France: update on the liberalization of the gaming and betting market

Opening of the French online gaming and betting market: the presidency has not yet decided on the “hows”, but the process is now irreversible.

1. Durieux report

Mr Sarkozy declared it publicly a few weeks ago: France will open its online gaming market. The process has thus now become irreversible.

At the beginning of this month, the report issued by Mr. Bruno Durieux on the opening of the French online gaming market was given to the Prime Minister, Mr. François Fillon, and to the ministry of budget, Mr. Woerth. The President of the French Republic, Nicolas Sarkozy, is due to “validate” it in a near future.

2. Exclusion of lotteries and gaming machines

The online opening would only concern the online sports betting, casino and poker sectors. Lotteries and gaming machines would apparently be excluded from the scope of the opening.

3. Operators are preparing to enter the market

Big European and French groups such as TF1 are preparing for the opening of the market. Capital risk funds and investment companies focused on the online gaming industry are being created in France, getting ready to move in. Partouche and Barrière, the two main casino operators have already been granted licences respectively in Gibraltar and Malta.

4. Partnership with EU members

According to public declarations made to the press by the budget ministry, Mr. Woerth, France will work on the legal framework of the reform in partnership with some of its European partners (Finland, Germany, Belgium, Netherlands, etc.). A first meeting is envisaged at the end of April.

5. Interdepartmental structure

Moreover, a new interdepartmental structure should be created with the mission of granting licenses to online gambling operators. Authorized online gambling operators will have to meet very strict requirements relating to money laundering and addiction of players in order to be granted a licence.

6. Scientific study

A scientific study will be carried out during two years with the purpose of gathering reliable information on these subjects (fight against money laundering and protection of players).

7. “Regulated and controlled opening”

In an interview to the daily newspaper Le Parisien, Mr. Woerth indicates that, together with Mrs. Michele Alliot-Marie (Minister of Interior) and Mr. Michel Barnier (Minister of Agriculture), he will propose to the President of the French Republic and to the Prime Minister to set up a regulated and controlled opening of the online gambling market.

Mr. Woerth expresses several recommendations in connection with the opening of the French gambling market:

• Horserace betting

 Mutual betting system only (and thus exclusion of fixed-odds betting and bookmakers).

 Players will have to participate to the financing of the State and of the equine sector.

 The horserace betting market should be opened in two successive stages:

First stage: Private operators should be authorized to distribute horserace betting. In this case, PMU retains exclusive rights to organize horserace betting in France and private operators should be approved and have a license.

Second stage (eventually): Private operators are authorized to organize horserace betting. In this case, private operators should be subject to the same requirements and tax treatment as for PMU.

• Sports betting

 Opening of the sector but with a limitation of the forms of sporting bets. The bet must be related to the performance of the athlete. Other bets disconnected from sports (e.g. a bet relating to the color of the tennis player’s eyes), should be prohibited.

 The rights of the organizers of sports events will have to be addressed.

• Casino games

 Blanket prohibition of online slot machines (insofar as they represent a danger in terms of addiction).
 Possible opening to the poker and the other traditional casino games.

Taxation

Concerning taxation, the question remains open. Mr. Woerth simply states that the system will have to preserve the financial resources of the State and of the equine sector.

8. Timetable

According to Mr. Woerth, the schedule of the opening belongs to the President of the Republic and to the Prime Minister.

Moreover, he believes that France should not rush into the opening of the market, which could be effective in 2009 or at the beginning of 2010. The Ministry for Budget is much worried about the general budget of the State and thus is less inclined to open the market shortly.

However, Mr. Woerth’s position is not shared by all in the government and especially not by the French President who seems more favorable to “speeding up” the process, especially for reasons relating to the financing of sports.

The question of setting up of a transitional period in between now and the opening, whereby operators could start offering their services on a contractual basis with the government, is also on the agenda but has not yet been decided upon.

Operators are indeed eager to be granted as soon as possible for a limited period of time and have suggested contributing financially to a sports fund. Sponsoring deals with major football clubs are indeed a major concern for operators such as Bwin.

It is expected that the weeks to come will show more visibility on the exact method France intends to use in order to regulate the transitory period.

German Online Casino Looks To Loophole in Internet Gambling Ban

by James Kilsby, GamblingCompliance Ltd., April 8th, 2008

A Casinos Austria-owned online casino will soon begin to offer its games to residents in the German state of Lower Saxony following a court victory last week, despite the general prohibition on internet gambling in Germany under the Interstate Treaty which came into force in January 2008. The Treaty’s draconian provisions may mean the internet casino is short-lived, but its very existence could further undermine the already maligned Treaty, say legal experts.

Rainer Chrubassik, managing director of Casinos Austria’s Spielbanken Niedersachsen GmbH (SNG), says that SNG has begun preparations for the launch of a full suite of online casino games following the decision by the Higher Administrative Court of Luneberg last Thursday. The court rejected an attempt by the state of Lower Saxony to appeal a decision issued in August of last year which upheld SNG’s right to offer internet casino gambling in the state.

SNG was acquired by Casinos Austria International in 2005 and currently holds a licence to operate the 10 land-based casinos in Lower Saxony. The terms of that licence also include the possibility of offering online casino games, but state authorities have refused to grant SNG final permission to proceed.

The court last week agreed with SNG that the law applicable at the time of SNG’s application did not impose any prohibition on internet gambling services in Germany, and that Lower Saxony therefore had no right to deny SNG authorization to develop an online casino. However, the ruling did not take into account the Interstate Gambling Treaty which came into force on January 1, 2008.

The Interstate Treaty establishes a general prohibition on the use of the internet for all forms of gambling in Germany (except horserace betting) but was not at issue in the SNG hearings as the Luneberg court received Lower Saxony’s reasoning before the treaty came into effect, says Claus Hambach, founding partner of Munich-based law firm Hambach and Hambach.

Therefore, it remains possible that Lower Saxony could launch new proceedings against the online casino website, he said. Alternatively, the court may decide that it has already issued a definitive ruling on the SNG case and refuse to hear a new challenge.

“It is hard to predict what will happen as offering an online casino definitely breaches the wording of the Interstate Treaty, but SNG could not be subject to criminal law as it is in possession of a valid state licence,” Hambach told GamblingCompliance.

SNG said in a press release that it expected to be permitted to operate regardless of the new treaty as applicable gambling legislation in Lower Saxony specifically “permits the operation of an online casino for and in the state of Lower Saxony.” SNG is only permitted to offer its online casino games within state borders.

The case of those looking to overturn the new treaty will be strengthened if SNG is able to launch its own, legitimate internet casino within Germany, according to Hambach. Certain online gaming websites, including the state-owned Wiesbaden online casino and Irish bookmaker Paddy PowerPortfolio have already withdrawn from the German market as a result of the new treaty. But even though the treaty has sought to outlaw internet gambling, conflicting court rulings have allowed operators such as Bwin e.K., which has an old GDR sports betting licence, and now possibly SNG, to continue in operation.

“Everywhere we have these small islands where the authorities cannot enforce the new treaty, which suggests it will not be possible to achieve interstate treaty’s stated aims,” Hambach said.

According to Chrubassik, it will be impossible to maintain a blanket ban on internet gambling in Germany, and the state treaty’s player protection aims would be better served by regulation.
“It is impossible to implement a ban on internet gaming sites. The clock cannot be turned back on the reality of the internet,” he said. “Only licensed internet gaming sites can meet regulatory channeling requirements and prevent players from turning to illegal, unregulated sites. [SNG] are committed to these requirements.”

Sands’ ‘cyber dive’

Billionaire Sheldon Adelson is banking on his organisation’s reputation by venturing into the new realm of nternet gambling. The hope is his move will reap huge dividends for LVS’ offshore i-gaming operations. But with foreboding US regulation,the future seems murky.

First Publication : Macaubusiness – April 2008 – by Marlene Prendeville in Las Vegas

The Higher Administrative Court of Baden-Württemberg voices serious doubts as to the consistency of politics in the area of games of chance in Germany

In a case represented by the law firm Hambach & Hambach, the Higher Administrative Court of Baden-Württemberg (VGH) allowed an appeal against a dismissive judgement by the Administrative Court (VG) of Karlsruhe. Just as in the previous resolution dated 12 Feb. 2008, leave to appeal was also granted in these parallel proceedings in a resolution dated 3 Mar. 2008 (ref: 6 S 1408/07), due to substantial doubts as to whether politics regulating games of chance in Germany are implemented in a consistent way.

The plaintiff requested a declaration stating that its licence – issued for Great Britain – is also valid in the German Federal State of Baden-Württemberg, and that this licence is to be regarded as a licence in the sense of section 284 StGB (Strafgesetzbuch – German Criminal Code). The VG of Karlsruhe dismissed the claim, stating as the reason that the sports betting monopoly in Germany was in compliance with European law. It assumed that the restrictions of the freedom of establishment and the freedom to provide services, which resulted from the state monopoly, were implemented in compliance with community law. It was wrong to assume that the VGH in the next instance would back this decision, which is what it had done during the transitional period up until 31 Dec. 2007.

However, the VGH now has an entirely different evaluation of the new legal situation. In its reasons for the decision, the VGH explains that considerable doubts remain with regard to the statements made by the VG on the case, as it had been questioned conclusively in the proceedings whether the evaluation of a consistent and systematic contribution to the limitation of betting activities, which is necessary for a justification of a state monopoly under community law, must be based only on the state’s betting politics or whether it should also be based on the state’s entire politics relating to games of chance.

“Should the latter be the case, or have to be seriously considered, it could not be finally decided on the basis of the determinations made by the Administrative Court, whether the differing restrictions can be justified by the differences existing in the markets for the respective games of chance.”

It can be seen from this comment that the VGH wishes to take the pending statement from the ECJ into consideration for the decision-making process for this judgement. In the meantime, eight cases have been suspended, and questions regarding the interpretation of community law have been submitted to the ECJ requesting a reply (most recently: VG of Schleswig in proceedings in the main action, resolution dated 30 Jan. 2008).

This obvious U-turn by the court of appeal is to be welcomed, as the Court had – as recently as November 2007 – been of the opinion that a consistent and systematic restriction of betting politics could be assumed (resolution dated 5 Nov. 2007, 6 S 2223/07 par. 19). This re-alignment can also be noted for other courts of appeal; for instance, the VGH of Hesse also decided in favour of suspensions in similar cases (e.g. ref. 7 A 14/08), as it held that this was the only way to ensure the priority of application of community law.

The European commission warns France against the blocking of financial flows from online gaming

On November 30, 2007, France notified, on the basis of directive 98/34/EC laying down a procedure for the provision of information in the field of technical standards, the draft decree taken pursuant to the law on the prevention of the delinquency which requires financial institutions to block transfers of funds from unauthorized gambling websites.

Blocking financial flows from unauthorized gambling websites

The draft decree thus provides, through provisions which will be codified under Articles R. 565-1 to R. 565-4 of the monetary and financial code, that the minister of finances and the minister of interior draw up a list of persons identified as organizing a prohibited gaming and betting activity on the French territory for which a prohibition to carry out transfers of funds has been decided. This system would prevent persons who play illegal games to receive their profits.

However, a departure from this prohibition is envisaged when the financial institutions will not have sufficient information to identify the unauthorized online gambling operators. Moreover, the decree provides the methods according to which the ministers will eventually accept the requests of putting aside the prohibition which could come from the persons organizing unauthorized gambling activities, when the latter prove that certain transactions they initiate are realized within the framework of operations which are not prohibited on the French territory.

European commission opposed to the project

The European commission has just addressed, last February 29, a detailed opinion to France, thus prolonging standstill period to March 31, 2008.

This prolongation means that France is not authorized to adopt the decree before the expiry of this date. France must during this time submit a report to the European commission to explain how it will take into consideration the detailed opinion (withdrawal of the text, justification of its preservation or amendments to certain provisions in order to make it compatible with the rules governing the internal market).

The Commission will then appreciate the actions to be undertaken against France according to its response, by indicating if the measures may eliminate the barriers to free movement of goods, freedom to provide services or freedom of establishment of the operators of services which would have resulted from the adoption of the text, or if the justification put forward for its preservation proves to be acceptable.

Free movement of capital in question

The European commission considers that the draft decree is a restriction of the free movement of capital principle enshrined in Article 56 of the EC Treaty.

In order to comply with EC law, these restrictions must be justified by reasons of overriding general interest and be:

•- Non discriminatory

•- Proportionate with this objective

•- Necessary to achieve the objective pursued: in this case, France puts forward an important danger for public order (money laundering) and for social order (risk of addiction).

It should underlined that the European commission has just opened an infringement procedure against Germany, which treaty relating to gambling that came into effect on January 1, 2008 also implements measures to block the transfers of funds from and to unauthorized gambling wesbites.

For the Commission, this system does not comply with Article 56 (2) of the Treaty which prohibits restrictions on payments.

The Commission also considers that when a profit is due to the player, the transaction is a transfer of money necessary for the execution of a service, so that its prohibition is also a restriction to the free movement of capital principle provided by Article 56 (1) of the EC Treaty.

The Commission had already warned Germany by the sending of a detailed opinion in May 2007, which is similar to the one which was sent to France, against the potential unlawfulness of such measures. However, the justifications put forward by Germany did not appear to be acceptable.

What next?

If France decides to ignore the detailed opinion and adopt the decree, the Commission could launch a new infringement procedure against this Member State, which thus would come in addition to the pending one.

Nevertheless, such evolution seems very improbable insofar as France is currently in negotiations with the European commission to suggest a model for a regulated opening-up of is online gambling market.

A meeting must thus take place in March between them which could lead the Commission to accept the fact France blocks financial flows initiated by operators which do not hold a French license or which are not recognized by France, this in exchange of a regulated opening-up of its online gambling market. In short, these measures would be applied to authorized European operators but to unauthorized operators only…

Not to forget that France will access the presidency of the European Union next July and will certainly wish by then to have put a term to its conflict with the European commission.

To be continued…