EC seeks changes in France’s draft law

The European Commission has responded to the French Government’s notification of draft law, which allows for a “controlled opening” of the French market for online gambling.

The Commission has asked for the clarification and modification of several points in France’s draft law for opening up online gambling to competition.

The reply questioned the legality, under EU law, of the French government’s intention to impose regulations as part of their licensing system, if EU based private online gambling operators are already under similar regulations in other jurisdictions.

French Budget Minister Eric Woerth said his ministry will supply additional information on the way in which the future regulator created by the law will verify criteria already applied to operators with licenses to operate in other E.U. member states. Woerth also said the ministry will supply analysis regarding the necessity of imposing a limit on the maximum proportion of bets paid back to players.

According to the Remote Gambling Association (RGA), the Commission also questioned the limitation on pay-outs for online gambling operators, including potentially raising the point that no evidence has been offered on the link between pay-out and the propensity to gamble, and that the actual policy is severely contradicted by the French policy on minimum payouts for slot machines.

The Association further stated that it expects amendment in the French Government’s law in order to take into account the failings of the draft bill in terms of EU law.

“We understand the French government’s desire to control their gambling markets, but the measures contemplated in the draft bill were not just about EU law, they also failed to create a viable market,” said Clive Hawkswood, chief executive of the RGA.

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.

The bear and the poker players; on the taxation of poker winnings in Finland By Pekka Albert Aho*

Finland is home to probably one of the most efficient tax systems in the world.

Finland is home to probably one of the most efficient tax systems in the world. Due to their efficiency and the fear-laden respect the Finns have for them, the Tax Authorities are commonly known as the “tax bear”, a reference to the fearsome beast that dwells in the forests of Finland rather than the Teddy variety. Nothing, it is said, escapes the bear’s attention.

Finland is also home to some of the most successful poker players in the world. With the highest profile players winning and losing seven-figure sums monthly on the internet and making tabloid headlines due to their rather lavish life-styles, it was only a matter of time before “the bear” would take more interest in the activity. Duly, late July 2008 a number of Finnish poker players received a letter from the Tax Authorities asking them for information on their poker games in the period between 2003-2007. Apparently the Tax Authorities identified the players to whom letters were sent through research of internet databases that follow the performances of poker players worldwide. The bear, it seemed, had once again lived up to its reputation.

It would, however, be a misrepresentation of the Finnish Tax Authorities should they be described only as efficient in searching for every bit of tax revenue available. While the rest of the public administration is busy entrenching its positions against the EU Commissions’ attack on Finland’s gaming monopoly, the Tax Authorities have to deal with the reality that an ever increasing number of Finns play poker on the internet and that the fiscal considerations of the activity are far from simple. In a commendable demonstration of the service the public authorities are expected to provide, in October 2008 the Tax Authorities drafted a guideline instruction on how poker winnings are treated according to the laws on taxation. Such instructions are formally indicated to the local Tax Administration offices, but are public and also serve the purpose of giving tax payers information on how their income will be taxed. An instruction was very much needed to unify the taxation practice at the local tax offices as well as clarify the confusion that reigned amongst poker players concerning the taxation of their winnings. The bear, it turns out, is less than the horrible beast everyone thought it to be.

Contents of the instruction

The instruction in question, titled “On the taxation of poker income”, is a well written document that offers an accurate description of how poker winnings are considered in taxation. The information is also presented in a very understandable manner and accompanied by examples, so that even those less familiar with legal language should be able to interpret the instruction. What is more, a lot of background work has obviously been put into the document as it goes to some detail in the analysis presented. In addition to winnings resulting directly from playing poker, the treatment of sponsorship deals and rake-back are among the issues discussed. The key points of the instruction can be summarized as follows:

1) Poker is considered a game subject to the Lotteries Act (Arpajaislaki) and therefore article 85 of the Income Tax Act (Tuloverolaki) applies to poker income

According to the Finnish Lotteries Act, a lottery is an activity in which winnings of monetary worth are distributed entirely or in part on the basis of chance. According to Article 85 of the Income Tax Act, winnings from lotteries organized in Finland or in a member state of the European Economic Area and according to the member state’s legislation are not taxable income. Although admitting to poker containing a skill element, it is considered to be covered by the Lotteries Act and therefore article 85 of the Income Tax Act is applicable to winnings from poker.

The background of the tax freedom of winnings from the EEA is the EC Court ruling in C-42/02 Lindman which directly involved Finland and the system of taxation of lottery winnings. The court ruled it contrary to Article 49 EC to subject winnings from games of chance organized in other member states to income tax, when similar winnings from the member state in question are not taxable. In order to comply with EU-law, Finland chose to amend the Income Tax Act provision of the tax-freedom of lottery winnings to cover games organized in a member state of the EEA. Winnings from games organized outside the EEA, on the other hand, remain taxable.

2) Poker winnings are considered earned income as opposed to capital income

According to the Income Tax Act, the income of a natural person is either earned income or capital income. According to the instruction, in the systematic of the Income Tax Act as well as in fiscal practice, lottery winnings are considered earned income. This, along with the fact that the outcome of the game is decided by chance along with the skills of the player means poker winnings are to be considered earned income, even though the game involves the investment of a monetary stake. This somewhat formalistic interpretation might not entirely silence the claims, that winnings should be considered capital income and therefore subject to a lower taxation percentage.

3) The basis of taxation is the net income of a fiscal year

Income from poker is mostly considered in the same way as random income from hobbies, where costs of the hobby may be deducted from income originating from the same hobby, but not from other income. Placed bets in poker are therefore deductible from poker winnings, with the result being that the yearly net winnings from poker are taxed. Should the result be negative, the player may not deduct his losses from other income.

The above said is naturally subject to the game being taxable according to Article 85 of the Income Tax Act in the first place. Winnings from games organized in the EEA are not taxable and losses from those games are not deductible, due to the provision of the Income Tax Act prescribing costs incurred due to pursuit of tax free income as non-deductible.

4) The taxability of rake-back and other bonuses received depends on the taxability of the winnings from the same game

Rake-back and other forms of bonuses are considered discounts from participation fees given afterwards to the player. They are therefore treated in the same manner as fiscal adjustment items and can be either taxable or tax free, depending on whether the game they are connected to is organized in or outside the EEA.

5) Deals on distribution of winnings between players can be taken into account

When two or more players make a deal concerning the distribution of winnings, the effects of the deal can be considered in the player’s taxation. The conditions are that the deal is made before the game takes place and is genuinely reciprocal.

6) Income from sponsorship deals is taxable

When someone sponsors a player, for instance by paying the entry fee of a tournament on the player’s behalf, the amount received from the sponsor is considered taxable income of the player. When the object of the arrangement is a game from which winnings are taxable, the participation costs are correspondingly deductible in the player’s taxation. When the object is a tax free game, costs are not deductible due to being considered costs incurred in pursuit of tax free income. This interpretation can be considered susceptible to criticism, but due to the domestic nature of the provisions in question, further analysis is not suitable to be presented here.

7) Different rules for professional poker players

Somewhat unexpectedly, the Tax Authorities confirm that playing poker can be considered a professional activity. In order to be considered a professional, poker playing must be continuous and intensive and, further more, the person has to have received the majority of his income from poker in the course of several fiscal years. Professional status effects the fiscal consideration of losses incurred from playing poker. Whereas an amateur has the right to deduct losses incurred from playing poker only from his winnings resulting from the same activity, a professional has the right to deduct poker losses from all of his taxable income. This also means that should the yearly net income of a professional be negative, he may deduct losses from the fiscal year also from his future income, whilst the wins and losses of an amateur are always considered on the basis of a single fiscal year.

Some might wonder how a game, which according to the lotteries act is considered a game of chance, can be practiced professionally. Undeniably, the Finnish lotteries act definition of a lottery as a game of which the outcome is decided entirely or in part by chance, can be considered to cover poker. The overwhelming evidence of a number of people being consistent winners in poker and practicing it as their main source of income despite the element of chance, however, seems to have led to common sense prevailing and the Tax Authorities recognizing the possibility of poker being played professionally.

Tax-free, within the EEA

Where most was expected of the instruction, however, it falls short. Well noted amongst poker players, even before any instruction was given, was the provision of the Income Tax Act on the non taxability of winnings from games organized within the EEA. Confusion reigned, instead, on what defines a game as organized within the EEA when the game is on offer in the internet. The poker players expecting a solution were to be somewhat disappointed by what was to come.

In discussing the significance of the article 85 of the Income Tax Act, the organizing of a lottery is considered a concept to be evaluated according to Finnish legislation and deemed to be the offering and selling of games as well as other concrete actions taken by the organizer to enable players to take part in the game. In order to be considered organized in an EEA member state, some of these actions must have been performed in that member state. The meaning given to “organized in an EEA member state and according to the state’s legislation” is that the organization of such games must be legal in the member state in question and that the relevant authorizations and licenses have been acquired by the organizer, should the legislation of that state so require.*

Admitting the difficulty a player might have in determining whether a game on the internet satisfies the afore mentioned requirements, the Tax Authorities provide general guidelines on resolving the question. According to the instruction, a poker game on the internet can be considered organized within the EEA, when the service provider has its registered office in a member state and the authorization to organize games in that member state, when an authorization is required. A game can also be considered tax free, when it is organized in a permanent place of business of the operator situated in an EEA member state. In uncertain cases, the Tax Authorities advise the players to declare the income and provide information on the organization of the game.

Hardly the clear-cut rule the poker players were hoping for. In order to find out the taxability of winnings from a certain game, one needs to inform himself of other member states’ legislation. The information required is, what sort of an authorization, if any, the member state where the organizer is registered requires for organizing the games in question and, further more, does the operator in question satisfy those requirements. It is likely, that the average Finnish poker player might have some difficulties with all this, therefore leaving a player little way of determining if winnings, past or future, from a certain game are taxable or not. While the local Tax Administration offices can be considered better equipped for the task, the difficulty of interpreting foreign legislation means there is a distinct risk of incoherent taxation practice between different offices.

A part from the advice being somewhat unsatisfactory for the above mentioned reasons, also the interpretation of the law provided can be criticized. While linking the organization of the game with the registered office of the provider can be considered correct, the additional requirement of the game being organized according to the laws of the member state of registration can be seen as dubious. Although not entirely clear on what “the relevant authorizations and licenses, should the legislation of that state so require” means in practice, it seems the Tax Authorities are willing to consider tax free only winnings from operators who have acquired an authorization to organize the game from the same country where the company is registered. While at first glance this seems in line with the wording of the article 85 of the Income Tax Act, the interpretation can be considered problematic for two reasons.

First of all, authorization or licensing in the country of origin was not intended by the Finnish legislator to be a condition for the applicability of Article 85 of the Income Tax Act. In the government proposal for the modification freeing winnings from games organized in the EEA from tax, it was specifically stated that an authorization or public control of the games in the country of origin are not required for the applicability of the provision. It is unclear as to why the Finnish Tax Authorities chose to ignore this when drafting the instruction, considering the propensity of Finnish jurisprudence to assign the intent of the legislator a lot of weight when it comes to interpreting the law.

Further more, the interpretation can be seen as problematic from the point of view of EU-law. The intent of Article 85 of the Finnish Income Tax Act is to realize the freedom to provide services. Therefore the basis of any interpretation should be Community law, all the more so considering the origin of the provision. Article 49 EC, as interpreted in the Lindman ruling, requires that winnings from games organized by operators protected by the freedom to provide services are to be treated equally to winnings from domestic games. According to the EC Treaty, the freedom to provide services is, in addition to nationals of member states, extended to all companies and firms formed in accordance with the law of a member state and having their registered office, central administration, or principal place of business in the Community. The rather ambiguous Article 48 EC that provides this is, in fact, a compromise between the various private international law theories applied in different member states for defining the nationality of a company and as such, extremely prone to legal disputes. An analysis of the extensive case law regarding the interpretation of the article accompanied by an equally extensive and often disagreeing commentary can not be presented here. It is enough to say, that a company formed according to the laws of a member state which has at least one of the three meaningful connections to the Community, that is, registered office, central administration, or principal place of business in a member state, can be considered protected by the freedom to provide services.

On the other hand, how a company organizes its activities and where it in reality produces the services offered plays no part in this consideration. While the member states have the right to deny the benefits of Community law from companies abusing the rights conferred to them by the EC Treaty as well as limit the treaty freedoms in other ways, this is to be held distinct from the initial question of the applicability of the treaty freedoms. Any restrictions to the company’s freedom to provide services based on how it has organized its activities are considered on the basis of the appropriateness and proportionality of the restrictions, as set out in the EC Treaty and the EC Court practice.

It is not uncommon for a gaming operator, formed according to the laws of a member state and being for all intents and purposes considered a company under that member states jurisdiction, to be providing games of chance on the internet under the authorization acquired from another member state or even from outside the EEA. While this might be considered politically problematic, from the point of view of the EC Treaty this has no significance. As long as the member state under the jurisdiction of which the company belongs permits this, the company is considered to be protected by the freedom to provide services.

Therefore, a gaming operator satisfying the conditions set out in Article 48 EC is protected by the freedom to provide services and this extends to, as stated in the Lindman ruling, the taxation of winnings originating from the games it provides. Should the winnings be considered taxable in Finland due to the operator holding its authorization for providing the games in a country other than where it is registered, this would probably be seen as a restriction to the company’s freedom to provide services and therefore risk constituting a breach of Article 49 EC.

Conclusions

The Tax Authorities have taken a commendable initiative in drafting an instruction and thereby clarifying the somewhat obscure situation that reigned in Finland concerning the taxation of poker winnings. An authoritative opinion on the matter was very much needed and makes the situation far better than it was before from the point of view of the poker players as well as the local Tax Administration offices. The in depth analysis of almost all of the questions related to the matter is an excellent demonstration of the efficiency of the Tax Authority.

While for the most part doing a commendable job, the interpretation of Article 85 of the Income Tax Act can be considered erroneous. With regard to both the will of the Finnish legislator and the problems it causes with EU-law, it can be said that the requirement of an authorization to organize the games in the country of origin should not be considered a condition for the applicability of the article. Instead, tax freedom should be applied to all winnings from games organized by a company satisfying the conditions set out in Article 48 EC and therefore protected by the freedom to provide services. Whether the Tax Authorities will eventually implement the requirement will probably be found out soon enough, as more and more poker players start reporting their winnings in fear of “the bear’s” watchful eyes.

Pekka Albert Aho
Lawyer
AA Legal Finland
Helsinki (Finland)
AALegalFinland@gmail.com

*) A good deal of consideration is also given to the controversial ruling of the Finnish High Court in which PAF, although operating entirely from the autonomous island province of Åland, was considered to be organizing lotteries also in mainland Finland. The ruling was based on the fact that PAF had marketed the games aggressively in the mainland, created Finnish language web pages, and organized a possibility of a direct bank transfer between Finnish banks and the gaming account at PAF. While theoretically interesting, the case seems to have little significance to the taxation of poker winnings and can therefore be overlooked here.

The adoption of the French Bill regarding the opening of the gaming market is likely to be postponed

The French bill regarding the opening of the gambling market has been now transmitted for scrutiny to the Parliament. The commission of finance is in charge of preparing the Deputies’ work. At this stage, it is likely that the parliamentarian debates and vote finally end by September 2009. The final implementation of the entire system (implementation regulation, distribution of licences etc) may be postponed accordingly (Mid 2010?). In the meanwhile, the European Commission has rendered its detailed opinion extending the still-stand period for one more month. During this period the French Government is supposed to justify the restrictions to the freedom to provide services as criticized by the European Commission.

On Thursday 5th of March 2009, Eric Woerth, the Budget Minister presented the draft bill concerning the opening of the remote gambling market in France.

On 25th of March 2009 the draft bill elaborated by the government 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, government draft bill was sent for discussion to the National Assembly. At this stage of the parliamentarian calendar, it is likely that the Parliament will resume the procedures of scrutiny, discussions and votes by the September.

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.

A limited and regulated opening

The opening of the French market will be strictly monitored.

According to the article 5 of the draft bill, the opening will be limited to “online horse race betting, sport betting and games consisting of shared games which depend on skill”.

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.

The creation of an Online Games Regulations Authority

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 the promotion of reasonable game.

This authority will be in charge of:

* Monitoring compliance with the objectives of games’ policy accessible through 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.

Once the bill is enacted, the ARJEL will need another few months to be efficient and begin to grant licenses. For the times being, the competent authority has unofficially been appointed and started his mission.

Operators have to comply with strict conditions to get a license

The license will only be granted to online operators complying with the regulations contained in the cahier des charges (specifications).

It sets general requirements for all operators and specific clauses according to each type of licenses, namely sports betting, horse race betting 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 measures they will implement to fight against player’s addiction and prevent minors from playing (see below).

Licenses will only be offered to operators established in a Member State of the European Union or the European Economic Community.

Operators will have to operate from an internet website accessible through a first level domain name with an “.fr” ending.

All data related to gambling activities, exchanged between players and operators and linked to the identification of gaming or betting events, must 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 draft bill establishes tax rates:

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 amounts 8, 5% for sports betting, 15, 5% for horse racing betting, 2% for online poker.

The establishment of measures against addiction concerning consumers and minors’ protection:

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.

Article 3 of the draft bill forbids to minors to play for money online.

The draft bill confers important obligations to gaming operators in the fight against addiction.

Articles 20 and 21 of the draft bill indicate that gaming operators have to control the age of the players at the time of the opening of the account.

Also, they have to check that the identity of the players corresponds to that of the holder of the bank card used on the site.

Finally, online service information to players will have to be set up.

To conclude, the government draft bill allows the ARJEL and the government to keep a substantial control over the gaming operators and operations. Considering the concern expressed by the Government regarding consumers’ protection, this text appears to put in place a reasonable system.

Draft bill compatibility with EU law

Additionally, it is noteworthy to underline that the European Commission rendered a detailed opinion regarding the French draft bill.

A detailed opinion attempts to prevent Members States from adopting a text, which contains barriers to the internal market, or to urge them to remove the restrictive provisions, thereby avoiding unnecessary legislative work and future EU infringement proceedings. Once a detailed opinion had been issued, the standstill period, during which the draft text must not be adopted, is extended by one month. If, after this time, the draft text is adopted without modification, the Commission can immediately commence an infringement procedure against the Member State’s newly adopted legislation.

Accordingly, the French Government can modify its draft bill by the 8 July or decide to ignore the EC recommendations and takes the risks of the launching of an infringement procedure.

Interestingly the European Commission questioned the French Government regarding the following issues:

* to which extend does the draft law putting in place a licensing regime in France take into consideration the licensing criteria set up by the other Member states for granting their license?;
* To which extend the limitation of the player return rate does effectively contributes to the fight against addiction?;
* To which extend the fiscal representative is necessary as it rather constitutes a barrier to freedom of establishment and of provision of services?;
* To which extend can the right granted to the sports events organizations be justified?

As a result, such a detailed opinion may postpone the true discussion at the Parliament. It is already unofficially evoked that the opening of the market could be postponed to June 2010.

Germany and the Inter-State Treaty

The Inter-State Treaty on Gambling and the implementation of the prohibition of gambling on the worldwide web – nothing is (im) possible. by Dr Wulf Hambach, Founding Partner and Susanna Münstermann, Senior Associate, Hambach & Hambach. Published in iGamingBusiness, issue May/June 2009.

The Inter-State Treaty on Gambling (Glücksspielstaatsvertrag) and the prohibition of online gambling aim, at least on paper, at steering the natural gaming urges of the population along well-ordered and supervised paths. That is why gambling supervisory authorities, access providers and banks are being faced with the question of whether the Inter-State Treaty on Gambling is the legal basis for “cutting off the communication and economic channels used” via blocking orders against access providers (ISP blocking) concerning (EU-licensed) online gambling offers or prohibition orders against banks (financial blocking).

But such a regulation is necessary in order to achieve a “court-proof solution”, as declared by the legal counsel for the German Lotto und Toto-Block, Dr Manfred Hecker, during a hearing before the state Parliament of North-Rhine Westphalia:

“Let us initially turn to a monopoly which is based on an irreproachable legal foundation. Such a monopoly, contrary to the present situation, is court-proof.

“An issue that comes up repeatedly is Internet gambling, which could also be prevented (particularly services by foreign providers, including those outside Europe) by cutting off the communication and economic channels used. This is because the firms based abroad need to communicate through the Internet and Internet service providers in order to make contact with the players.” (Unofficial translation, quote of the official minutes of the hearing, 15.3.2007)

It seems as if the Inter-State Treaty on Gambling provides the gambling supervisory authority with the power to prohibit banks from being involved in payments relating to illegal games of chance and access providers from cooperating regarding access to unauthorised offers of games of chance according to Section 9 Subsection 1, Sentences 2, 3, 4 and 5.

Is it possible to filter payments and websites? Who is liable for wrong decisions? May uninvolved third parties be obliged to act as deputies in order to monitor the legally disputed state monopoly? That’s reason enough to consult the experts.

Expert opinion
Under the patronage of the Verband der Deutschen Internetwirtschaft e.V. (eco) (Association of German Internet Businesses), in cooperation with the law firm Hambach & Hambach, an experts’ conference was held on March 26, 2009, dealing with the legal and technical demands of blocking orders for the purpose of implementing the state gambling monopoly.

Prof. Michael Rotert, Chairman of the eco board, referred to a letter from the German Federal Government to the European Commission and said that the phrase stating that “ISPs and banks will accept this as justified on their own accord, and will support the German States in the implementation of their politics” has led to considerable irritation. He explained that the state gambling monopoly is questionable from his point of view. Private providers are excluded for reasons of addiction prevention, whilst the monopolists are permitted to advertise the high jackpot sums on state-run television networks during prime time viewing on a Saturday evening.

As announced by Prof. Rotert, the expert lecturers were able to explain why neither blocking orders against ISPs nor prohibition orders against banks issued by the gambling supervisory authorities can be used as a means to implement the Inter-State Treaty on Gambling:

* There is no statutory basis for blocking orders against ISPs. The relevant provision in the Inter-State Treaty on Gambling is not a statutory authorisation.
* From the technical point of view, blocking of Internet sites is simply impossible. Legal and attractive online gambling offers provide the best level of protection.
* Blocking of online gambling offers involves considerable liability risks, as it is difficult to draw the line between illegal offers and legal online games of chance, legal games of skill and legal entertainment games and also because the state monopoly most probably is unconstitutional and contrary to European law.
* Prohibition orders against banks based on the Inter-State Treaty on Gambling are also contrary to constitutional and European law.

Cause for regulation
Mr. Schaeffer (Chief Security Analyst, TÜV Rheinlander Secure iT GmbH) gave a pictorial description of the structure of the Internet and came to the conclusion that the possibilities of bypassing blockings and censorship are endless, as the very idea of the establishment of the Internet was for it to bypass blockings independently. Blockings will only contribute to improved concealment of the networks. Online gambling should not be prohibited, but rather regulated. Providing attractive up-to-date offers which are continuously refined, will intercept the users and prevent their migration to illegal offers.

Attorney at law Dr. Hambach (Founding Partner, Hambach & Hambach Law Firm) explained from the point of view of gambling law why there are substantial liability risks involved with the blockings. In addition to the pending infringement proceedings and preliminary proceedings against the German gambling monopoly before the European Court of Justice – which is why licensed EU providers should not be blocked – other questions regarding differentiation remain difficult. Therefore, horse betting, games of skill and games with low stakes must not be blocked on the Internet, nor must mere entertainment games. The inconsistent German gambling law should be harmonised on the Federal level, and a gambling supervisory authority should be established which monitors the offers by private providers on the Internet.

Prof. Dr. Ohler (University of Jena, Chair for Public Law, European Law, Public International Law and International Commercial Law) gave a lecture on the topic “Capping of the flow of funds – monitoring by order of the gambling supervisory authorities”, and expressed substantial doubts based on constitutional and European law. Banks as uninvolved third parties may only be called upon to provide support in cases of the so-called “polizeilicher Notstand” (public emergency). From Prof. Dr. Ohler‘s point of view, the combat of illegal gambling cannot suffice to justify such public emergency. Also, the fact that the criteria for an automated filtering have not been defined, the lack of regulations in the Inter-State Treaty on Gambling in comparison with the act on money laundering, and concerns based on European law make it clear that the statutory regulation is inadequate.

Finally, it appears that the regulations of the Inter-State Treaty on Gambling were sewn in a great hurry and were solely governed by the political will. The evaluation and revision of its “big brother” in the USA, the Unlawful Internet Gambling Enforcement Act (UIGEA), clearly shows the weakness of these kinds of regulations. Instead of an efficient and automatic filtering, nothing more than a “know your customer” questionnaire remains due to the necessary differentiation between land based and online, licensed and illegal gambling offers.

Matter of opinion
Are the conclusions of the experts correct? Can banks and access providers rely upon the fact that all legal and technical concerns are taken into consideration?

The Bavarian Referent for gambling and father of the Inter-State Treaty on Gambling, Dr. Thomas Gößl, attended the Munich Gaming Conference on April 1, 2009, dealing with “Games on the Internet: Raffle, Gamble, Online Game –Challenges for the Protection of Minors”.

Dr. Gößl expressed the wish that one may accept the Inter-State Treaty on Gambling and the stop sign on the Internet, so that finally, calm is restored in the German gambling market. In his opinion, there are no reasonable doubts with regard to constitutional or European law. Other participants of this panel discussion, like Mrs Sabine Frank (Freiwillige Selbstkontrolle Multimedia-Diensteanbieter/Organisation for the voluntary self-control of the Internet), pointed out that several European Court of Justice decisions, dealing with the German sportsbetting monopoly, are still expected. Mr Prof. Schneider (ZAK (Commission for admittance and surveillance – commissioner for program and advertisement, Düsseldorf) formed the important view that a prohibition that cannot be enforced, leads to a loss of credibility.

Therefore, consumer restrictions cannot be placed on the Internet and blocking orders against some providers will not prevent the German consumer from gambling online. For the protection of consumers and minors one has to reproach the legislator with the total loss of a state controlled offer. It is unavoidable to reform the gambling law by creating a federal gambling law and a federal supervisory authority in order to steer the natural gaming urges of the population on the Internet along well-ordered and supervised paths.