Germany´s Online Gambling Law 2012: Preprogrammed inconsistency

by Dr. Wulf Hambach and Dr. Stefan Bolay

On 9 November 2011, the 22 year old German Pius Heinz won the WSOP Main Event in Las Vegas and is now the 2011 Poker World Champion. Press and media celebrate him as a new Boris Becker and compare him with Sebastian Vettel. Pius Heinz himself explained his success with four years of real money online poker experience in Germany. Schleswig-Holstein politician Hans-Joern Arp points out that this shows the absurdity of the past and current gambling regulation in Germany: Pius Heinz became a German hero by doing something that is formally prohibited in Germany (see http://isa-casinos.de/gaming/articles/34372.html).

The following shall show the legal consequences for the gambling regulation in Germany in the year 2012 in case that the other Länder will not approach Schleswig-Holstein’s Gaming Reform Act.

The situation at present

On 14 September 2011, the Schleswig-Holstein parliament passed a liberal regulatory concept for gambling, which will come into force on 01 January 2012. The Glücksspielgesetz, for Schleswig-Holstein (Gaming Reform Act, hereinafter referred to as GRA), ensures the regulation of gambling by means of a prohibition with a licensing option (see section 4 of the GRA).

The core provisions are as follows:

• Private online providers are given the option of applying for a licence for the operation of games of chance. The act permits the operation of online bets and online casino games, in particular poker.
• A limitation to a defined number of licences is not envisaged.
• A tax of 20 per cent on the gross profit will be levied on online games of chance.

On 28 October 2011, the other 15 German Länder (states) agreed in principle on a new Gücksspielstaatsvertrag (Interstate Treaty on Gambling, hereinafter referred to as ITG), which will partially liberalise the gambling market. The plan is to sign a new ITG on 15 December. Whether the intended signing will be possible at that date is, however uncertain: Hesse and Lower Saxony have given their consent subject to the reservation of further examination and, possibly, amendments regarding online casino games.

The core provisions are as follows:

• Only online providers of sports bets will be eligible to apply for a licence. Online providers of casino games, in particular poker providers, will not have the option of obtaining a licence.
• The number of sports betting licences is limited to 20.
• A tax of 5 per cent on the turnover will be levied on online sports bets.

The legal consequences

Should the two different regulatory regimes, the GRA for Schleswig-Holstein on the one hand and a new ITG for the other 15 Länder on the other hand, actually come into force, it will be relatively certain that the regulation of gambling in Germany will be inconsistent from a European law perspective.

From a European law perspective, a restriction of the freedom of services through the ITG going beyond the regulations of the GRA could not be justified. Online casino providers, but also online sports betting providers who will not receive one of the 20 licences under the ITG may invoke their freedom to provide services as guaranteed by European law. If such providers hold a licence from Schleswig-Holstein they can, from a European law perspective, not be banned from online activities in the other 15 German Länder.

This is because the European Court of Justice (ECJ) in the Carmen Media case (C-46/08) of 08 September 2010, made reference to its previous decisions and made it clear that it takes into consideration the entire member state when evaluating the consistency of a regulation which restricts the freedom to provide services. Par. 69 reads as follows:

“As for the fact that the various games of chance concerned are partially within the competence of the Länder and partially within the competence of the federal State, it should be recalled that, according to consistent case-law, a Member State may not rely on provisions, practices or situations of its internal legal order in order to justify non-compliance with its obligations under EU law. The internal allocation of competences within a Member State, such as between central, regional or local authorities, cannot, for example, release that Member State from its obligation to fulfil those obligations (see to that effect, in particular, Case C-417/99 Commission v Spain [2001] ECR I-6015, paragraph  37).”

This means that the German regulation of gambling will be still inconsistent from next year onwards, should the other Länder on 15 December 2011 actually pass a new ITG which provides for stronger restrictions on the freedom of services than the GRA which has already been passed in Schleswig-Holstein.

In the meantime, the gambing supervisory authorities of some Länder have issued initial statements, stating that this interpretation of consistency and the resulting priority of application of EU law do not comply with German constitutional law. This priority of application is said to render invalid large parts of the national legal system as well as the principle of democracy, and would abolish the sovereignty of the Länder, as Schleswig-Holstein would de facto be able to force the other Länder to adopt its gambling regulations.

Whilst it is correct that there may be a certain contradiction between the full effectiveness of Union law, in this case in particular of the freedom to provide services (Art. 56 of the Treaty on the Functioning of the European Union), and the national constitutions, the German Constitutional Court, the BVerfG solved this potential conflict in its “Solange II” decision: The Court decided that legal protection on the European level corresponds to the standards of the German Constitution, so that the Court will not exercise its judicial competence in this respect (BVerfGE 73, p. 339). This statement was made in connection with the examination of legal acts issued directly by the EU bodies, but the Court confirmed in its subsequent “Maastricht judgment” that the membership of the Federal Republic of Germany in the EU, including the transfer of sovereign rights to the European Communities, was admissible, so that – within the framework of Art. 79 (3) of the German Constitution – the principle of democracy does not stand against this either (BVerfGE 89, p. 155).

This means that the criterion of consistency is not to be defined with the objective of the best possible implementation of the principles of the German constitution, but that in cases of doubt regarding the scope of the criterion of consistency, the question of the best possible practical effect of Union law (“effet utile”) must be the deciding motif.

In conclusion, this means that, from next year onwards, the national German regulation of gambling will not comply with the consistency requirement under European law if the other 15 Länder on 15 December 2011 actually pass a new ITG which provides for restrictions of the freedom of services that go beyond those provided for in the GRA which has already been passed in Schleswig-Holstein. From a European law perspective, the further restrictions imposed by the ITG cannot be used against providers holding a licence issued by Schleswig-Holstein.

Resume:

The other 15 Länder besides Schleswig-Holstein are called upon to follow the way of Schleswig-Holstein and implement a consistent and coherent gambling regulation. The EU Commission and the European Court of Justice would be pleased. And also Pius Heinz with the other millions of German online players.

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