Compatibility of the French draft law with EC law cannot be taken for granted

The European Gaming and Betting Association (EGBA) has stated that compatibility of the French draft law with EC law cannot be taken for granted.

The Association is concerned that a series of key provisions of the draft law envisaged by the French government would conflict with the EC Treaty and the European Court of Justice (ECJ) case law:

The EGBA referred to five points:

1. How can the reform and the opening of online sports betting only be consistent when sports betting in the offline environment will remain under the monopoly of FDJ and PMU?

2. Is “French tradition” an acceptable justification to limit the opening of horse betting only to pool betting – especially when fixed odds betting is offered for all other types of sports and is very much appreciated by French and European consumers?

3. Is a ceiling on the pay-back ratio (percentage of stakes paid back to players) to the same level of those currently applied by historical operators compatible with EU law? Given that such ceiling has no proved or known impact on consumer protection, what other objectives than protection of the French market and the position of historical operators can it possibly serve?

4. Will the French online gaming authority, in compliance with the jurisprudence of the ECJ, take into account the warranties and controls already offered by other EU licensing jurisdictions such as for instance UK, Malta or Gibraltar, in order to avoid the application of dual licensing and purely administrative restrictions in the single market?

5. Is the creation of a sports betting right granted to the French sport federations in the context of commercial agreements with sports betting operators in France a credible means to prevent match fixing? The majority of stakeholders have already developed partnerships and successful early warning systems to anticipate and prevent those risks.

For its part, the EGBA is particularly concerned about “the threat of the creation of a local Internet market for online betting and gaming services given the French authorities’ clear intention to adopt payment and ISP blockings and the continued criminal enforcement against EU established online gaming and betting operators”.

The Associated stated that this would be completely incompatible with the European dimension and the cross-border nature of this leading internet sector.

According to Sigrid Ligné, secretary general of the EGBA: “The notification procedure is a great tool to anticipate potential conflicts. We are convinced that the recommendations that will be addressed to France by June will facilitate the French Parliament’s discussions and prevent unnecessary litigation once the law comes into force.”

The French government notified its draft law recently to Commissioner Verheugen’s services in the context of a preliminary conformity test with EU Law. Member States and the European Commission have until the June 8 to examine whether the law is in conformity with the rules of the EC Treaty and to require, if necessary, amendments to be made so as to avoid future litigation.

South Carolina may legalise home games

There is a possibility of a new legislation coming in the state of Carolina which, if passed, could make poker gambling legal at home.

It is being said that in the wake of a recent court case declaring poker a game of skill, the state’s stance appears to be softening.

Glen McConnell (R-Charleston), South Carolina Senate President Pro Tempore, has introduced a bill proposing the legalisation of poker home games.

The bill would legalise poker play in the home or for a charitable cause, reported local media.

It has also emerged that members of the public have told a state Senate panel that South Carolina needs to ditch its anti-card laws. McConnell has offered two measures on the subject. One would overturn a 1802 law that could be interpreted to make any dice or card game of chance illegal. The other is a constitutional amendment to allow churches and charities to hold raffles, reported AP.

Jean-Francois Vilotte to lead new French online gambling regulatory authority

An official associated with the French Tennis Federation (FFT) has been chosen to set up France’s new regulatory authority for online gambling – despite the FFT chief’s previous role as a plaintiff in litigation against a number of would-be French licencees.

The government has appointed the FFT’s secretary general Jean-Francois Vilotte to be in charge of establishing the authority that will licence and regulate private companies in the newly-liberalised sector.

The creation of a new regulatory authority for online gambling – l’autorité administrative indépendante de régulation des jeux en ligne, ARJEL – was confirmed by France’s budget minister Eric Woerth recently.

Last year the Fédération Française de Tennis (FFT) had failed in its attempt to prevent online betting companies from taking bets on the French Open tennis tournament. The case, brought in the Belgian court, had aimed to prevent Ladbrokes, along with Bwin and Betfair, from accepting bets on the event from Belgian residents.

Interstate Treaty on Gambling: Blocking orders against ISPs and banks? What the experts say

TIME Law News 2 | 2009

A commentary by Attorney at law Dr. Wulf Hambach, Founding Partner, and Attorney at law Susanna Münstermann, Senior Associate, Hambach & Hambach Law Firm.

Berlin. – Under the patronage of the Verband der deutschen Internetwirtschaft e.V. (eco) (Association of German Internet Businesses), in cooperation with the law firm Hambach & Hambach, an experts’ conference was held on 26 March 2009, dealing with the legal and technical side of demands from politicians for blocking orders for the purpose of implementing the state gambling monopoly.

Prof. Michael Rotert, Chairman of the eco board, referred to a letter from the German Federal Government to the European Commission and said that the phrase stating that “ISPs and banks will accept this as justified on their own accord, and will support the German States in the implementation of their politics” has led to considerable irritation. He explained that the state gambling monopoly is questionable from his point of view. Private providers are excluded for reasons of addiction prevention, whilst the monopolists are permitted to advertise the high jackpot sums on state-run television networks during prime time viewing on a Saturday evening.

As announced by Prof. Rotert, the expert lecturers were able to explain why neither blocking orders against ISPs nor prohibition orders against banks issued by the gambling supervisory authorities can be used as a means to implement the Inter-State Treaty on Gambling:

• There is no statutory basis for blocking orders against ISPs. The relevant provision in the Inter-State Treaty on Gambling is not a statutory authorisation.
• From the technical point of view, blocking of internet sites is simply impossible. Legal and attractive online gambling offers provide the best level of protection.
• Blocking of online gambling offers involves considerable liability risks, as it is difficult to draw the line between illegal offers and legal online games of chance, legal games of skill and legal entertainment games, and also because the state monopoly most probably is unconstitutional and contrary to European law.
• Prohibition orders against banks based on the Inter-State Treaty on Gambling are also contrary to constitutional and European law.

Attorney at law Ms. Marberth-Kubicki (specialist in criminal law and author of the reference book “Computer- und Internetstrafrecht” [Criminal law aspects of computers and the internet]) summarised the latest studies on the topic of blocking orders against ISPs, and stated in her comparison of the legal analyses that the current political discussion regarding the blocking of websites with child-pornographic content has completely gone off the rails. Doubts and concerns are promptly answered with verbal abuse.

The topic of child pornography is meant to nip in the bud any kind of criticism, even though a particularly diligent establishment of a statutory basis should be the logical consequence. Ms. Marberth-Kubicki voiced the concern that other content may also be blocked once this instrument has become generally accepted. She therefore strongly recommends the ISPs not to conclude voluntary agreements, as these are highly problematic for the providers. The intervention by the blockings into legal positions which are protected by fundamental rights require a crystal-clear legal basis. The relevant provision of the Inter-State Treaty on Gambling is not suitable for this purpose. The latest judgment given by the BVerfG (Federal Constitutional Court) regarding the confidentiality and integrity of IT systems is also to be taken into consideration.

Mr. Schaeffer (Chief Security Analyst, TÜV Rheinland Secure iT GmbH) gave a pictorial description of the structure of the internet and came to the conclusion that the possibilities of bypassing blockings and censorship are endless, as the very idea of the establishment of the internet was for it to bypass blockings independently. Blockings will only contribute to improved concealment of the networks. Online gambling should not be prohibited, but rather regulated. Providing attractive up-to-date offers which are continuously refined, will intercept the users and prevent their migration to illegal offers.

Attorney at law Dr. Hambach (Founding Partner, Hambach & Hambach Law Firm) explained from the point of view of gambling law why there are substantial liability risks involved with the blockings. In addition to the pending infringement proceedings and preliminary proceedings against the German gambling monopoly before the European Court of Justice – which is why licensed EU providers should rather not be blocked – other questions regarding differentiation remain difficult. Therefore, horse betting, games of skills and games with low stakes must not be blocked on the internet, nor must mere entertainment games. The inconsistent German gambling law should be harmonised on the Federal level, and a gambling supervisory authority should be established which monitors the offers by private providers on the internet.

Prof. Dr. Ohler (University of Jena, Chair for Public Law, European Law, Public International Law and International Commercial Law) gave a lecture on the topic “Capping of the flow of funds – monitoring by order of the gambling supervisory authorities”, and expressed substantial doubts based on constitutional and European law.
Banks as uninvolved third parties may only be called upon to provide support in cases of the so-called “polizeilicher Notstand” (public emergency). From Prof. Dr. Ohler‘s point of view, the combat of illegal gambling cannot suffice to justify such public emergency. Also, the fact that the criteria for an automated filtering have not been defined, the lack of regulations in the Inter-State Treaty on Gambling in comparison with the act on money laundering, and concerns based on European law make it clear that the statutory regulation is inadequate.

Dr. Wulf Hambach, Founding Partner and Susanna Münstermann, Senior Associate
Hambach & Hambach

How close is France to opening up of its gambling market? – Legal Gaming Special

French Budget Minister Eric Woerth has said that the gambling market in France would be expanded to adapt “to Internet reality” and help France “get out of an unsustainable situation in which the state is losing a growing part of the betting market”.

All this may sound positive, but is the real “opening” of the market is still a long way to go?

ULYS’s partner Thibault Verbiest certaily thinks so.

“The presentation of the draft bill on 5th of March is a first step towards the opening of the French market but the harder part will have to be achieved within the next few weeks,” Verbiest told Bulletbusiness.com.

“The draft bill first has to be submitted to the Conseil d’Etat for an opinion, then presented to the French Cabinet, afterwards be notified to the European Commission in application of Directive 98/34 in (standstill procedure) and finally be discussed and voted by the French Parliament. Once the bill is enacted, the new administrative authority, in charge of enforcing the regulation of online gambling market, will need another few months to be efficient and begin to grant licences. In saying that France will start to grant online betting licences in the beginning of 2010, Eric Woerth was very optimistic,” shared Verbiest.

In an interview, Verbiest also spoke about the sort of legal access the private operators are expected to have, the possibility of a new legal battle regarding lotteries and slot machines monopoly in future and much more.

Woerth has said that illegal gambling generates €7 billion a year, and said that there were 25,000 illegal gambling websites in France, representing 75 percent of the market. Rather than banning 25000 websites, he said we’d rather give licences to those who will respect public and social order. What sort of legal access do you think private operators are expected to have in the French market considering the sign of opening up of the sector?

Since the announcement of the liberalisation last summer, Eric Woerth has repeated several times that the opening of the online gambling market will be controlled. In other words, it means that the opening will be limited and that gambling operators will have to satisfy a large number of specifications to obtain a licence. In the name of public order, operators will be required to give guarantees concerning their experience in the gambling industry, the transparency of their shareholding, the measures they will take against fraud and money laundering, and the security measures to certify online payment, protect children or process personal data, etc.

It seems that companies without experience in the gambling industry will have more difficulties to receive an agreement in France. The specifications required to obtain a licence will exclude a lot of operators.

It is being said that online operators, including non-France-based companies, will be granted five-year licences to take bets from French residents on sport and poker. Lotteries and slot machines will remain under state control. How do you assess this selective opening?

According to the draft bill, lotteries will remain under the Française des jeux monopoly and slot machines only available in terrestrial casinos. Moreover, spread betting, betting exchange or bets on virtual competitions will be forbidden. These games are known to be more risky (addiction and lack of control to avoid fraud and money laundering) than others and consequently are excluded from the opening.

Officially the European Commission has never criticised lotteries and slot machines state’s monopoly. The reasoned opinion sent to the French Government on October 2006 only concerned sports betting services. Therefore, the Government has decided to limit the opening of the market.

This restriction is not satisfying for gambling operators. Indeed, a lot of them operate sports betting services, online poker and lottery or virtual slot machines. Excluding lotteries and virtual slot machines to protect consumers, the Governmenent is being incoherent. If the Government wishes to ensure consumers’ protection, it should prohibit these games in general for both, public and private operators.

In application of EU law, the measures taken by Member States to restrict the free movement of gambling services have to be necessary, proportionate and non-discriminatory which is not the case when the market is closed in favour of public companies that do not particularly have consumers’ interests at heart. A new legal battle on the field of lotteries and slot machines monopoly could be declared by private operators in the next few months.

Industry leaders however have predicted the caveats in the bill would put off many operators. Woerth said he was proposing to impose a 7.5 percent tax on operators taking sport bets to maintain the €5bn a year it gets in receipts from the industry. He also intends to set limits on the ratio of bets that can be paid out to players in winnings. But according to the European Gaming and Betting Association, this raises questions about how economically viable the whole project will be for operators. What’s your opinion regarding the same?

The project will certainly not be economically viable for all operators as France gives priority to public and social order above all.

In theory, only operators located in uncooperative tax havens will be put off. Nonetheless, for practical purposes, in the draft law, especially the tax system and the limitations of wagers, winnings and the ratio of bets that can be paid out to players in winnings, we can infer that the liberalisation will only be profitable to gambling industry leaders.

The French Government has never hidden its objectives. The goal of the opening is not to authorise every operators to provide their services in France but to legalise the activity of honest companies offering financial and legal gurantees to ensure the respect of public and social order. The consequence is that many average operators will be excluded.

Recently, you had mentioned that according to the ongoing discussion within the French government, the draft bill requires that all operators should obtain a licence in France, without respect to the fact they may already have one in another Member State. Still how do you think online gaming companies especially ones from other countries can take realistic and swift action in terms of identifying opportunities and then acting in accordance with to the local licencing regimes?

European institutions promotes a principle of mutual recognition between Member states. It means that a licencee in a Member state could obtain automatically an agreement in France. Eric Woerth has explicitly rejected this principle. Nevertheless, once the regulation of the French market will be effective and consolidate, we can expect bilateral agreement between Member states to simplify proceedings to obtain a licence.

What do you recommend as far as the gambling tax issue is concerned? France has moved to open its gambling market, but insists all licenced Internet gambling sites will pay French tax, regardless of base location. How do you think this whole issue needs to be tackled?

It is impossible to give recommendations for the moment because decrees which will specify the content of the law have not been published yet and we still do not know how exactly the rules will be enforced.