03 May 2006

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Business Today

Munich conference-a case for de-regulation

Experts from top European law firms, together with two German ministers were invited last week to discuss the prospects for a liberalised albeit well regulated gaming market in Europe

A packed hall in the prestigious five star Bayerische Hof Hotel in Central Munich saw the opening of the first international de-Regulation conference organized by PKF.
An appealing topic was the latest German Constitutional Court ruling on Oddset, the German state monopoly on sports betting and the extent to which this may impact on the industry at EU level. Oddset , the state monopoly boasts limitless win potential, forming part of an industry that spans a potential market exceeding EUR300 billion worldwide.
This came hot on the heels of the decision of the German Federal Constitutional Court ruling on sport betting.
Many and wide-ranging were the newspaper comments on such a ruling. Manager Magazin quoted “ it is a kick-of for Private Providers” whereas Sport 1.de lambasted Oddset, the Bavarian State operator saying boldly that “ Sports Betting Monopoly is Unconstitutional.”
Equally vocal was the comment by German operators after the Constitutional court issued its verdict on the 28 March implying that Private Betting Shops must be allowed to provide Sports Bets.
The mood was sombre for a substantial roll of irregular betting shops which were rounded up by the state police and ordered to close down. So why was the organisation of such a conference so important for the European regulatory scene.
To start with, the conference was the perfect timing for experts to discuss the impact of the German constitutional ruling on the report issued by the Swiss Institute of Comparative Law dealing with the myriad gambling laws of 25 EU states. It is reassuring to note that the Commission signalled its intention to reform the EU Gaming Market.
The purpose of the study is to evaluate how the differing laws regulating on-line and off-line gambling services, as well as games in the editorial content of the media and certain types of promotional games, impact upon the smooth functioning of the Internal Market. Another hot topic dealt in the conference of particular interest to Malta is the current prohibitionist stance taken by Italy.
The subject was discussed by Quirino Mancini in the light of the Astrabet interim decision. In his opinion the interim decision given by the Italian civil law court on Astrabet was only the first step since the state regulator could not be ordered to unblock the service until another case is successfully won at an administrative court level. In the meantime, Astrabet is still not functioning. Concurrently a number of other foreign sites some of which are suing the Amministrazione Autonoma dei Monopoli Di Stato (AAMS) for damages and loss of earnings. The British heavyweights have instituted a class action against AAMS claiming that the Italian blockade is against article 43 and 49 of the treaty of Rome.
On the other hand delegates were informed that Italian ISP are also protesting that they are being engaged to act as unpaid policemen of AAMS to intervene on private emails and logging messages of their clients.
In their opinion only a Court order can empower them to eavesdrop on clients’ messages. Naturally this is impinging against fundamental rights of the freedom of expression of bettors. Finally in the words of Quirino Mancini, partner of SCM, he reiterated that Italian gambling barriers run contrary to creation of a unified Internal Market. They contravene the EC Treaty’s provisions on the freedom of establishment and the freedom to provide services (Article 43 and 49 EC).
The speaker made it clear that the ECJ expressly prohibited an unbridled prohibitionist regime and only justifies the above-mentioned barriers to entry when based a on a real and recognizable reason. Originally Italian Authorities declared all foreign sites as illegal stating that they increase the possibility of credit card fraud. In practice most of these sites are licensed in Malta and UK whereas AAMS has not manifested a genuine and practical desire to bring about a genuine diminution of gambling opportunities. As has been the case in Germany and Italian state monopolies, they invested heavily in advertising their gaming products and encourage consumers to participate in games of chance to the financial benefit of the public purse and public order concerns. It has to be noted that the Gambelli decision was based on a proportionality test towards State enforced prohibition on third party providers to protect citizens from gambling abuse. This has to be respected.
The attention devoted by ECJ to this factor seems to have been increasing since the Gambelli judgment. It remains, however, rather superficial in the light of the Italian blockage of over 800 sites.
Regulation is well in place in certain jurisdictions such as in Malta and Britain. As a result government may access the potentially significant tax revenue of the industry and at the same time, provide a fully regulated product to protect the consumer.
Lee Richardson CEO of Chartwell Games Corporation presented a detailed overview of the software products that are making the rounds.
He discussed the various payout tables for various games and introduced a case study for a novel new game called 32 Card Poker. His presentation complemented that of Jodi Littlepage, a director of CitiCourt. Jodi gave a poignant presentation about the advantages of listing your company and its obligations under the London Stock Exchange rules. She discussed the merits of raising capital through private placings and IPOs. It is remarkable to note that more than £4.5 billion was raised in new equity issues for international companies on the main market of the London Stock Exchange in 2005.The Munich conference could not avoid the temptation to discuss the potential new betting possibilities arising on the eve of the World Cup.
The subject was treated by Dr Wulf Hambach. He discussed in detail the impact of possible liberalisation of the German market now ever so ebullient because of the World Cup betting bonanza. In his opinion in Germany, after the purge of irregular betting shops the next move may be the plan to admit private operators to a well regulated betting market. Naturally the State monopoly does not desire to commit commercial suicide yet the Constitutional Court has given it up to end 2007 to regularise its position. In this context one notes that a number of cases (C- 67/98, Zenatti, C 243/01 Gambelli and C-42/02, Lindman) decided by the ECJ which stipulated that, in principle, the level of protection a Member State wishes to provide does in itself not affect the proportionality of national provisions, and as a result that the system of protection can differ from that adopted by another Member State. This topic was a common one at the conference and was continuously referred to by a number of notable lawyers such as Professor Kurt Schelter, former Minister of Justice and European Affairs for the Federal State of Brandenburg. Professor Schelter jokingly commented to the audience on their tenacity to attend such a conference in Munich where in his own view the air of expectation of a break through in liberalisation was tense.
He compared it to sheltering in the eye of a hurricane. In his opinion numerous directives have influenced the German online market through their implementation such as e-commerce, distance-selling, services and financial services directives. The audience was informed of latest developments on a whole series of obligations which must be complied with in Germany as a result of such directives.
These included inter alia the disclosure of specific contact details on the gaming website, a privacy Policy obligation which acts as a protective level and not to forget the stringent requirements of the Distance Selling laws which if violated may imply a financial penalty of up to 50,000 euro.
Hilary Stewart Jones, Paul Renney and Clare Adams were the experts on the UK scene. In their opinion, 2007 is projected to be very exciting year since the 2005 Gambling Act may smoothen the path for offshore operators who have settled in Channel Islands, Malta and Gibraltar targeting the UK market to return back to the fold.
Yet, significant obstacles still remain. Many are asking whether an acceptable and affordable UK tax regime will be announced in 2007 when the first remote applications for gaming licenses will be issued in April .
Questions proliferate whether there will be a one tax fits all and what will be the impact of VAT for inter-company/third party supplies. Doubts also arise as to what will be the effective rule on advertising in UK for non-licensed operators and who will be the countries that will be added on the grey list of prohibited territories.
A typical question from the audience was whether a bookmaker based overseas can advertise its sports betting business in UK under the Gambling Act 2005.After lunch, Robert Dias tackled the thorny question of stringent money laundering rules, responsible gambling and solutions to fight remote gaming fraud. He analysed the typical scenarios for placement of cash into legitimate systems and explained how layering is carried out.
He stressed the strict rules of EC Directive 2001/97/2005/60 EC and POCA 2002 UK particularly the training of employees and KYC on clients.
Operators have to invest in staff, who know the rules of money laundering and can effectively conduct an audit of clients. Last but not least Evelyn Heffermehl , an associate lawyer of ULYS and Member of the Brussels Bar discussed the exclusion of gambling from the Services Directive which was decided on the 16 February 2006.
She gave a detailed review of the possible consequences of such exclusion while discussing the outcome of Netherlands “Breda” ruling and the ZeTurf ruling on the exclusion of a Malta based operator by PMU.
There is great expectation that a favourable ruling is issued on the Gambelli 2 or the Placanica decision. Naturally the exclusion of gambling services may appear to be a victory for state monopolies but in her view National courts seem to gravitate more towards the Gambelli ruling and therefore may open up better prospects of de-regulation. She reminded the delegates about the letter issued by the Internal Market Commissioner Charlie Mc Creevy, to seven European countries giving them a period of two months to amend any protectionist practices. Let us hope that the Munich conference has served as an effective forum for cross-debate among operators, legislators and regulators in the wake of the issue of the study by the Swiss Institute of Comparative Law.

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