A Black Day for the new German State Treaty on Gambling

The Verwaltungsgericht (Administrative Court) of Schleswig – like the EU Commission -thinks that EU laws are being violated and has decided to refer questions relating to European law issues in the context of the new sports betting monopoly to the ECJ.

The 30th day of the new year 2008 was, from the legal point of view, definitely anything but a good day for the advocates of the State Treaty on Gambling, which is only a few weeks old. This is because on Wednesday this week, the young Treaty was not only sharply attacked by the European Commission; the VG of Schleswig – like the EU Commission – also thinks that EU laws are being violated and has decided to refer questions relating to European law issues in the context of the new sports betting monopoly to the ECJ.

The hearing in Schleswig pertained to the law suit filed by an online provider of sports bets based in Gibraltar who – represented by Hambach & Hambach Law Firm – is looking for the acknowledgement of his European licence for the German Federal State of Schleswig-Holstein as well, as he can invoke the European freedom to provide services.

The background: According to the European Court of Justice, the freedom to provide services also applies for offers provided on the gambling market. However, restrictions to this freedom are possible, provided they are aimed at pursuing general interest objectives and provided the measures taken are suitable and proportionate. The Federal State of Schleswig-Holstein invokes the objectives stipulated in the State Treaty on Gambling, i.e. the combat of gambling addiction and the protection of minors. The private sports betting company replies that the State Treaty on Gambling above all is intended to safeguard the Federal States’ fiscal interests, and thus cannot create a consistent and systematic regulation. The area of slot machines in particular, which is especially relevant with regard to addiction issues, is not affected by the new regulation. Even when looking at the area of sports betting in isolation, the regulation lacks consistence, as (Internet) horse race betting continues to be liberalised under German Federal legislation. Also, according to a current survey by the Deutsche Hauptstelle für Suchtfragen (German Institution for Addiction Issues, Jahrbuch Sucht 2008), the addiction dangers of lotteries is 0.0%. Lawyer Ms. Münstermann states that “a monopoly can hardly be justified by reasons of player protection if the danger in the monopolised areas is close to zero, and if at the same time gambling offers which actually do present dangers are being liberalised.” Lawyer Dr. Wulf Hambach adds “The referral to the ECJ is a consistent and correct decision by the VG of Schleswig, and is definitely in our client’s best interests.”

The VG of Schleswig asks the ECJ whether consistent and systematic restrictions of the sports betting market are possible, when areas which are relevant with regard to addiction are not included in the scope of application – as is the case with the State Treaty on Gambling:

“The Chamber has expressed legal concerns as to whether the objective of preventing gambling addiction and protecting minors – on which the State Treaty between the Federal States is based – may lawfully exclude private providers from the area of lotteries and sports bets only. Other forms of gambling, for instance slot machines, which are regulated by Federal statutes, are not subject to such restrictions.”

(Source: Press release of the VG of Schleswig dated 30 Jan. .2008)

The concerns expressed by the VG of Schleswig are obviously shared by the European Commission, which makes the following consideration in its press release dated 31 Jan. 2008:

“However, it should be noted that in Germany horse race betting on the Internet is not prohibited and slot machines have been widely expanded. Moreover, advertising of games of chance by mail, in the press and on radio is still permitted.

The European Court of Justice has previously stated that any restrictions which seek to protect general interest objectives, such as the protection of consumers, must be “consistent and systematic” in how they seek to limit activities.”

(Source: Press release of the Commission IP/08/119

Link: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/119&type=HTML&aged=0&language=EN&guiLanguage=en)

This is a body blow to the State Treaty on Gambling which will – only one month after it has come into force – not only occupy the European Commission in infringement procedures, but also the ECJ due to the referral by national courts. The 30 Jan. 2008 will probably not have been the last Black Day for the young monopoly. It may, however, be the day which heralded the beginning of the end of the new State Treaty on Gambling.

EU moves toward ruling on German gambling law

published on the International Herald Tribune by Eric Pfanner
Tuesday, January 15, 2008

LONDON: The European Commission plans to decide within weeks whether to step up legal action against Germany over that country’s recent move to ban online gambling, a spokesman for the commission in Brussels said Tuesday.

The German law came into effect on Jan. 1, banning Web-based betting, with the exception of wagers on horseracing, and restricting other forms of gambling to state-run operators. The law sets Germany apart from other European Union countries, some of which have been moving to open state-run betting monopolies to private competitors, and moves it closer to the United States, where the Bush administration has tried to stamp out online gambling.

The European Gaming & Betting Association, a trade organization based in Brussels, on Tuesday urged the commission to take action against the German legislation, saying it violated EU rules.

“The prohibitions in the law are very strict and drastic,” said Sigrid Ligné, secretary general of the association. “We have a strong feeling that it is incompatible with EU law and that the commission will act on our complaint.”

Oliver Drewes, a spokesman for the EU internal markets commissioner, Charlie McCreevy, said Tuesday that the commission would decide, perhaps by the end of the month, whether to take such action.

The commission already warned Germany last year that it thought the law ran counter to EU regulations. The next step, Drewes said, would be a “reasoned opinion” detailing the commission’s objections; Germany would then have two months to respond. Then the commission could take the matter to the European Court of Justice.

Under EU law, governments are allowed to legislate against gambling if, for instance, they are concerned about addiction. But McCreevy has objected to what the commission sees as efforts to protect lucrative state-owned gambling providers from private-sector competition.

The German law seeks to deal with this objection by banning online betting shops, regardless of whether they are run by public or private-sector operators. But the gambling association argues that this is just another form of protectionism, because the government-owned betting shops retain their offline monopoly and would still be allowed to take online bets on horse races.

The commission, in a letter to the German government last year, appears to have sided with the private-sector gambling companies, many of which operate German-facing sites from outside that country.

“The commission does not believe this piece of legislation is in line with community law,” Drewes said.

The commission has started legal proceedings against 10 European countries, including Germany, over their policies on online gambling. Several, including Italy and France, have recently moved to open the gambling sector to private competition, following the lead of Britain, which has already passed legislation allowing online gambling companies to set up shop there.

In France, which had arrested several executives of foreign online gambling companies operating in competition with the state gambling monopoly, the government of President Nicolas Sarkozy last autumn met with McCreevy to discuss the possibility of legalizing and regulating private-sector operators.

Though action by the commission could take years to work its way through the European court system, there are signs that the commission’s stance is having an effect on enforcement of the new German law. On Jan. 7, a court in Stuttgart, for example, decided to delay an order from the local authorities to shut down a betting operator who transferred wagers outside the country, saying the legal situation was unclear. Thousands of other cases related to gambling are pending in German courts.

“We had the chaos before and that will continue,” said Wulf Hambach, a lawyer in Munich who works with online gambling companies.

Battle Over German Interstate Treaty Heading For Home Front Skirmishes

published on GamblingCompliance ltd. by James Kilsby, January 9th 2008

The German Interstate Gambling Treaty came into force as of January 1, despite doubts as to how enforceable the legislation will ultimately turn out to be. However, while some operators are pinning their hopes on European Commission action to overturn the treaty, a European decision may be years off and experts believe the first challenges are likely to emerge via domestic court action within the next few weeks.
After making rapid but belated progress through a number of state Parliaments over the Christmas period, the German Interstate Gambling Treaty came into force on January 1, 2008 – the very deadline set by the Federal Constitutional Court in March 2006 for new gambling legislation to be enacted in the country.

The Treaty’s adoption by all 16 sixteen German Lander preserves state lottery and sports betting monopolies until at least 2012 and bans throughout Germany the use of the internet for all gambling services (including authorised state games) with the exception of horserace betting. The Treaty also enables authorities to demand that German internet service providers block gambling websites and order banks and other financial institutions to block transactions between sites and German customers. Furthermore, the advertising of unauthorised gambling services in German media will be subject to more stringent restrictions under the treaty.

For German-facing private betting and lottery operators the future would seem to be bleak. However, observers of the legal situation in Germany have long pointed to doubts that have emerged over the controversial treaty’s enforceability. Several German courts have referred sports betting cases (brought under old legislation) to the European Court of Justice and the Federal Cartel Office has expressed its reservations over the constitutionality of the regionalised division of the German lottery market amongst the individual state lottery companies.

It is on the European Commission in Brussels that most of the attention now seems to be focused, however. In two Detailed Opinions on the draft version of the Interstate Treaty issued in the first half of 2007, the European Commission clearly suggested that the treaty was not compliant with EC law. The Commission can initiate formal infringement proceedings against Germany now that the treaty has formally come into effect.

A spokesman for Paddy Power, which launched a German-language version of its service in 2006, said this week that Paddy Power expects the European Commission to overturn the ban, echoing the opinion of a spokesman for Bwin’s German subsidiary Bwin e.K. who said in a December 18 interview that the company expected the ECJ to have taken action to prevent Bwin’s exclusion from the German online gaming market by the second half of 2008.

In reality, European Commission infringement action is unlikely to have a great impact in Germany in the short term. In accordance with article 226 of the European Treaty, the Commission must first send Germany a formal letter, to which the German Government will have a period of two months to respond, before deciding whether to elevate the proceeding to the level of a Reasoned Opinion.

If the Commission remains dissatisfied with Germany’s response to this second letter, only then can it refer the matter to the ECJ, which has the power to impose punitive sanctions on non-compliant EU Member States. It would likely take two years for the case to be heard in the European court, however, and it is worth noting that the Commission has yet to even refer any of the ongoing infringement proceedings against various Member States’ sports betting legislation to the ECJ, even though some of those proceedings were first launched as long ago as April 2006.

According to Wes Himes, managing partner of lobbying firm Policy Action and European advisor to the Remote Gambling Association, any Commission action against the Interstate Treaty would be unlikely to proceed much faster. “The only thing that will accelerate the process is the fact that the Commission has already applied some intellectual firepower to this,” Himes told Gamblingcompliance.com. “It has already done its homework on the treaty [in issuing the two Detailed Opinions], but other than that the infringement process is the same.”

With the EU unlikely to be able to take direct action against Germany for several years, lawyers within the country believe that the battle against the treaty will instead commence in domestic courtrooms. “As has occurred in France and Italy, court proceedings will play the most important role,” says Wulf Hambach, gaming law expert with the Munich-based law firm Hambach and Hambach.

Hambach explains that private betting companies in Germany have previously initiated local court proceedings within each German state to apply for immunity from prosecution under gambling laws by arguing, for example, that the company’s licence issued elsewhere within the European Union should entitle that company to operate throughout the EU. Several gambling operators, including private lottery company Tipp24, have intimated their intention to launch legal action to protect their rights to operate within Germany now that the latest treaty has entered into force.

It may also be possible to claim direct compensation in certain states, says Martin Arendts, gaming lawyer with the firm Arendts Anwalte, particularly if the operator is issued with a prohibition order by a state authority.

It is possible in certain German states to take direct action against the state Acts of Parliament bringing the provisions of the Interstate Treaty into local effect. Bwin e.K., for example, has already said that it will pursue damages worth €4bn from four states. However, taking such action is complicated, according to Arendts. “Companies could sue for compensation with regards to prohibition orders, but it is not so easy under state Acts,” Arendts told Gamblingcompliance.com.

The earliest challenges are likely to be appeals against prohibition orders issued by state authorities to private betting shops in Germany. The first of these appeals could even be made in preliminary hearings within the next few weeks, says Arendts. “How these first decisions go will be crucial,” Arendts says. “Will they be in favour of the bookmakers or the state authorities?”

The penalties for violating the various provisions of the Interstate Treaty vary from state to state. Media owners found guilty of marketing or advertising unauthorised gambling services can be subjected to a fine of between €250,000 and €500,000, depending on where the action is brought.

Regulations concerning the sanctioning of online gambling operators have yet to be finalised, however. Gamblingcompliance.com understands that provisions detailing the level of administrative fines faced by internet-based operators were withdrawn from the enacting legislation after states failed to notify them to the European Commission.

The impossibility of administrative sanctions for online operators would seem to reduce internet gambling operators’ liability under the treaty to a degree but, as Hambach and Hambach’s Susanna Münstermann points out, operators could still be subject to criminal prosecution under the German Criminal Code. Operating gambling without proper authorisation is punishable under the code by a prison term of up to five years.

At present, a number of German-facing websites continue to operate in defiance of the ban but Münstermann suggests that online activities could yet be strangled if the relevant gambling authorities approach internet service providers with a view to blocking the sites. “This approach would be more like an order, not a polite request,” Münstermann says.

With so many question marks surrounding the treaty, private operators and other groups are continuing to lobby against it. Operators Bwin and Interwetten, along with sports clubs such as Werder Bremen and VFB Stuttgart and media groups including Eurosport, have established the Kein Monopol (“Without Monopoly”) campaign.

Despite the inauguration of the Interstate Treaty, observers remain optimistic that Germany’s restrictive gambling market will eventually be liberalised to some degree. “I am convinced that the Lander or the German Government will open up at least the sports betting market, or choose not to enforce the treaty as it has so many weak points,” concludes Hambach.

Arendts, however, does not anticipate such wholesale change to occur within the short term and believes that a breakthrough will not be achieved until the European Court of Justice rules over the sports betting cases referred from courts in Gieβen and Stuttgart. “There definitely won’t be a clear legal situation in Germany over the next two years,” Arendts told Gamblingcompliance. “Not before the ECJ pronounces a really clear decision.”

Forbs.com: Betting companies to take legal action against German state monopoly on gambling

published on AFX News Limited, Thomson Financial by Maria Sheahan

FRANKFURT (Thomson Financial) – Online betting companies including BWIN Interactive Entertainment AG and Fluxx AG are gearing up to file a legal complaint against Germany’s state monopoly on lotteries and most forms of betting, law firm Hambach & Hambach head Wulf Hambach told Die Welt newspaper.

Hambach said he represents about 20 of the world’s biggest betting companies, according to the newspaper.

Germany’s states earlier this month ratified an accord solidifying their monopoly on lotteries, online gambling and most forms of sports betting in Germany. The accord will effectively ban private betting companies from operating in the country from tomorrow.

‘The accord breaches EU law because it excludes foreign betting companies with EU licenses from the German market,’ Hambach said.

The newspaper also cited law firm Redeker’s Michael Winkelmueller, who represents BWIN and Fluxx, as saying he expects to see legal action by all 3,000 betting companies active in Germany.

Germany’s states have voted in favor of banning private sports betting companies until 2010, during which time they will develop a system by which private betting companies can obtain concessions.

Germany States Treaty on Gambling – anti-constitutional and anti-european. And it can’t be implemented

published on bet-sport.org

This is the result of a TÜV Rheinland and Hambach & Hambach law firm panel that met in Koln on 3 December to discuss about the initiatives of the drafters of a German States Treaty on gambling.

Online-casions.com covers the main subjects discussed :

Many past reports held that the State Treaty on Gambling violates constitutional and European law; for instance, EU Commissioner Charlie McCreevy is at present preparing proceedings against Germany based on the violation by the State Treaty of European law – even before the Treaty has come into effect.

Up to now, however, the legislator and the public conversation have neglected to involve technical experts in the debate. This is almost inconceivable, as a regulation which cannot be implemented in practice cannot be upheld from the legal point of view either, as Dr. Wulf Hambach stated.

This neglected technical discussion has now been addressed by an expert panel under the auspices of the TÜV Rheinland. Rolf vom Stein (COO TÜV Rheinland Secure iT GmbH) described the technical limits of Internet censorship, while Prof. Dr. Thomas Harmann-Wendels (managing director of the Institute for Banking Economy and Banking Law at the University of Cologne) provided information on the economic and technical obstacles connected with the interruption of payment streams (so-called financial blocking) which is an intention of the Treaty if it is signed.

Prof. Michael Rotert (Chairman of the Board of ECO; President of EuroLSPA) and Lawyers Dr. Michael Hettich and Susanna Münstermann (Hambach & Hambach Law Firm) supplemented these technical details with explanations on Internet service providers, on the legal consequences of the technical impossibility of implementing the requirements stipulated in the State Treaty on Gambling, and on an alternative model for regulating the subject. The detailed results of the expert panel were as follows:

* It is not possible to completely block an internet site (as requested, for instance, for the implementation of the draft State Treaty on Gambling).

* Financial streams and individual payment transactions in connection with gambling cannot be controlled by credit institutions based in Germany without the danger of damages for the German banking industry amounting to billions.

* Measures by the legislator intended to block free Internet trade and financial streams are problematic, not only because of the question of legislative competence. Rather, they are disproportionate and not sufficiently specific. The lack of a debate with regard to the technical and economic problems involved results in the factual impossibility of implementing the legal requirements. Thus, the internet service providers and banks affected by potential prohibition orders will be able to claim unlawfulness of the provision and request payment of damages amounting to millions.

Internet expert Rolf vom Stein put it in a nutshell:

“The attempt to block the Internet contradicts technical reality. The Internet treats any form of censorship as an error, and will find ways to bypass it.”