February 2012

A “regulation flavoured” Europe

Regulation was the overriding flavour for the online gambling market in Europe in the year just ended.

In 2011 Spain, Greece, Poland, Belgium, Romania, Hungary, Serbia, Denmark and the German state of Schleswig Holstein all either adopted laws regulating online gambling in their territory, brought laws previously adopted into force or opened a licensing process.

Also in 2011: The UK’s Department of Culture Media and Sport continued  consultations on amending the Gambling Act 2005, with changes likely to be adopted this year;  15 German states could not crush the resolve of their northern partner in the federation, the small state of Schleswig Holstein, to introduce a licensing framework intended to attract open competition in online gambling with the resulting investment and tax revenues; the European Commission pushed ahead with publication of and consultation on its Green Paper on Online Gambling in the Internal Market; and regulation, or the lack of it, was behind some of the biggest movements in the value of listed  companies involved in the online gambling market, together with the “Black Friday” events in the US.

Don’t mess with US?

April 15th 2011 came to be known as online gambling’s Black Friday due to the indictment by the United States Department of Justice (DoJ) of 11 persons connected with poker operations targeting customers in the US.  According to the DoJ, these persons’ main fault was to have committed bank fraud in the course of receiving funds from and returning funds to customers. At least one person charged pleaded guilty and is expected to receive a prison sentence.

Several analysts saw this as a prelude to the introduction of federal regulation of online poker in the US.  However, they were to be disappointed.

Shortly after Black Friday, to the surprise of many, the DoJ issued an opinion confirming that the Wire Act only applies to communication relating to a sporting event or contest, excluding application to stat-run lotteries and seemingly excluding application of this Act to casinos and poker too where the provision or organisation of these activities is not prohibited by state law. The opinion was issued in response to proposals by Illinois and New York to sell lottery tickets online to in-state residents whilst processing payments via processors outside those states themselves.

Malta consolidates its position as a regulated jurisdiction

Malta was the first EU Member State to have regulated online gambling, on 1 May 2004.  In 2011 it continued to tweak its legislation to offer a more competitive environment in line with the principle of the freedom to provide services within the European Union. Malta has clearly chosen to stick to its guns on its interpretation of the Treaty on the functioning of the European Union in so far as gambling is concerned, in spite of not seeing eye-to-eye on the matter with a number of its partners in the European Union.

Its approach to the regulation of gambling has resulted in a continued influx of online gambling operators and platform providers to the island in 2011. The former continue to look at Malta as a reliable and responsible jurisdiction from where to run primarily their “.com” operations, but increasingly also a base from where to run operations licensed in other European Members States. Influx of the latter is probably due in great part to changes made last year to local regulations allowing platform providers holding a class 4 licence from the Malta Lotteries and Gaming Authority to provide their services to licensees of other European Economic Area member states.

It is also worth noting that in an effort to attract larger numbers of senior personnel from the gambling industry to Malta in 2011 the Maltese government adopted regulations which provide that persons occupying certain positions including but not limited to CEO, CFO, CMO, CTO and Senior Traders may benefit from a flat income tax rate of 15% on income under that contract. Identical provisions apply to fund managers, bank, insurance and other financial services executives. In order to benefit a person must be non-domiciled in Malta. Under Maltese tax rules having a non-domiciled status in itself means that any income arising overseas which is not remitted to Malta would not be taxable in Malta.

What to expect in 2012 and how to react?

As the gambling industry knows very well, the future is almost impossible to predict. For instance few would have guessed back in September 2011 that the transition period contemplated by the Spanish online gambling law would have been extended to June 2012.

More regulation and licensing in Europe

It is safe to say that the developments in Germanywill be of particular interest, with the ball now in the European Commission’s court. Operators taking business from the European market will also need to stay on top of the launch of a licensing process in Romania, Hungary, Serbia and Greece the probable adoption of a new regulatory system in the Netherlands.

It seems highly unlikely that any harmonization of rules relating to gambling in Europe will occur in 2012, in spite of the European Commission’s Green Paper process and its follow up.  Operators and platform providers will therefore have to continue looking at individual jurisdictions.

Those that have not already done so would be well advised to review their position with respect to each jurisdiction they are exposed to and which has, is in the process of or is likely to regulate.  Such a review should consider possible administrative, criminal and commercial implications and should not ignore existing or potential tax liabilities or the powers and ability of an authority in a state where an operator takes business to enforce its laws in the operator’s place of establishment.

The significant sanctions which should become effective later on in 2012 in Spain, the liability to pay tax there irrespective of being a Spanish licensee, a similar liability in Greece, and a possible toughening of enforcement practices in Poland during the UEFA Euro 2012 championship and thereafter are only a few of the potential pitfalls which operators taking business from or servicing these markets should consider.  On the other hand delays by Member States in bringing laws into force or their failure to enact laws which are congruent with those of the European Union could still provide operators interesting business opportunities.


Most probably 2012 will be another year that will not be disappointing when it comes to disputes with regulating jurisdictions. The laws enacted by several EU Member States in the field of gambling are arguably not compliant with EU law. The local company requirement in Poland and Romania comes to mind. Once again, most challenges will be brought based on EU law. In the first instance they are likely to take the form of complaints to the European Commission and/or litigation before national courts.

Preparing for licensing

When it comes to licensing, an operator interested in applying for a licencein an environment which is at once open to competition and highly taxed can hardly afford not to look into structuring its business in the most efficient manner possible. In 2012 an efficient corporate, tax and operational structure will become even more fundamental to that operator’s balance sheet.  Malta is certainly one of the jurisdictions which an operator cannot afford not to look at when thinking about this sort of structuring.


It is also probable that in 2012 we will continue to see convergence between the land based and online industries with rights owners taking their content online and seeking recognition of their technology in the form of B2B licenses before going to the market. Again, Malta’s now well established class 4 licence for B2B operators should be of particular interest to these operators.

The US

In so far as the US is concerned it would be surprising if, following the DoJ’s opinion regarding the Wire Act, operators did not seek to investigate whether there are any states in the US in which, in the light of the DoJ’s opinion, payments for poker and casino business can be taken lawfully online.  If a solid argument can be made, it would presumably then be a matter of persuading financial institutions to accept to process transactions coded 7995.  The largest operators with important agreements with US partners already in place might be reluctant to consider this route since they have too much at stake already.  However, provided a strong legal argument can be made and that the entire transaction involving wagering on poker or casino can be conducted transparently and above board, there may be an opportunity here for operators with less already staked on the US market.

Certainly 2012 will not fail be another exciting and surprising year for the industry.


Olga Finkel

James Scicluna

First Published in:

EGL(European Gaming Lawyer), January 2012