Betfair challenges Dutch Payment Blocking in Court

This article was previously published in IGamingBusiness.

BETFAIR, one of the world’s leading online betting companies, has started legal action against the Dutch government in a court case which could result in a claim for damages running into millions of Euros.

The decision follows a letter from the Dutch Ministry of Justice urging Dutch banks to terminate their relationships with online gaming operators. The letter implies that facilitating transactions between Dutch residents and online operators is illegal. If the banks comply with the Ministry’s request, this would block access to the services of Betfair and many other gaming operators licensed in other EU-Member States.

Background of the payment blocking

The payment blocking is one of the latest battlefields for remote operators in the Netherlands. The first battle revolved around injunction proceedings instigated by the Dutch sports betting and casino monopolists (De Lotto and Holland Casino) against several online operators. These operators were ordered to cease offering gaming to Dutch residents. The operators all claimed that the Dutch gaming policy violates European law, and in the main proceedings between De Lotto and British bookmaker Ladbrokes, the highest court for civil matters referred questions to the European Court of Justice (ECJ) in June 2008. The second battle took place in the administrative courts, following rejected applications for Dutch gaming licences. Before the highest administrative court, Betfair already gained a preliminary referral to the ECJ in May 2008. Other measures that were announced in the wake of the transaction blocking are a media blocking and the announcement that the Ministry filed reports against at least three online operators with the Prosecution Department, which may eventually lead to criminal proceedings.

Online gaming operators are not alone in their fight against the Dutch gaming policy: the European Commission asked the Dutch authorities in February 2008 in its Reasoned Opinion to alter several provisions of the Gaming Act, because it considers the sports betting monopoly to violate European law.

The Ministry decided not to follow the demands of the European Commission. Instead, the Ministry of Justice decided to put its foot down and announced several measures to counteract online operators, amongst which the transaction blocking. Boards of banks and payment service providers are told that their institutions commit illegal activities by facilitating transactions to online operators. In its letters to the financial institutions, the Ministry asks them to make sure that the relationships with the industry are terminated: this has resulted in at least on bank to cease providing transactions to the industry. It must be noted that the authorities did not introduce new regulations to implement this payment blocking: instead, the general prohibition on ‘promotion of illegal gambling’ is said to include a prohibition on providing financial transactions to (illegal) operators.

Critique on Payment Blocking

Besides the European Commission’s critique on the sports betting monopoly and the referrals from Dutch courts to the ECJ, signs are appearing in other EU-Member States that these payment blockings themselves are incompatible with European law. In the national arena, the far-stretching interpretation of the Dutch regulations to also include the prohibition on providing transactions is criticized by lawyers and bankers alike. We elaborate more on these arguments hereunder.

European critique on similar measures

France received a detailed opinion from the European Commission in 2007 following a draft decree that contains a payment blocking. Germany implemented the Inter State Gambling Treaty in January 2008, which contains (amongst other things) a payment blocking. This treaty (a federal law) was subsequently criticized by the European Commission in a Letter of Formal Notice, inter alia for being a restriction to the free movement of capital, guaranteed by article 56 of the EC-Treaty.

Although the critique against the German and French payment blockings was a direct result of new (draft) regulations, the European Commission can also take actions against the Dutch payment blocking, even though it is the result of a new interpretation of the existing regulations. The European Commissioner for the Internal Market, mr. Charlie McGreevy, was quoted in the largest Dutch newspaper ‘de Telegraaf’ as stating that this measure violates the European Treaty. According to Commission spokesman Oliver Drewes, McGreevy requested the services involved to carry out an investigation into the bank embargo. Drewes also stated that the bank embargo will be included in the currently pending infringement proceedings.

Critique on the interpretation of the Gaming Act to include a transaction blocking

In legal literature, the Ministry’s position that the current regulations forbid providing transactions is criticized: the parliamentary history of the Gaming Act does not mention financial transactions, and from the explanatory memorandum to the Gaming Act, it is clear that the provisions were actually intended for, inter alia, intermediaries that sold participation slips in foreign lotteries. It does not seem to include a prohibition to facilitate payment transactions.

The Dutch Banking Association (NVB) stated that it does not agree with the Ministry’s position. It considers the interpretation of the Gaming Act wrong, and stated the Ministry should first obtain a criminal conviction before banks could be asked to implement the payment blocking. The NVB also stated that banks fear claims if they cease servicing these particular clients. Nevertheless, at least one bank has complied with the Ministry’s demands.

The Minister himself even made statements in parliament that can be explained as saying that the current regulations do indeed not forbid the provision of financial transactions. He stated that if his letters to the banks do not have the desired effect, he will introduce legislation similar to the American UIGEA. If the current regulations would already prohibit financial transactions to operators, such new legislation would obviously be redundant.

Betfair’s actions

Betfair is arguing that the Dutch Ministry of Justice commits a tort, under Dutch law, by making the request contained in its letter. Betfair is arguing in these proceedings that the Dutch government, by taking such a step, is acting in breach of European law (ie in breach of the principles of the freedom to provide services in the EU and the free movement of capital in the EU).

This civil action is aimed at obtaining a declaratory judgment to the effect that the recent actions of the Ministry of Justice (financial blocking by calling for a boycott by financial institutions) and the underlying policy are unlawful. Betfair may then continue the proceedings with a claim for damages.

In addition, as European law is relevant to this case, Betfair has also made an official complaint to the European Commission, which may lead to separate infringement proceedings against the Netherlands. Betfair also urged the Commission to proceed with its current infringement proceedings against the Netherlands relating to the sports betting monopoly.

What’s in the Crystal Ball?

Betfair is betting on two horses: the law suit against the State and the complaint with the European Commission. It will be an interesting race that may end with one or both of these horses ending up in the highest European Courtroom in Luxemburg.

The lawsuit

It will be hard for the civil courts to ignore the Dutch referrals that are currently pending before the ECJ. If the judges are unsure on the effects of European law on the payment blocking, this may lead to a third set of preliminary questions that specifically target the lawfulness of the payment blocking.

If the payment blocking is considered unlawful by a civil court, this will strike at the roots of the gaming policy. This may lead the Ministry to go for an ‘all or nothing’ strategy, which will encompass criminal prosecution. Another option might be an increase of the Ministry’s current efforts to create legal online gaming opportunities: an investigation into the regulation of online gaming and its possible licensing procedure is announced. The outcome of this investigation may lead to licensing opportunities for the industry.

The complaint

If the European Commission acts upon this complaint, it is possible that the complaint will boost the infringement procedure against the Netherlands, which will – according to EC spokesman Oliver Drewes – also include the payment blocking. It is generally expected that the current Commission will not proceed with the infringement proceedings. It will depend on the next Commission – especially on the Commissioner for the internal market – whether or not the Netherlands will be dragged before the ECJ.

Justin Franssen

Aernout Kraaijeveld