Betfair challenges Dutch Payment Blocking in Court

This article was previously published in IGamingBusiness.

BETFAIR, one of the world’s leading online betting companies, has started legal action against the Dutch government in a court case which could result in a claim for damages running into millions of Euros.

The decision follows a letter from the Dutch Ministry of Justice urging Dutch banks to terminate their relationships with online gaming operators. The letter implies that facilitating transactions between Dutch residents and online operators is illegal. If the banks comply with the Ministry’s request, this would block access to the services of Betfair and many other gaming operators licensed in other EU-Member States.

Background of the payment blocking

The payment blocking is one of the latest battlefields for remote operators in the Netherlands. The first battle revolved around injunction proceedings instigated by the Dutch sports betting and casino monopolists (De Lotto and Holland Casino) against several online operators. These operators were ordered to cease offering gaming to Dutch residents. The operators all claimed that the Dutch gaming policy violates European law, and in the main proceedings between De Lotto and British bookmaker Ladbrokes, the highest court for civil matters referred questions to the European Court of Justice (ECJ) in June 2008. The second battle took place in the administrative courts, following rejected applications for Dutch gaming licences. Before the highest administrative court, Betfair already gained a preliminary referral to the ECJ in May 2008. Other measures that were announced in the wake of the transaction blocking are a media blocking and the announcement that the Ministry filed reports against at least three online operators with the Prosecution Department, which may eventually lead to criminal proceedings.

Online gaming operators are not alone in their fight against the Dutch gaming policy: the European Commission asked the Dutch authorities in February 2008 in its Reasoned Opinion to alter several provisions of the Gaming Act, because it considers the sports betting monopoly to violate European law.

The Ministry decided not to follow the demands of the European Commission. Instead, the Ministry of Justice decided to put its foot down and announced several measures to counteract online operators, amongst which the transaction blocking. Boards of banks and payment service providers are told that their institutions commit illegal activities by facilitating transactions to online operators. In its letters to the financial institutions, the Ministry asks them to make sure that the relationships with the industry are terminated: this has resulted in at least on bank to cease providing transactions to the industry. It must be noted that the authorities did not introduce new regulations to implement this payment blocking: instead, the general prohibition on ‘promotion of illegal gambling’ is said to include a prohibition on providing financial transactions to (illegal) operators.

Critique on Payment Blocking

Besides the European Commission’s critique on the sports betting monopoly and the referrals from Dutch courts to the ECJ, signs are appearing in other EU-Member States that these payment blockings themselves are incompatible with European law. In the national arena, the far-stretching interpretation of the Dutch regulations to also include the prohibition on providing transactions is criticized by lawyers and bankers alike. We elaborate more on these arguments hereunder.

European critique on similar measures

France received a detailed opinion from the European Commission in 2007 following a draft decree that contains a payment blocking. Germany implemented the Inter State Gambling Treaty in January 2008, which contains (amongst other things) a payment blocking. This treaty (a federal law) was subsequently criticized by the European Commission in a Letter of Formal Notice, inter alia for being a restriction to the free movement of capital, guaranteed by article 56 of the EC-Treaty.

Although the critique against the German and French payment blockings was a direct result of new (draft) regulations, the European Commission can also take actions against the Dutch payment blocking, even though it is the result of a new interpretation of the existing regulations. The European Commissioner for the Internal Market, mr. Charlie McGreevy, was quoted in the largest Dutch newspaper ‘de Telegraaf’ as stating that this measure violates the European Treaty. According to Commission spokesman Oliver Drewes, McGreevy requested the services involved to carry out an investigation into the bank embargo. Drewes also stated that the bank embargo will be included in the currently pending infringement proceedings.

Critique on the interpretation of the Gaming Act to include a transaction blocking

In legal literature, the Ministry’s position that the current regulations forbid providing transactions is criticized: the parliamentary history of the Gaming Act does not mention financial transactions, and from the explanatory memorandum to the Gaming Act, it is clear that the provisions were actually intended for, inter alia, intermediaries that sold participation slips in foreign lotteries. It does not seem to include a prohibition to facilitate payment transactions.

The Dutch Banking Association (NVB) stated that it does not agree with the Ministry’s position. It considers the interpretation of the Gaming Act wrong, and stated the Ministry should first obtain a criminal conviction before banks could be asked to implement the payment blocking. The NVB also stated that banks fear claims if they cease servicing these particular clients. Nevertheless, at least one bank has complied with the Ministry’s demands.

The Minister himself even made statements in parliament that can be explained as saying that the current regulations do indeed not forbid the provision of financial transactions. He stated that if his letters to the banks do not have the desired effect, he will introduce legislation similar to the American UIGEA. If the current regulations would already prohibit financial transactions to operators, such new legislation would obviously be redundant.

Betfair’s actions

Betfair is arguing that the Dutch Ministry of Justice commits a tort, under Dutch law, by making the request contained in its letter. Betfair is arguing in these proceedings that the Dutch government, by taking such a step, is acting in breach of European law (ie in breach of the principles of the freedom to provide services in the EU and the free movement of capital in the EU).

This civil action is aimed at obtaining a declaratory judgment to the effect that the recent actions of the Ministry of Justice (financial blocking by calling for a boycott by financial institutions) and the underlying policy are unlawful. Betfair may then continue the proceedings with a claim for damages.

In addition, as European law is relevant to this case, Betfair has also made an official complaint to the European Commission, which may lead to separate infringement proceedings against the Netherlands. Betfair also urged the Commission to proceed with its current infringement proceedings against the Netherlands relating to the sports betting monopoly.

What’s in the Crystal Ball?

Betfair is betting on two horses: the law suit against the State and the complaint with the European Commission. It will be an interesting race that may end with one or both of these horses ending up in the highest European Courtroom in Luxemburg.

The lawsuit

It will be hard for the civil courts to ignore the Dutch referrals that are currently pending before the ECJ. If the judges are unsure on the effects of European law on the payment blocking, this may lead to a third set of preliminary questions that specifically target the lawfulness of the payment blocking.

If the payment blocking is considered unlawful by a civil court, this will strike at the roots of the gaming policy. This may lead the Ministry to go for an ‘all or nothing’ strategy, which will encompass criminal prosecution. Another option might be an increase of the Ministry’s current efforts to create legal online gaming opportunities: an investigation into the regulation of online gaming and its possible licensing procedure is announced. The outcome of this investigation may lead to licensing opportunities for the industry.

The complaint

If the European Commission acts upon this complaint, it is possible that the complaint will boost the infringement procedure against the Netherlands, which will – according to EC spokesman Oliver Drewes – also include the payment blocking. It is generally expected that the current Commission will not proceed with the infringement proceedings. It will depend on the next Commission – especially on the Commissioner for the internal market – whether or not the Netherlands will be dragged before the ECJ.

Justin Franssen

Aernout Kraaijeveld

Justin Franssen wins ‘Lawyer of the year’ award

Justin was awarded the Lawyer of the Year award on 29 June 2009 at Tilney Hall (Hampshire) during the annual ‘Summer Retreat’ conference. He received the award from managing editor Lindsey Greig. World Online Gambling Law Report is written by senior international lawyers for all professionals who advise businesses with online gambling interests.

European Commission’s detailed opinion on the French bill regarding the opening of the remote gambling market

The European Commission has urged France to review the bill regarding the opening of the French remote gambling market.

Following the notification of the French bill regarding the opening of the remote gambling market, the European Commission rendered a detailed opinion on the 8 of June, 2009.

The French authorities are urged to clarify and amend some of the provisions of the bill in order to ensure the bill’s compatibility with European law.

* The first objection relates to article 16 of the bill and the system put in place for issuing licences. According to the Commission, this rule restricts the freedom to provide services (Art 49 EC Treaty). To be compatible with European law the French authorities are requested to clarify to which extend they will take into account the requirements of the legal system under which the operator is already licensed (country of origin).
* The second objection pertains to Article 52 of the bill which provides for an obligation for all licensed operators to obtain consent from the operating right owner of the sport event. According to the Commission, such a requirement could constitute a restriction to the freedom to provide services, as the betting offer would become less attractive.
* The third remark questions the justification of article 8 of the bill: French Government has to prove the necessity of this restriction. According to this provision, a maximum payback ratio is foreseen, whereby the Commission considers this might constitute an infringement to the freedom to provide services. In this respect, the French authorities are urged to adduce evidence concerning the link between the rate of return and fight against addiction.
* The last objection is related to article 39 of the bill which states for an obligation to have a fiscal representative established in France. This might constitute a restriction to the freedom to provide services, even despite the argumentation given by the French Government according to which this disposition is meant to ensure an effective fiscal supervision. Such an argumentation is not accepted (see Commission v. France judgement C-334/02) considering that such an obligation is disproportionate and can be replaced by a less restrictive measure.

This opinion obliges France to postpone the adoption of the law for one additional month. The new deadline ends on the 8 of July.

If the French Government does not modify the bill by the 8 of July, 2009 or ignores the EC opinion, it takes the risk that the Commission decides to launch an infringement procedure.

Discriminatory practices against EU operators highlighted

The European Union has urged the United States to open talks on scrapping the ban on foreign online gambling companies.

The Commission has issued a report that finds U.S. laws on Internet gambling are legally not justified and are discriminatory against foreign Internet gambling operators.

The European Commission’s investigation found that US’ laws on remote gambling and their enforcement against EU companies constituted an unacceptable trade barrier that put it in breach of WTO rules.

The European Commission report, instigated by a Trade Barrier Regulation complaint filed by the Remote Gambling Association (RGA), concludes that the treatment of foreign Internet gambling operators by the U.S. under existing domestic law constitutes a barrier to market access for European companies. Further, the report found that the U.S. is in violation of international trade law by threatening and pursuing criminal prosecutions, forfeitures and other enforcement actions against foreign Internet gambling operators, while allowing U.S. online gambling operators, primarily horse betting, to flourish.

Jeffrey Sandman, spokesperson for the Safe and Secure Internet Gambling Initiative, said that the Obama Administration should seek to forge a new direction on Internet gambling, rather than keeping in place a protectionist trade policy that hypocritically discriminates against foreign online gambling operators.

It added that legislation recently introduced by Rep. Barney Frank (D-MA), the Internet Gambling Regulation, Consumer Protection and Enforcement Act (H.R. 2267), would resolve this trade dispute by regulating Internet gambling and creating a level playing field among domestic and foreign Internet gambling operators.

The legislation also mandates a number of significant consumer protections including safeguards against compulsive and underage gambling, money laundering, fraud and identify theft.

According to a report filed by AP, the EU says it could seek compensation from the World Trade Organization because the 2006 ban unfairly prevents foreign Internet gambling sites from operating in the United States. But it said it would hold off launching legal action until it had the chance to negotiate a solution with President Barack Obama’s administration.

Italy to open remote gambling sector: report

The Italian government has reportedly initiated a drive to further liberate the country’s remote gambling sector by framing new legislation extending licensing to online poker cash games, casino games, betting exchanges and betting on virtual events.

According to a report filed by Recentpoker.com, the goal is to submit the proposed laws to the European Commission within the next few months in the hopes of having the law in place by the end of 2009. The development has been attributed to the head of remote gaming at regulator Amministrazione autonoma dei monopoli dei Stato (AAMS), Francesco Rodano.

According to another report filed by eGaming Review, the failure to block unlicensed gaming sites and the reconstruction of the Abruzzo region devastated by a major earthquake in April this year are the two reasons behind the Italian government’s push to license online poker cash games, casino games, betting exchanges and betting on virtual events in the next few months. Italy has had a list of sites blocked by the major Internet service providers since it started licensing online poker tournament games and fixed odds sports betting nearly two years ago. However, according to Rodano, a quick search for information was all it took for players to get around the block.