Regulation of Online Poker in Russia

by Roman Zykov
Hannes Snellman Attorneys Ltd

30 June 2009 was the last day for the gambling industry and its present format in Russia. As of 1 July 2009, many gambling establishments are supposed to continue their business only in special zones designated by the government, of which there are currently four.

ONLINE POKER IN RUSSIA

30 June 2009 was the last day for the gambling industry and its present format in Russia. As of 1 July 2009, many gambling establishments are supposed to continue their business only in special zones designated by the government, of which there are currently four.

Various business groups tried to lobby to extend the term for moving the gambling business to the special zones set out by the Games of Chance Law[1] (‘Law’). In defense to the deadline extension it was argued that by moving the deadline the government could safeguard the fiscal revenues out of the gambling tax, which amounted to the total BRUB 26,4 in 2008 and BRUB 31,5 in 2007. Only the Moscow state budget received BRUB 6 in 2008 and BRUB 6,5 in 2007! Nevertheless, this argument did not fly. In the beginning of May, Russian President Dmitry Medvedev announced that the terms are not subject to change.  It is evident that the Law will make the gaming business search for alternative methods of conducting gambling business. One of them is organizing gambling on the Internet, in particular poker. Some of the international gambling providers already see this moment as attractive for entering onto the Russian gambling market. This also coincides with the fast growth of poker popularity in Russia.

Regulation of poker

Prior to July 21, 2009, depending on the settings of the game, poker could be viewed as a game of chance or as a sport.[2] Poker was a sport if players play against each other, not against the casino, under the Rules approved by the Federation of Sport Poker of Russia (FSP) and Rossport (state agency). Poker tournaments could take place in the FSP certified clubs. Such clubs were provided with a number of requirements, including the presence of qualified personnel, referees, equipment and premises for competitions and administration.

Having that, it was possible to say about three main requirements for sport poker:

· competitions are conducted according to the FSP official rules;

· competitions are held in the certified clubs; · the game takes place between players and not between a player and a club (casino).

It may easily be spotted that poker which is played in casinos or online did not meet the requirements for the sport poker.   The sport poker received the green light in 2007 and since grew immensely. However, following the ban on the casinos, the government took an action on the sport poker clubs, fearing that the casinos would continue operating illegally under the umbrella of the poker clubs. On July 21, 2009 the Ministry of Sport and Tourism excluded sport poker from the list of the officially recognized sports disciplines. At the same time, the public security agencies redoubled attention to the enforcement of the casinos’ and sport poker’s bans.

As a consequence, the Russian Open of the European Poker Tour scheduled for August 18-23, 2009 was moved to Kyiv, Ukraine: “… because our [EPT’s] ability to run the event was placed in doubt due to the recent closure of all casinos in Russia” – stated on the EPT’s official web site.

Even more importantly, the leading Russian players are considering moving to the poker-friendly jurisdictions.

It is not only that they will not play under the Russian flag, but also that the Russian state budget would lose some of the most valuable tax payers.

Is this an end of the poker story in Russia? Perhaps not! Many of the players if not yet then will move to the internet poker rooms despite the fact that online gambling is also banned in Russia.

The Law prohibits any game of chance on the Internet, including poker. A definition of the ‘game of chance’ has been formulated in the Law as “an agreement concerning winnings based on risk and concluded by two or more participants among themselves or with an organizer of the game of chance according to the rules established by the organizer”. The definition is far from perfect and leaves for instance a question of whether an agreement concluded by only one player and an organizer of the game is considered as a game of chance? It is simply because the definition refers to the plural “players”. However, having the general prohibition, in the event of any debatable over what online pokers is, it will most likely be viewed by the authorities as a game of chance.

Meanwhile, the Law applies only on the territory of Russia and its regulations are not applicable for online games outside of Russia. Presumably, the organizer of a game is not required to observe the Law if the server is located abroad.

Risks?

In reality, many online casinos run Russian-language pages of their websites. None of these companies is registered in Russia. Does this create any risks in the light of the legislative prohibition of online poker?

To start with it does not create tax obligations to foreign companies which do not have physical presence in Russia. Russian Tax Code sets out a special gambling tax, but online gambling business is not an object of taxation.

In addition, Russian tax legislation frees organizers of games of chance from paying VAT. At the same time, they are subject to paying company profit tax. However, if the organizer is a foreign legal entity, it will not be required to pay such a tax, simply because its business activities do not create a permanent establishment in Russia (no branch office, representative office, or any other separate subdivision physically located in Russia). This brings us back to the fiscal discussion that by prohibiting online poker the state budget gives up taxable revenues of both the players and online casinos. Can Russia afford such a luxury during the times of the global crisis?

Concerning regulation of commercials, it is possible to provide for an indirect advertisement, i.e. by placing a banner (link) which leads to a free of charge poker promo page which does not provide the possibility to play games of chance online. Furthermore, the promo page could lead to a website where online poker games take place.

On the basis of the abovementioned, it is possible to assume the most comfortable and safe way to organize an online casino in Russia is to place its server abroad in a jurisdiction which permits conducting games of chance on the Internet. It appears to be wise to register an intermediate domain which will advertise in Russia, but on which games of chance will not be directly conducted. This site, in its turn, may send visitors via advertising links and banners to the online casino. To minimize any risks, it is possible to register the site of the online casino through a foreign registrar of domain names.

As concerns payments for using the services of an online casino, they may be made by bank cards, virtual money, or bank transfers. It should be noted that if a foreign legal entity opens a bank account in the Russian Federation, it must be registered in the Russian tax agencies. At the same time, legislation does not contain restrictions concerning making payments for using services of an online casino from Russia to an account opened in a foreign bank.

[1]Federal Law No. 244-FZ on the State Regulation of Activities for Organizing and Conducting Games of Chance and on Amending Several Legislative Acts of the Russian Federation, adopted 29 December 2006.

[2] Decree No. 225 of the State Committee on Physical Culture and Sport of the Russian Federation, dated 14 April 2003, established a list of recognized sports, including sport poker since 2007.