Lack of regulations contributes to the appearance of fraud and addicted players – Interview with Santiago Asensi, Partner, Asensi Abogados

The recent suggestion asking the member states to hold talks on a “political solution” for online gambling-related problems instead of calling for a new legislation by the European Commission hasn’t gone well with a certain section of the industry.

And one of the main points of contention is related to the interests of those, who have deeply ingrained anti-gambling prejudices and, of course, ones with vested interests that are opposed to the opening up of markets in the EU.

In the context of MEPs having a huge majority voted against creating an EU-wide single market for online gambling, Santiago Asensi, Partner, Asensi Abogados, says the branding of the sector as a risk-factor in fraud and addiction does not benefit anyone.

“Currently, to maintain that the online gaming industry is built over that basis is absolutely unfair. This is a very poor argument used from long ago to justify state monopolies. The only factor that contributes to the appearance of fraud and addicted players is the lack of regulations, which is exactly the opposite of what the online sector is claiming for. It is a simple formula: the less regulated is the sector, greater opportunities for the “pirate portals”,” says Asensi.

“From a legal perspective, it seems that the Deputies that have voted in favour of the Schaldemose report are missing what the article 49 of the EC Treaty establishes and the interpretation of said article made by the ECJ in Gambelli and Placanica cases. Hopefully, this decision should not have any type of practical consequences, at least, in a short term,” he said, adding that in this regard, the Spanish regulators or politicians have not announced any step in favour of or against this report.

Asensi further says that unfortunately, the result of the ballot in the Schaldemose report is showing how far we are of an EU harmonised legislation.

“However, this result should cause a reaction in the stratum of the gaming industry: this is the right time for lobbiying and keep adding more pressure. The arguments that support the Schaldemose report are quite weak from a technical point of view and, obviously, this represents a clear opportunity in any legal battle,” he said.

Asensi also provide an update on the latest developments in Spain, the current approach of the established players from the region and much more. Excerpts:

Previously you had indicated that in accordance with the Law 56/07 on measures to develop the Information Society, Spain is preparing a new gaming law, which would be totally focused on the online market. What’s the latest on this or has there been any other significant development?

After the Act 56/2007, which was passed in December 2007, the Sectorial Gaming Commission (SGC), the body that groups all the gaming authorities from the state and all the different autonomous communities, celebrated its first meeting with regards to this question in June 2008. It was approved that LAE (the State Lotteries Monopoly) should take care of the reaction of the first draft. Since then, and further than what represents to act at the same time as operator and regulator, LAE has not involved any of the communities in this matter, even the creation of workgroups to report and support LAE’s draft was also approved in the same meeting.

As the time is passing by, the expectation about LAE’s first draft is exponentially increasing, not just between the gaming operators, mainly by rest of the agents that form the SGC. It is inexplicable why LAE is showing such inscrutability, not sharing any information of the draft of the bill with any of the rest of the SGC members. Moreover, this attitude is producing some unexpected reactions between the Spanish communities like Castilla-Leon and La Rioja, which have announced their own online gaming regulations, which, from my perspective, would be an enormous mistake.

How do you think companies need to approach a market like Spain at this juncture? What sort of advice would you give to them for encashing on opportunities in an earnest manner?

Even as the legal scenario still needs to be totally clarified, it’s a good moment for those companies that are not in the Spanish market yet to start to take positions. Frankly, I do not think that any of the online regional regulations announced will finally take place since none operator is interested in developing its activity on a regional basis. Sooner than later, the Federal regulation should impose to any regional one and, in this regard, the Act 56/07 is absolutely clear about licenses granted in the EU: they will be recognised in Spain.

My view is that the main debate should not be taking place at the absurd battle of “regional versus federal regulations”. Following the steps of the UK Gambling Act 2005, the inclusion of a white-list criteria that allows operators granted in other jurisdictions different than the EU to act in the Spanish market, as far as they reach and fulfill the appropriate standard levels in the main matters (protection of minors and the youth, compulsive players, data protection, advertising, etc.), is a much more interesting topic.

Thus, if a non EU gaming jurisdiction has enough credentials to be white-listed, it would make no sense to not allow the participation of its licenced operators in the Spanish gaming scenario.

Italy, along with parts of Spain, has been targeted by several British bookmakers as the government has begun to liberalise its betting shop industry. But in July last year, William Hill withdrew from Italy after 18 months, writing off £1m and agreeing to sell its embryonic joint venture. In this context, how do you think some of the relatively bigger and established gaming and betting companies are going to approach a market like Spain in the time to come?

At this stage, it should also be pointed out the experiences that companies like William Hill are having in the Madrid Community or the Basque Country at the moment is through JV with Spanish operators. From my perspective, this is a very good way to enter in new territories. While the British operator contributes with the know-how and the experience in the sports betting sector, the local partnership adds its knowledge of the market and network. In any case, I believe that this formula is at a very early stage to reach any final conclusion.

Also, how do you assess the current environment for international players especially the sponsorship initiatives of gambling companies? Also, in your opinion, which are the ways in which international gambling operators currently targeting consumers in Spain?

At this stage, I think there is no doubt at all that the gaming industry is giving a great helping hand to sectors like sport clubs and the advertising industry trough sponsorships, marketing campaigns, etc.

The international gambling operators are targeting consumers in Spain depending on the product that each one of them commercialises in.

While most of Bingo portals focus their marketing activity in online portals, sports betting operators look for opportunities in football or other sports.

In this regard, poker operators are opening the doors of TV advertising which was unthinkable earlier.

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

Banks: the big winners of the online betting market opening?

The French gaming market opening has been expected and welcomed by many, but some pieces of information on means of payment contained in the draft bill must not go unnoticed.

According to the French gaming bill, online gaming operators will be submitted to a licensing process. Licenses will be granted on the basis of operators’ compliance with a cahier des charges (a set of rules and criteria).

This “cahier des charges” is still unknown since it is yet to be defined by decree and then implemented by the ARJEL (the future gambling authority). However the government has already made clear that the “cahier des charges” will contain a set of rules on “means of payment for stakes and earnings”.

As far as means of payment used for “payouts” are concerned, the draft bill requires players to establish a direct debit system with operators’ bank account information. It is therefore reasonable to predict that the “cahier des charges” will organise a system where payouts payments can only be made on players’ declared bank accounts and that cash payout payments will be forbidden.

Stakes payments will be capped as one of the measures of the draft bill to fight addiction. As a consequence it is expectable that the “cahier des charges” will have a provision aiming to limit the amount of money which can be spend with a same means of payment through the fixation of a monthly threshold.

However, the Ministry of Budget’s press release of March 5th did not raise the above mentioned measures but other measures aiming to prohibit anonymous means of payment or to require players to only use means of payments which are linked to a bank account.

One question still remains: will French players have to use a credit card in order to pay for their stakes? In many other countries authorising online gambling, a wide range of means of payment can be used by players such as credit cards, digital money accounts, prepaid cards, whether anonymous or not, etc.

Discussions are still in progress, consequently nothing is certain yet and many several different solutions can be adopted. The only piece of certainty is that it will be difficult to strike a right balance between:

– on one hand, protecting minors and fighting against money laundering, which justify the implementation of restrictive measures,

– and on the other hand, ensuring players’ privacy (stemming from the refusal that bankers should know whether their client like gambling) and applying E.U. competition law to payment service providers (especially at a time when the Single European Payment Area “SEPA” project is about to break through on harmonising rules on payment in the Euro-Zone and improving competition through the new integrated retail payment market).

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.