On last March 24th the European Commission delivered the final version of the long-awaited green paper on online gambling in the Internal Market and launched a consultation in order to collect comments and suggestions on the most critical issues connected to this practice and take actions accordingly. Said consultation will last until July, 31st and should allow the Commission to consider strengths and weaknesses of the various regulatory models coexisting within the European Union in the light of the stakeholders’ interests.
Online gambling has been excluded from the scope of application of both Directive 2000/31/EC (also known as “E-commerce Directive”) and Directive 2006/123/EC (also known as “Services Directive”); the resulting lack of harmonization has given rise to a great deal of case law, addressed especially by the European Court of Justice, as I explained in one of my past notes here on Medialaws.
Drawing on the words I used therein, many Member States have raised “regulatory barriers” in order to prevent foreign operators from offering gambling services to their citizens. These barriers were construed in two ways: while some States created strictly controlled monopolies, others restricted the number of operators by granting a limited number of licenses.
However, the growth of the Internet allowed operators to overcome said “barriers” and thus reach consumers in countries where they were not legally licensed.
Therefore, the critical aspects brought to light in particular by the European Court of Justice rulings in Gambelli and Placanica on one hand witnessed the difficulties arising from the coexistence of different regulatory models and the lack of mutual recognition whereas on the other led the European institutions to take care of online gambling seeking the best strategy to handle it.
The Green Paper delivered by the Commission acknowledges that in view of recent trends restrictions imposed to online gambling can be expected to continue to vary considerably, so that what is considered a legal offer in one Member State will continue to be deemed “unlawful” in the territory of another Member State. On such grounds, the Commission looks at effective enforcement as a key issue for the achievement of the various objectives underlying Member States’ gambling policies.
Additionally, the Commission points out that, although blocking unauthorized operators could be justified, residual but significant unlawful offer may nevertheless continue to be accessible.
Thus, the objective of the Green Paper is identified with supporting and fostering the emergence in the Member States of a legal framework providing for grater legal certainty for all stakeholders. How said framework will be shaped depends to a large extent on the public interest objectives pursued by Member States.
The first stage of the Commission’s analysis consists of defining online gambling services. This is for sure a significant advancement since it reconciles the definition provided for in the E-commerce Directive, relied upon to exclude gambling from its scope, and that established under the Information Society Directive 98/34/EC. The definition reads as follows:
“Online gambling services are any service which involves wagering a stake with monetary value in games of chance, including lotteries and betting transactions that are provided at a distance, by electronic means and at the individual request of a recipient of services”
However, national markets of online gambling are limited since domestic regulations require each operator to be awarded with a license. The root of the problem stems from the national characterization of licenses and authorizations, which are usually issued by administrative bodies (like, for instance, the Ministry of Economics). Accordingly, while some States acknowledge the licenses granted in other countries (on the grounds of so called “white lists”) and do not require any additional title, other States have enacted double licensing regimes whereby each operator must be licensed within their territory although he is legally licensed to offer gambling services in other countries. Therefore, mutual recognition does not work at all in the gambling market: in the absence of harmonization, just few States allow operators legally licensed in the country of origin to offer gambling services within their territory.
Then, the analysis of the Commission examines three categories of public interest objectives which usually justify restrictions to gambling, generally speaking, and in particular to online gambling as well.
First, the paper addresses consumer protection. As to this objective, the Commission takes a very careful approach since, although majority of players do not suffer from problem gambling, all gamblers need protection against fraudulent services. Transparency is seen as the key issue on the matter. Several national laws in fact provide for restrictions to gambling market grounding on consumer protection. The Commission set out some of the main factors increasing the risk of problem gambling in online gambling services, such as, for instance, the event frequency (“the briefer the time between the game taking place and the opportunity to place a stake the greater the risk”) and the payout interval (“the time between placing of the stake and the result. The shorter this is the greater the risk”). Among others, remedies to said risks can be found in age limits, financial and time limitations, diligence obligation for the online operator and restrictions to the range of opportunities offered by the most risky games.
As regards gambling addiction, in the Commission’ opinion “it is difficult to draw direct links between the remote gambling and the likelihood of becoming a problem gambler”: although online gambling facilitates availability and accessibility of gambling services, the Internet allows tracking consumers’ transactions.
Particular attention has to be paid with respect to the involvement of minors in online gambling: payment processing systems could constitute an effective means to prevent minors from accessing gambling services. Identification of users is another important stage to mind for the same purpose.
Second, the safeguard of public order probably represents the main concern of States restricting gambling. As brought to light by the European Court of Justice ruling in Liga Portuguesa, online gambling raised new additional risks due to the availability of the Internet.
Two main concerns underlie this objective. First of all, prevention of fraud is seen as a crucial point, in respect of both consumers and operators. The Commission has identified three types of fraud on which it whishes to consult:
i) players not receiving their winnings;
ii) identity theft and data protection failures;
iii) manipulation of the outcome by tampering with the software associated with the game or corruption of people involved in organizing the relative games or events.
The consultation on these aspects aims at assessing the degree of awareness about said risks and the opinion of consumers and operators with respect to the best practices to prevent frauds from being committed.
Additionally, prevention of money laundering is the second public order objective which justifies restrictions to gambling online. The Commission points out the existence of two extreme types of money-laundering activities: on one hand, “transnational operations designed to hide the criminal origins of large scale crimes so that people and property are made to appear legitimate”, on the other, “any activity that conceals, disguises or disposes of the proceeds of any crime”. Money laundering activities are obviously connected to illegal operators which are able to get licensed. In the Commission’ opinion, certain practices have to be monitored as possible source of money laundering:
i) crediting winnings or unused funds back to accounts other than those from which the original bet was made;
ii) allowing users for registering multiple accounts;
iv) using particular means of payment.
The Commission observes that the 3rd Money Laundering Directive is applicable to online gambling. However, problems of enforcement arise when operators are licensed in more than one jurisdiction.
Finally, the Commission considers financing of the public good; financing of the “public good” includes funding, for instance, arts, culture, sports, educational programs, health related activities and so on. Such purposes fall outside of recognized public interest objectives as set out by Article 49 TFEU but may nevertheless justify restrictions to gambling, insomuch as they are aimed at ensuring that revenues generated therefrom are intended to support certain entities (such as Olympic committee or nonprofit organizations) or to serve specific purposes.
After having examined the various public interest objectives on which national laws limiting gambling rely, the Green Paper focuses on the key issue of enforcement. In particular, tolerance and lack of effective enforcement are reported by the Commission as two factors undermining the fight against illegal gambling.
There are in fact notable differences between the organizational structures used for the granting of licenses and supervision of market among the Member States. As pointed out by the Commission, the framework is quite complicated, so that within a Member State differing forms of online gambling service may also be regulated or supervised by separate bodies. Various authorities are involved in the governance of a wide range of activities and administrative cooperation seems to be, in the light of that, the only feasible path to ensure greater certainty to both operators and consumers. Just a limited number of national regulators, in fact, have established cooperation.
Only at the end of the report the Commission comes the very heart of the problems connected to unlawful gambling. The last paragraph of the Green Paper highlights that “payment and communication providers (telecom operators, television channels and information society providers) enable online gambling services”. Therefore, in order to restrict unlawful and cross-border online gambling services, some methods are imposed on service providers.
-Domain Name System filtering: DNS filtering allows preventing customers from accessing blacklisted websites or redirecting them to a legal websites offering gambling services. Costs connected with such a method arise at large from the need of keeping updated the list of blocked websites;
-Internet Protocol blocking: instead of preparing a black list of websites whose domain names are filtered, such a system provides for the blocking of IP addresses linked to websites offering unlawful gambling;
-Payment blocking: such devices have not been implemented in Europe as largely as in the U.S. However, since operators are identified by a “Merchant Category Code” said mechanism could result in the blocking of licit transactions other than payments relating to stakes and prizes.
Notwithstanding the Green Paper does not outline any solution to the problems generated by the transnational character of online gambling, it witnesses the consciousness raising in the European context of the difficulties raised by said practice. Public consultation should increase this awareness, and help the research of suitable remedies to achieve a sound legal framework reconciling the global character of the Internet and the need of protecting public interests.