Welcome to another Bullet Business Legal Gaming in Europe Newsletter. This weeks guest editor is Joanne Fenech from PKF Malta discussing the liberalisation of gaming markets in Europe and the progress made to break down the existing barriers applied by state owned monopolies.

Note; the final discount rate for tickets to the Legal Gaming in Europe summit on January 21 - 22 (just before ICE) is closing this week. Visit www.bulletbusiness.com/legaleurope or email register@bulletbusiness.com.

European nations consider opening of gaming markets

These days it seems clear that Europe's trend is divided in two, on one side national decisions to support state owned monopolies, and on the other a number of cases against other EU - based operators. Recent ECJ rulings are clearly signalling that this is seen as a breach of the freedom of services within EU. Hopefully this trend will get stronger as the EU pushes more for liberalization and increased transparency in this still emerging market.

Whilst the situation is better than the last two years there will still be one issue which remains crucial, why the state monopolies are still trying to safeguard their existing restrictive legislation? Is it only to protect their citizens or to protect the continued direct substantial revenue for their social, cultural and sporting activities?

In a recent interview Thibault Verbiest of law firm ULYS explained the two great forces as "The equilibrium of forces between the 'conservative' countries willing to defend their gaming monopolies at any cost and the 'liberal countries' in favour of a 'gaming common market" (Egaming Review 15/11/07)." Undoubtedly nothing is all black or all white but various shades of grey. Aiding liberalisation of the gaming and gambling legislation will not be an easy task, main crucial issue being tax. Verbiest added "As long as there is no harmonized tax regime in Europe, the tensions between members states when addressing the regulation of online gambling will remain strong."

A harmonized tax regime cannot - and will not - be decided overnight. The European Commission headed by Charlie McCreevy are doing their utmost to overcome such problems and find a common solution that will be accepted by the majority of the member states. A lot of independent and internal studies are being conducted with more issues arising proving the idea to be difficult.

The European Commission and infringement procedures

In April, and October 2006, the European Commission launched infringement procedures against national legislation restricting the supply of sport betting services to seven Member States - Denmark, Finland, Germany, Hungary, Italy, the Netherlands and Sweden. The infringement procedures were started on the basis of service providers' complaints and on information gathered by the Commission Services. The complaints concerned restrictions of the market including requirements for State licences (even when providers are lawfully licensed in other Member States). In some cases, restrictions also extend to the participation, promotion or advertising of gaming services. These letters of formal notice were the first step of infringement procedure under Article 226 of the EC Treaty.

Article 226 of the EC Treaty lays down the principle of the infringement procedure. If the Commission considers that a Member State has failed to fulfil an obligation under the Treaty, it may deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations. If the State does not comply with the opinion within the period laid down by the Commission, the latter may bring the matter before the Court of Justice.

Each Member State must comply with the main EU principles of free movement of services and the freedom of providing services to any national of one Member State in another Member State. Nevertheless, both freedoms may be restricted by national laws or regulations on the grounds of public policy, public security or public health.

Various ECJ rulings such as the Schindler (1994), Gambelli (2003), Lindmann (2003), Placanica (2007) and ZEturf appeal (2007) were all in favour of the above mentioned EU principles, in line with Articles 43 EC and 49 EC. Recently, more pressure is being created by the EU Commission on various Member States to get their house in order prior to taking further steps at the European Court of Justice. As a result there are a series of affirmative changes in various Member States in order to regulate the gaming and betting services provided via electronic media and, in particular, the Internet, especially when other countries in the European Union already have legislation and standards in place to regulate this activity.

Irrelevant if this activity is regulated by that individual Member State or not, their respective citizens can still freely use the gambling services. It makes sense to open the market not a 'free for all' but with a good legal framework to regulate these gambling activities. This law must guarantee the user's protection, warn of the risks of addiction, pay special attention to minors, and determine the competent body that is able to use all the legal instruments to freeze the activities of those who do not abide by the legislation on gaming or betting via the Internet or any other electronic channel. In this regard Malta was the first EU Member State to adopt such fine regulations and the results three years one speak for themselves. Malta managed to attract big industry giants such as Playtech, Microgaming, NetEnt, Boss Media, 24h (B2B) Poker, Ladbrokes, William Hill, Party Gaming, 888, Betfair, and other leading names continuously showing interest in Malta.

Various Member States are adopting changes or intend to. Front runners are UK and Italy. The UK's Gambling Act came into force September this year setting out clearer parameters to both the operators and users alike. As in everything there are pros and cons, but I see more positive effects then negative. Italy has seen a significant increase in tax revenues when it issued the first concessionaries to liberalise gambling sites, so much that the intention is to issue the second batch any time now.

Right after the Placanica's ECJ ruling March 2007, both Poland and Spain respectively announced their intention and started procedures to update their present legislation in order to regulate the gambling market including online. The Warsaw Voice in Poland reported the government is planning to introduce regulations similar to those adopted by the Italian government as a result of the ECJ decision. Conversely Spain's Senate Commission for Economic Affairs and Finance has requested the Government to work on a new law to regularise gambling activities both via the Internet or any other electronic channel.

Swedish state owned Svenska Spel is seeing mounting pressure on its monopoly powers. As the beginning of November this year at the annual conference of the Moderate Party there was a huge swing supporting a proposal to abolish the current government monopoly and pursue with privatization. Meanwhile last week Svenska Spel granted permission to a company (unknown as yet) to operate online poker under their supervision and software. I do not think this is an act of mercy especially when this is proven to be a money making cash cow. It is more likely that Sweden is preparing to get in line with the EU Commission's request.

Belgium's National Gambling Commission is increasing pressure on the government to recognise legitimate egaming sites in order to safeguard consumers. Land-based casino gaming is already legal in Belgium, however their seem to be an increasing urge to implement the necessary legal framework in order to include internet gaming within the present existing legislation. Compared to other Member States the Belgian market is relatively small however its strategic location is of the essence. Brussels being the hub of the European Union and so close by to other neighbouring States will somehow have a ripple effect.

After mounting pressure on Unibet's case France is also preparing the way to somehow legalise online gambling, so much that proposals have been forwarded to the EU Commission itself. France is expected to take the European Union's presidency July 2008, therefore it is their intention to try and sort this prior to this date. Whether the target will be reached or not, that is very much debatable, however the fact that things moved so much into this direction, it is seemed as a huge positive sign.

On the 6th November 2007 the German unit of BWIN Interactive Entertainment AG won a high stake lawsuit. The Administrative Court of Appeal for the German state of Hessen decided to overturn a decision of a lower court that prohibited BWIN to offer its online betting services in the state, taking into consideration the local gambling monopoly. The court of Appeal explained that "a ban on internet-based gaming as technically unfeasible, and thus regards the ban as essentially null and void."

This decision confirms the precedent from a Bavarian court in May 2007 again involving BWIN Interactive Entertainment AG. The Munich Court had ended an eight month dispute between the Bavarian Authorities and BWIN. The Bavarian Court contradicted the Bavarian Authorities who decided that BWIN could not accept wagers from the Bavarian users, since only the state-owned sports betting company is allowed to do that.

The decision actually makes sense in the online world and begins to bring Germany closer to the European Court of Justice rulings.

Norway is not a member of the European Union however it is part of the EFTA and the EEA. Norway in October this year, announced its intention to issue a bill in order to block Norwegian IP addresses from accessing online gambling sites as well as restrict transactions between banks and gambling operators. This is considered very similar to the U.S. Unlawful Internet Gambling Enforcement Act. Words are being turn into action. Last week the Norwegian Government submitted a proposal to amend the existing gaming legislation. Existing Norwegian gambling laws covering lotteries, horserace betting and other forms of gambling state that it is prohibited to engage in marketing or mediating for internet gambling services. The Norwegian Government claims it has simply proposed an amendment clarifying the term 'mediating' applies to payment processing. Meaning it would criminalize any Norwegian financial institution that processes payments for online gambling websites.

The way forward

As explained above in detail most Member States are doing something in order to regularise internet gambling. Needless saying this procedure will take time to implement, changes to be adapted and individual opinions to be converted that this is the right steps to follow.

This article was written by Joanne Fenech of PKF Malta and GMM Business Solutions. GMM Business solutions are partnering with Bullet Business to bring the industry the 2nd annual Legal Gaming in Europe Summit. (www.bulletbusiness.com/legaleurope)