 The writer has been invited for the third year to attend a Public Welfare Conference in China to be held in November 2010. The event is organized by the Ministry of Welfare in conjunction with Peking University and has been very well attended by a number of researchers and professors on lottery and player welfare in the Asia. My presentation gives an overview about the latest legislative and regulatory developments in the online gaming and gambling sector in general concerning the most significant gaming industries of Europe.
By giving a country to country synopsis on the different developments in Europe attendees in Asia can be informed about important milestones in regulation and proposed reforms. One may well ask what is the relevance of the Asia conference to Malta given that most countries in Asia ban the sector. In fact it does indirectly impact the success that Malta is currently reaping as a major hub of European gaming companies which is the envy of other European countries. Naturally we cannot stand still while other jurisdictions are honing their incentive legislation to attract back some of the foreign owned companies that registered their business in Malta. Back to the presentation in China and one observes that as a general comment, it is only a minority of European countries which legalized in a comprehensive manner their gaming sector. Such countries include Britain, France, Italy and Ireland. By comparison others like Finland and Denmark have regulated only parts of the market.
Typically we see that Estonia has started to issue licenses and will properly open the market completely next year. Switzerland is considering plans to open the online casino market. Besides Greece allows gambling in casino environment. But there are a number of countries which remain steadfast in their opposition to foreign competition and would rather protect their own state monopolies. These include Sweden, Norway, the Netherlands, Poland, Austria and Luxembourg which still protect state-run monopolies, even if some of them like Germany started to question the validity of it’s all State- Treaty and has only just recently lost a case at ECJ level which confirmed that the ban is illegal. Sweden holds a monopoly over all forms of gambling; Norway has signed a new ban on the processing of unauthorized online gaming payments into law; in the Netherlands no licenses are issued for online poker, - casinos, - bingo, although online gambling is legal and Poland is facing tough consequences after the introduction of a controversial online gaming ban.
We meet with other jurisdictions in Europe facing challenges concerning gaming such as Hungary where the players are irritated due to incredible high taxes on poker. Spain has a progressive attitude, but no uniform regulation. In the UK you may soon need licenses from the government to advertise remote gaming; otherwise it is seen as a criminal offence. Belgium has tightened its measures again, now it is nearly impossible to get a license as a new operator. A substantial number of the above mentioned European countries are involved in infringement procedures by the European Commission due to their not being compliant with EU law regulations.
Thus we meet with the latest bastion of resistance to foreign competition that is Germany. The German Interstate Treaty (“Glücksspielvertrag”), signed over two years ago prohibits any organization or brokering of public games of chance on the internet becomes more and more under fire in latest days (not least because of the current continent’s worst case of fixed soccer matches.) Besides there is a regional monopoly in 16 Länder for the organization of sports betting and lotteries, while the organization of betting on horse races and the operation of slot machines and casinos is liberalized and entrusted to approved private operators.
Since the implementation on 1st January 2008 the Law has been the trigger for several cases, like C-316/07 Markus Stone, ended up in front of the ECJ and was therefore a supervision target of the European Commission due to the fact that the prohibition was neither in compliance with the freedom of establishment (Article 43) nor with the free movement of services (Article 49). Furthermore such Interstate treaty not only challenges the suitability and necessity of the general prohibition but also significant technical instruments that hinder local players to use online services. Critics have always questioned how effective this is due to the decentralized structure of the internet which makes it easy to circumvent blocking measures. Furthermore most agree about the technical impossibility faced by each gaming operator to identify exactly the location of the user in order to be able to enforce the Treaty.
But the gambling ban in Germany generates another hazard: the growth of the black market. “The goal should be to open the market for fit, proper and licensed betting companies”, answered the German soccer legend Franz Beckenbauer quoted in the Sportbild magazine. He gave his statement with the background of the recent huge betting scandal of more than 200 rigged matches in soccer across Europe what invalidate the general argument to combat accompanying crime for the existence of the German betting monopoly. Another commentator on this issue is Austrian economist Friedrich Schneider. He researched the impact on the growth of the black market as a correlation to the banning of private betting.
Friedrich measured a drop between 12 to 30% in turnover in the German gambling sector in 2008 and a simultaneous growth in the black market.
He pointed out that players will not be deterred by a written ban and as a result he recommends a partial liberalization due to a lack of advertising proceeds which come along with loss of jobs, tax revenue and added value for the German economy.
According to the Deutsche Lottoverband, an Association of German Lotteries, the federal states’ revenue from gambling has decreased by 30%, what means the total loss of turnover could be figured with nearly €14 billion when the Treaty expires on 1st January 2012.
As a result the respective taxes and provided funds paid by gambling operators will continue to regress what hurt the fiscal interest of the federal states and additionally reduce the support for charity. Another classical court instance which has recently taxed the consistency of the ITG is the Carmen Media case. In 2006, Carmen Media Ltd was refused permission to offer internet sports bets to German citizens, even though they obtained a ‘fixed-odds bets for offshore bookmaking’ gaming license, which entitled them to bet beyond the borders of Gibraltar, where they were registered.
Their defense counsel represented by the legal office Hambach & Hambach argued that this prohibition goes against EU law and is actually redirecting players to the more dangerous offers (read black market). Instead of total prohibition and maintaining the status quo, the defense pleaded that it is more effective for the German State to allow competition while improving the regulatory measures to combat addictive and under-age gambling. Apparently the ice started to melt and politicians set off to take concrete steps towards legalizing internet gaming provided by bona-fide foreign licensed sites. The FDP (German Liberal Party) called for a reform of the ITG (Interstate Treaty on gambling) and remarked that experts of different school of thought were against the ban as an ideal tool for online gaming regulation.
The chances are remote that another Interstate treaty will be signed. This will be confirmed by Juergen Koppelin, leader of the FDP in Schleswig-Holstein who added to that point that the coalition of CDU (Christian-Democratic Party) and FDP (Liberal Party) would seek to introduce an ‘intrastate licensing system’ if the other German States failed to agree on a new uniform regulation to replace the Treaty. Another important argument for the banning of online games of chance in Germany was to protect the addicted players, but some experts argued that providers will relocate their services to other countries ending up in loss of jobs and revenue for Germany. Schleswig-Holstein’s strategy is to privatize these games while the state works hand in hand with the providers to develop “sensible prevention measures” against the risk of pathological gambling.
The latest news on the Carmen Media case was that ECJ decided in its favour. Theoretically reason has triumphed and the German gambling monopoly has come to an end. In its decision given on 8 th September 2010 , the ECJ makes it clear that the Verwaltungsgericht (Administrative Court) of Schleswig, in its resolution of 30 January 2008 referring the case for a preliminary ruling, correctly reached the conclusion that the German gambling regulation is not in compliance with Union law.
In its decision took two and a half years after this referral, but finally the ECJ has confirmed the decision that the InterState monopoly went contra the spirit of European law, and the Court has removed the basis of justification, and thus also the basis of existence. The ECJ states, in unusually clear words, that there is no compliance with Union law if - as is the case in Germany – the following line of argumentation is used to justify the regulations: A state which pursues the objective of preventing incentives to squander on gambling and of combating gambling addiction, but fails to pursue this objective in a consistent and systematic manner, acts in violation of Union law.
by George M. Mangion
gmm@pkfmalta.com
www.pkfmalta.com
The writer is a partner in PKF Malta, an Audit and Business Advisory firm.
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