THE EUROPEAN LEGAL OUTLOOK
THE CURRENT STATE OF PLAY IN THE EUROPEAN IGAMING MARKET
MARKET UPDATES: France, Germany, Italy, Netherlands, Spain and the UK
JURISDICTION UPDATES: Gibraltar, the Isle of Man and Malta
Feature - European Legal Outook
FRAGMENTS OF A WHOLE 2012 has been another progressive year in the development of regulated iGaming markets throughout Europe. The turn of the year saw the launch of two much anticipated markets in the form of Spain and Denmark, although the former took some time to get up to speed after delays to the issuance of operator licences following the Dirección General de Ordenación del Juego’s (DGOJ) appointment of a new Director General of Gambling Supervision, Enrique Alejo González. The latter market opening in Denmark, as well as its current status, was covered in some length in the July/August issue of iGaming Business and, as such, does not feature in this year’s Outlook. These two market openings aside, we continue to see movement throughout Europe as governments and regulators orchestrate changes (in some cases wholesale) to their existing licensing programmes while the traditional offshore gaming jurisdictions that have provided regulatory shelter to the industry from its outset seek to reinforce their own relevance to a sector that is coming to terms with the costs and implications of multiple licensing. One of the biggest changes in regulation will be seen in the UK after proposals in March’s 2012 budget confirmed that the government will follow the rest of Europe’s lead in adopting a point of consumption system that will render its current ‘white listed’ framework redundant. As you will read in the UK section, these changes are unlikely to come into effect before December 2014, but whether they will significantly alter the composition of the domestic market or even have the desired effect of bringing operators back to home soil (if that indeed is the desired effect), is something we can only wait to find out. The award winning licensing system proposed for the northern region of Schleswig-Holstein (based on the recent Danish model) is also in danger of being overcome by the change in the German state’s government, whose intention it is 32 | iGamingBusiness | Issue 77 | November/December 2012
to repeal the Gambling Reform Act in favour of joining the much criticised E-15 regime adopted by the remaining German states. This regime has come under the continuous scrutiny of the European Commission which has criticised various aspects of the proposed system during notification proceedings and with pressure now mounting from groups such as the European Betting and Gaming Association, the Commission has left the door open on possible infringement proceedings. Indeed, the Commission’s influence on how the sector evolves from here appears to be growing. On October 23, Internal Market and Services Commissioner, Michel Barnier, officially unveiled the Commission’s ‘action plan’ that proposes a series of initiatives over the next two years aimed at clarifying the regulation of online gambling and encouraging cooperation between Member States. Commissioner Barnier was quoted, “Consumers, but more broadly all citizens, must be adequately protected, money laundering and fraud must be prevented, sport must be safeguarded against bettingrelated match-fixing and national rules must comply with EU law. These are the objectives of the action plan we have adopted today.” What the action plan is not, is a blueprint for EU-wide legislation for online gambling, but rather a “comprehensive set of actions and common principles on protection”. This latest announcement is very much in-line with the common and long-held consensus that, in the absence of any ‘federal’ European law, a common set of guidelines would be the logical next step as the Commission seeks to maintain influence over a sector that is regulating around the jurisdiction of its powers. “While Member States are in principle free to set the objectives of their policies on online gambling, ensuring compliance of national law with the Treaty on the Functioning of the EU (TFEU) is a prerequisite of a successful EU policy on online gambling,” read an excerpt from the Commission’s official release.
“The Commission will establish an expert group this year to facilitate exchanges of experience on regulation between Member States. This will help to develop a wellregulated, safer online gambling sector in the EU, which will help turn consumers away from unregulated sites.” The Commission’s proactive stance (albeit reactive in the sense that the onset of regulation has taken place around it) is an encouraging sign that online gaming is a federally acknowledged issue, and one that the overarching authority is keen to augment through the introduction of social and moral principles to help keep the sector safe, secure and free (in as much as that is possible) from crime. It also appears content to allow the countries to manage the regulation and licensing of their domestic markets on their own terms. Relatively, it is still early days for regulated iGaming in Europe, but one does wonder whether eyes across the Atlantic are (or should be) trained on the continental marketplace and the Commission’s attitude towards its development. If a comparison were to be drawn, it would be that regulation by state (state-by-state/Member State-byMember State) appears to be the solution that will ultimately prevail for both markets. But federally, albeit in the absence of any EU-wide prohibition to overturn, the Commission’s willingness to address the matter does make the federal stasis in the US all the more evident. For operators with international ambitions, the fragmented legal landscape brings new headaches in terms of operational complexity, compliance with an array of country market regimes (and now federal principals) and, of course, cost. This will only grow as new markets open their doors to regulation. For the current open markets, jurisdictions and those with the potential to follow, this legal outlook provides a unique source of up-to-date information and insight that we hope our readers will find of benefit.
Feature - European Legal Outlook
Current legislation permits operators with recognised licences from countries within the European Economic Area (EEA) and/or on the UK’s white list of accepted non-EEA territories (Alderney, Antigua, Isle of Man and Tasmania) to offer iGaming services into the UK market. Changes announced in the March 2012 Budget will see the UK follow the growing European standard in adopting a point of consumption tax, but this unlikely to take effect before December 2014.
888 Regulated markets Ltd AD Astra Aubsail SAS B.E.S. SAS Betclic Enterprises Limited Beturf Electraworks (France) Limited Euro Online Gambling Everest Gaming Limited
France Pari Geny Infos Iliad Gaming Itechsoft Game SAS JOAonline La Française des Jeux LB Poker Pari Mutuel Urbain Partouche Gaming France SAS
Danske Licens Spil A/S E-Play24 Limited Ekstra Bladet Spil A/S ElectraWorks Limited IGT Interactive Operation (Malta) Limited Gnuf Limited Go North Limited Hillside (Gibraltar) Limited Hillside (New Media) Limited
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888 Spain, PLC Betfair International, PLC Casino Barcelona Interactivo, SA Codere Online, SAU Gamesys Spain, PLC Interwetten España, PLC Kambi Spain, PLC
Ladbrokes International, PLC Ongame Markets Malta, PLC Paddy Power Europe, PLC Rank Malta Operations, PLC Sociedad Estatal Loterías, (Selae) Tómbola International, PLC Whg Spain, PLC
iGame Malta Limited I-Gaming ApS Interactive Sports Limited Intouch Casino Limited Ladbrokes International Limited Megapixel Entertainment Limited NG Communications Limited Nordic Odds Limited PKR Technologies Limited Red Club Gaming Limited
Reel Denmark Limited Scandic Bookmakers Limited Skill on Net Limited SPILNU.DK A/S Stanleybet Danmark ApS Tipico Co. Limited Tivoli Unibet (Denmark) Limited
09 LICENCE HOLDERS
Neomobile Gaming Spa Misterbet SRL Admiral Interactive SRL Lucky Horse SRL Intralot Italia SPA Snai SPA King.com Italia SRL
Selection of sites only
Abate SRL Interwetten Gaming Ltd Eurobet Italia SRL Lottomatica Scommesse SRL Mybet Italia SRL Bwin Italia SRL Whg (International) Limited
GIBRALTAR, ISLE OF MAN AND MALTA
TYPES OF SINGULAR LICENCE
888 Denmark Limited Apollo Entertainment Limited Betfair International Limited Betsson Malta Limited Bonnier Gaming Malta Limited Cashpoint Limited Casidio Limited Cryptologic Operations Limited Danbook Limited Dansk Underholdning Limited
PKR France SAS Reel Malta Limited Rekop Limited [agrément suspendu] Scale SOFUN GAMING SAS SPS Betting France Winamax Zeturf France Limited
Unibet Italia SRL Gaming Vc Corporation Spa Sisal Match Point Spa PKR Italia SRL Betclic Ltd Betfair Italia SRL Gnuf Limited
Bet-At-Home.om Betsson Malta Limited Greentube Malta Limited 32Red Plc Reel Italy Ltd Bingobet SRL Laurentina SRL
iGamingBusiness | Issue 77 | November/December 2012 | 33
Feature - European Legal Outlook
France On May 12, 2010, France adopted new legislation to open the French online gaming market1 (hereinafter, the Gambling Act). In fact, it would be inaccurate to say that it ‘opened up’ the online gaming market, for it merely regulated an existing market where French consumers used to play or place their wagers on websites outside of France, whether licensed in other EU Member States2 or not. This situation – which from a public policy perspective was undesirable because of its negative social effects – was further compounded by the pressure Brussels placed on Paris to ease up its (then) existing monopoly legislation3 . This backdrop paved the way for the passage of the Gambling Act.
Under the current legal landscape, online lotteries or games of chance that are offered on a free basis fall outside the scope of the prohibition, provided no costs are incurred by players participating in them. Online skill games are not covered by the Gambling Act. However, skill games are prohibited under the Act of May 21, 1836, provided that any element chance is present, however small, and if the three following criteria for prohibited lotteries are present: an offer is made to the public; raising hope for making a profit as a result of playing the game; participation which involves some kind of disbursement or cost.
The regulatory framework The current legal landscape Games of chance and lotteries are prohibited in France by laws dating back to 18364 , 18915 and 19076, as well as more recent ones adopted in 19837 and 20078. By way of special exception, Française des Jeux (FDJ) and PMU have been granted monopolies to operate lotteries and sportsbetting (retail and online) in the case of the former, and horse-race betting (retail and online) in the case of the latter. The Gambling Act carved out a further exception by allowing operators to obtain licences in three sectors: online sportsbetting, online horse-race9 betting and online poker. Since the enactment of the Gambling Act, FDJ and PMU have become market players in sectors formerly under their respective monopolies. FDJ has retained its monopoly over the lotteries (online and retail) and sportsbetting shops, whilst PMU has remained the monopoly operator in respect of horse-race betting shops.
The Gambling Act aims to address the following public policy issues: • preventing excessive or compulsive gambling and protecting minors; • ensuring the integrity, reliability and transparency of gambling operations; • preventing fraud or crime, as well as money laundering and financing of terrorism; • ensuring a balanced and equitable development of the various types of games, avoiding destabilising the business of the sectors concerned10. It created the following general regulatory framework: • ARJEL was created with strong regulatory functions, including issuing operating licences, promoting the Gambling Act’s public policy objectives, fighting illegal websites, ensuring the compliance of licensed operators with their licensing objectives, and generally taking regulatory action.
1 Act No. 2010-476 of 12th May, 2010 relative to the opening of the online gambling industry to competition and deregulation. 2 75% of all gambling occurred on websites outside of France. 3 France received a letter of formal notice, followed by a reasoned opinion from the Commission requesting it to amend its gambling legislation to make it compatible with EU law. 4 Act of 21st May, 1836 prohibiting lotteries. 5 Act of 2nd June, 1891 purporting to regulate the authorisation and the functioning of horse races. 6 Act of 15th January, 1907 on casinos. 7 Act No. 83-628 of 12th July, 1983 relative to games of chance. 8 Act No. 2007-297 of 5th March, 2007 on the prevention of delinquency.
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• Licences are issued for five years (and renewable) to operators who comply with strict specifications. • Non EU/EEA-based operators are barred from requesting a licence. • Licensed operators have to set up a real-time recorder (‘frontal’) of transactions taking place with players which must be situated in France. • Operating a gambling website accessible in France without a licence is a criminal offence. So is the advertisement thereof. • Licensed operators are subject to an annual certification process conducted by an independent company listed by ARJEL, covering legal, financial and technical compliance issues. • Regarding compulsive gaming, licensed operators have to set mandatory mechanisms (such as self-exclusion, moderators, preventive alerts, etc), as well as advise addicted players about their gaming activity. • International liquidity is not allowed with respect to online poker. • Only pool betting (pari-mutuel) is allowed with respect to horse-race betting. • Taxes are levied on stakes. • A maximum pay-back ratio of 85 percent has been imposed on licensed operators.
Sports-related provisions contained in the Gambling Act When the bill containing the Gambling Act was being debated, sports governing bodies (SGBs) voiced concerns about the risk of match-fixing in relation to sportsbetting. It has often been said that match-fixing in relation to sportsbetting is a risk akin to doping. Moreover, the cross-border nature of the Internet means that punters now have a far-reaching interest in sporting events around the world, thereby multiplying and exacerbating any existing risk. The Gambling Act has therefore inserted special regulatory features relative to sportsbetting, as amended by the Act of February 1, 201211:
Feature - European Legal Outlook
• Pool-betting, fixed-odds and live betting are authorised. Exchange betting and spread betting are prohibited. • ARJEL was given special powers to decide, upon advice from SGBs and in light of criteria set out in secondary decrees, which competitions and types of outcomes were fit-for-betting. • SGBs are under a legal obligation to enact rules in order to prohibit “actors (participants) of sport competitions” from doing any of the following: (1) provide sportsbetting forecasting consultancy if they are under contract with a licensed sportsbetting operator or if the consultancy is provided as part of a programme sponsored by such an operator; (2) hold shares in any licensed sportsbetting operator that has a betting offering in the relevant sport; (3) wager, directly or through a third party, on the competition in which they are participants and provide privileged information, unknown to the public, obtained in the course of their work 12. • Any licensed operator holding controlling shares, directly or indirectly, in any competition, or in any club partaking therein, cannot offer bets in relation to that competition. Similarly, a licensed operator cannot offer bets on any given competition if they are controlled by that competition’s organiser. • Licensed operators are required to obtain a betting right from sports organisers for events taking place in France. The betting right will be granted to all licensed operators who comply with the organiser’s specifications and pay a fee to cover costs incurred by the sports organisers in setting up procedures and controls to respond to the challenges of corruption and matchfixing. This framework, based on contractual agreements between operators and competition organisers, makes it possible for sports organisers to manage the risk levels of the betting that takes place on their events. • With a view to undertaking disciplinary proceedings against any “actor of a sport
competition” having wagered in breach of sports rules, SGBs have the right to file requests with ARJEL for the transmission of relevant personal data related to gaming operations recorded by licensed operators13. • Two new criminal offences have been introduced in the criminal code in relation to the manipulation of sports results. The first deals with the bribing of athletes. Hence, it is now a criminal offence, under penalty of imprisonment for five years and a fine of €75,000, to promise or offer to give gifts or advantages, directly or indirectly, to a participant of a competition with a view to have him alter, through his conduct, by act or omission, the normal and equitable course of a competition on which bets are proposed. The second offence is the corollary of the first offence: it purports to criminalise the conduct of participants of a sport competition who accept a bribe, i.e. who accept gifts or advantages whatsoever, for himself or a third-party, with a view to alter, through his conduct, by act or omission, the normal and equitable course of a competition on which bets are proposed. This conduct is also punishable with imprisonment for five years and a fine of €75,00014 . The aforementioned provisions, insofar as they were enacted by the Act of February 1, 2012, are borne out of the Vilotte Report. Jean-François Vilotte, Chairman of ARJEL, submitted a report to the French sports Minister on March, 17, 2011 entitled, “Maintaining the integrity and honesty of sporting competitions in the face of expanding online sports betting”. In this report, he assessed the situation regarding the threat of corruption in sport in relation to sportsbetting and drew two conclusions. Firstly, that there is no satisfactory system to effectively understand and assess the risks at hand in France. Secondly, that there are serious concerns in respect of the integrity of sporting competitions that require immediate action. He then made ten proposals, three of which were enacted in the Act of February 1, 2012.
Note that, in France, horse racing is not considered a sport. It falls under the aegis of the Ministry of Agriculture. Gambling Act, Art. 3. Act No. 2012-158 of 1st February, 2012 aiming at reinforcing ethics in sport and athletes’ rights. 12 Art. L.131-16 of the sport code, as enacted by the Act of 1st February, 2012. 13 Art. L.131-16-1 of the sport code, as enacted by the Act of 1st February, 2012. 14 Art. 445-1-1 and Art. 445-2-1 of the criminal code, as enacted by the Act of 1st February, 2012. 9
Future forecast The prospective question which needs to be addressed is whether the French legal framework is likely to be modified to be compliant with imperative regulations. In this regard, it must be noted that several complaints have been filed with the European Commission (DG MARKT) against the Gambling Act and its secondary decrees. These complaints, which were lodged by individual gaming operators and by the EGBA are based on potential violation of EU freedoms, notably the freedom to provide services. Among the constraints and restrictions which seem to have been targeted by the complainants are inter alia: (i) the limited statutory opening of the gaming sector, which does not concern betting shops, casino games (except for poker) or fixed-odds betting on horse-races; (ii) the maximum payback ratio imposed on licensed operators, potentially resulting in limiting their commercial attractiveness; (iii) the tax regime, which is based on stakes rather than GGR; (iv) the betting right in favour of sports organisers and, lastly (v) the technical requirements and specifications with which licensed operators must comply in order to obtain and maintain their licence. Beyond the question of the consistency and proportionality of standards against which national restrictive measures must be assessed in light of consistent ECJ caselaw, what is at stake here is the willingness of the European Commission to initiate infringement proceedings against France. The challenge for complainants is to convince the Commission that the changes that have been brought upon the French gaming system, once considered as one of the most stringent systems in the EU, are insufficient. To date, the Commission has not taken action but it cannot be discounted that this lack of activity stems from the Commission’s perception that the issues raised will be more efficiently addressed through Antitrust law. The French Competition Authority (FCA) provided the initial impetus in this regard by releasing an Opinion on January 20, 2011 on the online gaming sector. It is the first time ever in Europe that a competition authority iGamingBusiness | Issue 77 | November/December 2012 | 35
Feature - European Legal Outlook
has made a global assessment of this kind. The FCA first provided a series of operational indications towards delineating narrow, relevant markets. It went on addressing specific issues and concerns such as the cross-exploitation of customer bases and brands’ mutual use by the French incumbents Française des Jeux and PMU, as well as crosssubsidies and the pooling of PMU stakes. As is usually the case, the recommendations and concerns put forward by the FCA through its consultative opinion are practical enough to lead to regulatory changes. Assuming that these would not take place in the absence of political will, one would expect litigation to take the lead, which could give rise to either fines or commitments adopted by operators to restore sound market conditions. It seems that the latter scenario will prevail, as complaints were reported to have been filed against the practices and the particular situation enjoyed by PMU in the horse-race betting sector (and outside of it). However, time is of the essence, as the space for new entrants to manoeuvre is narrow in light of their shrinking activities, thus leaving them with little hope of being profitable anytime soon if the incumbent monopoly is not forced to cooperate in any way, shape or form. On the Antitrust front, another interesting issue relates to state aid regulations. On November 17, 2010, the European Commission notified France of its decision to initiate the procedure laid down in Article 108(2) TFEU, in respect of a para-fiscal levy on online horse-race betting, the purpose of which was to finance horse racing companies which are members of PMU. As it was not convinced by the explanation submitted by the French government on the rationale of such a levy, the Commission invited interested parties to submit their comments in January 2011 (proceedings C 34/10 [ex N 140/10]). In a nutshell, the Commission clearly held that the levy in question was unjustified since, notably, horse racing companies are not vested with any mission of general economic interest under Article 106(2) TFEU. Facing the first objections raised by the Commission, the 15 16
2011 ARJEL Activity Report, p. 3. Online Gambling Report, Volume 11, 9 September 2012, p.2.
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French authorities decided, rather hastily, to set up a transitional system, applicable as of August 2010, whereby the eight percent levy would constitute a tax for the state; no longer benefiting the horse racing companies. The procedure opened by the European Commission is still pending, which suggests that discussions and negotiations have been taking place between the French state and the Commission in order to try to find the most suitable solution. There is little doubt this process has also been slowed by the political changes that have taken place in France this year; however, since the Commission is bound to proceed within compulsory timeframes, one may expect that a decision will be issued shortly. The impact of this decision will be significant and may lead to further challenges against the financing of the incumbent French gaming duopoly. Two years after the ‘opening’ of the online gambling market, the amount of stakes wagered on licensed websites outweigh the estimated amount that had been wagered on illegal sites prior to May 12, 2010. At the end of 2011, the ‘licensed’ stakes wagered amounted to €592 million for sportsbetting, €1,034 million for horse-race betting, and €7,593 million (cash games) and €1,159 million (tournaments) for poker. However, the number of licence annulments has been very high, thereby hinting that the French market might not be so sustainable in light of the restrictive regulation and high taxes. Arguably, the complaints lodged with the Commission, as discussed earlier, may prove that operating an online gaming business in France is a genuine challenge from an economic viewpoint, which may also explain why several operators have withdrawn in recent months. However, the market is naturally undergoing a level of concentration. There were many entities who obtained a licence in 2010, including a large number of small companies who had to jockey for position, incurring substantial marketing costs which proved disastrous for those who failed to convert players. Today, 36 licences are still active: poker (18), sportsbetting (10) and horse-race betting (8).
Even so, as Jean-François Vilotte so aptly pointed out15, the regulation needs to be constantly adjusting and, therefore, the Gambling Act and its secondary legislation require amendments. In this regard, ARJEL made fifty proposals to the French government with a view to improving regulation. The French government will probably issue statutory instruments from time to time in order to adopt certain proposals made by ARJEL. The Gambling Act may also be amended, but not in the near future, which means that issues such as changing the taxation from a stake tax to a GGR tax (so important to licensed operators) will not be addressed in 2013. Some fear that this will compel more licence annulments with a concurrent slide towards an unregulated market16 . However, ARJEL has been very aggressive in combating the black market; its presence in France having nearly completely disappeared. To all intents and purposes, whether pressured by Antitrust or EU law, the profound changes that have taken place in the French gaming system in 2010 will not be the end of the story. Frédéric Manin is Partner, Competition/Antitrust at de Gaulle Fleurance & Associés, and has 15 years experience in competition/antitrust law, distribution law and EU law. Tel: +33 1 56 64 02 80 Email: firstname.lastname@example.org
Rhadamès Killy, Senior Counsel, Sports/Gaming, specialises in IP/IT law and commercial law, with a strong emphasis in respect of the sports and gaming sectors. Tel: +33 1 56 64 02 66. Email: email@example.com
A full-service and independent firm founded in 2001 in Paris, France, de Gaulle Fleurance & Associés (DGFLA) has today more than 80 fee-earners including 28 partners. The firm has strong expertise in capital venture deals, corporate restructuration, real estate and construction, complex financing operations in France and in Europe. DGFLA represents French, European and International corporations, many of which are USbased. www.dgfla.com
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Feature - European Legal Outlook
Germany Hope and fear for the online gambling industry – the EU has to intervene… again
criticised the provisions of the treaty, and had praised the Kiel act.
The European gambling market remains a regulatory construction site, and Germany is anything but innocent in this regard. Whilst large parts of Europe have in the meantime passed modern gambling acts geared towards competitiveness and player protection, the German federal states have shifted into reverse gear by amending the inter-state treaty on gambling (1. GlüÄndStV, or E-15 model) that will be adopted by at least 15 of the 16 federal states; up to now, the state gambling act initiated by the CDU and FDP is still effective in SchleswigHolstein – an act which industry experts consider to be a milestone as, among other issues, it regulates both the online poker and online casino market. Nevertheless, the governing coalition in Kiel, consisting of SPD, Die Grünen and Südschleswigscher Wählerverband (SSW), is preparing to repeal the act and to join the inter-state treaty on gambling, which continues to concern the European Commission – in contrast to the applicable state law. During the summer, the independent monopoly commission which advises the federal government, had also
Betting providers are questioning tender procedure
38 | iGamingBusiness | Issue 77 | November/December 2012
In the meantime, the front against E-15 has been growing: the European Gaming and Betting Association (EGBA) has filed an objection with the EU Commission, requesting that the Commission initiate infringement proceedings against the Federal Republic of Germany1 . Secretary General, Ms Sigrid Ligné, said that Germany is currently preparing to issue licences on the basis of a highly controversial tender process. According to EGBA, there is increasing evidence “that this process is not intended to fulfil the real purpose of an open, fair and transparent trans-European tender process.” One of the aspects which has recently been under discussion is the neutrality of a law firm in Cologne which advises the companies of the German Lottoblock whilst, at the same time, organises the issue of licences under the new inter-state treaty on gambling. During the notification proceedings in the spring, the Commission, in view of E-15, repeatedly criticised the bill’s
discrimination of sportsbetting providers, and online poker and casino games, as well as the arbitrary decision to issue 20 licences nationwide. The Commission had explicitly left open the option of initiating infringement proceedings. According to Commission statements, the German states have failed to show why online poker and casino games have particular potential for player addiction and how they constitute a specific money laundering risk. A response from Brussels on repealing the act is expected soon. There is no justification which would comply with European law for the states’ decision to move into ‘reverse gear’, and in particular for the discrimination of online poker in comparison with online sports bets; a ‘no’ vote from Brussels is probably as inevitable as the initiation of infringement proceedings against the E-15 monster.
Award for the Schleswig-Holstein gambling supervision On the other side of the regulatory scale, the authors of the Schleswig-Holstein act – which is oriented around the successful Danish model and also regulates the poker and casino segment – have documented how player protection and abuse prevention
Feature - European Legal Outlook
can be reconciled with attractive gaming options. A short glance to London proves the international importance of this legislation where, in mid-October 2012, during the autumn conference of the International Masters of Gaming Law (IMGL), Guido Schlütz, head of the gambling supervision at the Kiel Ministry of the Interior was presented with the award for “Gaming Regulator of the Year” in Europe. IMGL is an association of more than 300 experienced gaming law experts, including members of state supervision and regulatory authorities, university professors and gaming lawyers, and is represented in 38 countries worldwide as well as in 32 US states. One of the previous winners of the IMGL Award is Morten Ronde, who, as the former head of the legal department of the Danish gambling supervisory authority, is considered as the father of the Danish regulatory model. In his award speech, Ronde compared Schlütz to a successful beekeeper who during his work had vigilantly kept in view all those involved in the process, in order to avoid being stung. He described the Schleswig-Holstein act as a positive further development of the Danish model. Which system will ‘win the race’ in 2013 is, again, up to the German courts and Brussels. The recently elected government in Schleswig-Holstein wants to repeal the state’s lauded Gaming Reform Act (GRA) to join the ITG regime, but it is proving more difficult than some thought. In fact, Schleswig-Holstein’s Ministry of the Interior just announced that it is bound by law to comply with the act and issue licences for sportsbetting and online casino games as long as the GRA is in force (at least until January 2013). Germany’s other 15 federal states still prohibit all kinds of online casino games but a tender procedure for 20 possible online sportsbetting licences was published in the Official Journal of the EU and was open for application until September 4, 2012. At the end of June 2012, the federal parliament (Bundestag) adopted an amendment to the German Horse Betting and Lottery Act (RWLG)
that stipulates a tax burden of five percent of turnover on sportsbetting in Germany. Moreover, a draft Directive on Advertisement for the gambling industry is being monitored by the advertisement and gambling industries. Shifts in the industry are also apparent given the new draft German Anti-Money Laundering Act, which stipulates strict requirements for online gaming providers, a direct reaction to recent regulatory reforms. .
Schleswig-Holstein’s GRA To date, the GRA remains in force despite the May election of a new left-wing coalition that is firmly against the law. When the government came into office, opponents of the gambling liberalisation process were vocal. The head of the Social Democrats, Ralf Stegner, proclaimed that the time of the “Las Vegas in northern Germany” is over before it really started. But they were mistaken. So far, seven sportsbetting licences have been issued, and more may follow. In July, SchleswigHolstein’s minister of the interior, Andreas Breitner, admitted what experts predicted: it takes more to repeal a law than bold announcements; in this case, at least two parliamentary sessions and a notification to the EU Commission. According to restrictions, the GRA cannot be repealed before the end of the obligatory standstill period of at least three, possibly four months after notification. A moratorium to stop the assessment of licence applications before the GRA is formally repealed faces severe constitutional obstacles. Nonetheless, the government maintains its intention to repeal the GRA and join the ITG. However, since the GRA remains in force, the Ministry of the Interior must continue to assess applications and issue licences. Otherwise, the administrative court in SchleswigHolstein has the power to order the Ministry of the Interior to issue a licence. Two gambling providers have already taken legal action to force the Ministry of the Interior to issue a decision on their application. The most likely scenario is that the GRA will remain in force until at
least the end of 2012. Moreover, there is only a one-vote majority in the governing coalition, so some politicians might wonder if it is a smart move to repeal the GRA that is compliant with constitutional and EU law in order to join an inter-state treaty which faces strong criticism.
The ITG and the RWLG The new inter-state treaty on gambling (ITG) came into force as of July 1, 2012, since 14 federal states (all except SchleswigHolstein and North Rhine-Westphalia) ratified the ITG in their regional parliaments. Contrary to SchleswigHolstein’s GRA, the ITG prohibits online casino games and restricts the online sportsbetting market to 20 providers and a trial period of seven years. The arbitrary limitation of 20 sportsbetting providers and differing regulation of online casino games, raises fundamental concerns in regards to the freedom to provide services and coherence principle stipulated in EU law. The Germany Monopoly Commission, an independent committee authorised by the German Federal Government, criticised the regulatory approach of the ITG and questioned its viability to fight the grey and black market, as well as questioning its compliance with constitutional and EU law. It was argued that the trial period should also apply to online casino games, since there is no reliable proof that online casino games have a higher addiction potential than sports betting. Moreover, the Monopoly Commission argued that a taxation system based on gross profit as stipulated in the GRA would be more appropriate for the gambling sector than the turnover tax model of the RWLG. Despite criticism, the Ministry of the Interior of Hesse (the authority in charge of managing the application procedure) opened a tender procedure for gambling providers to apply for one of the 20 sportsbetting licences. The requirements are comparable to those in Schleswig-Holstein. Applicants must prove reliability, expertise and, in the second stage, their performance iGamingBusiness | Issue 77 | November/December 2012 | 39
Feature - European Legal Outlook
potential. Applicants will have to provide a sales concept, a profitability concept, a security concept, a social concept and a payment concept. However, different to the Schleswig-Holstein licence requirements: each licence holder must provide a security deposit in the form of an unlimited bank guarantee of €5 million which may be increased to €25 million. In addition, the sportsbetting provider must name at least two persons to represent the applicant’s IT and business department. These persons have to provide a CV that proves at least five years experience, including a diploma in IT or business studies. The first stage of the tender procedure ended on September 4, 2012. Once a deadline is missed, a provider’s last hope is the reopening of the tender procedure if there are not enough successful applications for licences. However, this remains at the regulator’s discretion. In the context of the tender procedure, another issue raised concerns the law firm CBH’s management of the tender procedure. This law firm is the legal advisor of the state owned German gambling monopoly Deutscher Lottound Totoblock. The conservative party in Schleswig-Holstein is concerned about a conflict of interest and demands CBH be excluded from the tendering procedure. Nonetheless, licences for 15 German states should be issued before the end of the year, and we will know then how serious states take the intention to open the German sportsbetting market to private operators. But it will be the next few years that show if the ITG complies with Constitutional and EU law. A comparison between GRA and ITG shows that German gambling regulation is far from “coherent and consistent”, two key requirements stipulated by the European Court of Justice for an EU law compliant national gambling regulation. Schleswig-Holstein has issued seven sportsbetting licences based on the GRA’s conditions. In addition, 49 licence applications (28 for sportsbetting and 21 for online casino games) are still pending. The other 15 German states are about to licence up to 20 sportsbetting providers 40 | iGamingBusiness | Issue 77 | November/December 2012
based on the ITG’s conditions but still want to exclude online casino game operators from the German market.
In addition, transactions from a player’s payment account to his player account and vice versa would only be allowed via certain transaction methods.
Draft Advertising Directive Advertising is a key tool to channel customers to the regulated market. However, drafts numbers one and two of a directive on advertising for the gambling industry contains restrictions that stakeholders call ‘censorship’. The directive refers to all parties involved in advertising. This is a fundamental change to the existing ‘rule of separation’ in German advertising law. The most controversial issue is that the draft requires regulatory approval for each advertising campaign. The authority will assess each campaign and issue permission on a case-by-case basis. The criteria for each permission will be: i) content, ii) distribution channel, iii) presentation of warnings and safety instructions, iv) addiction potential, and v) whether the campaign channel players to the regulated market. Recently, there were indications that the draft could be revised and requirements for advertising campaigns softened. A final version is expected by the end of the year.
Anti-Money Laundering Act (Geldwäschegesetz, GWG) As a reaction to the recent developments, the federal German government adopted a new draft German Anti-Money Laundering Act. If ratified in the German parliament (Bundestag), the draft would increase the GWG’s scope to include licensed operators and agents of online games of chance. Banks and financial institutions, as well as issuers and acquirers involved in payment proceedings related to online gaming, would have to comply with additional monitoring and control requirements. According to the draft, gambling providers will be obliged to take measures to avoid money laundering and financing of terrorism and install appropriate risk management. The draft only allows one player account per player, per gaming provider. Gambling providers would be obligated to fully identify the player before registering and establishing an account.
Conclusion Whilst there are growing indications that the rest of Europe is also following modern and now award-winning regulatory models, such as the ones in Denmark and in SchleswigHolstein, German legislation continues to be characterised by a strict attitude of denial, which will probably lead directly into new EU infringement proceedings.
Dr Wulf Hambach is partner and co-founder of Hambach & Hambach law firm. He is General Member of the IMGL, member of the IAGA and of the advisory board of the Research Institute for Gambling and Gaming at the University Bonn-Rhein-Sieg. He is co-chief editor and author of the leading handbook for judges “Regulation of gambling and competitions in the media”.
Hambach & Hambach is a law firm in Munich specialising in commercial law, with a focus on German and international law in the TIME sectors: Telecommunications, IT, Media & Entertainment. We ensure consistently high quality of service through our international structure and orientation. Custom-tailored consultancy services for major German and pan-European projects as well as largescale court proceedings are our everyday business at Hambach & Hambach. For instance, we obtained the ground-breaking “Carmen Media decision” before the European Court of Justice on September 8, 2010 (C-46/08). Dr Wulf Hambach was one of the representatives for Carmen Media Group Ltd in these proceedings. Among our clients at Hambach & Hambach are: • leading German and foreign providers from the area of gaming, sports, media & entertainment • domestic and foreign software companies • auditors of online services • companies from the financial services sector, such as investment firms, private equity and venture capital companies as well as e-payment providers (online banks) • some of the largest online gaming providers worldwide • EU institutions
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ITALY In order to better understand the situation in the Italian gaming market and the composition of its legal landscape, one need only look at the total volume of expected turnover for 2012: more than €85 billion. The figure is composed of the relative turnovers of the different gaming sectors, each of which has its own regulatory framework. The process in reaching this point has been a meandering one to say the least, and would have been almost impossible without the crucial influence of AAMS, the Italian Regulator. If we look specifically at iGaming, the gross turnover at the time of writing is almost €10 billion, and is projected to close the year at around €14 billion. Only a few years ago, iGaming was non-existent (in an official capacity), and unregulated. Starting with the online extension to the terrestrial betting licence of 2003, taking in the key Bersani 2006 tender (where for the first time, specific online gaming licences were awarded to participants), and ending with the recent tender for the socalled ‘Comunitaria’ licences, the regulation model for iGaming in Italy has forged a glowing reputation in the EU and further afield; indeed, it has often been seen as a blueprint for those EU countries that have recently been opening to regulation. Relating to products, the new licences include the following (described formally as in the Rulings): • sportsbetting • horse-race betting • sport and horse racing tips and forecast • national horse racing pool games • skill games and card game tournaments • bingo 42 | iGamingBusiness | Issue 77 | November/December 2012
• cash card games, regulated by the directorial decree of January 10, 2011 • fixed-odds betting with direct interaction between gamblers (betting exchange) • betting on simulated events (virtual races) • fixed-odds betting (casino and online slots) Most of these product verticals have already been implemented and consequently launched by licensed operators with some success. Obviously, a percentage of cannibalisation had to be taken into consideration, with cash game poker preceding tournament poker, followed by the arrival of bingo and, more recently, casino games. However, all have maintained decent health in terms of turnover and profitability. We still await the arrival of online slots and betting exchanges, although the latter has received objections from the EU Commission on the issue of illegal State Aid because of its favourable taxation compared to that applied to traditional bookmakers. The Italian online gaming market can be described as mature, meaning that companies planning an entrance strategy will need meaningful doses of investment and skill, but it is also a reactive market where initiatives – exploitable within current rulings – can still be rewarded. However, one peculiarity remains that is yet to be overcome: the relationship between the online market and the offline networks. In other words, it is a typical Italian model to have many points of sale where people go to bet on their online accounts. We have been seeing a convergence between the two worlds for
some time, especially where online gaming is not regulated but is freely played.
Legal framework In terms of legal framework, this ‘Italian Connection’ has counted for much, especially when utilised by operators who define themselves as ‘transfrontalier’, who pretend to operate on the ground in a country (Italy, for example) on the basis of having obtained online licences elsewhere. In its judgment in the joint cases Costa and Cifone (C-72 \ 10) – published on February 16, 2012 – the European Court of Justice (ECJ) gives an interpretation of EU law that could be applied to all member countries. This time, in looking at the Italian gaming system, the Luxembourg Court also analysed some aspects of the tender issued in 2006 (Bersani). In its judgment, the Court has reaffirmed, not denied, the legitimacy of the Italian concession-based gaming system, but also pointed out those pieces of legislation (Bersani standards and tender documents) that seem to be in conflict with the principles of the EU Treaty. One of these legislative pieces, and a key issue for the plaintiffs, was the obligation of a certain ‘distance’ to be respected by all new entities towards existing betting shops. If it is true that at the time of the ‘Bersani call’ the ‘distance’ obligation was in force, then it is also true that with the following Legislative Decree n. 149 (dated September 25, 2008, converted with amendments by Law No. 19 November 2008, 184), the distances obligation had been repealed. Summarising the case and its effects on the regulations, we can say that the
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European judges have invited the Italian government to equalise the rights of the operators by giving everyone – licensed, non-licensed and excluded from licensing – a chance to gain a licence on the same terms and conditions as the existing ones, amended as per the ECJ interpretations. As a consequence of the ECJ judgement – (by a notice published in the Official Gazette no. 88 “special series-procurement”
by January 1, 2013. The 2,000 licences will be awarded once the bids that have been submitted by the deadline of October 19 have been assessed. The awarded licences will be effective from the date of signing until June 30, 2016. Preconditions for participants are: a) being gaming operators, and more specifically companies that operate at least one type of game, similar or corresponding
“Through Law n. 44/12, the Legislator has made the first move towards the comprehensive reform of the sector that will culminate with the expected alignment of all licences expiring on June 30, 2016.” of July 30, 2012, in full compliance with the indications given by the legislator )– a tender has been launched to grant up to 2,000 licences (in accordance with Article 10, paragraph 9 -g of DL March 2, 2012, n. 16 converted with amendments by Law April 26, 2012, n. 44). The licences will be awarded for the joint exercise of public games based on horse racing and sports. For the first time in terrestrial networks, sports and horse racing are combined, following the example of the so called ‘Comunitaria’ online licences described earlier. Through the physical network of licensed stores, the following products can be sold: a) fixed-odds sportsbetting on sporting events and sports other than horse racing; b) pool betting on sporting events other than horse racing; c) horse-race betting, fixed-odds and pool; d) contests betting, horse racing and sports; e) horse racing games, national and international; f) betting on simulated events in accordance with Article 1, paragraph 88, of Law December 27, 2006, n. 296. Much expectation is riding on the latter product being able to provide a boost to the entire network. According to the law, betting on simulated events should be activated
to one of those games managed by AAMS in Italy or in any other Member State of the European Economic Area, with registered offices and/or operating on the basis of a valid and effective habilitation issued under the provisions in force in the law of that state; b) having earned income (see nomenclature definition “the total amount of the payments of goods and services arising from or related to activities such as gaming operator”) in a total, related to the activity of gaming operator, not less than €2 million during the last two fiscal years prior to the date of submission of the application, even by means of companies or subsidiaries in Italy or in another state within the European Economic Area. To the benefit of the industry, the Legislator, with the Law n. 44/12 (full of novelties, such as the functional exclusive competence of the Lazio Regional Administrative Court in matters relating to the gaming industry including the issuing of Police licences ex art. TULPS 88) has made the first move towards the comprehensive reform of the sector that will culminate with the expected alignment of all the licences expiring on June 30, 2016. Continuing this public network optimisation process requires fresh ideas
and innovation, and also requires the monitoring of unfair competition from unlicensed operators that channel their gaming offerings via circuits beyond the control of the state bodies (AAMS, Guardia di Finanza, the State Police), and where the consumer has no guaranteed protection. But still it will not be enough. Many operators believe that they will continue to suffer more unfair competition from unlicensed operators until the points of sale (i.e. PDC, those that accept online gaming on the ground) and totems are regulated. The repeal of the Directorial Decree of March 21, 2006, which had regulated the activity of PDCs, has left a vacuum in the regulation. This is where a large grey market has taken hold, made up of online, offshore and unlicensed operators taking advantage of the aforementioned Italian (bad) habit of confusing online with offline, contributing to the development of illegality and leaving the industry vulnerable and without the tools to combat illicit gaming. At the time of writing, these PDCs, now called points of sponsorship, are not illegal but are not regulated either. Although this path has its own acceptable logic and, in some ways, is beneficial to the sector (the prohibition of totems was meant to prevent the cloning of AWPs), there are doubts that the industry has yet demonstrated its readiness for a clear-cut separation between the terrestrial and online channels. Whilst this has certainly helped the ‘pure’ online companies, it has resulted in misunderstandings and embarrassment in the terrestrial networks that have ultimately penalised both.
Future outlook The new store model that, thanks to regulations (Decree-Law n. 16/12) that will market all types of land-based gaming, horse racing and sports, will be the cornerstone of the new licensing system that will characterise the market after 2016. On June 30, 2016, all of the licences (Bersani, and Giorgetti) that have been handed out by AAMS since 2006 will expire, except for online (Comunitaria) iGamingBusiness | Issue 77 | November/December 2012 | 43
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licences. Thus, the next three years are key to the survival and continuity of a licensing system which is under threat because of partisan judicial communication battles to which even the Supreme Court (finally) with its recent rulings is trying, with glimmers of intelligence, to remedy.
Today’s market statistics So what are the key statistics of today’s Italian market? According to data published by AAMS in relation to the total (monthly) turnover of sports gaming in June 2012 compared to June 2011, the increase is slightly less than €100 million; equivalent to 58.23 percent. The influence of the European Championships (Euro 2012) is clear. In fact, it remains negative for total turnover in the first half of the year; a decrease equal to 4.37 percent over 2011. Also, in June, the payout was higher than the average of the previous months. Players received winnings for 87.83 percent of the total amount of bets. For the online licensees only, the payout was 90.57 percent – not good news for operator results. The average tax rate was 3.54 percent. The decrease in the share going to the State Treasury was driven by a substantial increase in single bets that have a lower tax rate. Online gaming licences have created 44 | iGamingBusiness | Issue 77 | November/December 2012
turnover amounting to €85,260,588.25, and while the pre-Bersani (those operators whose licences where assigned in the year 2000, now expired) turnover was €55,960,018.75, the post-Bersani numbers reached €119,358,793.50. Looking forward to the coming months, the hoped entrance of irregular market operators (thanks to the tender published on July 31) should aim to strengthen the sector and to create cohesion. Therefore, the ECJ’s judgement in the Costa/Cifone cases will build a new licensing system based on the principles of the European Treaty, which frames public gaming (in the interest of all) in a regulated free market. The principles that have inspired the new Italian tender should represent the transition between the old and new licensing systems, which will be fully realised by June 30, 2016.
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 718-721 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.
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The Netherlands Changes are afoot in the regulation of remote gaming In recent years, the existing regulatory regime for gaming in the Netherlands has come under the scrutiny of EU law. The decision of the Council of State in Betfair ruled out the status quo;1 either the licensing system or governance of the incumbent operators cannot go unchanged. Whilst Ladbrokes was a disappointing ruling for the remote sector, considerable pressure for changing the monopoly-based market structure,2 and creating a regulated remote market more generally, has arisen from within government itself.3 At the time of writing, the two largest political parties following the elections of September 2012 are drawing up a ‘coalition agreement’ which will form the basis of the government once it takes office. During the previous government, the VVD (conservative party) were advancing the reformatory agenda, and given that they have the greatest number of seats of any party, we anticipate that they will be able to continue driving this agenda during the next parliament. Having reviewed the current legal landscape for remote gaming in the Netherlands, attention will turn towards the framework which operators established in other jurisdictions and who access the Dutch market should adhere to. In the final section, consideration will be given to the future regulatory regime and the implications of the Betfair case law on the award of licences in the short-term.
Current legal landscape Central to the existing regulatory regime is the “prohibited unless licensed” approach whereby the provision of games of chance in the Netherlands is prohibited unless a licence has been awarded. Overwhelmingly, the different forms of gaming that are permitted are subject to a monopoly-based market structure. Primary legislation grants the Gaming Authority (‘Authority’) the competence to award single licences for the provision of land-based casino gaming, a national lottery, sportsbetting, horserace betting, lotto, and scratch-cards. Two forms of gaming which are not subject to monopoly-based supply are slot machine arcades and the charity lotteries. Whilst there is no cap on the number of arcades, there are currently three charity lotteries. Indeed, these lotteries are rather unique given that there is no explicit legal basis for them in primary legislation in contrast to other forms of gaming. Their licences have been awarded as exceptions to the general prohibition on unlicensed gaming rather than on an explicit legal basis. Remote gaming is excluded from the current regulatory landscape. The Dutch Betting and Gaming Act (‘DBGA’) which has been amended on numerous occasions since its introduction in 1964, does not offer a foundation for the award of licences for remote gaming. However, this does not entail that some of the incumbent operators are wholly excluded from the remote sphere; they are permitted to offer their offline
CJEU Case C-203/08, Sporting Exchange and Council of State, Betfair / Minister van Justitie, 23 March 2011. CJEU Case C-258/08, Ladbrokes and Supreme Court Ladbrokes / De Lotto, 24 February 2012. Beginning with a policy note which the State Secretary for Security and Justice put before parliament, dated 19 March 2011.
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services on the Internet through the so-called ‘e-commerce’ exception. This construction is founded on the premise that the Internet merely constitutes another sales channel. There are no dykes surrounding the Netherlands in cyberspace and much to the dismay of the incumbent operator; in their view, the market has been flooded with the provision of remote gaming from operators established and licensed in other jurisdictions. In accordance with the 2005 Supreme Court decision in Ladbrokes, the fact that an operator’s services are accessible in the Netherlands without that service being necessarily targeted at the Dutch market, is sufficient to bring it within the scope of the “prohibited unless licensed” approach. Without a Dutch licence, regardless of if and where an operator is licensed and regulated, the supply of remote gaming services to Dutch residents is unlawful.
Legal framework In the run-up to the regulation of remote gaming, the tide has turned on the apparent flood which concerned incumbent operators so greatly. According to an October 2012 press release from the Authority, operators representing between 60 percent and 80 percent of the remote market in the Netherlands are in retreat.4 The Authority is essentially responsible for the supervision and enforcement of gaming regulations in the Netherlands, whilst the Ministry of Security and Justice retains control over policy. Part of the Authority’s tasks includes the award of licences, both now and in the future regulatory regime.
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June 2012 saw the Authority commence its enforcement of the prohibition of remote gaming by setting out its enforcement policy in a press release5. Appreciating that it is unable to enforce the prohibition against all operators whose services are available in the Netherlands in one go, it decided to prioritise its enforcement efforts. With this in mind, the so-called “prioritisation criteria” were developed. The prioritisation criteria are: • Supplying games of chance via a website with a ‘.nl’ extension • Use of the Dutch language on a website • Radio, television or print media advertising which is directed towards the Netherlands Should an operator satisfy one of these criteria, the Authority will then commence its procedures in an attempt to enforce administrative sanctions. Compliance is not a future-proof guarantee against any enforcement measures, just that an operator will not be the focus of enforcement whilst other cases are dealt with. However, the presence of operators who do not meet any of the ‘prioritisation criteria’ in the Dutch market is illegal. For the purposes of Dutch law, they remain unlicensed and in breach of the DBGA. However, they may be seen in a favourable light by the Authority which has stated that those who comply “illustrate that they are willing to take social interests into account and thereby the wheat will be separated from the chaff”6. The Authority notes how these criteria form part of a broader policy of upholding objectives in the public interest such as preventing addiction, combating fraud and criminality and protecting consumers. Operators complying with the criteria are deemed by the Authority to show that they are aware of their social responsibilities and their willingness to be regulated. Yet, the consequences of having indicated such willingness to be regulated are unclear. Lacking any primary or secondary legislation, or the draft versions of such, there are no defined criteria specifying how the suitability of licence applicants will be assessed in the
future regulatory regime. Nevertheless, there is some indication of how past behaviour in the market will be taken into consideration. In the June 2012 press release, the Authority referred to a statement by the State Secretary in his letter of May 4, 2012, that persistently offering remote gaming unlawfully could stand in the way of a future licence. Moreover, reference is made to an amendment to existing legislation; namely, to extend the scope of an integrity test to include gaming licences and to establish administrative fines as a ground for refusing a licence application. Therefore, it is difficult to establish how past behaviour in the market will be taken into consideration. Compliance with the prioritisation criteria upon receipt of the Authority’s letter is unlikely to lead to the refusal of a licence. Other than the three conditions which constitute the prioritisation criteria, there are no regulatory requirements applicable to the provision of remote gaming. Indeed, there are no national regulatory standards and requirements as in other jurisdictions. This is a consequence of there being no licences for remote gaming whatsoever. In theory, this situation this could be seen as a free-forall but the prioritisation criteria have to be seen in context. Firstly, they do not render legal what is illegal, namely the provision of games of chance in the Netherlands without the requisite licence. Reflecting this, and as noted earlier, the chance of enforcement measures against those operators who abide by this construction are merely minimal, not excluded. September 2011 saw the State Secretary for Security and Justice (State Secretary) placed under pressure to enforce the prohibition on remote gaming. Failure to take any action could result in greater resistance from the floor of the lower house of parliament to the State Secretary’s already heavily questioned plans for the regulated opening of the remote market. Thus, efforts were made to create a blacklist; details of listed operators would be fed to banks and financial institutions established in the Netherlands who would then be told to cease
4 Gaming Authority, “Active Approach to Illegal Gaming via the Internet Works”, (Kansspelautoriteit: actieve aanpak illegale kansspelen via internet werkt), 2 October 2012. 5 Gaming Authority, “Tackling Illegal Gaming Websites” (Aanpak illegale kansspelwebsites), 8 June 2012. 6 Gaming Authority, “Active Approach to Illegal Gaming via the Internet Works”.
providing payment processing services to those operators. In a letter to parliament of May 4, 2012, the State Secretary indicated that this process was underway and that some parties had diminished their presence in the Dutch market by ceasing advertising and withdrawing Dutch language sites with a future licence in mind. During this process, the Authority was born and the blacklist appears, as far as we understand, to have evolved into the prioritisation criteria. Whilst the blacklist emerged as an attempt to pacify parliament with a view to regulation, the prioritisation criteria perform a similar function. It would be pointless exercise to ensure that the operators the Authority wants to regulate are forced to terminate their relationships with customers in the Netherlands, especially since a number of these customers would then end up in the hands of operators who lack any intention of applying for a future licence. Rather, the prioritisation criteria represent a compromise in the de facto transitional period until regulation. For remote operators, it reduces their presence in the market but hopefully provides sufficient possibilities to retain the majority of their customers. From the Authority’s viewpoint, it is an attempt to manage the transitional period until regulation and licensing and, as it has stated itself, to sort the wheat from the chaff.
Future forecast – regulatory approach and licence allocation Currently, the victorious parties of the September 2012 elections are drawing up the coalition agreement which, any breakdown in the negotiations aside, will hopefully result in a new cabinet taking shape before Christmas 2012. To get a feeling for the future contours of the regulatory regime, we have to turn to the recent past. In March 2011, the then State Secretary laid forth his view for the reform of the regulation of gaming in the Netherlands. Importantly, this included the creation of a suitable and attractive remote offering which would enable consumer demand to be satisfied by Dutch licensees. Implicitly, this rejected the proposal of an earlier report iGamingBusiness | Issue 77 | November/December 2012 | 47
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presented to the government suggesting that only poker should be regulated, as this was the most popular form of remote gaming in the Netherlands. Without providing an exhaustive list of which forms of gambling would be permitted, the State Secretary referred to casino games, sportsbetting, bingo and poker. As already mentioned, a debate took place in parliament on September 7, 2011, which concentrated primarily upon enforcement measures vis-à-vis remote operators rather than the design of the regulatory regime. However, deriving from the general prevailing mood of resistance in parliament that day, support was found to require the State Secretary to give due consideration to the adoption of what was referred to as the ‘Belgian model’. In other words, licences for remote gaming would only be given to operators with ‘their feet on the ground’ in the Netherlands, in parliamentary parlance of the day. Fortunately for the remote sector, this did not find favour with the State Secretary. After the fall of the cabinet in April 2012, the State Secretary sent a letter to parliament (May 4) in which he set out his response to various motions passed by parliament on September 7, 2011. Motions merely require the relevant State Secretary or Minister to give due consideration to a specific view of parliament. The call for the Belgian model to be adopted was one such motion. In other words, the issue could not simply be ignored but neither was this a legislative proposal via which remote licences would be coupled to land-based venues. The rejection of this motion was clear; the State Secretary considered it to be ill-suited for his vision. Firstly, with regards to consumer protection and the prevention of addiction, the State Secretary deemed it unnecessary to restrict the number of operators, preferring strict entry criteria and licensing conditions. Secondly, more Dutch residents would be channelled into nationally regulated operators via an approach similar to that adopted in Denmark, and higher rates of such channelling would result in a better attainment of the regulatory objectives.
Thirdly, the State Secretary noted the difficult position of the Belgian regulatory approach under EU law and that it would not fit the existing Dutch landscape where monopolies prevail in contrast to multiple operators in the Belgian market. A clear preference was shown for a regulatory approach inspired by the Danish regime within which no limit on the number of licences is to be found. How this will materialise remains to be seen. It is understood that in the first quarter of 2013, a draft bill for the introduction of a regulatory regime for remote gaming will be opened to consultation. This will provide a clearer insight into the direction that the remote gaming market in the Netherlands may take. However, in one respect and regardless of the contours of the future regime, the question of access will bring change to the gaming landscape. The monopolist incumbents acting upon the basis of their semi-permanent licences are no longer on such firm ground as they may have believed prior to the Betfair ruling. The finding that the lack of transparency in the award of such licences is unjustifiable in terms of the freedom to provide services, which is central to the EU internal market and the debate surrounding the regulation of gaming in Europe, threatens to dismantle the relative lack of market access. Regardless of how the forms of gaming supplied pursuant to such licences are dealt with by the future regulatory regime, many semi-permanent licences are up for renewal in the coming twelve months. Will a procedure be introduced by the Authority to uphold the principle of transparency, even if it is not the one eventually embodied in the regulatory and licensing regime? Or will the governance of the monopolistic castles be amended in an attempt to by the current inhabitants to fortify their institutions and fend off new market entrants? This would require strict control by the government, although what it precisely entails is not set out in stone.7 Recently, De Lotto has attempted to secure its sportsbetting monopoly with such an approach. It is currently unclear
Alan Littler & Justin Franssen, ‘How should we define ‘strict control’?’, European Gaming Lawyer, Summer Issue 2011, 18-20.
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whether the single state commissioner with veto rights is sufficient to defend De Lotto’s monopoly for sportsbetting. Moreover, and perhaps more fundamentally, will all the current semi-permanent licence holding incumbents want such a government official meddling with their day-to-day governance? It will be interesting to see how such a fundamental issue plays out, and whether the Betfair case-law will deliver significant changes in how market access is granted. Ultimately, a real change may only emerge once regulatory reform redefines the gaming landscape, regardless of whether or not strict control materialises in the interim period. Assuming that any major disasters are avoided in the formation of the new cabinet then we expect to see the aforementioned bill for remote gaming emerge in early 2013. This will give a clear indication of how the (new) government intends to proceed. If a bill were to be adopted during the course of the same year, then licensing could feasibly commence in 2014. However, legislative processes are known for their potential to be messy and it is difficult to predict the timing of the future market opening.
Dr Alan Littler successfully defended his PhD “Member States versus the European Union: The Regulation of Gambling”, at Tilburg University, the Netherlands in December 2009.
Frank Tolboom is an associate of the Gaming, Sports & Entertainment practice group. He concentrates on advising clients active in the (social) gaming and gambling sector on all operational and regulatory aspects of their businesses. Gaming, Sports & Entertainment VMW Taxand is the only law firm in the Netherlands with a specialised multidisciplinary practice group dedicated to advising and litigating on behalf of the international gaming and gambling sector. Our focus on gaming and gambling has recently expanded to include sports and entertainment. We have a deep understanding of the sector and recognise the on-going convergence of gambling, (social) gaming, media and sports.
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Multiple conference streams that won’t simply cover the typical iGaming subjects – topics will range from business strategy to financial analysis to advanced online marketing. Logo with strapline (varies according to context)
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SPAIN Legislative development As foreseen by the new Law 13/2011 (of May 27), several regulations and ministerial decrees were published before the end of 2011, regulating everything related to obtaining the licences, the system of permits to operate the several gaming activities, the relationship between operators and players, the technical requirements that operators had to fulfil and the supervision and control mechanisms for the several gaming activities included in the Law. Amongst other aspects, the regulations dealt with the application system for the several types of licences (general and specific), the necessary requirements, the validity terms and termination and transfer conditions, as well as setting forth the authorisation procedure for gaming activities subject to specific permits and the necessary documentation for obtaining them. Likewise, a series of warranties for the performance of the activities regulated by the Law were established. In this sense, the content of the “gaming contract” and the obligations deriving from it for the operator as well as for the player, were established. All things relating to participating in games, the payment for participating in the several activities or the payment of the prizes were also regulated. The deadline for submitting licence applications ended on December 14, 2011. 50 | iGamingBusiness | Issue 77 | November/December 2012
With the change in government in Spain that took place after the general elections on November 20, 2011, and the subsequent administrative change, it was not possible to grant licences before the end of 2011 and, therefore, the term for operating without a licence free of penalties was extended until June 30, 2012, or until the granting of the first licence.
Licence granting Finally, the administrative process for the granting of gaming licences ended on June 1, 2012. 59 entities took part in the process, requesting 98 general licences and 197 specific licences. Finally, a total of 91 general licences and 186 specific licences were granted to a total of 53 entities. The operators holding general and specific licences were able to start operating as of June 5. With this new legislation, the Spanish government ensures safe and secure gaming and warns that penalties of up to €50 million and the closure of websites await those companies operating without a licence or breaking the rules.
Post-licensing environment Since the new Gaming Law came into force, Spanish authorities have focused their efforts in enforcing the gaming sector regulations and going after those operators breaking the law.
Most operators use a ‘.es’ domain and carry a certificate of safe gaming, which ensures their activity is regulated, supervised and controlled by the Dirección General de Ordenación del Juego (General Management of Gaming Regulation) and they fulfil all solvency requirements established by the Law. However, there are still many operators, largely headquartered in tax havens, who are illegally operating through ‘.com’ domains and are, therefore, not paying the corresponding taxes in Spain. Though most unlicensed betting agencies decided to deny access to Spanish players, some of them have ignored the Law and still allow bets, deposits and withdrawals to Spanish players. The Spanish government has already identified several betting agencies and poker rooms who accept Spanish players. Betting in these unlicensed ‘.com’ sites has its risks and can expose the player not only to potential loss of funds through the closure of the site, but also to possible penalties for consciously playing on an illegal web page. The Law sets forth a penalty system, with fines of up to €50 million and the closure of the web page for those companies breaking the rules. The Dirección General de Ordenación del Juego (DGOJ) is now targeting these illegal websites in order to have them closed.
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The success of these actions is key in a sector such as online gaming, because if the DGOJ were not able to efficiently target illegal gaming operations, there could be a general failure to comply with the strict requirements regarding the development of the activity. Likewise, efficiency in going after illegal gambling operations is key to establishing the credibility of the licensed operators and preventing players from using illegal gambling sites. At the same time, the DGOJ is performing an informative and preventive campaign, through payment service providers, advertisement and communication agencies, explaining the risks for illegal operators and the liabilities and penalties they could incur if they were to support them. The purpose is to prevent these companies from giving support to illegal operators, thus hindering their operations in Spain. This campaign has led to the elimination of more than 50 illegal gambling websites, representing approximately 70 percent of the illegal market. Regarding legal operators,
complete body of law providing clear rules for all aspects, insisting on matters such as advertising, development of operators’ technical systems, regulation of raffles and, if applicable, approving new gaming modalities or modifying the existing ones.
Taxation of the gaming sector One of the most important aspects of gaming regulation from the government’s perspective is the tax generated by the sector. Gaming in Spain is very popular and despite the economic crisis, its number of participants increases year after year. Last year, the Treasury collected around €60 million in gaming tax (from companies who voluntarily filed their tax returns while the government was processing the granting of the first licences), and it expects 2012 tax revenues to be significantly higher. According to the sector’s more optimistic calculations, online gaming, with net profits taxed between 20 percent and 25 percent, could generate between €300 million and €600 million in 2012, which would
“One of the most important aspects of gaming regulation from the government’s perspective is the tax generated by the sector. Gaming in Spain is very popular and despite the economic crisis, its number of participants increases year after year.” this same preventive campaign is focused on ensuring the voluntary fulfilment by operators of all requirements set by the Law. Another basic aspect on which the DGOJ is currently working is to continue to improve gaming regulations. Two more provisions issued this year, along with a Coregulation Agreement regarding advertising, sponsorship and promotion of gaming activities and a Code of Conduct about commercial communications of gaming activities have been added to the Gaming Law and all its subsequent regulations, ministerial decrees and other provisions. During 2013, all of this legislation has to be completed so that the sector can have a
represent forecasted maximum tax profits of €130 million. Therefore, in the worst-case scenario, the Treasury would collect between €70 million and €80 million this year, but if the more optimistic predictions are realised, it would double the profits of 2011. However, the Treasury itself was expecting to collect approximately €160 million in 2012, a figure which most certainly will not be reached according to the latest data. According to the Draft Law of Spanish General State Budget for 2013, €100 million is expected to be collected through the Tax on Gaming Activities and €32 million through the taxes for the administrative demarches.
Players’ tax obligations One of the main modifications for the future of gaming in Spain is the new taxation on players. The Draft Law of Spanish General State Budget establishes that it will be allowed to discount gaming losses from earnings obtained during the same tax period, and to consider the net profits obtained during the year as a capital gain, which until now was not allowed because all gross income derived from gaming was taxed, without the ability to discount losses. This measure also attempts to assimilate Spanish regulations to those from other countries. The measure refers to gaming in general; therefore, it will also affect earnings obtained in land-based casinos, which will surely have to intensify taxation mechanisms on prizes. Since all operations will be registered and at the disposal of the DGOJ it seems its control will be easier for the government. It remains to be seen how this matter will be managed from the taxpayers’ point of view. The Ministry’s technical mechanisms – especially with regards to gaming – could include gaming profits within taxpayers’ Personal Income information on Tax Returns owned by the Treasury, although this matter is still pending and is quite complicated. Even more complicated is the issue of casinos, bearing in mind the current situation where the lack of control of operations is evident. At the moment, it seems that the onus is on the taxpayer to be the one to inform about gaming activities if there are earnings, although that is still a supposition. This measure favours the interests of amateur players, who will be able to legally obtain net profits after taxes; something that was extremely complicated with the previous tax model. Also, professional players will benefit from this, because they will not have to migrate to other countries in order to continue their profession. The publication of the new rule is likely to clarify the binding queries submitted before the Dirección General de Tributos (General Management of Tax) – surely iGamingBusiness | Issue 77 | November/December 2012 | 51
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with the addition of new submissions – in relation to these matters, amongst which is considering the business of a professional poker player as an ‘economic activity’, which would open a new route for social security contributions, for example. This measure will significantly increase operators’ competitiveness in Spain and will bring clarity to the currently confusing and uncertain taxation system for players.
increase in their number would cause other operators to leave due to lack of profits for all. Therefore, during the coming years, the DGOJ will have to decide between allowing more applications to increase the number of operators or, on the contrary, be more conservative and wait to see the market’s evolution to keep or increase the number of operators who currently have a valid licence to operate in Spain.
Taxation of lottery prizes The lottery prizes organised by the Sociedad Estatal Loterías y Apuestas del Estado – SELAE (State Lottery) were, until now, free of taxes according to Spanish legislation. The Draft Law of the Spanish General State Budget for 2013 establishes new taxation regarding prizes exceeding €2,500 for 2013 and 2014. There will be a new 20 percent ‘special tax’ to be paid upon collection of the prize. Consequently, we mustn’t rule out the possibility of a decrease in the sales of lottery tickets, due to the lack of appeal, thus diminishing SELAE’s income which would mean a lower contribution to the State. This new special tax will affect lottery and betting prizes organised by SELAE and the Spanish Autonomous Communities, as well as any draws organised by the Red Cross and the Organización Nacional de Ciegos Españoles – ONCE (Blind Persons’ National Association). In 2011, the previous socialist government was planning to sell SELAE, but the new governing party, Partido Popular, ruled this out. We will have to wait and see if this new tax measure will affect SELAE’s value in any way for any future hypothetical sale, which is currently out of the picture.
Issuing new licences The gambling sector is considering the possibility of progressively expanding licenses in the future, for those companies who couldn’t or didn’t want to participate in the first stage – a view shared by the DGOJ. However, there is another argument against this because it considers there are far too many operators in the market and an 52 | iGamingBusiness | Issue 77 | November/December 2012
Cooperation between European states? In June, representatives of the DGOJ met with the regulators from France, Italy and Portugal to forge cooperation ties amongst them to fight against illegal gambling. In France, for example, the existing legislation requires authorised operators to combat illegal operators by blocking the addresses from which they operate. The state collaborates by covering the expenses generated by this activity. The mentioned countries share a common principle: gambling is an activity in which each state must ensure public order in its territory, protect players from fraud and criminal activities, prevent addiction, especially amongst vulnerable groups, ensure players’ integrity and fight against illegal gambling. The meetings were useful, and started to shape a common regulatory strategy and laid the ground for an information exchange between authorised multi-region operators as well as the fight against illegal operators, and to achieve a better understanding about the several authorised games in each country, their legal structure and the market information. In addition, the first steps for possible international liquidity in certain games and countries were discussed. These four countries are also willing to include other European countries with similar regulatory principles and strategies. This first meeting has highlighted a common cooperative interest in regulation and information exchange but any decision making has been postponed until the next meeting which is scheduled for December 2012 in Paris.
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.
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THE WINNING LAW YERS
Av. Diagonal, 584, principal | 08021 Barcelona, Spain | +34 93 201 62 66 www.martilawyers.com | firstname.lastname@example.org
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United Kingdom When London resident, Andrei Osipau, received a surprise visit from the Metropolitan Police Gambling Unit last year, catching him in possession of 5,900 scans of passports, identity cards, utility bills and bank statements, he must have known the game was up. Osipau had been using multiple identities to open online betting accounts receiving introductory bonuses on each registration. If he had not been so foolish as to send to a bookmaker two passports with different names but the same photo within 12 minutes of each other, his crimes may have gone undetected. He has plenty of time to rue his mistake as he serves out a three year prison sentence. Bonus abuse is nothing new but the reporting of it is and Osipau’s conviction in April 2012 was the first of its kind. Another first was the imprisonment in November 2011 of three Pakistani cricketers for offences of conspiring to cheat and accept corrupt payments to bowl ‘no-balls’ in a Test Match against England the previous year. As there was no proof that any crooked bets had actually been placed, the case showed that the (still relatively untested) offence of cheating under the Gambling Act 2005 (the Act) applies either to cheating at gambling or cheating at sport with equal severity. It seems highly likely that the pursuit and prevention of fraud, cheating and other gambling related crime will continue to remain high on the agenda of the Gambling Commission and other regulatory authorities over the coming year. Nearly half of all press releases in 2012 by the Commission related to gambling crime although it is not necessarily any indicator of growing criminality in the sector. On the contrary, it is probably an indication of greater resources being applied to its detection and prosecution. The Commission highlights in its annual report that spending on sportsbetting integrity alone has increased five-fold. Five years in 1
from the passing of the Act, the Commission has moved from an initial licensing first phase, through a second phase of bedding down and formulating guidance to one of enforcement and scrutiny. One area coming under increasing scrutiny – social gaming – is not gambling at all. In British law, gaming in the gambling sense means playing a game of chance for a prize (section 6 of the Act) and a prize means money or money’s worth (section 6), therefore, if all that can be won is virtual currency that cannot be exchanged for cash or spent on items of money’s worth, it is not gaming under the Act. This means that the social gaming versions of casino, poker and bingo games promoted on Facebook do not require a gambling operating licence. They escape the whole gamut of rules and regulations that gambling operators face, such as social responsibility monitoring and age verification, and that is why they can be made available to players as young as 13 years old. So far, the Commission’s approach is to watch and acquire knowledge, nevertheless making the point in its 2011/12 Annual Report, that it is devoting more attention to “technological and social developments” so that it can be “well placed to address the opportunities and any emerging risks to the public”. One curious case that may have unforeseen consequences for the future of social gaming is the 2011 conviction and imprisonment for two years of Ashley Mitchell for hacking into Zynga websites and stealing virtual currency poker chips. If purchased legitimately from Zynga, the chips would have cost some $12 million and Mr Mitchell made £53,000 selling about a third of them via false Facebook accounts and a front company before he was caught. Despite the fact that Zynga has an infinite supply of the chips and that officially they do not have
Transposed into UK law by the Privacy and Electronic Communications (EC Directive) (Amendment) Regulations 2011
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consumer to understand, which makes one wonder whether in some cases consent really means ‘informed’ consent. The security of data is another area of increasing importance and the UK’s Information Commissioner seems (finally) to be taking a tougher stance with those who are careless. In October 2012, Greater Manchester Police was fined £150,000 for breaches of the Data Protection Act as it failed to encrypt memory sticks used by its officers to copy data from police computers for access away from the office. One such officer had an unencrypted memory stick stolen from his home that contained details of more than a thousand people with links to serious crime investigations.
Point of consumption licensing With most gambling websites situated offshore, the remote gambling sector has remained largely untouched by the long arm of the Commission and provided such operators are regulated by a country in the European Economic Area or licensed in Gibraltar, or in a white listed territory (Alderney, Isle of Man, Antigua and Tasmania), they are free to advertise to and transact with people in Britain. Following a consultation process that has meandered over the last couple of years, the government announced in the March 2012 budget that it will introduce a place of consumptionbased tax regime to compliment a national licensing requirement for all remote gambling operators who wish to advertise to and transact with people in Britain. This will probably not now take effect until December 2014 and only following a further public consultation on the proposed changes to the Act. In the meantime, operators licensed in the UK will get double taxation relief so that they will not pay 15 percent remote gambling duty on their remote gambling profits earned from non-UK players if they are already paying gambling tax elsewhere. One cannot imagine that either the Commission or the government seriously expect that this will reverse the current arrangement where the vast majority of operators who might otherwise base their
businesses in Britain are offshore due to the huge tax advantage it offers. Even if after 2014, an operator situated in (what is currently) a white list territory has to pay 15 percent remote gambling duty on gross profits from British customers, he will still probably pay zero or a negligible amount of corporation tax on his offshore business and a low amount or no gaming duty on his non-British sourced revenue. By having a secondary British licence, he can still claim any additional creditability attached to it, so where is the incentive to locate in Britain? One of the big risks with point of consumption licensing is that it might inadvertently create a grey market of its own. The government has been quite open about its limited ability to enforce the new regime. Whilst it will be a criminal offence to transact with British consumers without a licence, the government has rejected ISP and Financial Transaction blocking due to their limited success, although it would probably include a provision in any new law so that these can be introduced at a later date if thought necessary. Further, it has rejected extradition as a means to bring offenders to book, saying in its March 2010 consultation document, “We have considered whether this offence should have extra-territorial application; however, on balance we believe that extradition, given the resources and the diplomatic sensitivities involved, would be disproportionate in relation to the offence committed and the likely harm caused.” The government hopes to enforce the new law by a mixture of what it calls “consumer awareness raising measures” such as a dedicated area on the Commission’s website where consumers can check the licensed status of operators, and learn which operators are trying to access the market without a licence. It will also encourage informers to tell the Commission of any operators that have been targeting British consumers without a licence. No doubt those who have forked out for one of the new licences will be motivated to offer up information on those who have not. The other way the Commission hopes to enforce the law is by agreements with the
“home regulators” of operators targeting Britain so that they risk losing the licence issued by their home regulator if they continue to target the UK market without obtaining a licence here. Ironically, the former Chair of the Commission, Peter Dean, suggested the contrary approach in his recent report on the handling of Full Tilt by the Alderney Gambling Control Commission when he said, “AGCC should establish a proper direct relationship with its licensees and not resort to intermediaries as a matter of routine.” The traditional position adopted by the AGCC and other offshore regulators is that they cannot be responsible for interpreting or enforcing the laws of other jurisdictions and the onus is placed on licensed operators to conduct their operations in compliance with local laws. Britain takes a similar approach as there is a provision in the Act (section 44) whereby it is an offence if a person does anything in Britain for the purpose of inviting or enabling a person in a prohibited territory to participate in remote gambling. To date, the Secretary of State has not prohibited any such territories whether the US, France, Italy, Norway, China etc. With an operating licence from the Commission, it is no breach of UK law to offer gambling to residents of all those countries. Expecting other territories to help the UK enforce its national licensing scheme without any reciprocation may raise a few eyebrows to say the least. Indeed, there are indications that some offshore operators may be prepared to launch a challenge by way of Judicial Review (JR) when the new law is published on the basis that such changes are in breach of EU legal principles (e.g. an unjustified restriction on the freedom to provide services cross border).
Future outlook MPs have expressed some frustration with the government’s policy on remote gambling and feel that the proposals for the future regulation of remote gambling remain very unclear particularly with regard to how the Commission intends either to approve and monitor regulators in other jurisdictions or to directly regulate and licence all the iGamingBusiness | Issue 77 | November/December 2012 | 55
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individual companies which operate in the UK (paragraph 154). It felt that the tax rate should be set at a level which discourages the formation of a grey market and should look to encourage operators to base themselves in the UK; nothing new there and nothing likely to change either. Those looking to challenge the proposed point of consumption licensing might find some of the comments in the report helpful, particularly the observation by the Committee that it had seen no evidence to suggest that the existing white listed jurisdictions posed a greater threat of problem gambling than UK or EU-based operators – which was one of the implicit justifications for requiring national licences. Another issue that troubled the Committee was the repercussions of the Black Friday case and it said that it welcomed assurances from the Department of Culture, Media and Sport that it will “take into account the lessons learned from the Full Tilt case” (paragraph 138) and suggested that “the Gambling Commission should consult the industry as to what form of ‘ring fencing’ or protection of player accounts, by all UK-regulated online gambling operators, would be a proportionate response to the worries arising from this unfortunate episode.” Online operators are likely to come under pressure (if they have not already) to demonstrate to all their regulators that they have in place some form of effective segregation of player funds. The government is due to provide its response to the Report in the very near future. It is unlikely to contain anything radical as gambling remains a risky subject in British politics and the less attention it attracts the better from any government’s point of view. A similar inertia affects pan-European policy on gambling, yet this is more often driven by the desire to protect national tax revenues than from any lack of interest in the subject of gambling. One area that the European Parliament has repeatedly emphasised, and does seem to have a common view on, is the prevention of fraud. Disappointingly though, there is a persistent belief that online gambling is a prevalent source of money laundering despite the lack of evidence to support any 2
such conclusion. In April 2012, the European Commission adopted a report2 on the application of the Third Money Laundering Directive that recommended a broader definition of gambling in the anticipated Fourth Money Laundering Directive so that it would cover other gambling activities beyond land and online casinos. Fortunately, the report recognises that “consideration could be given to capturing gambling activities which pose higher AML/CFT risks, while avoiding the imposition of an excessive burden on lower risk activities.” Under the Money Laundering Regulations 2007, only those operators who hold a remote or nonremote casino operating licence granted by the Commission are subject to a full money laundering compliance regime (identifying customers, training staff, maintaining records, appointing an MLRO and setting up a reporting structure). Judging by the length of its existing guidance on money laundering compliance for licensees outside of the 2007 Regulations, the Commission might welcome an extension so betting and bingo operators will have to make a case if they are to avoid being landed with increased onerous compliance obligations. If regulation in the UK gambling sector seems likely to remain fairly settled over the next couple of years, the position across Europe is far from it. At the end of June 2012, Michel Barnier, the member of the EC responsible for Internal Market and Services, announced an action plan for the EU regulation of gambling. The plan was formally launched on October 23, 2012, after a consultation period. It is not a plan about expanding choice, improving competition, encouraging innovation or delivering value; it is about increasing regulation and agreeing common standards in various areas of control. The objectives are admirable, though, and the plan’s three themes – common protection of consumers, responsible gambling advertising, and the prevention of and fight against betting related match fixing – are uncontroversial. The aim is to formulate, through mutual cooperation between Member States, a “basic set of guarantees applicable throughout
A copy of the report is at http://ec.europa.eu/internal_market/company/docs/financial-crime/20120411_report_en.pdf
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Europe”. The EC aims to achieve this by setting up an expert group to exchange the experiences of Member States and make recommendations. The first meeting of the group is planned for December 2012, followed by a stakeholder conference some time in 2013. Achieving the plan’s objectives is no easy task although one that, on the face of it, most Member States would (claim to) support. In an effort to ensure that the states (who, after all, have the right to determine their own national gambling policy) do not merely give lip service to the plan, the EC has indicated that it will write to a number of Member States for updates on their gambling law, implying that it might reopen stalled infringement proceedings or initiate new ones. Stepping back, the fundamental question that still remains is, now that the prospects of any EU gambling law on mutual recognition of licensees are dead in the water, how will the sector develop – as a fractious and competitive regulatory environment between Member States, or a series of harmonious and cooperative agreements embodied in memoranda of understanding and underpinned by EU wide common standards? The UK is probably less concerned about the future than the offshore licensing regimes who are not part of the EU; with the vast majority of the online industry licensed outside Britain already, it has more to gain than to lose from any upcoming changes. Peter Wilson is a regulatory lawyer and the founder of his own niche firm, Peter Wilson Legal LLP, specialising in gambling and business investigations. The gambling practice has been built up over 20 years expanding from advising UK land-based businesses to an international iGaming practice with clients in over a dozen jurisdictions. Peter is known for his comprehensive industry knowledge and sensible, practical advice. He lectures widely and provides training and consulting. Peter has been recognised for many years as a leading individual in both Chambers UK and The Legal 500, and is Chairman of the Society for the Study of Gambling. Contact Email: email@example.com Web: www.peterwilsonlegal.com
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GIBRALTAR The current legal landscape Historically, remote gaming operators established themselves in Gibraltar primarily for tax reasons (low to zero taxation at the time). With the eventual phasing out of the tax exempt company came a renewed drive for the highest regulatory standards and a focus on excellence in regulation whilst at the same time Gibraltar was attempting to introduce a ten percent corporate tax rate across the board. One compelling reason to set up in Gibraltar was eventually (and almost seamlessly) replaced with another, and whilst Gibraltar was going to drop zero tax rates due to outside pressures, looking back at it now, I donâ&#x20AC;&#x2122;t think anyone can argue that dropping the tax incentive and bringing in unparalleled levels of regulation as the key selling point for Gibraltar was the right course of action. However, and I stand to be corrected, this may well have been the product of pure coincidence rather than a grand master plan. Since the enactment of the Gibraltar Gambling Act 2005 (the Act), Gibraltar licensed operators now work within a robust legal and regulatory framework 58 | iGamingBusiness | Issue 77 | November/December 2012
designed to cater for the modern needs of the industry enabling a continued and sustainable growth of the Gibraltar iGaming sector to where we are now in 2012. The Act was, at the time, a much needed development required to address looming regulatory and reputational concerns as Gibraltar was the focus of media attention after the well-publicised ďŹ&#x201A;otation of several Gibraltar licensed iGaming companies. The Gibraltar iGaming industry needed the legislation in order to respond rapidly to a highly competitive and fast moving environment in 2006 and we have continued to see many regulatory developments across the world since then, not to mention the UIGEA in the US. Today, the Gibraltar online gambling industry has cemented itself as one of the pillars of the local economy. At present, there are well over 20 licensed iGaming operators in Gibraltar. The number of licensed operators may seem low when compared to other iGaming 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 UKâ&#x20AC;&#x2122;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 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, and is part of the European Economic Area. The Gibraltar framework employs a separate Licensing Authority and a Gambling Commissioner. The Licensing Authority for Gibraltar is headed by the Minster for Gaming responsible for (amongst other things) the grant, renewal
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and revocation of both land-based and remote gambling licences issued under the provisions of the Act. The Gambling Commissioner, Phil Brear (the Commissioner) ensures compliance with the terms of licences and the Act as well as any Codes of Practice. Maintaining Gibraltar’s good reputation underpins the licensing criteria followed in Gibraltar to licence and regulate online gambling. Generally, the Act deals with all core remote gambling aspects 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. In addition, there is now a Generic Code of Practice and Anti-Money Laundering Code and a Remote Technical and Operating Standards Code, all of which have been issued under the Act by the Commissioner and all of which serve to supplement and provide interpretive guidance on the Act, to assist operators in complying with the same. The Codes are all legally binding under the Act and also under the terms of 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. 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 not illegal 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. The general view in Gibraltar is that operators should be sophisticated and
responsible enough to ensure that they do not operate in, 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 sponsoring activity of whatever type and through whatever medium (including the Internet) be truthful and accurate and exclusively targeted at adult players and not designed to appeal in any way to minors.
continuing in the European Courts, most if not all operators seem to have now accepted the EU regulatory reality which follows a global trend, no doubt inﬂuenced by the age of austerity in which we are living.
Future forecast At present, EU operators work within a patchwork of national state imposed restrictions which, in many people’s view, continues to hamper a free choice iGaming model for EU consumers and operators.
“Instead of establishing the sort of level playing field emerging in most consumer-facing industries, the gaming industry may well be turning the other way to a country-by-country tax and licensing system across Europe.” Operators are also prohibited from advertising, promoting, operating or linking to sites containing violent or immoral content or content which may be designed for access by minors. From a Gibraltar perspective, so long as the Gibraltar 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 they are subject to. Given that a Gibraltar licensee is licensed within the European Economic Area with all the legal consequences that this brings, a Gibraltar operator is free in principle to provide its services throughout the EU; at least that is the theory, the practice is somewhat different. With many EU 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. Despite legal challenges to this
We have seen some countries such as France, Italy and recently Spain moving towards a system of ‘.dot’ country regulation and taxation rather than to a harmonised free market system within the EU. Even the UK, a long standing champion of the free market principle, has now followed the trend by announcing, consulting and looking to impose a licensing requirement on any operator looking to access the UK market and, as a result, a point of consumption tax system. A coincidental alignment of the Treasury and DCMS stars? I think not. These developments herald a rather sobering prospect: instead of continuing along the EU harmonisation road to the establishment of the sort of level playing field emerging in most consumer-facing industries, the gaming industry may well be turning the other way to a country-bycountry tax and licensing system across Europe. Despite these trends, emerging business has never been better for the consumer (at least from the perspective of choice), with the more recent onset of the now truly mainstream and recognised area of social gaming. In recent years, and very iGamingBusiness | Issue 77 | November/December 2012 | 59
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sharply during 2012, we have seen social or casual games and social media businesses monetising (or attempting to monetise) either by joint venture with established iGaming companies or entering the regulated online gaming arena themselves. It is now well established that Gibraltar is a major hub for the most well-known online gaming operators in the world. With this reputation, Gibraltar is able to pick and choose which operators establish and become licensed in our jurisdiction, but with this comes a high degree of responsibility, not just for the local government and regulator but also for the operators who are by definition the major stakeholders in the Gibraltar iGaming industry. There is no question that current licence holders are subject to a very high level of regulation and supervision by the Gibraltar regulator and indeed the licensing authority team. With the advent of any new development within the industry, the world watches how jurisdictions such as Gibraltar regulate gaming and any new innovations and take the necessary measures to ensure corporate responsibility is prevalent in this most fast moving and dynamic of industries. So what does the future hold for Gibraltar and its resident iGaming stakeholders? And how will the face of online gaming change in the coming years? What will be the next big thing that happens to the industry and how will Gibraltar handle it? In my opinion, it has to be social gaming. What is social gaming? The basic definition must be that they are games that feature on a social website site or platform. Some of them are not very social at all, but they originate from the likes of Facebook. The reason why these games are such a big deal to the iGaming sector lies not so much in the quality or innovation of the games themselves, but rather the huge audience and exposure that games on social sites enjoy. Traditional operators have been watching this industry grow for the past seven years or so, and now it seems that every online gaming operator wants a piece of the social gaming pie as enlightened operators understand the potential to use social games as an 60 | iGamingBusiness | Issue 77 | November/December 2012
acquisition tool – which means potential for increased player liquidity and revenues for operators. Many online gaming giants have already struck some highly valued partnerships and made strategic (and costly) acquisitions across the social gaming spectrum to ensure they don’t miss out on the emerging trend. The success of social games, particularly in the last year, its enormous appeal across all demographics, the huge volumes of new social gamblers and potential real money customers, has focused the industry on a new phenomenon, and one that is growing fast. The UK Gambling Commission has recently dismissed rumours that it is investigating how it can regulate social gaming in a similar fashion to real-money gambling. However, although this might not be the case, it is very probable that every regulator worth its salt is currently being forced to monitor the social gaming/ iGaming sector due to technological advances which in some ways could push the boundaries of the Gibraltar and UK Gambling Acts given the increasing technical complexity and overlap between the two offerings. Most regulators will agree that social gaming is on the perimeter of the law and, as a result, outside the ambit of current licensing frameworks and regulation. However, any amendments to current law or changes to the way in which regulators interpret the salient legal provisions in domestic gaming legislation, could bring the social gaming industry straight into the realms of the law and regulation. The social and iGaming industries know this, hence the close monitoring by operators and regulators alike. The question of whether social gaming should be regulated is currently something that is open to further interpretation and no doubt as public pressure, media attention and changes to public policy evolve, governments will be compelled to deal with the issue one way or another. I think regardless of whether the game is a game of chance or a game of mixed skill and chance, the real issue is whether winning virtual coins or credits rather than
real money is to be deemed ‘winnings’ or ‘prizes’ and thereafter deemed to be gaming or gambling which requires a licence and on-going regulation/supervision. At the moment, as long as these virtual credits cannot be converted back into money or money’s worth in the ‘real’ world then the activity would not be generally considered gambling. However, we shall see if this view continues to prevail in Gibraltar and beyond so watch this space. 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 is a leading international law firm providing legal services in Gibraltar. A firm of Gibraltar lawyers established for almost 120 years, we offer our clients solid professional advice based on experience and expertise. Truly independent, our clients enjoy the benefit of our commitment, continuity and the close personal interest expected of a long-established law firm. We are consistently ranked as one of the leading law firms practising Gibraltar law by the major internationally recognised legal directories. The services on offer range from the traditional offering of criminal and civil litigation specialists, looking out for and protecting your interests, to a growing and dynamic team of commercial Gibraltar lawyers possessing knowledge and expertise in emerging and growing areas of practice such as funds and online gaming. ISOLAS has a dedicated team of professionals with broad and in-depth experience with transactions, regulation and legal issues facing companies and their suppliers involved in gaming, gambling, betting, lotteries (both remote and land-based) and e-commerce business generally. The Gaming Team regularly assists companies in this sector, from start-ups and gaming license applications to large corporations, in commercial and corporate transactions. Whatever the nature of the Gibraltar legal advice you’re looking for, you can be assured of quality, considered and sensible advice given in a commercial context, designed to maximise the potential of your business concept or operation.
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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: firstname.lastname@example.org Portland House Glacis Road PO Box 204 Gibraltar. Tel +350 200 78363/+350 2000 1892
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The Isle of Man Having tripled in size since 2006 and now employing over 400 people, the Isle of Man is fast becoming one of the most dynamic and reputable jurisdictions in the online gambling industry. As a Tier 1 jurisdiction with an array of excellent legal, accountancy and fiduciary firms to support their development, a growing network of online gambling businesses and software development companies are looking to the Isle of Man as the centre of their business operations.
Advanced infrastructure The Isle of Man has an advanced telecommunications infrastructure and is frequently used as a test bed for emerging technologies. The island boasts leadingedge fixed and mobile telecoms networks, numerous disaster recovery and hosting facilities and highly-resilient bandwidth connectivity, together with world class data centres offering gaming specific expertise and industry leading DDOS mitigation solutions.
Business friendly The island has a competitive tax strategy which has strengthened its position internationally. It offers a number of economic benefits, from a zero percent tax regime to structured financial assistance for relocating businesses. For 2011/12, the corporate tax rate for non-banking and nonproperty related companies on the Isle of 62 | iGamingBusiness | Issue 77 | November/December 2012
Man (including online gambling companies) is zero percent. There is low betting duty and no capital gains tax, no stamp duty, no inheritance or succession tax. The Isle of Man is also becoming the preferred location for non-UK companies looking to incorporate when listing on the AIM or main markets.
A diverse and resilient economy Despite the recent economic turmoil, the island has retained its triple-A rating from Moody’s since 2000 and boosts an AA+ rating from Standard & Poor’s. Its diverse range of industries from aerospace, banking, financial services, manufacturing, ship and aircraft registration, space commerce and film production industries has seen the island’s economy grow consistently for over 27 years. The island also enjoys a special agreement with the European Union which allows the movement of goods within the EU without tariff. As a self-governing British Crown Dependency, the Isle of Man has its own government and laws but maintains important ties with the UK.
Straight forward application 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 online gambling industry. Its business friendly
regulatory framework provides a pragmatic licensing regime that seeks to protect the consumer and aid business growth. • Since the Online Gambling Regulation Act 2001 (OGRA) came into force, licences are granted by the Isle of Man Gambling Supervision Commission (GSC). One type of licence covers all licensable activities available at three levels: Network Services Licence, Standard Licence, Sub-Licence. • A typical application will be processed within 10 to 12 weeks and a dedicated team in the Department of Economic Development provides support to applicants throughout the entire process. • Peripheral activities such as marketing, software, and disaster recovery can be hosted or carried out without the need for an OGRA licence. • Unique legislation for disaster recovery, which permits immediate switch over for up to 90 days without a licence.
Legal framework The GSC is an independent statutory board established in 1962, responsible for the regulation of all forms of gambling (other than the National Lottery) on the Isle of Man, including 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
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fair and open way, to protect the young and vulnerable, and to prevent gambling from being a source of crime or disorder or used to support crime. It undertakes due diligence on new applicants and also undertakes post licensing reviews, ensures that player protection mechanisms are appropriate, and investigates complaints from players. The Commission also has a duty to protect the reputation of the Isle of Man whilst being careful to ensure that the island’s online gambling companies can compete effectively on the global stage. The Isle of Man’s Department of Economic Development is responsible for the promotion and development of online gambling on the island and offers supplementary help and support to any online gambling businesses looking to establish on the island. This unique legal framework has enabled the Isle of Man to position itself as a premier jurisdiction when it comes to online gambling, licensing and regulation. The primary legislation regulating the online gambling industry in the Isle of Man is OGRA which covers all online games, betting and lotteries that: • use telecommunications (phones, Internet, servers, etc) • involve players betting money (or money’s worth) • incorporate any element of randomness or chance Accordingly, the following is a non exhaustive list of the type of activity that would require a licence from the GSC: • sportsbooks • betting exchanges • casino games • peer to peer games (e.g. poker) • mobile phone betting • betting on financial markets – but note that spread betting would be licensed by the Isle of Man Financial Supervision Commission • pari-mutuel and pool betting • network games • online lotteries In addition to this, operators who intend to establish on the Isle of Man must:
• establish a Manx company • have at least two local directors, who must be individuals and not corporate entities • appoint at least one resident designated official, or where the designated official cannot reside in the Isle of Man, an operations manager • register players in the Isle of Man and their servers, hosting player data, must also be on the island • gambling and trading accounts should be with a bank on the Isle of Man 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. OGRA excludes certain established activities from its scope despite their possible connection with telecommunication-related gambling 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. A business undertaking licensable activities for the purposes of OGRA will need an OGRA licence which permits the full spectrum of gambling activities outlined in the regulations to be undertaken and comes with a set of conditions and other requirements, most of which are generic, some of which may be specific. A sub-licence can be obtained if the applicant wishes to operate exclusively with a technology provider with a full OGRA licence regulated by the GSC. The island has bespoke anti-money and prevention of terrorist financing legislation for the online gambling industry in the
form of the Proceeds of Crime (Money Laundering – Online Gambling) Code 2010 and the Prevention of Terrorist Financing (Online Gambling) Code 2011.
Data protection Customer data is essential to all online gambling operators. An aspect that is often overlooked when deciding where to incorporate an online gambling operator is its data protection legislation. Importantly, 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. On January 25, 2012, the European Commission published its proposals for reforming data protection legislation in Europe by replacing the 1995 Directive that forms the basis for the UK’s Data Protection Act 1998 and the Isle of Man’s Data Protection Act 2002. The island is already working to ensure that it retains its adequacy finding in light of the new proposals.
Future forecast 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. 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. iGamingBusiness | Issue 77 | November/December 2012 | 63
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A network services licence must be obtained if the operator wishes to allow one or more foreign registered players onto 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) although different types of licence condition may be imposed on different activities. 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. 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. 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. Licensing and regulatory legislation on the 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. 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 constant dialogue on the changing needs of the online 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 64 | iGamingBusiness | Issue 77 | November/December 2012
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 remains one of the countries named in the ‘white list’ under the UK’s Gambling Act 2005 and, therefore, Isle of Man operators are entitled to advertise their services in the UK. This means that the Isle of Man gambling jurisdiction meets the UK Government’s regulatory requirements regarding the openness, fairness and security of the licensed online gambling operators. The UK Department of Culture, Media and Sport (UK DCMS) announced plans to reform the UK Gambling Act 2005 on July 14, 2011. The UK 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, with operators already in white listed jurisdictions receiving “an automatic transitional licence”. Much of the detail of the new arrangements has yet to be determined and at the time of writing, the timescale for such has yet to be finalised. 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 European regulatory framework continues to proceed in a fragmented, Member State by Member State basis. The GSC has Memoranda of Understanding with Denmark and Malta and is actively seeking more. 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 to regulate online gambling. It seems clear that regulation at the point of the consumer is the way the sector is
moving. With over ten years’ experience of regulating the online gambling field, the Isle of Man can be key to the formation of these policies by sharing its experience and practice with other regulators. This publication is intended only to provide a summary of the subject mattered covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. October 2012 © Appleby
Claire Milne is the Isle of Man Team Leader for the Intellectual Property & Telecommunications and Technology teams and is a partner in the Corporate & Commercial department at Appleby, Isle of Man. She has advised IT companies for over 16 years and has been accredited by The Law Society of Scotland as a specialist in Intellectual Property Law for ten years.
Appleby’s Isle of Man office, Appleby (Isle of Man) LLC, has been involved in providing online gambling advice to clients since the start of the industry on the Isle of Man back in 2001. As the largest all service law firm on the island, Appleby (Isle of Man) LLC has 10 partners, over 100 staff and at a group level has over 75 partners with over 800 staff. Our specialist lawyers advise e-gaming clients on all aspects of regulatory advice, obtaining an online gambling licence, intellectual property, anti-money laundering legislation, player terms and conditions, B2B agreements, affiliate agreements, data protection, employment law, work permits, leasing and buying of commercial property and all aspects of corporate advice from shareholders’ agreements to listing. Working in conjunction with Appleby Trust (Isle of Man) Limited our Isle of Man team advises on all aspects of company incorporation and administration. As an offshore legal services provider, Appleby lawyers also advise on the principal areas of corporate and commercial, litigation and insolvency, property, and private client and trusts. We work with our clients and their advisers to achieve practical solutions, whether in a single location or across multiple jurisdictions. From the Isle of Man our lawyers advise clients in relation to Isle of Man law and British Virgin Islands law and are able to facilitate the provision of legal advice in Bermuda, the Cayman Islands, Guernsey, Jersey, Mauritius and the Seychelles.
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FOCUS Behind the facts and figures, you will find one cohesive firm Appleby (Isle of Man) LLC: operating within the world’s largest offshore law and fiduciary group. T: +44 (0)1624 647 647
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Malta Malta continues to offer a very interesting combination to international businesses looking for an onshore establishment within the European Union. It has a tried and tested remote gambling regulatory framework, is a sovereign state and a member of the EU, offers a reasonable fiscal environment, cost of labour and has a significant pool of well trained human resources working in the gambling industry.
Europe-friendly laws The Lotteries and other Games Act 2001 is the main piece of legislation which governs the provision of gambling in and from Malta. Together with the UK’s Gambling Act 2005, it is the only ‘parent act’ in the EU which sets out a framework for remote gambling that is fully in-line with the principles of the EU’s internal market. A company can offer gambling remotely in and from Malta and, therefore, avail itself of the business advantages which Malta offers, if it is licensed by Malta’s Lotteries and Gaming Authority or by an equivalent authority in another EU Member State. In fact, apart from the over three hundred LGA licensees in Malta, there are also at least a score of operators licensed by the Italian AAMS, over 20 operators licensed by the Danish Gambling Authority, a handful licensed by the French ARJEL and a similar amount of operators licensed by the Spanish 66 | iGamingBusiness | Issue 77 | November/December 2012
DGOJ. This latter group of operators has availed itself of the freedom of establishment which operators in the European Union are entitled to under the Treaty on the Functioning of the European Union (TFEU). The European Commission, which amongst other things is responsible for policing the TFEU, has repeatedly insisted to Member States that the freedom of establishment is one of the internal market principles which cannot be deviated from. In addition, licensees of other EU Member States not based in Malta are allowed to use a Malta-based and licensed gaming platform. Due to the presence of some of the leading games platform providers in Malta, several operators licensed and based in Gibraltar as well as in the UK, Romania and Finland have been able to take advantage of Malta’s recognition of remote gambling licences. The Malta Lotteries and Gaming Authority (LGA) is also seeking to conclude bilateral cooperation agreements with a number of jurisdictions, in a drive to improve cooperation with other regulators and facilitate operational issues such as server location for remote operators already holding a Malta licence. One such agreement is already is already in place with the Danish Gambling Authority. It will be interesting to see how other negotiations in which the LGA is engaged will develop in the wake of the European
Commission’s proposals for the online gambling sector entitled, “Towards a comprehensive European framework for online gambling”, announced by Commissioner Barnier on Tuesday, October 23.
Economic and social contribution The most recent data available to us regarding the remote gaming sector’s contribution to Malta’s Gross Domestic Product (GDP) is that commissioned by the Malta Remote Gaming Council, presented by Deloitte Malta at the Radisson Blu in St Julian’s, Malta on July 20, 2012. According to Deloitte’s findings, Malta remote gambling licensees generated in excess of €175 million in direct expenditure in Malta and employed over 3,700 employees in 2010. These figures have certainly increased since then and do not include items such as the incidental contribution to the tourism industry, number of business trips and hotel nights generated by this sector. Apart from the economic contribution, there is a significant social aspect which cannot be ignored. Of the 3,700 employees referred to in Deloitte Malta’s report, 74 percent are said to be “non-Maltese”, which means that in 2010, there were over 2,740 non-Maltese persons living in Malta and working in the remote gaming sector. This has led to the ‘cosmopolitisation’ of certain
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areas of the island and the consequent local investment to ensure that adequate services are provided should not be underestimated. Despite the fact that, a few years ago, several of the persons engaged in the industry in Malta were likely to be either owners working on a start-up or junior to mid-level employees, the growth of several operators has led to an increased presence of senior level executives and business owners.
Highly qualified persons rules In the past year, the influx of senior personnel has also been driven by the introduction of so-called Highly Qualified Persons (HQP) Rules – a scheme that drastically reduced the income tax payable by certain employees of licensed gaming companies from 35 percent to 15 percent and which, therefore, benefits not only the employees themselves, but also their employer companies. Previously, the HQP Rules only covered specialists in the financial services sector, but were extended to apply to those carrying out certain functions within entities licensed by and/or recognised by the LGA. There is no reason why they should not also equally apply to executives working with Maltabased licensees of other EU Member States. In brief, the HQP Rules establish a framework which rewards highly qualified persons occupying ‘eligible office’ with corporate bodies licensed by the Malta Financial Services Authority (MFSA) in the financial services sector or the LGA in the gaming sector. The posts comprising ‘eligible office’ in the gaming industry are C-level positions (CEO, Chief Risk Officer, CFO, COO, CTO, and Chief Commercial Officer) and other high management positions (Odds Compiler Specialist, Head of R&D [including Head of Search Engine Optimisation and System Architecture], and Head of Marketing [including Head of Distribution Channels]). For this scheme to apply to an individual a number of requirements must be met: • The beneficiary must be an individual who derives income subject to tax as a salary from a company licensed by the LGA;
• He must be protected as an employee under Maltese law, irrespective of the applicable legal relationship, in the sense that he exercises work for or under the direction of someone else, is paid in respect thereto and possesses the required adequate and specific competence. • He must prove to the satisfaction of the competent authority that he is in possession of professional qualifications, attested by evidence of educational qualifications or, if applicable, five years of professional experience relevant to the sector, and that he performs activities of an eligible office. • He must have a minimum annual income of €75,000 (excluding fringe benefits and bonuses) not having benefited from deductions available to investment services expatriates for relocation costs and other deductions. The HQP Rules also impose other, more generic requirements on prospective beneficiaries, such as showing to the satisfaction of the competent authority that he/she receives a stable income, resides in accommodation regarded as normal for a comparable family in Malta, possesses a valid travel document, covered by a health insurance and is not domiciled in Malta. If all of these requisites are satisfied, a person may exercise the option to be taxed at a rate of 15 percent up to a maximum income of €5,000,000, beyond which the excess is tax exempt. This applies for a consecutive period of five years with respect to European Economic Area (EEA) and Swiss nationals and four years for third country nationals. The benefit must be applied for on a yearly basis, but may not be enjoyed by any person who was employed for a period exceeding two years preceding January 1, 2010, under a contract of employment requiring the performance of his duties in Malta. Moreover: • An EEA or Swiss national who, up to two years before January 1, 2010, was employed under a contract requiring the performance of his duties in Malta, may only enjoy the benefits deriving from the HQP Rules for not more than three consecutive years commencing from the year of assessment
(2011). Where such an EEA or Swiss national would have been employed as aforesaid for up to one year, such person may benefit under the HQP Rules for not more than four consecutive years commencing from the year of assessment. • A third country national who, up to two years before January 1, 2010, was employed under a contract requiring the performance of his duties in Malta, may only enjoy the benefits deriving from the HQP Rules for not more than two consecutive years commencing from the year of assessment. Where such a person would have been employed as aforesaid for up to one year, that person may benefit under the HQP Rules for not more than three consecutive years commencing from the year of assessment. Finally, the HQP Rules contain anti-avoidance provisions supplementing the general rules forming part of Maltese tax law. Indeed, the Commissioner of Inland Revenue is required, by order in writing, to determine the liability to tax any person who makes use of artificial arrangements in order to enjoy the benefits set out by the Rules. The liability to tax must be such as to nullify any benefits obtained under the HQP Rules, and may be supplemented by penalties and additional tax payments in certain circumstances. It must be noted that the Rules allow a right of appeal in this regard.
Parliamentary elections The current government’s term expires in May 2013 and elections must be held by August of next year. Although the current government is Constitutionally entitled to stay in office until the end of its term in May, the political situation is volatile since the government effectively lost its one seat majority in parliament earlier this year when one of its MPs resigned from the Nationalist Party. This MP now sits as an independent MP. To make matters worse for the government, it is unlikely to be able to rely on the support of all its remaining MPs, one of whom declared in recent weeks that he is unlikely to support the government’s budget for 2013. Given the political situation, the two main Maltese political parties (the Nationalist Party, iGamingBusiness | Issue 77 | November/December 2012 | 67
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which is a centrist party, and the Labour Party, which is socialist in many respects) are already in electoral mode. Given that there are only two main parties in Malta, it will most probably be either the Labour Party or the Nationalist Party who will win the election with an absolute majority and form a government, although there is a small chance of a coalition government should the Green Party or an independent MP be elected to parliament and should neither of the two main parties obtain an absolute majority. In any event, due to the importance of the remote gambling industry to the Maltese economy, it is unlikely that there will be any major shift in policy, whether one party or another is elected. One would hope that if the Labour Party is in government, it would favour continuity in this sector. Whereas it ought to be kept in mind that periodical regulatory adjustments are necessary in view of technological developments in this sector, certainty and consistency of approach on the government’s side are vital for business. Continuity is also important in view of the ongoing regulatory developments in the EU.
The impact of the EU Commission’s ‘action plan’ on remote gambling On the same day that the European Commission made public its ‘action plan’ on remote gambling, it revitalised infringement proceedings taken against several EU countries in relation to their gambling laws. It also requested information from others following complaints received by the European Commission about these countries’ gambling laws being in breach of EU law. Infringement cases or complaints are currently open against Member States including Sweden, the Netherlands, Germany, Greece, Finland and Hungary. Most of these infringement cases have been pending since 2008. Commissioner Barnier clearly warned that “[i]f some Member States clearly go beyond the red lines, then we will take action”. Since it is only entities established within the EU which can avail themselves of rights under the TFEU, the European Commission’s message was comforting for several companies established in Malta; arguing, as it was, against unjustified restrictions 68 | iGamingBusiness | Issue 77 | November/December 2012
and protectionist regimes imposed by other Member States. It is also likely that others seeking to set up operations in a manner that allows them to claim EU law rights will now look more favourably on establishing a presence and obtaining a licence in Malta. A defendable legal position should be a fundamental requirement for operators wishing to stay on the right side of the law. The European Commission’s communication also contained three main recommendations: • common protection of consumers • responsible gambling advertising • the prevention and fight against bettingrelated match-fixing The proposals regarding the protection of consumers and citizens focus on the need to ensure the protection of minors, to enhance responsible advertising and prevent problem gambling or gambling addiction. In addition, the Commission quite rightly feels it is necessary to increase cooperation in Europe on anti-money laundering, tackling identity theft and other forms of cybercrime and safeguarding the security of gambling equipment. Ensuring effective deterrence of match-fixing via better education and increased awareness for sports people, faster information exchange, and so called “whistleblowing” mechanisms is also necessary and quite rightly included in the Commission’s action plan. The key point now is to see how all of these ‘desirables’ will develop. It seems somewhat strange that within a functioning Internal Market in the EU, an industry that according to the European Commission itself is estimated to amount to €13 billion in 2015, is regulated in such a piecemeal fashion. However, those who have followed the development of the industry know how we got here. The communication from the European Commission could certainly have been much worse. Malta has advocated internal market principles for the industry for over a decade. Now that the Commission will be backing closer cooperation on the areas referred to in this article, it should be easier for Malta to take forward bilateral
and multi-lateral discussions at a national regulator level with other EU Member States. However, ‘easier’ does not mean the process will be ‘simple’. The LGA, which has many years of experience regulating the remote gaming industry, will need to redouble its efforts to assist other regulators, especially those newly set-up, in obtaining a thorough understanding of the industry. It may be that that mutual recognition, much sought after by private operators and by Malta, may still be achievable on a bilateral or multi-lateral basis if mutually agreeable ‘give and take’ can be negotiated; but that should not and cannot be the starting point of an exercise of cooperation. If anything, perhaps it could be the end game for Malta. In the meantime, we know that the European Commission will report on the progress achieved by publishing a report within two years of the adoption of the communication. The report will include the Commission’s assessment in terms of whether the implemented actions are adequate and whether they provide a satisfactory EU framework for online gambling or if additional measures – where necessary, legislative ones – need to be taken at an EU level. Therefore, the chapter certainly isn’t closed.
James Scicluna is a co-founder of WH Partners. He is a Solicitor of the Supreme Court of England and Wales and a Malta Advocate. James holds degrees from University College London and the University of Malta. He has been involved in the gaming industry as an advisor, both in private practice and in-house in London and in Malta, for the past ten years. email@example.com. Olga Finkel is a co-founder of WH Partners. She has been ranked as a leading individual globally by Chambers & Partners as well as one of the 350 top IT lawyers in the world by Who’s Who Legal. She has advised private operators, regulators and governments on matters related to gaming and betting and is particularly strong on the technical side having been a programmer in a previous life. Olga holds a Masters degree in IT and Economics and a Doctorate in Laws. firstname.lastname@example.org.