liquidity (i.e. the process of combining players from different sources and placing them in an environment where they can gamble against each other) by accepting the play from players registered with operators outside of the Isle of Man. Those foreign registered players, however, are not customers of the Isle of Man operator and remain customers of the relevant foreign operator. The GSC would insist on seeing the business to business contract between the Isle of Man operator and the relevant foreign operator to satisfy itself in this regard.

Contracts entered into between the Isle of Man network platform and foreign operators must include an appropriate commitment to game fairness, the exclusion of crime and the protection of young and vulnerable people. The foreign operators will be expected to operate Isle of Man (i.e. international) standards of AML/CFT and KYC in respect of any players they supply to the Isle of Man based network.

Operators who wish to include networks as part of their OGRA licence are required to operate their networks according to the relevant licence conditions imposed under the Regulations. These licence conditions will be specific to the running of network services and may include, for example, a condition that the network services operator must notify the GSC when it adds a network

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iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

services partner. The Regulations make changes to a number of regulatory requirements relating to player registration, the technical specifications of gambling systems and the fees structure. In addition to the specific licence conditions, the Regulations provide that an annual fee of £50,000 will apply to any operator wishing to offer network services. An annual fee of £5,000 will apply for every network partner on the network (that is, every operator that supplies players to the licence holder).

The operator of a network may advertise the network under the UK white list agreement but any foreign operators subscribing to the network do not subsequently have access to advertise into the UK market by virtue of their using an Isle of Man network. While there are established and successful network models which all fall under the network services licence, the format of the network model is deliberately non-prescriptive. While any

Isle of Man continues to address changes and developments in the online gambling industry, while a whole range of advantageous factors have consolidated the island’s reputation as a stable and dynamic base for online gambling business.

All of the online gambling operators that are licensed on the Isle of Man are required to comply with the mandatory licensing requirements. This includes the requirement to keep players’ deposits and winnings separate from the funds used by the operator to conduct its business.

The Isle of Man government actively encourages the development of gambling and online gambling business on the island. It remains committed to delivering a stable government and strong regulatory environment, supported by a wide range of attractive business benefits.

The Isle of Man’s Department of Trade and Industry and the GSC maintain a dialogue at all times on the changing needs of the online

model that sees foreign registered players taking part in gambling on Isle of Man servers requires a network licence to be obtained, the GSC will, in principle, consider any model that is put forward that can make use of the opportunities provided.

gambling industry and, if they find something inhibiting to growth, have the flexibility to change and amend regulations. Aware of being under the spotlight, the online gambling industry is compliant, co-operative and willing to embrace future developments. In addition, financial assistance is available through the Isle of Man’s Department of Economic Development for online gambling companies that are creating economic value on the island.

The Isle of Man will again host a major global summit on online gambling on November 22, 2011. The aim is to bring the online gambling sector’s major players and service providers together to discuss the island’s potential in the global marketplace.

The UK Department of Culture, Media and Sport (DCMS) announced plans to reform the UK Gambling Act 2005 on July 14, 2011. The DCMS announced that all online gambling businesses that wish to continue operating in the British market will be required to obtain a licence from the UK Gambling Commission. This announcement is in-line with long-held expectations that the UK would eventually seek to align their regulatory model with those that are currently emerging in Europe.

The Isle of Man is on the UK’s so-called ‘white list’ under the UK’s current Gambling Act 2005 and, therefore, Isle of Man operators are entitled to advertise their services into the UK. This system is set to be replaced when the legislation is amended, with operators already in a white listed jurisdiction receiving “an automatic transitional licence”.

Much of the detail of the new arrangements has yet to be determined and the timescale for

Future forecast The Isle of Man’s online gambling system is now in three tiers: network services licence, standard licence and sub-licence. The level of licence required is dictated by the type of business to business relationships a company intends to pursue and covers all gambling activities.

With the introduction of the Regulations within the strict licensing framework of an OGRA licence, Isle of Man operators can widen their offering and remain competitive whilst protecting the reputation of the island as a Tier 1 regulated jurisdiction.

The creation of the network services licence demonstrates the Isle of Man’s ability to keep pace with the dynamism of the online gambling industry without over complicating the licensing regime.

The Isle of Man’s Department of Economic Development’s focus in the coming years will be in the areas of IT/e-business, including online gambling in all its forms. Online gambling businesses are ideally placed to exploit this trend due to the island’s advanced telecommunications infrastructure, which has been modernised to the point where it is now able to meet the needs of any e-business. The Isle of Man is widely recognised as possessing one of the best IT infrastructures of any offshore jurisdiction in the world.

Licensing and regulatory legislation on the

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those discussions has yet to be announced. The UK and the Isle of Man enjoy an ongoing dialogue on gambling regulatory matters and the work to formalise the details of the new regime will simply be an extension of that relationship going forward.

The GSC has a good working relationship with gambling regulators throughout Europe and that relationship is important in ensuring that there is a comprehensive and constructive dialogue both at a regulatory and political level as more European jurisdictions look at regulating online gambling.

It seems clear that regulation at the point of the consumer is the way the sector is moving and the GSC can be instrumental in the formation of these policies by sharing its experience and practice with other regulators.

Claire Milne is a partner and leads the Appleby Isle of Man Intellectual Property and Telecommunications and Technology teams. Claire has unique insight into (and experience of) working within the gaming sector and has advised operators and technology companies for over 15 years, both in-house and in private practice. Claire has been accredited by the Law Society of Scotland as a Specialist in Intellectual Property Law since 2002. Claire has lectured on intellectual property matters for many years and was the co-author of the first book on intellectual property specifically for Scottish solicitors. Claire is also a contributor to the intellectual property section of the University of Edinburgh’s distance learning LLM programme.

Appleby lawyers are at the forefront of advising clients in the Isle of Man’s growth sector of iGaming. The team’s work and experience covers the spectrum of commercial legal advice you would expect, including: • commercial contracts • software development and software licensing agreements • regulatory advice • data protection • outsourcing issues • contentious and non-contentious IP rights • commercialisation of IP rights The group has also played a key role in the Isle of Man government’s working party tasked with delivering the island’s strategy and preparations for the IMF’s visit in September 2008.

Choosing the right offshore legal, fiduciary and administration services provider for your specific needs is crucial. You need a proactive and responsive team who are commercially focused, understand your sector, and can offer a fresh perspective.

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iGaming Business European Legal OUTLOOK

ITALY Recent developments in the Italian gaming industry In Italy, online and offline gambling activities are experiencing an intense and eventful. With regards to online gambling, ‘old’ licences have been made compliant with the directorial decree of February 8, 2011, and, in tandem, the tender for a maximum of 200 new licenses was launched. Each licence shall last nine years and charges go from €50,000 to €350,000 depending on the kind of game operators are applying for. At present, eighteen new licences have been granted.

Also, with article 24, dl n. 98/11 amended and turned into Law n. 111/11 (the so-called first financial ‘manovra’ measures), three new tenders have been provided for: 1) to manage slot machines under the terms of article 110, paragraph 6a and b TULPS, applications must be submitted by October 10; thirteen applicants have submitted their requests so far.

2) to license 7,000 horseracing and sportsbetting points of sale.

3) offline sports/poker gambling licences.

What follows is an overview of the tender to grant poker licences. Article 24 of Law 88 of 2009, paragraph 27, had provided for an inter-ministerial decree (Ministry of Finance in conjunction with the Ministry of the Interiors) to regulate “offline poker tournaments”; the same provision ruled the maximum amount of the ‘reasonable price’ of the tournament bet, the exclusion of profit-making methods and the possibility to re-buy once the first bet is exhausted – as well as a ban on organisers

28 iGamingBusiness European Legal Outlook n

holding multiple tournaments in a single day in the same place. In order to lead thousands of alreadyactive Italian poker venues back to legality (and ensure that these gaming activities are performed by reliable subjects) the Legislator has introduced n. 111/11 which states that: a) under the auspices of the General Director, the AAMS has issued a provision to regulate live poker tournaments and set the minimum bet and the way to re-buy once the first bet is exhausted.

The licensee shall pay a single tax rate equal to three percent of the collection – as in the skill games regulated by the “Bersani” decree. b) By November 30, 2011, a tender shall be called for to grant not more than 1,000 nine-year poker tournament licences; venues are licensed to those applicants who have submitted the highest offer starting from €100,000.

Paragraphs 36 and 37 of the decree-law n.

98, amended and turned into law 111/11, regulate the third and last tender. The Legislator aims to achieve “a remarkable integration between sports and horserace betting” and “a higher pervasiveness of the distribution network of these games without any distribution”. The integration between horseracing and sportsbetting could help those games that are linked to horseracing and that have been in crisis for many years. As to the control on the territory – the pervasiveness of the distribution network – it could act as a means to fight against unlicensed operators.

The call for tenders (the deadline for which was October 30, 2011) aims to grant “not more than 7,000 nine-year licenses to execute and collect money from horseracing and offline

In the wake of the US model, the decree-law n. 98/11 censures the activities connected to the transfer of funds to ‘.com’ operators sports gambling activities, where the marketing of public gambling products is a core business or sideline” and precisely: 1) 5,000 horseracing and sportsbetting ‘corners’, where the opening auction bid is a minimum of €25,000. The tender is reserved to Italian subjects and/or subjects belonging to the states of the European Economic Area that, dating from July 17, meet the reliability requirements requested of the horseracing and/ or sports gambling licence holders. The so-called offline gambling licensees will be deprived of their rights – similar to the scrapping performed for the last offline horseracing tender, ‘Giorgietti’.

By way of compensation, they will be entitled to a reduction of seven percent on the buyer’s premium for every year until the end of the present licence.

2) 2,000 horseracing and sportsbetting shops, where the opening auction bid is a minimum of €40,000. The tender is reserved to operators (Italian or residing in another State of the European Economic Area) with the reliability requirements granted to horseracing and sportsbetting (Bersani) licensees. No scrapping or discounts are foreseen in this case. The ‘manovra’ measures permitted the Authority to adopt all the measures to regulate gambling. Therefore, the AAMS is entrusted with full powers to pursue unlicensed operators.

In addition, in the wake of the US model, the above-mentioned decree-law n. 98/11 censures the activities connected to the transfer of funds to ‘.com’ operators; offline gambling centres connected to illegal operators will be obliged to pay taxes. Indeed, paragraph 29 of the decree-law n.

98/11 obliges credit card issuers, banking, financial

and post institutions to (electronically) notify the AAMS of those who issue money transfers to illegal gambling operators, listed by the Authority.

Sanctions (fines) imposed on these issuers and non-compliant operators vary from €300,000 to €1.3 million. The banning of unlicensed websites is still in force (directorial decree of January 2, 2007, regarding the “removal of the offer without authorisation, through a computerised network of cash games, lotteries, sportsbetting or tips”) enforcing the abovementioned decree. The list of all blacklisted sites, 3,510 in total, is published on AAMS’ website.

Lastly, in order to have an overarching outlook on the Italian gambling and betting system, we should also mention: a) Paragraphs 19-22 (gambling ban for minors) of the Decree-Law, implement rules to outlaw underage gambling (persons under the age of 18). The business, venue or point of sale owner that allows minors to participate at gambling was subject to a sanction of between €500 and €1,000, with the business being shut down for 15 days. In addition, minors less than 18 years of age cannot participate in gambling where money is won. The amended paragraph 21 now provides for tougher sanctions. Specifically, gambling by persons under the age of 18 is punishable by a fine ranging from €5,000 to €20,000 (previously from €500 to €1,000), as well as a 30 day shutdown of the business. Those who violate these rules three times in a given year will be subject to complete withdrawal of all licenses and/or authorisations.

The gambling business or venue holder is obliged to request all participants to prove their identities

and verify their age. The AAMS local office is entitled to apply sanctions to the relevant area.

According to paragraph 24 of the law at study, which has amended article 2 of the DPR n 252 of June 3, 1998 (“Regulation providing for the streamlining of procedures to issue anti-mafia communications and inquiries”), the scope of subjects under anti-mafia investigation is increased to include public gambling activities.

The following paragraph (25) does not allow the holders or legal representative who has been convicted preliminarily – or is under investigation or a defendant for crimes such as criminal association (art. 416 c.p.), mafia association (art.

416-bis c.p.), receiving of stolen goods (art. 648 c.p.), money laundering (art. 648-bis c.p.) or use of money, goods or benefits obtained through illegal activities (art. 648-ter c.p.) or, if occurring abroad, organised crime or money laundering coming from illegal activities – to apply for public gambling tenders or renew licenses.

That same prohibition is applied to those subjects where more than two percent of the capital or assets are held by a person who was convicted, is a defendant or is under investigation on account of the above-mentioned crimes. To that purpose, paragraph 26 rules that subjects that are shareholders participating in public gambling tenders must represent the name of the subjects who hold a share higher than two percent; exclusion from the tender can be imposed in any case of false representation. For existing licences, this representation must be submitted while applying for the licence renewal.

Lastly, paragraph 27 provides for the

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The Directorial decree of February 8, 2011, allows for the implementation of new online gambling licences, in addition to the integration of an online gambling licence agreement for those who are already entitled to online gambling provision enforcement of provisions, as under paragraphs 24 to 26, for the tenders at the enactment of the ‘decree under study’. A different treatment is foreseen for those who apply for a community licence by December 30, 2011. With regards to online gambling, which was partly mentioned at the beginning of this article, the Directorial decree of February 8, 2011, allows for the implementation of new online gambling licences, in addition to the integration of an online gambling licence agreement for those who are already entitled to online gambling provision.

The above-mentioned provision includes a crucial point: “From the hundred and twentieth day after the promulgation of this decree, the provisions of the directorial decree of March 21, 2006, published in the Official Journal n. 70 on March 24, 2006, and amended by the directorial decree of June 25, 2007, published on the Official Journal n. 163 of July 16, 2007, are no longer effective”.

A list of the documents to be submitted in order to apply for the new licence or to modify the agreement of present licensees (who must inform the Monopolies about their intention to continue with the online activity within 30 days) was published on the AAMS website on March 10, 2011, after the publication on the Official Journal of the directorial decree. All public gambling licensees have submitted their application for the “Procedure of integration of the licence agreement”.

The other part of the provision provides for the granting of licences (two hundred) under article 24, paragraph 13, letter a) of law n. 88 of July 7, 2009,

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to both new community subjects and those who already are public gambling licensees.

The deadline to submit applications is December 30, 2011. The object of the licence is the activities and functions to perform one or more of the following online public games, through the establishment and management of an online gambling network: sportsbetting; horserace betting; sports and horseracing tips and forecast; national horseracing games; skill games and card game tournaments; bingo; non-tournament card games, recently regulated by the directorial decree of January 10, 2011; fixed-odds betting with direct interaction between gamblers, recently regulated by the directorial decree of January 10, 2011; betting on simulated events; fixed-odds betting.

Mr Sbordoni is a professor at Università di Viterbo and adjunct professor at Italy’s Superior School of Economy and Finance and has spoken at many important conferences on gaming and betting. As a journalist, Mr Sbordoni cooperates with the major trade publication on betting in Italy.

Studio Sbordoni has an established reputation in the gaming and betting industry in Italy, as well as internationally, and is a consultant to the AAMS (Autonomous Administration of the State Monopolies) on matters of administrative law related to the gambling and lotteries industry.

The firm has played a substantial role in the introduction of bingo in Italy, in the re-organisation – including tenders – of the gambling licensing sector, in the privatisation of the instant and traditional lotteries and in the marketing of new pool games and lottery networks in foreign countries.

The firm has also been working on the harmonisation of Italy’s new Penal Code (articles 718721 on games of chance) with the existing gaming regulations (statutes and decrees), and on a project promoted by CNEL (National Counsel of Economy and Labor) and by the AAMS for the drafting and adoption of white papers on gaming in Italy Its practice includes: • Legal and business affairs advice and assistance to all major gaming licensees in Italy • Mergers and acquisitions • Amicable resolution and management of disputes • International arbitrations • Joint-venture agreements • Drafting law proposals on gaming and betting • Handling relations between main players and governmental agencies in introducing and • utilizing property rights on games and lotteries • Studies and research on new games projects (bets, lotteries and pool games).

• Technical and legal advice to all major gaming licensees in Italy and abroad.

MALTA The current legal landscape Malta was the first European Union (EU) Member State to fully regulate online gaming operators. The regulation of online gaming in Malta came into force in 2000 through amendments to the Public Lotto Ordinance , which was superseded by the Lotteries and Other Games Act (LOGA) in 2002.

The latter also created the Lotteries and Gaming Authority (LGA), which was to regulate the industry and oversee the operations of the industry players, as licensed by the same Authority.

On the April 20, 2004, the Remote Gaming Regulations (the Regulations) came into force. These regulations shifted the focus from regulation of the games being provided to regulation of the means in which the gaming is carried out. The new Maltese regulatory regime became both game neutral (therefore, applicable to all types of games, not merely betting operations) and technology neutral, (therefore, applicable to all types of technologies, namely Internet, mobile, telephone and other types of remote gaming).

Today, Malta has established itself as a regulatory hub for online gaming. The LGA has, to date, issued over 600 licences to remote gaming operators, making Malta one of the leading European jurisdictions within the sector. A number of Interactive TV and mobile gaming operators are also based and licensed in Malta. This success is largely due to the Maltese government’s policy, which favours the freedom to provide remote gaming services both in Malta and within the European internal market. Thus, whilst creating a solid regulatory framework aimed at ensuring that licensees carry out their operations diligently,

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Malta has also taken an open approach to licensing, with low barriers to entry, low licence fees and an expedient licensing process.

Additionally, the LGA has avoided taking a bureaucratic approach to the licensing of remote gaming operators, by adopting an industry-focused, practical attitude to the particular circumstances of each applicant or licensee, and by implementing measures to address issues which licensees may bring to their attention. One recent example of this is the fact that whereas it was previously mandatory for a licensee to keep its gaming servers in Malta, the LGA now accepts that a server be placed within a foreign jurisdiction, provided that certain obligations, as it may impose, are adhered to .

Remote gaming operators were quick to choose Malta even in view of its competitive tax regime. The current corporate tax rate in Malta is fixed at 35 percent. However, operators generally benefit from the substantially lower combined effect of these tax rates (often no more than five percent) by application of Malta’s refundable tax credit systems. As such, upon distribution of qualifying dividends by a Malta company, its shareholder(s) would be entitled to a refund (typically six-sevenths) of Malta tax suffered at the level of the Malta company on the profits out of which the dividends were distributed.

Furthermore, specific gaming taxes apply. These are subject to a tax-capping mechanism, limiting the gambling tax paid annually by any licensee to a maximum of €466,000.

Other factors which contribute to Malta’s success are the availability of state-of-the art infrastructure, specialised English-speaking professionals, membership of the European Union, political

stability, the presence of all of the major audit firms, a solid banking sector and over ten years’ experience in the sector.

The legal framework The main legal instruments relating to remote gaming in Malta are the Lotteries and Other Games Act and subsidiary legislation enacted under the said act, namely the Remote Gaming Regulations .

The Regulations establish four categories of licences, namely: Class 1 for operators managing their own risk on repetitive games, Class 2 for operators managing their own risk on events based on a matchbook, Class 3 for promoters taking a commission from promoting and/or betting games (including P2P games, poker networks, betting exchanges and online lotteries), and finally, the Class 4 licence which allows a licensee to host and manage online gaming operators.

In accordance with Article 5 of the LOGA, a game of chance or a game of chance and skill cannot be operated, promoted or sold by any person in Malta unless it authorised to be operated under any law in Malta. An exception to this rule is made if the game is authorised to be operated under any law enacted by a Member State of the European Union (EU), by a Member State of the European Economic Area (EEA), or by any jurisdiction or territory approved by the Authority.

The recent amendments to the Regulations, which came into force on the March 1, 2011, reiterate the same principle by stating that “no person shall operate or promote or sell or abet remote gaming in or from Malta unless such person is in possession of a valid licence issued by the Authority or is in

iGaming Business European Legal OUTLOOK

Recent changes to Maltese law have ensured that it is fully compliant with the principle of the freedom to provide services within the EU possession of an equivalent authorisation by the government or competent authority of an EEA Member State, or any other jurisdiction approved by the Authority”. Maltese law, therefore, clearly recognises a licence issued in respect of a remote gaming operator by another EEA Member State. In doing so, therefore, Malta’s policy and legislation upholds the principle of the freedom to provide services within the EU, as established under Article 56 (ex Article 49) of Treaty on the Functioning of the European Union (“TFEU”). As stated above, Malta also recognises a licence issued in respect of a remote gaming operator by a jurisdiction which falls outside of the EEA zone, but which is approved by the LGA. To date, no specific list of approved jurisdictions exists, however, the LGA is currently in the process of carrying out negotiations with a number of jurisdictions for such purpose. The flexibility allowed through the aforementioned provisions of law has the effect of a Class 4 licensee, which can host and manage other operators, can offer its services to operators licensed in other EEA Member States, without requiring them to undergo a licensing procedure in Malta; however, a fee of €1,500 is payable by the Class 4 operator, to the LGA, with respect to each operator that connects to its platform. Similarly, a remote gaming operation being carried out of a server located in Malta, if licensed by another EEA Member State, would not require a licence in Malta; however, the LGA would need to be notified of these circumstances.

The same cannot be said for non-EEA licensees wishing to connect to a Malta-licensed Class 4 operator, or with respect to a remote gaming operation being carried out of a server in Malta, if

licensed by a jurisdiction outside of the EEA. This is not to say, however, that such a situation or set-up cannot be considered. In these cases, a proposal is generally submitted to the LGA for specific approval on a case-by-case basis. The LGA may also impose additional conditions in such circumstances.

It is worth mentioning that in Malta, ‘intermediaries’ are not required to possess a licence from the LGA, although notification is required. An intermediary, also generally know in the industry as a ‘skin’, ‘affiliate’ or ‘white label’, usually partners up with a licensee for marketing purposes, and would generally refer traffic to the licensee’s website through a link on its own website. Such partners would be considered by the LGA to be outside the scope of licensing if it merely acts as an agent to the licensee, without having a direct with the player.

Thus, a licence is not required if the intermediary does not register players, manage players’ funds or undertake any gaming risk.

Future forecast Recent changes to Maltese law have ensured that it is fully compliant with the principle of the freedom to provide services within the EU. Furthermore, effective from June 2011, the LGA has also shortened the licensing process by integrating the previous two stages so that all documentation required must now be provided upon application, thereby, allowing the review of previous ‘Stage 1’ and ‘Stage 2’ documentation simultaneously. Further changes to the current Maltese regulatory framework, however, are not anticipated in the near future, given the fact that legislation in this field is both forward-looking and technology neutral.

Significant changes, however, are occurring across the European Union, as most Member States have recently begun to introduce legislation which restricts the freedom to provide remote gaming services within their territory. There are variations in the level and type of restrictions being imposed in the different Member States, however, the general principle behind most of the legislation is that it requires or will be requiring online gaming operators to apply for a gaming licence within that specific Member State in order to be able to offer remote gaming services within that jurisdiction.

The first issue that arises in this respect is that it is unclear to what extent these restrictions comply with Article 56 (ex Article 49) of the EC of the TFEU which lays down the general principle that restrictions on freedom to provide services within the European Community are prohibited. The lack of clarity results from the fact that Article 52(1) (ex 46[1]) provides an exception to this rule by stating that this “shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health”. In the context of the current European situation, this means that the laws of one Member State cannot prohibit a service provider in another Member State from offering services through the Internet in the first Member State, unless these restrictions are justified on the said grounds of public policy, public security or public health. The question being posed across the European Union, therefore, is whether or not the restrictions being imposed by certain Member States in the online gaming sphere are justifiable on such grounds.

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The Court of Justice of the European Union (CJEU) has unfortunately contributed to, rather than cleared, the uncertainty in this situation.

Generally, CJEU cases have understandably recognised various circumstances which could constitute overriding reasons to restrict the freedom to provide services in the public interest, such as the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gaming, as well as the general need to preserve public order. However, as the case-law of the CJEU has also made amply clear, these exceptions should always be considered in the light of the principle of proportionality and non-discrimination. In fact, a number of cases have held that the restrictions envisaged under Article 52(1) of the EC Treaty cannot go beyond what is strictly necessary to safeguard its citizens, and there must be a relationship between the concern which a Member State is seeking to address and actual dangers which their citizens are facing. At the other end of the spectrum, however, the CJEU has held that due to the high risk of crime, fraud and social consequences which exist in gaming, Member States are justified in imposing restrictions on the principle of the free movement of services within Europe to the extent that, in the absence of harmonisation of rules across the EU, one Member State is not obliged to recognise the operator of games licensed in another Member State. This lack of legal certainty is placing operators in a situation whereby they cannot take long-term decisions relating to their place of establishment or set realistic forecasts for their operations, also placing investors in listed online gaming operators in a very precarious position.

The other consequences of fragmentation of the European market for remote gaming services are unnecessary expense for operators (in terms of licensing fees, operational set-up costs, duplication of hardware, administration costs), uncertainty created through differing regimes, and administrative problems in reporting to various authorities in different ways. Consequently, the co-existence of differing national systems acts against the fundamental principles of competition, by creating a hefty and unnecessary barrier to entry to the online gaming market within the EU. The creation of national borders will, thus, reinforce the market power of the larger operators, thereby driving out smaller competitors, and resulting in less choice to consumers, lack of innovation and the possibility of abusive practices.

Another possible consequence of such barriers to entry could be that smaller operators, being unable to comply with the significant compliance

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costs, will be pushed ‘underground’ by taking their operations offshore, outside of the jurisdictional confines of the European Union, possibly avoiding the need for a licence altogether. The economic reality of the capital required to undertake a panEuropean marketing strategy will cause start-up operators to be indifferent to the regulatory regime and take their business models out of Europe with the intention of targeting the European market by using strategies that will circumvent any technological obstacles imposed on them, such as blocking of Internet Protocol addresses (IP addresses) within Member States. If this prediction materialises, the European gaming market may very well end up divided between the compliant ‘Big Boys’ on the one hand and the underground ‘Cowboys’ on the other.

It must be said that the most obvious motivating factor behind several Member States creating obstacles to the freedom of providing services across borders is the equitable attribution of gaming tax/duty and the loss of revenue that is experienced by a Member State when an operator based in another Member State offers its games to players residing or based in the first Member State. Such an issue may be circumvented with an open discussion between Member States focusing on solutions, such as the possibility of the splitting of gaming duty into two separate and distinct components to be apportioned between (i) the ‘home’ Member State where the operator is licensed, and (ii) the ‘host’ Member State where the player is situated. In this way, the jurisdictions willing to undertake the regulation of such online gaming activities would generate revenue to compensate for their regulatory efforts whilst the host Member State may control the consumption of online gaming services by adjusting the gaming tax/duty as it applies to all players situated within its political boundaries, just as it would apply tax over alcoholic beverages and/or cigarettes. It is submitted that the main difficulty with such an approach is the technology and controls that must be applied to ensure that the relevant components are duly accounted for and paid by the respective operators. However, the implementation of appropriate procedures for reporting and accountability should be achievable through the combined use of technology and tax collection procedures. The combination of such tax collection methodologies, together with an EU-wide sector-specific regulatory framework, which implements harmonised levels of consumer protection, fraud prevention measures, prevention of money laundering and responsible gaming measures, would go a long way in addressing the

various concerns of the individual Member States, whilst avoiding the unpleasant consequences or a fragmented European online gaming market.

Indeed, the first step in this direction has already been made through the recent Green Paper issued by the European Commission on the 24th March 2011 . At this stage, the outcome of the Green Paper is eagerly anticipated by industry players having an interest in the European gaming market, with a view to achieving certainty, sustainability of their business, and a legitimate way to a pan-European remote gaming operation.

Zammit & Associates – Advocates is a leading Malta law firm active in the areas of Corporate Law; Finance; Financial Services; Trusts and Estate Planning; Tax; Shipping; Yachting; Aviation; Technology, Media and Telecommunications (TMT); e-Commerce and iGaming; Competition/ Antitrust Regulation; Intellectual Property; Employment and Industrial Relations; Real Estate; Litigation and Arbitration; and Insolvency.

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CSB Group (est.1987) provides its clients with a spectrum of specialised business and commercial services offering a complete turnkey solution to clients wishing to set-up or relocate their business to Malta.

CSB’s areas of specialisation today are: Corporate and Trust; Business Advisory; Tax; Accounting; Recruitment and HR; Credit Risk; Relocation and Real Estate services. CSB also offers the following services: • Incorporation and re-domiciliation of companies; • Trust, Fiduciary and Escrow services; • Accounting, Payroll and Tax Administration; • Regulatory and Legal Consultancy; • Licensing of Financial, Investment services and iGaming; • Hedge Fund Registration; • Ship, Yacht and Aircraft Solutions; • Recruitment and HR Consultancy • Relocation and Residence Permits; • Serviced Office Space and Real Estate Services For further information, visit the firm’s website at www.csbgroup.com

THE NETHERLANDS Political struggles on the road to iGaming regulation In this article, I will briefly discuss the current legislation on gaming in the Netherlands and focus on current political developments. These developments are interesting given the Plenary Debate of September 7, 2011 (Plenary Debate) at the House of Representatives in which various Members of Parliament (MPs) demanded immediate enforcement against gaming operators who are targeting the Netherlands whilst not in possession of a local licence.

Legal landscape The Dutch Betting and Gaming Act (Wet op de Kansspelen, hereinafter ‘Gaming Act’) was introduced in 1964 and is still in place, numerous amendments notwithstanding. Under the Gaming Act, it is forbidden to provide an opportunity to compete for prizes and premiums unless a licence has been granted.

The only types of licences that are currently available include a single licence for the nationwide offline casino operation of Holland Casino, sportsbetting ‘Toto’, instant lottery ‘Krasloten’ (scratch cards) and lotto games ‘Lotto’ (all operated by Stichting de Nationale Sporttotalisator, trading as De Lotto), horserace betting ‘Runnerz’ (operated by Sportech Plc), ‘good causes’ lotteries (the Nationale Postcode Loterij, the BankGiro Loterij and the Vrienden Loterij, which are all operated by Holding Nationale Goede Doelen Loterij N.V.) and the Staatsloterij, the national lottery (operated by the Stichting Exploitatie Nederlandse Staatsloterij). Except for

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the amusement arcade sector for which each municipal government can issue multiple licences, all the aforementioned operators are monopolists within their respective sectors.

Given that the Gaming Act predates the development of the Internet, it does not contain any provisions permitting the current domestic operators to offer online services. Moreover, a gaming operator which offers games of chance or promotes such games in the Netherlands without a local licence is in violation of the Gaming Act. However, due to the presence of substantial online offerings over the last decade, the government sought a solution in order to transfer players from the illegal online circuit to a legal alternative.

This solution, a legislative proposal to amend the Gaming Act to allow one operator (Holland Casino) to offer their casino games online, was rejected by the Senate in April 2008.

Nevertheless, before the legislative proposal was introduced, the government had already provided a way for a limited number of the incumbent operators to offer their offline services online, namely via the ‘e-commerce’ route. According to the government, e-commerce is just another sales channel through which already existing services are offered. This has to be distinguished from online gaming which includes a much broader array of online gaming opportunities than an operator’s venue-based offerings and, indeed, may encompass gaming products which are purely software based.

Thus, in the current climate, online gaming is forbidden whereas e-commerce is allowed. The Dutch regulatory regime, and in particular the

sportsbetting monopoly of De Lotto, has been challenged in numerous legal proceedings by unlicensed operators wishing to gain a foothold on Dutch soil, even when proceedings were initiated against them.

Legal developments What is more, in the last decade, numerous European gaming monopolies, including the Netherlands, were challenged via preliminary rulings of the Court of Justice of the European Union (hereinafter ‘CJEU’). The CJEU rendered a preliminary ruling on Dutch betting cases Betfair (C-203/08) and Ladbrokes (C-258/08) on June 3, 2010, addressing the compatibility of the Dutch gaming legislation with the free movement principles of EU law which are fundamental to the internal market.

In the Ladbrokes case, the CJEU recognised that pursuing the dual policy objectives of protecting the consumer against gambling addiction and combating crime was complicating its own expansive gaming policy. The case has been referred back to the Supreme Court which has the task of establishing; (1) whether the Netherlands’ expansive policy is, in fact, aimed at channelling gamblers into lawful activities; (2) whether the Netherlands is pursuing a policy of substantially expanding betting and gaming by offering new games of chance; and (3) whether the unlawful gaming activities may constitute a problem in the Netherlands and, therefore, whether the expansion of authorised and regulated activities could solve such a problem.

On September 30, 2011, the Advocate General

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rendered his conclusion that the Dutch policy on games of chance is not incompatible with relevant aspects of EU law and advised the Supreme Court that the operator’s appeal should be dismissed.

The final ruling of the Supreme Court in the Ladbrokes case is expected at the beginning of 2012.

However, the case that stands out for its potential to influence the current gaming regulatory landscape is that of Betfair. Here, the CJEU clearly stated that the duty of transparency applies to the procedure for granting a gaming licence in a single-licence system, which essentially means that the licence award procedures have to be open to competition. In light of Commission/Italy (C-260/04), it has been argued that the transparency principle only applies to a multiple licensing system, however, the CJEU concluded in Betfair that duty of transparency is also applicable to a single licence system. Nevertheless, the CJEU also provided an exception to the applicability of the transparency principle in the highly contentious paragraph 59.

At this point, the Court holds that the absence of a transparent licensing procedure will not be disproportionate in cases where the Member State concerned decides to grant a licence to, or renew the licence of, a public operator whose management is subject to direct state supervision, or a private operator whose activities are subject to strict control by the public authorities.

The Dutch Council of State (Raad van State) had to rule whether this exception was applicable to the sportsbetting and horserace betting monopolists; ultimately it found, on March 23, 2011, that neither were subject to sufficiently strict control. Therefore, the renewal of the licences awarded in 2004/2005 for sportsbetting and horserace betting without any respect for the duty of transparency was held to be incompatible with EU law. Although the incumbent operators are still in place, the government has announced, within its policy note (as discussed shortly), that it will ensure that licences are awarded in a transparent and non-discriminatory manner so as to comply with the requirements of the Betfair decision.

Political developments A new government came to power in October 2010 which has considerably different ideas about regulating gaming than previous administrations.

This is emphasised in the policy note from the State Secretary of Security and Justice (hereinafter ‘State Secretary’) of March 19, 2011. The State Secretary announced an open licensing regime across all types of gaming. His intention is to

regulate online gaming products such as poker, bingo, casino, sportsbetting and horserace betting (expected 2012) and to liberalise the offline sector (expected 2015). Moreover, the policy note seeks to give effect to the current government’s objective of generating additional revenues of €10 million from online gaming and lotteries as of 2012. With this new policy, the government seeks to comply with the CJEU case law to allocate licences in a consistent, transparent and non-discriminatory manner. Additionally, compliance is sought with Markus Stoss (C-316/07) and Carmen Media (C-46/08) to ensure that there is horizontal consistency across the entire national market.

This means that Member States can no longer justify a monopoly on certain games of chance if they conduct an expansive policy regarding other games of chance which are characterised by greater risks of causing gambling addiction.

Before these intended changes can have any effect, the House of Representatives needs to be convinced that the objectives of the Dutch gaming policy – namely the prevention of addiction, consumer protection and combating criminality and illegality – will be protected. The initial goal to secure these objectives is the establishment of a Gaming Authority. Therefore, on September 7, 2011, a Plenary Debate concerning the revision of the Gaming Act with regard to the introduction of the Gaming Authority took place. Whilst the Plenary Debate was foreseen as a discussion on the bill introducing the Gaming Authority, the debate widened to many aspects of the government’s plans to regulate the online gaming market. Consequently, a total of eight motions were filed during the Plenary Debate of which six concern the various aspects of the plans to regulate online gaming and all were accepted

by Parliament on September 27, 2011. It should be noted that motions advance the particular preferences of MPs which, once passed by Parliament as whole, indicate that Parliament wishes that the government changes it policy on a particular matter. Should the government prefer to follow an alternative course of action, it will have to advance strong arguments before Parliament for diverging from the expressed preferences as contained within a motion.

The reason that MPs are showing so much resistance by filing these motions may be because they feel that the State Secretary is trying to modernise the regulation of gaming, including the implementation of a regime for regulating online gambling, too forcefully.

MPs who strongly favour the current incumbents, do not appear to like the idea

that operators without a local licence will not be punished for offering their services in the Netherlands over the last decade, and may, paradoxically from the MPs’ perspective, be rewarded with a licence in the near future.

Therefore, one of the most contentious points of discussion during the Plenary Debate was the enforcement of the prohibition of online gaming against gaming operators currently targeting the Netherlands without a local licence.

Future scope To follow-up on the policy note of March 19, 2011, the State Secretary expressed his wishes during the Plenary Debate to present a legislative proposal to amend the Gaming Act in March 2012. This proposal will seek to introduce a licensing regime for online gaming, and a legal basis for the enforcement of the prohibition of the unlicensed supply of gaming via the financial transaction blocking of blacklisted operators.

Furthermore, alongside the passage of the eight motions on September 27, 2011, the bill on the Gaming Authority was also passed by Parliament. The Gaming Authority will be tasked with issuing, supervising, enforcing and revoking licences. Although, the legislative proposal still has to pass the Senate before coming law, given that the Senate will primarily focus on technical aspects of the bill, it is likely that the legislative proposal will become law. Whether the Gaming Authority will become operational in January 2012 as planned is still uncertain due to the aforementioned motions. Likewise, it is probable that the whole process of introducing a regulatory regime for online gaming will suffer some delay.

Therefore, it cannot be said with any certainty that 2012 will be the year that online licences will be issued in the Netherlands.

Joris van Baren graduated with a LLM in Business Law from Utrecht University in 2010 having completed part of his degree at the Temple University Beasley School of Law in Philadelphia. As a member of VMW Taxand’s Gaming Team, his work principally focuses upon regulatory developments in Dutch and European gaming markets.

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ROMANIA The past Since the first legal deed in 1990, which allowed for the organisation of casino activities in Romania (by the Ministry of Commerce and Tourism), the Romanian government, over the following eight years, has issued several successive pieces of legislation that have drawn the boundaries of gambling activities in Romania.

After the government’s attempts to find the best solution for the legalisation of gambling activities, the legislations issued in 1998 (Emergency Governmental Ordinance no. 69/1998 regarding the authorisation of activities in the gambling field) and 1999 (Governmental Decision no. 251/1999 regarding conditions for authorisation, organisation and operation of gambling activities) appeared to have been implemented for the long-term. While the 1998 Ordinance was subject to modification up until 2000, the 1999 Decision remained unchanged until it was repealed ten years later.

The first real amendments to the system promoted by the 1998/1999 legislation were implemented in late June 2009, when Emergency Government Ordinance no. 77/2009 regarding the organisation and operation of gambling activities was published in the Official Gazette. At the end of July 2009, Government Decision no. 870/2009 was also published in the Official Gazette.

While EGO 77/2009 regulated six categories of gambling activities (lotto games; betting; gambling activities specific to casinos; slots games; bingo games and bingo games organised through TV networks), it expressly forbade the organisation of gambling activities through the Internet or Intranet communication systems, as well as through some

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other communication or similar systems (fixed or mobile telephony). Also, the new legislation enlarged the monopoly of Loteria Romana SA for the entire territory of Romania, from the organisation and operation of lotto games (already under state monopoly) to mutuel betting.

However, the main change brought about by the new legislation was the dramatically increased level of fees to be paid by the organisers of gambling activities in Romania, as well as their obligation to set a burdensome guarantee fund to cover the risk of non-payment of the obligations towards the state budget.

Moreover, according to EGO 77/2009, only Romanian legal entities may be granted the right to organise and exploit gambling activities, and solely on condition of payment of all obligations towards the consolidated general budget on the date of submitting the request.

A special note should be made that under Directive 98/34/EC, Member States must notify the European Commission and other Member States of draft regulations regarding products and Information Society services (such as online gaming and betting) before adopting them. However, Romania filed its draft gaming regulations nearly a month after the implementation of EGO 77/2009 (while the Ordinance came into force on June 29, the notification was filed on July 21), and only two days before GD 870/2009 came into force.

While based on information that was made publicly available, the European Commission has not opened any infringement case relating to online gambling legislation in Romania – it appears that the representatives of the European Commission have

made contact with the Romanian authorities in order to establish the measures to be taken in order to address this situation.

Probably as a consequence of the European Commission’s actions, on July 2, 2010, Romania notified the European Commission of a draft law for the approval of EGO 77/2009 on the organisation and exploitation of gambling activities.

The draft law maintained the requirement for the organisers of gambling activities in Romania to be legal Romanian entities, but has removed the ban on online gambling. Marketing, advertising, publicity or other promotional activities regarding online gambling or related activities that are not authorised in Romania, as well as the promotion, through permitted online gambling activities, of any services, means or activities that are forbidden, or (interestingly enough) are not regulated by the Romanian legislation, still qualify as minor offences and are sanctioned with administrative fines. Moreover, the draft law expressly prohibits Romanian people from gambling via unauthorised sites accessing the Romanian territory. Intriguingly, such act is qualified as a criminal offence and sanctioned by imprisonment for a period of six months to two years or a criminal fine.

Furthermore, on November 30, 2010, Romania notified the European Commission of the draft Governmental Decision amending and supplementing the Methodological Guidelines for application of the law approving EGO 77/2009 on the organisation and operation of gambling games.

The main point of interest for the online gambling industry was the fact that the draft Decision stated that, in order to be licensed to organise and operate

iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

The Romanian authorities are viewing the authorisation of gambling as an important source of income to the state budget online gambling activities, the applicant must hold, either directly or through a shareholder/associate, a licence to organise (and authorisation to operate) land-based gambling activities.

The Law was published in the Official Gazette on December 21, 2010, without major amendments to the draft notified to the Commission, while the Decision was finally adopted and published in the Official Gazette at the end of August 2011, again in-line with the proposal submitted to the European authority.

The present It seems obvious for anyone who is interested in the Romanian gambling market that the Romanian authorities are viewing the authorisation of gambling as an important source of income to the state budget.

Thus, conducting gambling activities in Romania is subject to a licensing and authorisation procedure, the requirements of which may prove difficult to meet.

First of all, the applicant must be a Romanian legal entity. Secondly, a separate licence must be obtained for each type of gambling activity that the applicant intends to operate. Each licence is valid for five years, subject to the payment of annual fees ranging between (approximately) €6,250 and €125,000.

In addition, the authorisation must be obtained annually and implies payment of fees ranging between (again approximately) €2,000 and €200,000, or, for certain activities, a fee expressed as a percentage of the amounts collected from the respective activity.

The organisers of gambling activities must also create a security fund, in order to cover the risk of non-payment of their financial obligations to the Romanian state.

On top of that, the applicant must have a subscribed and paid-up share capital ranging between €7,500 and €500,000, depending on the type of activity for which the licence is requested.

But this is not all – the legislation further imposes a minimum number of game means, locations or technical equipment for which an authorisation may be requested for land-based activities, as well as extremely strict conditions for online gambling.

In this context, it appears that as of 2009, the Romanian market is open only for the big companies that can afford to fulfil all these requirements, and still make money out of it.

Even so, the fees collected from the gambling operators appear to be insufficient for the authorities, who have also decided to charge an additional fee from the participants. Thus, a 2010 amendment to the Fiscal Code has introduced the obligation of organisers of gambling specific to casino activities and slot machine-type gambling to collect an access fee from their gamblers (by means of an entrance ticket) which will be paid to the state budget.

In addition to the pecuniary obligations imposed by the law, the secondary legislation currently in force provides the full procedure for applying for a licence and authorisation for gambling activities in Romania.

While for land-based activities the market is quite settled, for online gambling things are not so simple. Parties interested in entering the Romanian online gambling market should be aware

that the new secondary legislation imposes specific requirements for the applicants. The first and most important – indeed, the one that appears to be making the difference in the short to medium-term – is the requirement to hold a land-based licence.

Thus, the legislation requires that an applicant for an online gambling licence/authorisation holds, either directly or through a shareholder/associate, a licence to organise and authorisation to operate (i) gambling specific to casino activities with at least 20 authorised tables; (ii) slot-machine games, having at least 500 posts; (iii) fixed odds betting having at least 100 agencies; or (iv) bingo games organised through television network systems.

Considering the above, it appears that, at least for the moment, the gates of the Romanian online gambling market have opened only for operators already licensed and authorised in Romania for land-based gambling activities. A legitimate question arises in relation to the landbased requirement: is the Romanian government voluntarily rewarding the loyalty of the operators already paying gambling fees to the state budget or has the lobbying of the incumbent gaming organisers finally paid off?

Another requirement for applicants is to have a fully concluded monitoring agreement with an authorised monitoring and reporting operator.

The agreement must be concluded in accordance with, and approved by, the Commission authorising gambling activities within the Ministry of Public Finances. Also, the applicants must have specialised personnel with training and a minimum of three years’ experience in the field of information technology.

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iGAMING BUSINESS EUROPEAN LEGAL OUTLOOK

And the long list of requirements continues with other general, financial or technical requirements that the gambling operator must observe when applying for a licence.

Among the many obligations imposed by the legislation on the monitoring and reporting operators is the requirement to identify those websites offering access to online gambling without a Romanian licence, as well as the websites which, through marketing, advertising, publicity or other promotional activities, are offering links to online gambling or activities/services related thereto, who are unauthorised under Romanian legislation. This information must be immediately communicated (i) to the Commission authorising gambling activities; (ii) to the Internet Service Providers in order to block access to these websites; and (iii) to the state institutions and bodies competent in this field, in order to block payments to and from these unauthorised websites. In case the ISPs do not block

gambling operator must suspend its activity and immediately inform the Commission authorising gambling activities. Thus, no monitoring operators… no online gambling operators.

The legislation generously says that monitoring and reporting of online gambling shall be performed either by (i) economic operators authorised for a period of five years, or (ii) by a state institution or authority whose competencies shall be provided by subsequent legislation.

However, considering that, so far, no state institution or authority has been assigned the monitoring obligation, everyone’s attention turns to the private monitoring operators. Still, the requirements that the monitoring and reporting operators must fulfil in order to be authorised for this activity are quite stringent. For example, the operator must be either a Romanian legal entity having, as its object of activity, services from the CAEN (Classification of the Activities from the

access to the websites as requested, the monitoring and reporting operators must immediately notify the Commission authorising gambling activities.

The future of online gambling in Romania continues to be uncertain. But that’s another story…

National Economy) group 620 – “Information technology services”, and a minimum subscribed and paid-in share capital of approximately €500,000, or a legal entity set up in a European Union (EU) Member State or in the European Economic Area (EEA). Also, it must have its technical equipment located in Romania and must have at least three years of experience in providing similar services to regulatory authorities or governmental agencies within the EU or the EEA, acquired directly or indirectly, through their own personnel or collaborators.

However, the Romanian authorities appear to have understood that the requirements they have imposed are rather difficult to meet, and, in order not to artificially block the Romanian online gambling market, they have exempted legal entities already authorised for similar activities in another EU or EEA state from fulfilling the aforementioned requirements. Nevertheless, if originally limited in scope, such authorisation obtained abroad is recognised in Romania only within the same limits granted in the respective states, namely for the monitoring of the specific type of gambling for which it has been issued in the country of origin.

However, for the moment, it is still unclear whether the Commission authorising gambling activities shall issue a formal authorisation based on that issued in another Member State. So while we await the input of the Romanian authorities, the authorisation issued in this Member State shall be automatically recognised and considered valid in Romania.

Last, but not least, only time will tell if the effective supervision of the ‘grey’ market by the monitoring operators can really become more

The future The most interesting aspect of the future seems to belong, as expected, to online gambling. Apparently, in a market interdicting online gambling, Romanian residents gambled around €500 million per year online, and iGaming activities were openly advertised in Romania through varying means of communication, including television, websites and outdoor and printed advertising.

However, before the first online gambling licence is issued in Romania, some questions have to be answered.

First of all, when imposing the land-based requirement, the legislation does not appear to require that the applicant applies for an online gambling licence, only that the gambling activities are also licensed and operated terrestrially. Nevertheless, we cannot exclude the risk that, in practice, the Commission authorising gambling activities within the Romanian Ministry of Finance gives a personal interpretation to this requirement, in the sense that one may only apply for an online gambling licence for the activities also licensed terrestrially. We can only wait and see.

Furthermore, as already announced by the primary legislation promoted at the end of 2010, no online gambling organiser can legally operate in Romania without supervision from an authorised monitoring and reporting operator. In case its activity is not monitored, irrespective of the grounds, the

40 iGamingBusiness European Legal Outlook n

than just the wishful thinking of the authorities; if unlicensed operators’ access to Romanian IP addresses shall indeed be effectively banned; and whether the Romanian state shall actually put in practice what currently is just a threat – i.e., criminal liability of persons gambling from Romania with unauthorised online gambling operators.

Ana-Maria Baciu is experienced in all aspects of Romanian gambling law, being one of the very few experts that Romania currently has in this area of law. As partner at Nestor Nestor Diculescu Kingston Petersen law firm, she is heading a strong team that provides legal guidance to on-site as well as online casinos, and other participants in the virtual gaming industry, with respect to all regulatory matters in this field. Ana-Maria is a regular contributor to specialised publications and also a lecturer on gambling matters.

At Nestor Nestor Diculescu Kingston Petersen we have created what twenty years ago seemed nearly impossible in Romania: a law firm combining Western-quality legal services with in-depth knowledge and understanding of local practices. With offices in Bucharest, Timisoara, Cluj-Napoca, Brasov and Craiova, we offer full-service and integrated legal assistance to companies in Romania and abroad. Our team, which comprises 150 attorneys and counsellors and 80 employees in the support departments, brings together some of the best business lawyers and litigators in Romania, who had an emblematic contribution to the development of the legal profession.

Over the past ten years, we were ranked first in the practice areas researched in Romania by some of the most reputed international legal publications (Chambers & Partners, The European Legal 500, IFLR 1000). Our Gaming practice has emerged as a result of the increased interest of the main gambling operators in the Romanian market and has been rapidly expanding, especially over the last four years.

The lawyers in this practice have substantial crossdisciplinary experience and their expertise in gaming legislation grew by constant collaboration with well known companies acting in the gaming industry, both local and international, as well as with international law firms specialised in betting and gaming. In response to our clients’ need for advice in this area, our experienced team of lawyers provides assistance on all gaming matters, including organisation and exploitation of gambling activities, online gambling matters, gambling advertising, as well as joint venture agreements between private and public entities for organising and exploiting state monopoly gambling activities, advertising lotteries and other gaming/ promotional activities.

SPAIN Introduction As provided by Law 56/2007, on ‘Measures to Promote the Information Society’, which stated the need to draft a law covering the new gaming regulatory aspects such as the granting of licences, taxation, infractions and penalties, etc, the new gaming law has, finally, been passed in Spain.

Among other issues, this new law regulates online gaming. Certainly, since the old legislation was clearly obsolete and in view of the spread of new technologies, such as online gaming, it was necessary and essential to agree on (and draft) an online gaming law. It has been a law marked by confrontations during its development. Firstly, between the several Spanish political parties, and especially between the two main parties – the social democratic Partido Socialista (PSOE) and the centre right-wing Partido Popular (PP) – and, secondly, between the online and offline operators. Proof of this second confrontation is the lawsuit brought by Codere, one of the largest Spanish offline operators, against bwin.

Gaming jurisdiction in Spain In Spain, there is a distribution of jurisdiction between the state and the 17 autonomous communities. To understand the way in which the new law will be developed and administered, we must point out that in Spain, the autonomous statutes have bestowed exclusive jurisdiction on gaming and betting upon the autonomous communities. The sole exception is SELAE (the State Lottery) and what is known as pari-mutuel sporting-charity bets.

Exclusive jurisdiction means that the

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autonomous communities have the absolute power to fully develop and administer gaming and betting. The conferring of jurisdiction alone is an important fact, but in relation to gaming, its importance increases due to the fact that the collection of the generated taxes will be exclusively for the autonomous communities, even though there are several cases in which the state will be the collector, to later transfer the collected amount to the autonomous communities.

urgent procedure, which shortens the process by 50 percent. The draft law was intended to adjust the state legislation to the new landscape formed by several electronic gaming activities that have emerged in recent years, and which have been developed and carried out in circumstances not complying with the principles of security, transparency, reliability and integrity essential to those activities focussed on operating the gaming services.

Drafting and approval of the new gaming law

Law 13/2011 (on gaming regulation)

Draft bill The purpose of the draft bill was to ensure the protection of public order, the fight against fraud, the prevention of compulsive behaviours, the protection of children’s rights and the safeguard of user’s rights, in addition to laying the foundations for legalising those companies who were operating in Spain in an irregular situation.

In September 2010, the draft bill was announced, revealing the unknown future of online gaming in Spain. It was not a prohibitive legislation, as in the United States, or based on monopoly, like in Germany, but one to liberalise the sector. Yet, it is not without its restrictions, in the sense that anything that is not regulated is forbidden.

Draft law At the beginning of February 2011, the draft gaming law was brought before the Spanish Parliament and its corresponding processing was approved. The draft law was processed as an

Finally, the Spanish Parliament passed Law 13/2011 on gaming regulation. More than a hundred amendments were included during the processing of the draft law in the Chamber of Deputies and the Senate.

We may possibly be looking at one of the most current laws in Spain, given that the law provides the regulation of gaming activities carried out mainly through electronic, interactive or computer channels and deals with matters like betting through mobile phones or the Internet without disregarding the more traditional gaming modalities such as bingo and casino. In addition to tidying up the sector, the regulation aims to prevent against money laundering and reinforces the legal security of operators and users and the welfare of children, those who are legally disqualified to play and those who have voluntarily requested to be legally disqualified.

By setting this legal framework through the new gaming law, the Congress and the gaming industry expect to put an end to this existing legal vacuum in relation to online gaming in Spain.

iGaming Business European Legal OUTLOOK

Main aspects of the new gaming law Regulator The supervising body is the Comisión Nacional del Juego (National Gaming Commission), which controls the operators’ activities. Said body will coexist with the Consejo de Políticas del Juego (Council of Gaming Policies), a more political body, in which the autonomous communities and the state will be represented.

The Comisión Nacional del Juego will establish the requirements for the operators to be able to operate and advertise in Spain. It will also regulate the sponsorship of sporting events on which there will be betting activity, gaming advertising in the media and television quiz shows.

The Consejo de Políticas del Juego will be the body coordinating the participation of autonomous communities and the state in gaming matters. It will also be in charge of developing the basic regulations of the several gaming products or the basic regulation of occasional games, amongst others.

Licences According to the new law, the execution of gaming activities in Spain is subject to previously obtaining the relevant licences. The licences obtained in other countries, even other countries that are members of the European Union, will not be valid in Spain. This means that all of those operators who have been operating in Spain until now will have to obtain a Spanish gaming licence.

The relevant body granting the necessary licences to carry out gaming activities in the Spanish territory is the Comisión Nacional del Juego. The law points out a difference between occasional gaming activities and non-occasional gaming activities. The former requires a permit, according to a process which is yet to be developed.

The non-occasional games are subject to a double licence system, which has been another critical issue during the processing of the law. Therefore, those operators wanting to carry out these kinds of activities will have to obtain a general licence, allowing them to offer a certain gaming modality (betting, raffles, contests and other games), and a specific licence, allowing them to offer a certain type of game, within the general licence previously obtained by the operator.

General licences will be granted by means of a tender process promoted by the Comisión Nacional del Juego or any other interested party, and will be valid for ten years and extendable for an identical period of time. Specific licences, in turn, will have a minimum one year and maximum five year duration, again extendable for identical

periods of time. Despite the fact that the number of licences is not limited, the requirements in order to obtain them are complex and, therefore, not all operators may be able to achieve a licence.

The surety amounts being considered range from €1.2 to €2.2 million for general licences, in addition to a surety for specific licences which is yet to be defined.

Taxation The issue of taxation was significant, because if the regulation was not right and the Spanish tax rate was set above the European average, users would choose to play across borders, the foreign companies would not feel compelled to locate in Spain, and the Spanish companies would be competing at a disadvantage, therefore, hindering their development, and, in general, the whole Spanish online gaming market.

For this reason, taxation has been one of the most criticised elements of the draft law and has stirred many debates between the government and the gaming industry. The problem lay in the taxable base on which the new tax for gaming activities would be calculated. Thus, the government first suggested that the taxes were calculated on gross income, whilst the gaming sector requested that the taxes were calculated on the net income earned by the companies after deducting the amount given away in prizes. The gaming companies and the government fought an arduous battle and, finally, the government made the decision to set two taxable bases according to the gaming model: Taxable base made up by gross income.

Taxable base made up by net income (once the amount given away in prizes has been deducted).

Depending on the gaming model, one or the other will be applied and each type of game will have a different tax and all will have to pay taxes except for the state lottery games. In the case of the straight or simple sporting bets, the ones accessed via the Internet, for example, will be taxed at 25 percent of net income, as will ‘place bets’ and online poker.

On the other hand, pari-mutuel horseracing bets will support a 15 percent tax rate on gross income, while raffles and contests will be at 20 percent of gross income.

As per tax payment, the operators are directly responsible and those offering gaming activities to people with tax residence in Spain, by any means, as well as those earning profits from the development of gaming activities, will be jointly and severally responsible.

On the other hand, to avoid such joint and several responsibility, the parties involved

will have to prove that the operators own the necessary licences to organise said gaming activities. The range of people and companies who can be considered to earn profits can be broad (advertising companies, the media, software developers, lawyers, auditors, suppliers, etc). This universal manner of making anyone who takes part in the value chain of gaming jointly and severally responsible seems to overstep the mark, and one can only hope it will be better defined in further regulations.

The Ministerial Decree EHA/1881/2011, of July 5, 2011, which regulates the general conditions and procedure for submitting form 763 (the personal payment of the new tax on gaming activities in the case of annual or multi-annual activities) has already been approved.

Some key issues are that those obliged to pay the tax are entities that operate, organise or develop annual or multi-annual taxable gaming activities, that the tax return can be submitted by oneself or a third-party on one’s behalf, and that the term for submission is quarterly and must be done during the following month to the end of each quarter in a calendar year.

Tax distribution Taxation and distribution of tax income between the state and the autonomous communities has been one of the main obstacles to overcome when laying the foundation of the new gaming regulation in Spain, and has been one of the reasons for the delay in the presentation of the draft bill of law by the government.

Each autonomous community will collect the taxes generated by the users playing in their territory, whatever website they use, provided that it owns the necessary licence to operate in Spain.

In turn, the state will collect the taxes generated by the users playing via websites of licensed operators from outside of Spanish territory. The state will also collect the taxes on the pari-mutuel sporting-charity bets, the pari-mutuel state horseracing bets and, lastly, it will retain monies for paying administration expenses and the regulation body.

Penalty regulations and advertisements The law makes a distinction between minor, major and serious infractions with penalties reaching €50 million, in the worst case scenario, for operating without a licence, for example.

Operators engaging in any means of communication showing advertisements directly related to gaming will have to hold the necessary

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iGaming Business European Legal OUTLOOK

licences issued by the Comisión Nacional del Juego. In the event of advertising, an operator lacking said licence will be penalised. The penalty regulations will come into force on the date of publication of the resolution of the first procedure for granting licences or, at the latest, on January 1, 2012.

Likewise, all sports sponsorships and advertising by gaming operators signed prior to January 1, 2011, also have a transition period so they can continue with the same agreed terms and for operators to update their activities in Spain in the terms fixed by the new law.

This transition period was requested by the operators in view of the problems in adapting their current situation to the requirements of the law, and it was granted because there are several online operators in Spain, and expecting them to suddenly stop operating once the law came into force could have been pernicious for many players who have accounts with such operators.

Loterías y Apuestas del Estado (SELAE – State Lottery) y Organización Nacional de Ciegos Españoles (ONCE – Blind Persons’ National Association) Both operators are those designated for marketing lottery games regulated by law. Neither is obliged to obtain a new licence in order to offer the services they had been marketing until the passing of the new law. Nor are they obliged to pay the new tax on gaming activities.

This privileged position has come in for criticism from the gaming sector which is challenging, amongst other aspects, that SELAE and ONCE have reserved the lottery market exclusively for themselves, and no private operator will be able to compete, as well as the lack of definition by the text of the law about what can be considered as ‘lottery’.

Online and offline gaming sectors During the processing of the law, several protests have been filed by offline operators targeting the preferential situation of the online operators, accusing them of having a beneficial position due to the activities carried out in past years, which they have branded as illegal.

The offline gaming sector argues that the new gaming law does not include any measures to eliminate the advantage the online operators have achieved whilst operating without paying taxes in Spain due to the lack of regulation, and that these companies should delete their client databases and start from scratch. Some even

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support the possibility of requesting the online operators to amend their tax obligations from profits earned whilst operating ‘illegally’.

The online operators have always defended themselves by claiming their situation was not regulated during the time before the passing of the new law and, therefore, consider their previous situation as ‘extralegal’ and not ‘illegal’.

These conflicts between the online and offline operators have triggered legal actions such as the aforementioned lawsuit brought against bwin by Codere, which is still pending resolution.

Predictions for the future Currently, the (several) regulations shaping the new gaming law in Spain, which will comprise the rules to regulate each specific gaming model, are being drafted. The prediction is that in the coming weeks, the current projects will be developed and approved.

Regarding the granting of the licences, it is expected (at the time of print) that the first procedure for obtaining licences will be announced by November this year, and that by the end of the year, or the beginning of 2012 at the latest, we will be able to see the launching of the first licensed operators according to the new law. It seems that the first games to be licensed will be sporting bets (pari-mutuel and straight), horseracing bets (pari-mutuel and straight), bingo, and games such as poker, blackjack and roulette. Regarding other games, such as online slots, the wait will be longer. In any case, the calendar is ambitious, because, first and foremost, the regulations of the law must be approved as well as the terms and conditions governing said procedures for obtaining the licences.

In any event, the upcoming General Elections in Spain, scheduled for November 20, 2011, raise some uncertainty about such predictions, because everything points toward a change in government, from PSOE to PP, who would achieve a clear majority in the Spanish Parliament.

This perspective of change obviously influences the desire of the current government to approve the gaming regulations before the General Elections take place. However, recently, it has become evident that the government’s intention to privatise 30 percent of SELAE in spite of PP’s firm opposition was a fiasco. The lack of interested investors due to the selling price has discontinued the operation, which would have represented the largest privatisation carried out in Spain.

Xavier Martí is the manager partner at Marti & Associats. A lawyer and economist, Bachelor of Laws and Economics by the University of Barcelona, Xavier has studied at the University of Strasbourg and the College of Europe in Bruges and is a Member of the Barcelona Bar Association and the International Association of Lawyers. He formerly worked in Arthur Andersen and was partner in Peat Marwick in Barcelona and is one of the founding partners of Marti & Associats since 1986.

His professional experience spans more than 35 years, specifically in Taxation Law, Commercial Law, Financial Law, amongst others, such as the gaming industry, where he has been involved in the procedure of the new Spanish Gaming Law and is currently close to all developments regarding the gaming regulations. He held the post of President at the International Alliance of Law Firms. Xavier is a frequent conference speaker and has also been an arbiter in national and international procedures in the International Court of Arbitration.

Martí & Associats is a firm of lawyers and consultants located in Barcelona, dedicated to providing the highest expert advice to companies and private individuals. The firm is the Spanish member of the International Alliance of Law Firms, an international legal network which allows the firm to maintain links and contacts with companies located around the world.

The firm follows the developing legislative processes very closely, by which it can be informed about the probable future regulation on a matter. The firm endeavours to maintain a direct and close relationship with the decision-making sources of the Administration and the various economic sectors, including gaming, as well as with those professional associations or interest groups involved in more diverse areas. In this sense, some lawyers of the firm have a long and consolidated experience in lobbying activities.

The professional services Martí & Associats renders can be divided into different areas of expertise, among them, the department devoted to entertainment, sports law, sponsorship and gaming.

Other areas of expertise include commercial; corporate; taxation; accounting and finance; labour; intellectual property; competition law; e-commerce and data protection.

With this scope of professional practice, Martí & Associats can assist operators, service providers and other agents in the gaming industry with the fulfilment and compliance of the new gaming regulation passed in Spain in 2011. In this sense, the firm advises, among others, on gaming licensing according to the new Spanish regulation.

THE GAME HAS STARTED IN SPAIN… PLAY WITH

THE WINNING LAW YERS

M A R T I & A S S O C I AT S L AW Y E R S A N D C O N S U LTA N T S Av. Diagonal, 584, principal | 08021 Barcelona, Spain | +34 93 201 62 66 www.martilawyers.com | bcn@martilawyers.com

iGaming Business European Legal OUTLOOK

UNITED KINGDOM The new UK licence requirements The Gambling Act 2005 (the Act) came into force in 2007 and was hailed as a model for the rest of the world in terms of liberalising the UK gambling market in a socially responsible manner and in accordance with EU law. The Act created the Gambling Commission, which is responsible for all commercial gambling in the UK, including remote gambling. However, the Act has failed to attract online operators to apply for a UK gambling licence. Additionally, the UK’s ambition to lead and be an example for the liberalisation of the European online gambling market has not been realised.

With recessions and failing EU states at the doorstep, governments tend to become taxinventive and it is therefore no surprise that the UK is the latest to adopt a national licensing regime regulating online gambling on a ‘point of consumption’ basis – all for the protection of consumers, of course.

In a way, the UK has nothing to lose and the UK Gambling Commission has only a few online licensees to upset, as most large UK online gambling operators have already retreated to tax friendly offshore locations. The Gambling Commission estimates that 75 percent of remote gambling carried out by UK residents is with operators located overseas. With the continuing ‘mania’ concerning tax, the UK government will have to wait and see if the new licence requirements will bring the ‘old boys’ back home.

What is clear, however, is that the new licence requirements are really a national licensing regime, similar to the French and Italian models: if

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it looks like a duck, swims like a duck and quacks like a duck, then it probably is a national licensing regime. In a way, the introduction of a UK national licensing regime is a natural consequence of market dynamics.

The white list What previously set the UK apart from other European states were its grand gestures towards ‘white listed’ jurisdictions, which allowed nonEuropean Economic Area (EEA) mini states to target the UK market for free. The UK’s open door policy, coupled with the tax friendly environment of white listed jurisdictions, is seen by many as the UK’s main Achilles heel. Regardless what online gambling operators may argue, the UK’s tax regime is still highly competitive when compared with its European counterparts and the UK could have become the leading gambling jurisdiction and European gambling centre. However, with the gates wide open to tax friendly white listed jurisdictions, the UK has, in effect, sealed its own gambling destiny. HM Treasury cannot compete with a zero percent corporation tax or scrap VAT altogether and, therefore, it is no surprise that the white list will be phased out.

Although the current white list will be a thing of the past, the UK Gambling Commission will be permitted to recognise regulatory good practice; consequently, businesses in ‘trusted’ white listed jurisdictions will have a much lightertouch approach and will not have to duplicate regulatory work. In addition, white listed and EEA licensed operators will be given a grace period and a transitional UK licence to allow them

uninterrupted trading before the UK Gambling Commission takes over. This seems to be fair to operators in white listed jurisdictions, however, it is unknown whether the friendly ‘transition’ will incur tax and other disclosure liabilities vis-à-vis the UK Gambling Commission. It could be argued that the white list, with all its tax competitiveness, and ability to freely access the profitable UK gambling market, has cut off the hand that feeds it. The UK Gambling Commission, if it wants to be taken seriously, must have a degree of control over online gambling services offered to UK residents.

Unfortunately, this can only be done with a national licence. It is still arguable whether the UK would have ever followed the European trend, were it not for the white list tax-leak, but things in the online gambling world move so quickly that it is pointless to dwell on the past because the next levy is already around the corner.

Europe With national licensing regimes being the flavour of the day, European law for online gambling has become an irrelevance. Memoranda of Understanding between EEA Member States only highlight the on-going European fragmentation.

With all these developments in mind, it is no surprise that the UK, similar to Denmark, may look beyond European borders altogether and offer its online gambling licences to “anybody based anywhere in the world who wants to sell gambling services to any consumer based in the UK”… That would be interesting. And if it applied, what would then be the advantage of being or remaining in the EEA? The only advantage so far appears to be a

The rates of tax in Italy and France are considerably higher than the current tax rates in the UK; however, once the UK adopts the national licensing approach, remote gaming and betting duties would no longer be the decisive factor smoother transition before the UK national licence is introduced, otherwise, it is difficult to see what else would keep operators in Europe if the white list is passé.

It is worth noting that the rates of tax in Italy and France are considerably higher than the current tax rates in the UK; however, once the UK adopts the national licensing approach, remote gaming and betting duties would no longer be the decisive factor, because online operators would be required to pay these in different jurisdictions, depending on where the players are located.

What will be a decisive factor is which country offers the most cost effective base for online operators and where labour costs and tax rates are most favourable. Most other industries in the EU have witnessed similar migrations in similar scenarios: witness the German car industry, which now produces most of its components in Eastern Europe, Spain and further afield. The new licensing regime may, therefore, see a further migration of UK-based operators – the question is: where to?

White listed jurisdictions, regardless of the proposed new licensing regime, nevertheless remain highly attractive. Until now, the advantages for online gambling operators to be licensed in these jurisdictions (and not in the UK) are mostly attributable to their right to access the UK gambling market without being liable to pay UK tax, as well as their own favourable taxation regimes. With national licensing regimes popping up left right and centre, gambling operators are forced to respond by diversifying their businesses and, indeed, clearly separating between B2C

operations (which will require national licences) and B2B operations (which are subject to far less restrictions on national levels). With the UK stepping onto the national licensing carousel, white listed jurisdictions are well placed to cater for their B2B requirements. Data centres, broadband connections and servers are already prepared for the next phase.

However, with the UK now opening the gates to the rest of the world, some may argue that the white list is now competing for the best B2B location with international contenders, some of which may indeed be highly competitive.

Instead of the UK Gambling Commission and the British industry in general competing (and mostly likely winning) on a European level, which may indeed have some attraction to bring the ‘old boys’ back home and attract some new ones as well, the UK government is now prepared to compete against the rest of the world – and the white list will have to go along with it. The likely outcome may trigger operators to leave Europe altogether. With Asian markets on the rise, it is difficult to see the UK Gambling Commission turning down applications from industrial Asian nations and those in the making; and it is even more difficult for white listed jurisdictions to lower their tax rates below zero to compete with these new B2B contenders.

One would have thought that the UK government’s experience with the white list should have been lesson enough. In other words, with the international markets wide open, the UK, once again, will not be able to compete for gambling operators to relocate to British shores and will have

to settle for regulating gambling services within its borders instead.

There is no doubt that the UK national licensing regime will be a welcome money maker, but whether this would also mean that employment would be created is debatable without expatriate gambling operators also returning home to UK shores.

The integrity of tax or taxing integrity of player data?

Regardless of where B2B will migrate to, the UK national licence should enable the UK Gambling Commission to exercise a degree of control over its licensees. The UK Gambling Commission’s Licence Conditions and Codes of Practice (LCCP) require UK licensed betting operators to share information on suspicious transactions with the Gambling Commission and sports governing bodies. In 2010, the Sports Betting Intelligence Unit (SBIU) was created to collect information and develop intelligence about potentially corrupt betting activity involving sport.

It is, therefore, no surprise that the SBIU has been contacting UK licensed operators, reminding them of their disclosure obligations and requesting the disclosure of players’ personal data under the UK Data Protection Act 1998. Unfortunately for the SBIU and the UK Gambling Commission, it can only ask UK licensees ‘nicely’, but has no powers over foreign licensed operators. This is about to change with the UK national licensing regime, which will now empower the UK Gambling Commission to seek data disclosures from faraway places.

iGamingBusiness European Legal Outlook 47 n

iGaming Business European Legal OUTLOOK

There have been several reported cases where gambling operators have been sued by data subjects for disclosure of their personal data to sports bodies. One such case was reported in 2009, in which Italian tennis players initiated legal proceedings against gambling operator, Interwetten, which had disclosed their personal data (under a memorandum of understanding) to the Association of Tennis Professionals which, in turn, suspended the tennis players. Interwetten, as data controller, remained ultimately responsible for breach of data protection and, therefore, all five tennis players sued Interwetten and not the ATP. If that were to be repeated, then it would be good news for the UK Gambling Commission and the SBIU, but bad news for the rest of us.

John Penrose (the UK Minister responsible for gambling) announced the start of a consultation which would formally allow the UK Gambling Commission to share information with the International Olympic Committee (IOC) before, during and after the 2012 Olympic Games. It is planned to add the IOC to the list of bodies under section 350 of the UK Gambling Act 2005 (the Act) to allow a fluid share of information between the organisations. However, this close cooperation requires changing the Act, as does the new UK national licence.

No reputable gambling operator will dispute the importance of sports integrity, or indeed the importance of sharing information to combat crime and prevent match fixing. In fact, the main players across Europe are keen to cooperate.

However, the issues are not as straightforward once sports bodies are involved. For the past eight years, sports bodies have been searching for legal justifications to insist on bookmakers paying a ‘fair return’ for the use of their events. With the rapid growth in online betting across Europe and the significant profits made by the online betting industry, the pressure on bookmakers has been rising, with increasing calls from the sports industry to protect its ‘sports rights’ and ‘betting rights’. Currently, neither of these rights has a foundation in intellectual property rights. As a result, a long journey through various national courts and the ECJ has been undertaken by both sides, which has exposed the limited use of intellectual property rights in obtaining a slice of betting profits.

The issue of trademark infringement by bookmakers has been tried and tested in the French courts, which have decided that, although sports bodies clearly have a right to take legal action to stop bookmakers from infringing their trademarks, they cannot prevent bookmakers

48 iGamingBusiness European Legal Outlook n

from using trademarks to identify sports bodies and events. Attempting to establish database rights in fixture lists and racing details resulted in a further blow to the sports industry, when the European Court of Justice (ECJ) surprised the legal world with its narrow interpretation of the Database Directive, thereby significantly reducing the scope of protection to the creator of a database. Invoking IP rights to charge bookmakers has proved to be unsatisfactory.

As a result, contractual obligations assumed a more significant role in allowing sports bodies to control access to their databases – until now. With the announcement of a UK national licensing regime, sports bodies are now keen to include their ‘fair share’ in law and statute and as part of the overall amendment to the Act. France has already introduced an IP sports right and it will be interesting to see what line the UK government will take. Sports bodies have often mentioned in one breath their right to a ‘fair return’ together with preserving ‘integrity’, as if these two issues are closely interlinked. The only logical conclusion is that sports bodies attempt to convince the public that a ‘fair return’ is necessary to preserve integrity; and they have done a pretty good job so far.

The new UK national gambling licence will, therefore, treat overseas betting operators in the same way as UK bookmakers and ask all for money. It does not, however, resolve the wider context of sports bodies’ call to receive a ‘fair return’ from the betting industry, nor does it account for the introduction of a new sports law and, most importantly, it fails to address the underlying problem of why betting operators went offshore in the first place.

Never boring…

Although the UK government does not propose to introduce enforcement measures such as IP blocking, it will become impossible to advertise unlicensed gambling services in the UK due to the fact that the media will be aware that they may only accept advertisements for UK licensed operators.

Introducing new licensing requirements for offshore operators not only means that sport will become even richer than before, but that the offshore entity has to comply with UK Data Protection laws and reconsider data protection strategies. The introduction of a UK national licence was inevitable. However, instead of shutting the market to the rest of the world, the UK decided to increase the pressure on itself and on the white list by inviting the rest of the world in.

The outcome is predicable: B2B operators in tax friendly environments will profit, while the number of B2C operators will be reduced to a few big players who will comply with the requirements of 27 EU Member States, and who are obliged to disclose their player data to 27 regulators and beyond, while bearing the risk of unjust disclosures and reduced profit margins. It could end up being a mad, mad, mad gambling world.

Marcos Charif is an associate solicitor at Harris Hagan and specialises in e-commerce and information technology for the online gambling industry. Marcos is a dually qualified German and English lawyer. He has also studied European Union Law and Politics and holds a Ph.D. in International Relations.

Marcos has advised betting and gaming companies, software developers and various online businesses on general contractual issues and regulatory matters, as well as outsourcing, licensing and system integration agreements.

Harris Hagan is the first UK law firm specifically dedicated to providing legal advice exclusively to all areas of the gambling industry in the UK and internationally.

We offer unparalleled legal experience, knowledge and commercial understanding of the industry.

We understand not only the law associated with betting and gaming, but the business behind it and aim to provide a full service to the industry, including specialist regulatory, corporate and commercial advice.

We have advised many of the world’s largest gambling and leisure operators, as well as leading UK companies in all areas of remote gambling.

Our clients include governmental organisations, casinos, bookmakers, online gambling operators, start-up ventures and manufacturers of gambling equipment. We have advised an EU Member State and an offshore gaming jurisdiction in relation to the drafting of their online gambling legislation.

The combined experience of both our gaming and commercial lawyers provides the gaming industry with a unique and complementary service. We have an understanding of the regulatory, technical and operational issues of our clients and our partner-led approach ensures that our legal advice is both practical and commercial. We provide a level of service that is second to none.

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