A fast overview of recent developments in online gambling regulation

Developments in online gambling regulation internationally have been dynamic in recent months, once again highlighting the value of companies having in place recognised and effective operational systems governed by practical standards and requirements designed to meet the demands of most government regulatory regimes.

Denmark

A quick environmental scan shows that the Danish government is moving ahead with the opening up of its Internet gambling market….sort of.

Under pressure from the European Commission to move away from a state monopoly regulatory regime, the Danes have come up with a proposal that will see an expensive licensing system (figures currently speculated are in the region of GBP 340 000 to GBP 455 000 per annum) introduced, along with taxation rates that could match the British rate of 15 percent on profits or go even higher to 20 percent. One Danish proposal that may be challenged is the intention to reserve scratchcard, lottery and online bingo action for the old monopoly Danske Spil. The proposal is now with the European Commission, which has until October 7th to deliver its opinion.

France

The French are still working towards early 2010 as the date for a new-look regulatory regime, again developed under pressure from the European Commission to abandon a traditionally monopolistic system. Final proposals include stringent requirements on operators and some controversial elements which may cause a reaction from the Commission.

The French Budget Minister, Eric Woerth, has presented his draft to the Finance Committee of the French Parliament as planned, but his insistence on ignoring protests and refusing to change the maximum payout percentage ratio provisions will not go down well with operators or the Commission, which found earlier this year that the draft did not comply with EU law.

Media which had sight of the French draft indicate that it maintains the 80 to 85 percent payout band originally included in March as part of the French government’s controlled opening of the market originally planned for early 2010. The ratio will make many commercial operators wishing to enter the French market uncompetitive, they claim.

French political representatives will discuss the draft in September. Woerth and his staff were more flexible on the proposed 2 percent tax on player wagers; this has been softened to a 2 percent tax on pots, with a maximum of Euro 1 per pot.

Operators were recently warned by Woerth not to make the mistake of initiating promotional and advertising moves in the region before the French government has launched its new regime. The warning comes after several firms started football and other sponsorships, whipping up a storm among some of the national bodies that have vested interests. Woerth cautioned that the French government will not allow to go unchallenged any attempts to break current laws and policies in anticipation of its liberalisation of gambling.

He also issued a veiled threat, saying: “Obviously, the State, as the regulatory authority for online games, will take into account what is happening at the time of issuing the licenses.”

Thailand

After years of bureaucratic and politically inspired delays, it looks as if the Thai government is almost ready to approve online lottery activity. Having passed through various government ministerial debates and filters, the issue is now to be finally determined by a public poll.

United States

In the United States the complex business of introducing regulation and appeasing both federal and individual state sensibilities on autonomy continues. With the Unlawful Internet Gambling Enforcement Act continuing to create practical enforcement problems, and a Justice Department seemingly still hell-bent on persecuting all forms of online gambling not specifically excluded from federal legislation (state lotteries, horseracing and fantasy sports) it remains a minefield….but still offers the best opportunities for the expansion of the industry.

Land gambling giant Harrah’s is already preparing for a more equitable and open market by forming an interactive gaming division under former Party Gaming CEO Mitch Garber, and the mood is currently more upbeat than in previous years as state governments look for new tax revenue streams to close budget deficits.

Barney Frank’s HR 2267 the Internet Gambling Regulation, Consumer Protection and Enforcement Act has built up an impressive head of steam since its launch in May this year, and is currently on hold pending a gap in the heavy Congressional workload brought about by the international economic crisis. However a September date is being bruited about as a likely time for debate, and the bill has already signed up 54 political co-sponsors.

Independent analyses have predicted that collecting taxes on regulated Internet gambling would allow the U.S. to capture much-needed revenue in an amount ranging from $48.6 billion (excluding online sports gambling) to $62.7 billion (including online sports gambling) over the next decade.

Senator Robert Menendez of New Jersey has also launched S 8309, the Internet Poker and Games of Skill Regulation, Consumer Protection, and Enforcement Act which duplicates Frank’s efforts to a large extent, but is focused on Internet poker. State initiatives are active, too – especially in cash-strapped California.

The Frank-Menendez online gambling proposals have caused some concern as containing potentially discriminatory clauses, allowing the US Treasury to reject applicants who have failed to file “…a federal or state tax return…owed to a jurisdiction in which the applicant operates or does business.” Pessimists suggest this will be used to make the US market a cosy affair dominated by American operators.

The almost-confrontation at the WTO between the European Union and the US Trade Representative appears to have been avoided for now, with the two sides at the negotiating table. The Remote Gaming Association, who’s complaint of US discrimination against European operators launched the EU investigation and a finding in the RGA’s favour, has indicated that it will be happy to achieve an immunity from prosecution guarantee for Euro-operators for any pre-UIGEA activities.

Estonia

Technology-rich Estonia will soon be open for business in an online gambling operational sense following final approval of a new regulatory regime due to start licensing suitable operators early in 2010. Unlike some of its neighbouring nations, Estonia has embraced online gambling in a regulatory framework that welcomes rather than excludes foreign operators, but there are strict conditions attached and operators will have to satisfy genuine and enforced requirements.

Operators licensed in other European Union member nations will find ready acceptance, provided that they increase their licensing costs by obtaining an Estonian license, too. Alternatively, foreign operators can form partnerships with Estonian licensed national gambling entities. Servers will have to be located within the country’s borders, and strict attention is being paid to underage and problem gambling exclusion, management probity and anti-money laundering financial systems compatible with international standards.

Officials have warned that regulations will be enforced, and that ISP blocking and financial restrictions will be deployed against illegal operators.

Holland

One of the most vehemently anti-online gambling countries has traditionally been The Netherlands, which has also been determined in its protection of the state gambling monopoly through Holland Casino. Recently however, there appeared to be some signs of moderation as Justice Minister Ernst Hirsch Ballin reportedly said he wished to increase the number of venues where Dutch residents can legally play poker for money in an effort to meet growing demand and reduce illegal gambling.

Under the new scheme, Holland Casino could, for example, set up a poker table in other existing gambling venues, a report in De Telegraaf confirmed. Prior research of the Dutch market has shown that a total of some 575 000 mainly males aged between 15 and 34 play poker “illegally” either in live games or over the Internet.

The suggestion is that this could be because there are only 14 Holland Casino venues in the country, and players may prefer smaller and more intimate venues. However, the Minister’s proposal includes a note that Holland Casino will work with the Justice ministry on setting up local poker facilities on an experimental basis, thus maintaining its monopoly.

The Dutch are also on the European Commission’s list for excluding companies from other EU member nations.

Costa Rica

Home to many large online gambling enterprises, Costa Rica is also reportedly upping it’s regulatory game. Local media reports are that government plans to introduce legislation which will see all licensees in the country – both land and online – brought under the real authority of a national regulator. The reports cite the worsening economic situation as the spur for the new interest in a proper regulatory regime.

Finance minister, Guillermo Zuniga has proposed hiking the tax on gambling operator gross revenues by 2 percent to help weather the economic storm, and he has apparently confirmed that there will be more meaningful controls on operators flowing from the new legislation. The Finance Ministry expects to realise an additional $85 million a year from the tax hike.

Zuniga told reporters that the new gambling arrangements would see a regulatory body with responsibilities to several ministries issuing licenses and policing the operation of licensees. It would be given authority over both land and online gambling operations, he advised. The minister added that the decision to form a regulatory body brought Costa Rica in line with the international trend to regulate and license gambling.

The media reports to date do not offer clarity on timeframes, or how a new regulator might apply taxation, licensing and compliance procedures.

Poland

Figures released by Poland’s Ministry of Finance recently show that Polish citizens spent the equivalent of over $5 billion on gambling in 2008, significantly up on 2007’s figure of $3.8 billion, making Poland one of the fastest growing land gambling markets in Europe, with the slot machine population doubling over the past year to 46 000 and more to follow – revenues from slots alone have grown 73.2 percent to $2.7 billion.

Sadly, little progress appears to have been made on the regulation of online gambling, a topic that has been under discussion by Polish legislators since November 2007. In April 2008 comments by Polish Finance Minister Marek Kapica suggested that a regulatory regime for online gambling would be in position by the second part of 2009. Kapica opined publicly that Poland would have to legalise online gambling: “We cannot control this process anyway and it is better that the budget at least derives some revenues from it,” he said.

At that time the Finance Ministry was reportedly preparing appropriate legislative changes for approval by the European Commission as part of the procedures required of EU member nations. There have been no reports on the progress of this initiative since.

Russia

The implementation of a draconian government decree making all gambling illegal other than in four remote and undeveloped regions of the country has thrown the country’s booming gambling market into reverse with hundreds of thousands thrown out of work and catastrophic financial losses to companies as police enthusiastically apply the new law.

Whilst the situation may appear to present opportunities for audacious online gambling operators, it is a perilous scenario.

At first it was thought that the recognition of poker as a sport by the would provide a workaround to some degree, but these hopes were dashed when soon after an arbitrary decree from the Russian Ministry of Youth, Sport and Tourism overturned the classification. Operators wishing to offer legal poker under the new Russian gambling regime have serious obstacles to overcome, not least of which are the remoteness and undeveloped nature of the areas set aside for gambling, which include Kaliningrad, the Primorsky region, the Altai region in Siberia and the cities of Krasnodar and Rostov.

The Ukraine situation is not much better, with a similar ban imposed by parliamentarians against the wishes of the state president, creating massive problems.

Italy

The Italian market appears to go from strength to strength, according to official numbers from state regulator AAMS, and more good news is that the still restrictive laws on offering online gambling to Italians could be in for a more enlightened remake. And it could happen before the end of this (2009) year.

The reason behind the optimism is a recent slew of Italian “crisis legislation” proposals prompted by tough economic conditions and natural disasters this year, which have increased the need for additional tax revenues. However, anticipation should be moderated by the fact that the national regulator, the AAMS, has yet to make any formal announcements on what is and is not allowed, and when implementation might take place.

The speculation is that the Italians may be about to add cash games to lighten up the “tournaments only” regulations for online poker, and that online casino games will be added to the list of permissible online activities, along with new licences for scratchcard gaming.

The delay is reportedly not with the politicians, but with the regulator.

Ireland

Frequently accused of dilly-dallying on a cogent and practical gambling dispensation, Ireland is widely perceived as a promising online gambling regulatory jurisdiction, but needs to get its antiquated Gambling Act sorted out before it can benefit from the considerable potential that online gambling represents.

A recent study by DKM Consultants reported that if Ireland were to put the right legal regulatory infrastructure in place it could play host to a large number of online casino companies that would generate considerable employment and tax revenue for the Exchequer.

The report suggests that if Ireland were to capture just 5 percent of the global online casino business it would represent a local sector worth Euro 2.2 billion that could generate some 5 000 jobs in online gambling and supporting infrastructural services, at an average salary of Euro 40 000 per annum.

“Ireland has a huge opportunity to establish itself as a major hub of the online gaming sector,” David Hickson, a director of Ireland’s Gaming and Leisure Association claimed recently. “There is a very tight timeline for Ireland to get this right. The UK has already moved to put a regulatory structure in place to capture this vibrant industry, but it got its taxation structure for the industry wrong. France and Spain are working on the legislation, so Ireland needs to hurry up.

Hickson revealed that the Gaming and Leisure Association has been lobbying for the past three years to see new legislation and a regulatory framework put in place.

Confirming his view to some extent, a report by the casino committee for the Department of Justice, Equality and Law Reform described the current 1956 Gambling Act as a “relic of social history utterly unsuited to effectively regulate gaming in a modern wealthy European state” and has called for a modern and effective system of regulation.

Belgium

The Belgians have also sent a regulatory proposal to the European Commission…reportedly with controversial content.

There have been recent reports that Secretary of State Carl Devlies, the man in charge of introducing gambling reform in the country, has revealed he was considering allowing only existing Belgian casino and betting operators to apply for online licenses.

The less controversial aspects of the proposals include site blocking (similar to that adopted by the Italians), a 21-or-over age-limit restriction and a requirement that servers be located in the country.