Gambling in France: the law in progress

On 25th of March the project of law concerning the opening of the remote gambling market in France was submitted to the Council of Ministers. Following to its approval, the text was notified to the European Commission, launching the 3 months stand-by period in application of EU Directive 98/34. Hence, the project of law was also submitted to the National Assembly. The end of the legislative process is expected by the end of the summer. As announced, the French gambling market will be strictly “controlled”.

On Thursday 5th of March, Eric Woerth, Ministry of Budget has presented publicly the draft bill concerning the opening of the remote gambling market in France.

On 25th of March the project of law was submitted to the Council of Ministers. Following to the Council of Ministers‘approval, the text was notified to the European Commission, launching the 3 months stand-by period in application of EU Directive 98/34 in the field of gambling. On the same day too, the project of law was sent for discussion to the National Assembly (the low chamber of the Parliament). It is likely that the Parliament completes the procedures of scrutiny, discussions and votes by the end of the summer.

As expected, the opening of the French market will be strictly “controlled”. In other words, the scope of the opening will be limited and gambling operators will have to satisfy a large number of requirements to obtain and keep a license.

This new gambling policy is meant to monitor the offer and the practice of gambling and to channel the demand in a system controlled by public powers in the name of public and social order.

In this view, an Online Games Regulations Authority (Autorité de Régulation des jeux en ligne: “the ARJEL”) will be specially created to take in charge the whole gambling policy and promote reasonable game.

Here follow the main features of the project of law.

– In order to safeguard social order and to prevent addiction, wagers, winnings and the average rate of return to the players will be limited. In a preventive way, operators will have to insert apparent objective messages on the website about the interdiction to play for minors and the risks related to gambling activities. In addition, operators will be required to work together with an entity/authority in charge of collecting objective information about risks related to gambling (this authority will be designated by subsequent decree).

– The opening will be limited to “online horse race betting, sport betting and games consisting of shared games which depend on skill, whereby the player, after the intervention of chance, demonstrates his/her will and decides, in relation to the strategy adopted by the other players, to use a strategy which is likely to increase his / her chance of winning (for example online poker)”.

Thus, lotteries, virtual slot machines, “spread betting”, “betting exchange”, betting on virtual competition and casino games in which consumers play against the bank (roulette, blackjack, etc…) are excluded from the opening since they are considered to be too dangerous in light of maintaining public and social order, i.e. said to be too addictive.

The online Games Regulations Authority, ARJEL, independent public authority, will be specially created to regulate the remote gambling market. This Authority will be in charge of:

– Monitoring compliance with the objectives of the policy of games accessible via the internet;

– Proposing a cahier des charges (list of requirements established by the ARJEL)to the government for each type of licence (see below);

– Preparing the licence request files for online gaming operators and attributing the licences;

– Auditing for compliance by operators with legislative and regulatory measures and clauses of the reference terms of which they are subject to.

– Carrying out surveillance of online operations and participating in the fight against illegal game sites and against fraud;

– Enacting rules regarding the audit of technical and financial data for each online game or bet;

– Determining where appropriate, the technical parameters of online games within the framework of rules set by the decrees;

– Proposing legislative and regulatory modifications to the government.

– The license will only be granted to online operators complying with the regulations contained in the cahier des charges setting general requirements for all operators and specific clauses according to each type of licenses, namely sports betting, horse race betting on or circle games (such as poker or baccarat).

For instance, all operators will be required to provide information and guarantees concerning their identification, their experience in the gambling industry, the transparency of their shareholding, the measures they will implement to fight against fraud and money laundering, to authenticate online payment, and to protect children or process personal data, etc.

– Licenses will only be offered to operators established in a Member State of the European Union or the European Economic Community. Operators whose headquarters are based in one of the states featuring on the list of non co-operative tax havens made by the Organisation for Co-operation and Economic Development or whose main shareholders hold is based in one of the states featuring on this, cannot be granted a licence to provide his services in France.

– Operators will have to operate from an internet website accessible through a first level domain name with a “.fr” ending.

– All data related to gambling activities, all data exchanged between players and operators and data linked to the identification of gaming or betting events, should be available on a mirror server based in France and eventually provided through an operator representative in France.

– The licence will be issued for a period of five years. It is renewable. It is not transferable. A specific agreement will be requested for each type of games operated by the licensee.

– The tax rate will be calculated on the amount of the wagers: the total sums outlaid by players and punters. The winnings, invested by the latter in the form of new bets, will be equally taxed. The taxation is set according to the following scheme:

* 8,5% for sports betting
* 15,5% for horse racing betting
* 2% for online poker

– Once the bill is enacted, the ARJEL will need another few months to be efficient and begin to grant licenses. The schedule announced by Eric Woerth, according to which France will start to grant online betting licenses in the beginning of 2010 is reasonably likely to be respected.

In top of the important Decree valindating the “cahier des charges”, there are still many details to be specified by subsequent decrees. At this later stage many important aspects will still be decided, as for instance:

– the categories of sport events registered for bets;

– the categories of circle games authorized and their technical specifications;

– the categories of penal infraction preventing an operator from applying for a gaming licence;

– the list of the organisms entitled to certify the gaming software;

– the list of technical requirements for the software’s certification;

– some specifications regarding measures undertaken for the promotion of responsible gaming;

– some accountability specifications;

– some competences and responsibilities lying with the ARJEL and other modalities such as constitution, designation, replacement, remuneration etc… ;

– the list of data which need to be available on the mirror server based in France and archived by the operator;

– the exact modalities of assignment of the civil servants in charge of the investigations on the gaming data and the related secrecy obligations, cases of divulgation etc… ;

– the exact sanctions foreseen in case of contravention with the law;

– the exact amounts due when applying for a licence;

– some obligations of public service lying with horse racing organizations;

– specifications regarding the acquisition of sport betting machines.

As a conclusion, the project of law allows the ARJEL and the government to keep a large control over the gaming operators and operations. Considering the concern expressed by the Government regarding the protection of consumers, this text appears to put in place a reasonable system. However, the operators have expressed their own concern regarding some aspects of the law.

First, some remarks from a terminological point of view: the text uses the term Internet which has no legal definition instead of the term “online communication to the public” defined by a bill transposing the e-commerce directive in French law[1]. For clarification purposes, the project of law should also define what is either a game of chance or a skill game. It appears from the draft law introductory commentaries, that only games of chances would be covered by this law. However, it is not clear, in the project of law itself whether licenses will be needed for paying skill games.

Second, according to the project of law only the EU or EEA based operators can be granted a licence, excluding other operators despite a long experience and high gaming standards, such as those in Alderney jurisdiction for instance.

Third, the taxation is based on wagers rather than on gaming gross revenue; the later being much more adapted especially for poker operators. In application of the above, imposing a 2% tax on global wagers would amount to tax around 60% of their gross revenue. This is likely that this will be considered as very little incentive for most operators to offer their services on the French market. In addition this system could be considered as a barrier to the freedom of providing services within the E.U.

Fourth, the draft bill requires that operators should provide the ARJEL with players’ banking data. It also states that means of payment cannot be anonymous. It should be paid a close attention to the consequences of said provisions.

Under no circumstances should it create a “monopoly” in favour of banks to the detriment of non banking operators. This would be equivalent to excluding most micro-payments operators. By doing so the draft bill would entail significant EU competition law distortions since payment services have been harmonised through the SEPA (Single European Payment Act). Most of non banking businesses, digital money establishments, are like banks subject to obtaining an agreement imposing on them anti money laundering rules and regular reports. In addition, micro-payments instruments are not directly linked to a bank account; it is therefore safer for players not to have their credit card data on the internet. Also, with these instruments, players can be submitted to loading thresholds.

Finally, article 50 of the draft law entitles the ARJEL to seize a judge in order to have all “illicit behaviours” stopped by having the access to an online illegal game closed.

This measure is clear and efficient enough to discourage illegal activity. Therefore Article 51 of the draft bill aiming to block funds transfer originating from illegal gambling operators is not only superfluous but will also be difficult and expensive for the banks to implement both from a technical and a legal point of view.

It is therefore recommended that the French government copy the law transposing the e-commerce directive. Mutatis, mutandis the new gambling bill should directly entitle the ARJEL to order internet access providers to suspend the access to illegal websites. This would make of the ARJEL an administrative authority competent to spot illicit websites and exclude them from the French market. These decisions should be appealed.

In brief, at this stage of the legislative process, the proposed system is still subject to changes. The gambling market is finally about to legally open in France; work in progress…

[1] Loi n°2004-575 du 21 juin 2004 pour la confiance dans l’économie numérique/ Law for the confidence in digital economy