Proposed changes to Finnish lotteries act raise EC’s concerns

The European Gaming and Betting Association (EGBA) has welcomed the the European Commission’s decision to issue formal Comments against the proposed changes to the Finnish lotteries act.

Comments issued by the European Commission in the context of the notification procedure mean that it considers that the text submitted raises issues or requires further details for clarified interpretation.

According to the Association, these changes, if implemented, would increase the extent of the breach of EU law that is already the subject of an EC infringement procedure.

The EGBA highlighted that the new draft provisions introduce even further restrictions on indirect marketing of gambling services for operators without a Finnish licence, as well as fines and prison sentences of up to two years for both media and online gaming companies operating or marketing such activities. These additional restrictions are, however, not aimed at enhancing consumer protection in a consistent and systematic manner as they will not apply to the Finnish government’s own gambling activities which will still be allowed to conduct extensive and aggressive marketing campaigns.

Sigrid Ligné, EGBA Secretary General, said, “This shows all too clearly that the Finnish authorities have for the past two years – during which the Commission has been delaying Finland’s referral to the ECJ – enhanced their protectionist legislation rather than removed it.”

“The Commission’s patience has clearly not paid off. We now call on the Guardian of the Treaty to defend our rights and to bring Finland to the ECJ.”

Live Real money Texas Hold’em Poker tournaments legalized out of casinos in France

After a crisis meeting with casino representatives in the middle of November, the French Home Affairs Minister, Michèle Alliot-Marie promised to reflate the casino industry by authorizing the organization of live real money Texas Hold’em tournaments out of the confines of casinos but under their control and responsibility. The 24 December 2008 decree concerning casino games concretizes this proposal.

Live real money poker tournaments have become more and more popular, and casino managers needed more flexibility to organize such tournaments. According to casinos representatives, even if this point was not one of the major priorities to relaunch the sector (1), it will have a positive impact.

The 24 December 2008 decree modifies an important decree of 14 May 2007 which introduced Texas Hold’em Poker into casinos for the first time and specified detailed rules concerning the different sequences of the game. The scope of these decrees is limited to casino games’ regulation.

Article 19 of the 2008 decree specifies that “casinos can organize texas hold’em poker tournaments, with prizes at stake, in their gaming room or in premises guaranteeing the same level of sincerity and security in games operations”.

From this article we can infer that the responsibility to ensure sincerity and security in games operations rests on casinos shoulders as though the tournament took place in their own premises.

In order to ensure transparency, tournament rules and conditions shall be transmitted to public authorities and notably to the Home Affair Ministry at least twenty one days before the event.

The decree does not specify any territorial limit to the organization of live real money Texas Hold’em Poker tournaments. In theory, a casino is thus authorized to organize such tournament every where in France as long as honesty and security are ensured.

The decree also relaxes the regime applicable to preliminary tournaments (2) originally limited to 100 per casino and per year. The amount of such tournaments is no more restricted and following article 20, casinos are no longer required to award cash money to winners but can offer stakes for another tournament.

If the new decree makes casino games’ regulation look more flexible, there is no doubt that public authorities will keep on imposing a strict control. Nevertheless these measures are favorable to casinos who are now free to organize larger and plentiful events.

(1) Casinos’ representatives firstly requested a tax suspension and the right to operate casino games online

(2) Small tournaments in which the winner gets the right to take part in a major tournament at least cost. Such tournaments are organized before the main event to attract more people to major tournaments.

Source: Arrêté du 24 décembre 2008 relatif à la réglementation des jeux dans les casinos, JORF n°0303 du 30 décembre 2008 page 20411, texte n° 40, NOR: IOCD0829527A

Rien ne va plus in the French Casinos

The French Casinos have decided to have their voice heard. They have reached a situation of extreme difficulties whereby they require the French public authorities, at both the federal level as well as local level, to know of their concerns regarding the current state of the French gaming market. The French Casinos have requested the government to enact remedies which will allow French Casinos to become more competitive.

The French Casinos have decided to have their voice heard. They have reached a situation of extreme difficulties whereby they require the French public authorities, at both the federal level as well as local level, to know of their concerns regarding the current state of the French gaming market. The French Casinos have requested the government to enact remedies which will allow French Casinos to become more competitive.

Despite many warnings over the last number of years, the French Government now finally appears ready to undertake a series of initial action to assist French Casinos. But to what extent will these actions allow the Casinos to regain a competitive edge?

The Casino industry in France consists of 197 casinos, which employ 18,200 employees, and operate 22,000 slot machines in addition to roulette and poker. At the end of 2006-2007, the gross revenue reached
€ 2.8 million, which represented an increase of 3.07% over prior years. In comparison, the gross revenue fell by 13.5%, with a decrease of 20% recorded in September alone, during 2008.

French Casinos have expressed their dissatisfaction with the current legal system and tax regime. French Casinos have warned the public authorities for years. In the words of a director of one of the leading French Casinos: “[w]hen the casino coughs, the municipality gets a cold.”

As an example, Barbazan (a municipality in southern France) received € 529 000 in 2007 from casino tax payments, which represents 74% of its budget. Barbazan was a town of 350 inhabitants before the opening of its casino. One hundred new inhabitants relocated to Barbazan as a result of the construction of the casino, which has generated hundreds of jobs and commercial opportunities.

In total, € 245 million in taxes have been paid by French Casinos to municipalities. This tax figure excludes additional revenue received from employee wage payments and revenue derived from connected activities (such as resorts and entertainment, etc…).

Considering that some of the French Casinos are now in the process of laying-off employees, or even face the prospect of ceasing operations, the economic crisis will not only affect the French Casinos, but also the municipalities where the casinos are located.

Reasons for such a crisis

There are multiple factors which have directly and indirectly caused the French Casinos to face losses in revenue during 2008.

First, the smoking ban which became effective on January 1, 2008, has radically changed the habits of players. Players were used to being able to smoke and drink while playing. Instead of quitting smoking, players have preferred to neglect the casino properties and now play at home via the internet in order to keep smoking while gambling.

Second, as a consequence of the financial crisis and a general declining economic atmosphere, casinos have experienced an even greater decrease in players frequenting their properties.

Third, the strict identification and registration process for anyone to enter casinos premises in France has had a negative effect on the number of players entering casinos and, thus, likely contributed to a decline in gaming revenue. Such traceability of players and money may have contributed to regular casino patrons electing to play at foreign casinos in countries bordering France.

Finally, the French Casinos suffer from unfair competition from online gaming operators. According to French law, internet gaming is generally prohibited except in limited circumstances. Specifically, online gaming is only authorized by virtue of an exemption for the historic gaming actors in France: the two State monopolies, the Française des Jeux (FDJ) and the Pari Mutuel Urbain (PMU). Hence, these two majors gaming businesses are free to offer gaming opportunities which French Casinos are otherwise strictly prohibited from offering. Newly authorized casinos have even been sued in French courts when they attempt to enter the online market, whereas operators licensed by other Member States of the European Union are “free” to proceed to offer online gaming in France.

Opening of the market… any prospect for French Casinos?

On June 11, 2008, the French Government announced it would open its gaming markets as a result of pressure from the European Commission.

The imminence of a new legal framework has been confirmed; the main features of the new liberalized gaming law has been announced. However, because the legal process to open the French gaming market is still at a political stage, the new law is still an evolving work in progress. The French Parliament must still enact legislation and final amendments to the law may be made by the President. Therefore, the details which have been announced may be subject to subsequent changes. Moreover, implementing the new legal framework may not begin until the second half of 2009.

Opening up the French gaming market will primarily be directed at on-line gaming (which excludes off-line gaming such as lotteries, which will remain within the scope of the State monopoly “la Française des Jeux”, as Casinos being subject to special authorizations of the Ministry of Home Affairs and as Gaming Clubs (Cercles de Jeux) or Phone Gaming).

On-line gaming which may be authorized under the new gaming law regime include:

– betting on sport events;
– mutual betting on horse races and fixed odds betting for all other sports betting;
– poker and maybe a limited number of other games currently offered in Casinos and Gaming Clubs (“Cercles de jeux”), such as backgammon.

As a result, betting on virtual events, the financial market, spread betting or on results not linked to a true sports event are excluded from the liberalization of the French gaming laws. These games will remain prohibited under the new gaming law, as is the case under current French law. In addition, lotteries and slot machines will be excluded from the new law, even for online versions.

As far as French Casinos are concerned, the restrictions represent for online lotteries and slot machines their main point of contention because it prevents the French Casinos from developing a very lucrative business activity within the “information society.” It is well known that la Française des Jeux competes in these sectors of the gaming market. La Française des Jeux holds a State monopoly, which is officially justified by reasons of social health and public order. In reality the activities of la Française des Jeux represent a huge source of income for France.

On the positive side, as a result of the opening of the French gaming market, French Casinos will finally be officially allowed to operate online poker. Hence, the new regulation aims at creating a real opportunity for larger operators, which are able to fulfill all licensing criteria, to target the French online gaming market. This system tends to promote already operating and licensed large operators willing to adopt some responsible gaming measures and be subject to France’s control, as opposed to illegal or smaller entities. That is, the terrestrial casinos may have some preference in obtaining an online gaming license.

However, the new system is far from being adopted and implemented and does not even meet the main expectations of the French Casinos.

Latest measures announced in order to help the Casinos

Following up to a meeting held by the French Minister of Home Affairs, Michèle Alliot-Marie, with French Casinos representatives on November 14, 2008, the Minister officially proposed some measures to support terrestrial casinos facing the dramatic impact of the economic crisis.

Taking into consideration the popular success of poker tournaments, Michèle Alliot-Marie announced a relaxation of restrictions with regard to the organization of such tournaments. By the end of 2009, the number of tournaments will no longer be limited. In addition, French Casinos will be authorized to organise competitions off their premises, which is not authorized under the current gaming law.

Moreover, the Ministry assured casinos that the procedure authorizing new games will be considerably reduced.

Finally, conditions to request additional slot machines or further casinos games will be also relaxed with the aim of bringing players back to casinos.

Even if casinos representatives have expressed some satisfaction from the already announced changes, they are still waiting for answers regarding their main requests.

Main requests still unsatisfied

The Casinos have repeatedly pointed to the loss of revenue due to competition from online gaming. The new gaming law, which would potentially allow casinos to partially develop online activities, is still at a drafting stage. Considering the unfair competition domestic French casinos face and overall economic difficulties, French Casinos have requested a global review of the tax system. They have officially called for:

– an immediate decrease of or exemption from taxes until the new gaming law is in place;
– an update of the rates for the progressive tax, which has been obsolete for 22 years because of inflation;
– a distinction in the tax applicable to, on the one hand slot machines and, on the other hand table games, whereby the tax rate on table games should take into account the value generated from the greater employment table games generate in casinos;
– a strict limitation of 15% of the global tax payments should be shared with the municipalities.

These requests have been unfulfilled thus far and the draft legislation authorizing online gaming has been too restrictive for French Casinos. As a result, some French Casinos are seeking alternative solutions to contain their losses.

When the Casinos start to bet on the law…

Losing patience and excited by the success of online poker free rolls offer (up to 4000 players online simultaneously), The Partouche Group, one of the European leaders in terrestrial casinos, decided to promote a new online poker game with real money – which is absolutely illegal under current French law. This new offer is now available for French players on https://poker.partouche-game.com.

Partouche is the first French casino to cross the red line and challenge the French government. Nonetheless, as long as the current French gaming law system is the subject of criticism by the European Commission and the liberalization reforms for online gambling are still in progress, it is very unlikely that any prosecution will be made. On the other hand, who knows what will be decided under the future licensing system: could one bet that the new French gaming law will have some future consequences for Partouche to obtain a License?

Close-up on poker regime in France

Poker status in France has been ambiguous for a long time but luckily for operators the future looks brighter everyday.

Legal framework

French courts distinguish between games of skill and games of chance. The prohibition is focused on games of chance. There are two primary pieces of legislation in this area: one on lotteries and the other one, on games of chance . The 1836 Act prohibits lotteries while the 1983 Act is focused on games of chance. It is not always easy to determine the precise field of each law but French courts take the view that poker is covered by the 1983 Act. As elsewhere in the world, whether poker is game of skill rather than chance is a hot topic.

Poker is usually considered as a game of chance by courts. The question whether skill prevails over chance in games of poker is currently much discussed. But even if a judge were to endorse the conclusions of a mathematical study proving that skill prevails on chance, it is not obvious that he or she would conclude that poker is not a game of chance. On the contrary, the Supreme Court has already held that one specific game was indeed a game of chance, despite the fact that in this game skill prevailed over chance. The determining factor was there were significant stakes; accordingly, the game was to be prohibited as a game of chance.

Under French law, the existence of a stake to play is crucial. If there is no stake – for example, in a tournament without real money – the game itself is legal. “Play money” poker is thus acceptable in French law, though according to a 1971 criminal case even a minimum stake of one French franc (€0.15) was held to be sufficient to justify the prohibition of a game. While there is no case law on the subject, a game played without stakes but requiring a minimum amount of money for registration (for example, a tournament) should – in theory at least – be legal.
In 2007, a new Act has been adopted to reinforce the prohibition against unlawful online games of chance, especially against poker. Penalties have been increased: infringements may be punished with penalties going up to three years’ imprisonment and with fines of €45,000. These sanctions are increased to seven years in prison and a fine of €100,000 when the infringements are committed by organised groups. Moreover, the advertisement of forbidden games of chance is a new infringement punished with fines of €30,000 or four times the advertising expenses.

Up until recently, poker could only be organised in very restrictive venues and occasions, but since the European Commission started to examine France’s gambling regime many changes are to happen.

Latest changes

Since December 2006, brick and mortar casinos are entitled to organise poker games in their premises. Prior to that, poker was only permissible – according to the law – in dedicated, state-sanctioned “gaming circles”. The amended 1959 decree, establishes a distinction between games ‘of counterparts’ such as casino stud poker and games ‘of circle’ such as Texas Hold’em. Both though are expressly authorised.”

More changes were yet to come after the European Commission launched an infringement procedure against the French gambling policy, specifically regarding sports betting, and the French supreme also started to question France’s gambling policy.

First, the government decided to suspend all pursuits against EU licensed online operators whilst it was reflecting over a draft bill authorising online gambling. It soon became clear that the scope of the future market opening was going to include online poker.

The first licences should be granted to operators by the end of 2009 or at the beginning of 2010.

Even if this decision to legalise online poker has been welcomed by many operators, French brick and mortar casinos opposed several reservations.Their gross revenue has drastically decreased over the last year and the three main casino groups explain it by several facts. One reason is that while offline casinos are still heavily taxed by the state, online operators are free to exploit the French market without any burden, and this represents an unfair competition. Another reason is the blanket ban on smoking in public places since January 2008, which caused casino attendance to drop (by 15 to 20% since June).

This is why on 19 November; French casino groups have called on the government to help them to through this crisis. They have asked for tax relief until the new gambling regime was in place. In response, Michèle Alliot-Marie, French Home affair secretary, has promised, among other measures, to make it easier for casinos to organise poker tournaments.

Casinos will be able to organise Poker tournaments in other premises than their own, and the threshold of 100 tournaments per year will be removed.

Under the influences of the European Commission, of poker’s popularity and of the recent crisis, poker regime has dramatically changed in France in two years time. Even if one can be hopeful about its evolution in the following months, operators will need to monitor closely the implementation measures that the new regime will reveal.

Source: Inside Poker

Implementation of the Unlawful Internet Gambling Enforcement Act is becoming reality

On 12th November 2008, after two years of stand by, the US Department of the Treasury along with the Federal Reserve Board finally announced the publication of the final rules ensuring the implementation of the Unlawful Internet Gambling Enforcement Act (UIGEA).

The UIGEA was enacted to stop the development of illegal internet gambling websites by means of blocking money transfers between unlawful gambling operators and consumers. Indeed, the UIGEA prohibits any person engaged in the business of betting or wagering (as defined in the Act) from knowingly accepting payments generated by unlawful internet gambling activities while financial firms are required to establish policies and procedures “reasonably” designed to identify and block or prevent such “restricted transactions”.

A final set of implementation rules was necessary in order to enforce the UIGEA. After a first draft in 2007, received with criticism by gambling law specialists, the US Department of the Treasury and the Federal Reserve Board proposed new regulations which draw up the regulatory enforcement framework.

However, the recently announced regulations are quite similar to the initial proposal, especially considering the standing committee’s decision not to define the exact meaning of “unlawful internet gambling” for the purposes of this act. Asserting that “the underlying patchwork legal framework [of gambling] does not lend itself to a single regulatory definition of unlawful Internet gambling”, drafters concluded that providing further details on what is “lawful” “would not be practical” with regards to eventual exemption from the Act (1).

In addition, the Department of the Treasury in accordance with the Department of Justice rejected the suggestion to set up a “blacklist” of unlawful internet gambling websites. Accordingly, such a measure “would not be effective or efficient” as long as gambling operators will be able to “change their payment information with relative ease and speed” and as a result “such a list would be outdated quickly.”

Instead, banks and other payment service providers will have to put into practice a “due diligence process” before opening new customers’ accounts or over account-maintenance procedure in order to control whether the commercial customer originates or receives restricted transactions through the customer relationship or not. For example, if a bank suspects a commercial customer to present more than a “minimal risk” of engaging in an Internet gambling business, the bank will have to ask for further documentation to ascertain that the Internet gambling business is lawful.

According to the Department of the Treasury the implementation of the Act will cost approximately $88,5m in staff costs, whereas further “unquantified costs” such as training, auditing and legal advice are also expected. The final bill could exceed 100m$ only for the first year and the total annual cost to regulated entities to maintain the policies and procedures will be approximately $3,3m.

Interest groups such as the American Banking Association or the Financial Services Roundtable are particularly reluctant to the implementation of the new provisions in a time of economic crisis. In an open letter addressed to US Secretary of the Treasury, Congressman Barney Frank demonstrated that enforcing the new rules at this time would “burden the financial services industry”.

While American government is enforcing the UIGEA, the European Commission is wondering about the opportunity of launching legal proceedings against United States before the World Trade Organization, considering that non American operators are specifically penalized by the implementation of the UIGEA in a restrictive and discriminatory way (2) . The European Commission should publish the conclusion of their formal investigation by the end of the year.

Despite criticisms, the final rules will officially come into effect on 19th of January 2009 and all payment service providers will have until December 2009 to comply with the new provisions.

[1] “Prohibition on funding of unlawful Internet”, Federal Register Notice, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081112a1.pdf

(2) The US Department of Justice is suspected of violating international trade law by threatening and pressing criminal prosecutions, forfeitures and other enforcement actions against foreign online gaming operators while allowing domestic US online gaming operators.

Sources:

Agencies Issue Final Rule to Implement Unlawful Internet Gambling Enforcement Act”, the Federal Reserve, Joint Press release, November, 12, 2008, http://www.federalreserve.gov/newsevent/

“Prohibition on funding of unlawful Internet”, Federal Register Notice, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081112a1.pdf

“Prohibition on funding of unlawful Internet”, regulations to the Unlawful Internet Gambling Enforcement Act ‘s proposal, http://www.treas.gov/press/releases/reports/noticeofproposedrule.pdf

“UIGEA Rules To Take Effect Hours Before Obama Inauguration”, James Kilsby, November, 14, 2008, published on http://gamblingcompliance.com/

“EU gambling firms see WTO case coming against U.S”, Doug Palmer (Reuters), September, 18, 2008, http://www.reuters.com/

“EU online gaming industry challenges US with charge of prosecutorial discrimination”, Remote Gambling Association, Press release, Brussels, 20 December, 2007