George M. Mangion | Wednesday, 28 October 2009

Are remote gaming licences at risk?

Invited as a speaker at the London conference organised by Butterworth’s this week, I was asked about Malta’s future as a premium regulatory centre for remote gaming companies. The panel of speakers tackled a number of subjects but the one topic that interested Malta directly was the complexity surrounding the regulation of remote gambling in cross-border services.
Is it true that Malta’s licenses are at risk now that article 49 of the Treaty concerning freedom of providing services has been severely restricted due to recent ECJ rulings?
There is no easy answer to this complex issue and the multi-jurisdictional nature of the industry, has over the years pushed the boundaries of the traditional regulatory model.
The Butterworth conference is a prestige event chaired by Hilary Stewart-Jones, Partner at Berwin Leighton Paisner LLP.
The venue saw a number of key regulatory bodies, associations and industry experts from the Channel Islands, Britain, France, Italy, Belgium and North America and the central theme was to discuss the thorny issues arising from a range of legal and regulatory challenges involved in remote gambling.
It goes without saying that everyone seemed to question whether the rules of the Community provide adequate guidance for investors to set up shop in the single market and who effectively dictates cross-border regulation.
In particular, I wanted to stress that Malta’s success in attracting over 300 operators in such a short period is not in jeopardy because of conflicting interpretations of the Treaty rules, particularly that of article 49.
This begs the question why State monopolies seem to thrive under the protection of EU regulations when the idea is to open up for competition. Sadly for the industry, it is unclear how cross-border regulation will evolve.
Although the European Court of Justice ruled on a number of occasions - for example, Gambelli vs Placanica - that member states could not stop cross-border gaming services offered by companies licensed in other member states, these rules were repeatedly ignored by jurisdictions who labelled licenses as illegal.
To quote an example, in 2007 the Court of Justice in Placanica, Italy, ruled that the Italian criminal penalties for the collecting of bets by intermediaries acting on behalf of foreign companies are contrary to community law; acknowledging moral, religious or cultural factors, as well as the morally and financially harmful consequences for the individual and for society associated with betting and gaming, may justify such restrictions.
The Court said that such restrictions must nevertheless satisfy the conditions concerning their proportionality. What is proportional is in many cases subjective, and this has added to the ambiguity.
In October 2008 Ladbrokes fared no better in its legal challenge against the Norwegian State monopoly. Ladbrokes had sought to argue that the continuation of the monopoly constituted a breach of the Treaty of Rome and the European Fair Trade Agreement.
It is not surprising that online gaming companies in Europe have faced nothing but opprobrium particularly from cross-border challenges originated by State gambling monopolies eager to stem competition.
Each member state wants to protect its tax revenue at a time of recession and thwarts, competition from the pervasive invasion of gaming sites licensed in third countries.
Germany took a prohibitive stance by the passing of the Inter State Treaty. This culminated after the German Federal Constitutional Court ruled that a state monopoly on sport betting is acceptable provided that its objective is to limit addiction.
This judgment comes in the wake of important developments on a broader scale, which have spelt serious setbacks for the practices adopted by European gambling monopolies.
So are the 300 plus Malta remote gaming licenses issued at risk? No, was the immediate answer by the MRGC in its recent pronouncement.
The Malta Remote Gaming Council (MRGC) reacted to what it defined as a series of attacks by Member States on operators who hold a license to operate an online gaming service in other Member States.
It said that the European Court of Justice (ECJ) has ruled on a number of occasions that Member States cannot stop cross border gaming services offered by private companies licensed in other Member States as they would be in breach of EC Treaty, Article 49.
In its statement it continues to argue that these rulings are repeatedly ignored by these same jurisdictions who are continuing to refer to licenses issued in other Member States as being illegal.
This rebuttal issued by MRGC does not come a moment too soon. We shall see in this article how recent ECJ rulings have in fact ignored the protection purportedly given to Malta licenses by article 49.
On 8 September 2009 the European Court of Justice ruled in the case of “Liga Portuguesa de Futebol Profissional (CA/LPFP) and Baw International Ltd v Departamento de Jogos de Santa Casa da Misericórdia de Lisboa.” (“Bwin Liga”).
Bwin claimed that the exclusive rights conferred by the state on Santa Casa to provide betting and gambling services was contrary to Treaty rules.
The ruling represented an unequivocal victory as regards the right of state monopolies to exist in the field of gambling, and, moreover, it firmly anchored the rights of said monopolists vis a vis online betting.
In Portugal, the State has reserved the operation of games of chance such as lotteries, lotto games and sports betting exclusively to an organization called Santa Casa which has existed for several centuries.
The Santa Casa Gaming Department fined Bwin, an on-line gambling company established in Gibraltar, for offering in Portugal, games of chance and betting on soccer matches on its internet site.
The Portuguese Court noted that the legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between the Member States.
One can reflect that a recent update to the EU Services Directive which protects the free flow of services within the Single Market specifically excludes “gambling”.
In any event, members have agreed that national rules and regulations relating to these excluded services have to comply with other rules of Community law, in particular with the freedom of establishment and the freedom to provide services as guaranteed in the EC Treaty.
The bête noire was the ruling given by the ECJ that Portuguese legislation giving exclusive rights to its State monopoly was justified and is not prohibited by Article 49 EC.
This judgment seals the kiss of death to fledgling centres such as Gibraltar, Britain, Malta, Latvia and others who in the past sought protection under the freedom of provision of services and willingly licensed foreign operators by the hundreds.
Paradoxically, one can say that in the absence of Community harmonisation in the field, it is for each Member State to determine in those areas, in accordance with its own scale of values, what is required in order to ensure that the interests in question are protected.
To conclude it is incumbent on investors to be fully aware of the pitfalls that beset the path towards liberalization of remote gambling services and they should seek to lobby more for the principle of proportionality which was heralded in the Placanica ruling.
Definitely, in my opinion, relying solely on the protection given by article 49 of the European Treaty, does not give an automatic right of market access.
As more ECJ rulings are issued it would appear safe to say that a licensed provider can be better justified once they comply with anti-money laundering provisions, together with strict rules ensuring player protection, prohibiting under-age access and the prevention of fraud.

George Mangion
Partner at PKF – an audit and business advisory firm



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28 October 2009


Malta Today


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