55 QUESTIONS & ANSWERS ON ONLINE GAMBLING

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1 55 QUESTIONS & ANSWERS ON ONLINE GAMBLING This Questions and Answers (Q&A) document has been prepared by the European Casino Association (ECA) in view of responding to a series of questions often posed by stakeholders involved in the elaboration of future frameworks on gambling. Most recently, the ECA welcomed the Communication from the European Commission: Towards a comprehensive European Framework for online gambling (2012/2322(INI)) presented on 23 October 2012, and is closely involved in the ongoing discussions. Broad cooperation of the national gambling regulatory authorities is needed to ensure an effective framework regulation. We would suggest that the process include insights from those who have experience in the oversight of land-based gambling. The offer of gambling products by the internet must be limited and properly and closely controlled, i.e. nationally. If we look at what the USA is doing with regards to its gambling policies, they also have introduced a State-by-State regulation for gambling for the very clear reason that gambling is simply not a normal product and should certainly not be exploited as a normal market. For the legally minded, an addendum is included at the end of this document, after the Q&A with all the relevant case law. Brussels, March 2013 About the ECA: The ECA represents national associations and individual operators of casinos in Europe. We represent the interests of around 800 licensed casinos and over employees in 23 countries across Europe. Founded in the early 1990s, the ECA has grown steadily over the years and today includes members from nearly all EU Member States, as well as from Switzerland and Serbia. Members of the ECA have expertise in the casino industry gained from decades of experience. Page 1 of 24

2 LIST OF QUESTIONS: 1. What is at stake? What is the position of the ECA towards online gambling? What kinds of services fall under the term online gambling? Which online gambling offers are legal? Why are illegal gambling sites not simply banned from the Internet? Why does online gambling need my attention? Why is gambling such a specific product? Why are some gambling operators fighting for a low European regulated market? What advantages do strict regulations for online gambling services provide for customers? What are the inherent dangers of illegal online gambling? What is the size of the online gambling market? What is the contribution of the online industry to society? Should certain aspects of gambling be regulated at the EU level? Should the internet be limited to national borders and to national gambling regulation? What are the main regulatory deficiencies that the EU can solve? Why is national gambling regulation by the Member States the best way? What are the advantages of national gambling regulation in comparison with EU regulation? Is national gambling regulation compatible with the subsidiarity principle? Why are the Member States best placed to regulate gambling services? Is a national approach to gambling legislation not contradictory to Internet services? Should the games be the same for land-based and online services? Why should the offer of gambling services be limited? Do the hazards inherent to gambling justify limitations? How can online gambling offers be limited? What are the risks involved in online gambling? How can online gambling be proposed in a safe manner? Page 2 of 24

3 27. Is online gambling more dangerous than land-based gambling? What risks may be involved in online gambling? Is it illegal to gamble on un-licensed online gambling sites? Should responsible gambling and anti-money laundering (AML) obligations be applicable to all operators? How to prevent minors and vulnerable people from gambling online? Should publicity for online gambling offers be regulated? What are the dangers of unregulated online gambling publicity? How can online gambling be misused for fraud? Are the games offered by Internet gambling operations fair? How can we ensure that the games are fair? Is there really a risk for money-laundering in online gambling? How can money be laundered through online gambling services? Why should all gambling operations fall under the obligations of the EU Money Laundering Directive? What measures should be taken to prevent money laundering? What measures should be taken to verify that the player is who he/she claims to be? Why is it important, that the customers on Internet gambling sites are correctly identified? Why must payment solutions be prescribed in online gambling regulation? Should illegal online gambling be blocked? What are the minimum IT security requirements an operator should adhere to and how can they be verified? Why are the gambling policies so different in the different countries? What is the best way to regulate gambling? Why should beneficiaries of online gambling operations have to be Fit and proper? What is important for the licensing process? What is a white label? What are the risks involved with white labels in the gambling sector? Page 3 of 24

4 52. Should gambling operations be registered, have offices, or employees in the licensing country or in Europe? Why is it so important for regulators to have direct access to all relevant data? Where should the servers of online operations be placed? Which taxation levels should be applied to online gambling operations? ADDENDUM..18 Page 4 of 24

5 1. What is at stake? With the evolution of online technologies, the size of the online gambling market has constantly increased and is today the largest of all markets on the web. As gambling is a very specific service, due to the risks of fraud and addiction linked to it, it needs specific regulations based on the experience and expertise of well-established gambling industries that are adapted to the history, culture and beliefs of each EU country. Several issues relating to online gambling regulations have to be dealt with by the national authorities. These cover the extent to which countries wish to offer online gambling on their territories (availability, volume and types of games); other issues require a transnational approach in order to ensure coherent and consistent minimum standards for gambling policy, for example re. technical standards and gambling equipment. 2. What is the position of the ECA towards online gambling? The ECA is completely open to online gambling. Indeed, many of our members are very successfully operating their own online gambling businesses. As a leading consultative body on all matters related to gambling regulations, the ECA works to improve the awareness and understanding of the industry. It does so by involving itself in decisionmaking processes on a wide range of initiatives, encouraging workable and fair policy frameworks and regulatory conditions. ECA stands for a well regulated market and a level playing field among all market participants, be it offline or online. 3. What kinds of services fall under the term online gambling? The main sectors of gambling offline or online, are: betting (sports, horseracing, or betting on the outcome of any other event), Lotteries, Casino games including Poker and gambling machines, Bingo, and scratch cards. Other gambling activities include dial-in and social media games. Though there is no definition of gambling common to every European member state, as a general rule, any type of gambling that involves a financial (or the equivalent) stake, a predominant element of chance that determines the result and the hope of financial (or equivalent) gain, is considered to be a gambling activity. 4. Which online gambling offers are legal? Only the licenced or legally authorised operators offers are legal. Operators with licenses from foreign countries are not allowed to offer their services to customers of another EU Member State without complying with the gambling legislation of the host country (See Addendum - Case 2 35 and 36, Case 3 69 and Case to 113). The EU principle of mutual recognition is not applicable to the EU gambling industry. At the moment, many operators in the online gambling sector are supplying their services illegally in many of the EU Member States. The way that gambling offers are viewed is intimately intertwined with the history and culture of each Member State. The manner of operation and regulation has, accordingly, developed differently from country to country (See Addendum - Case 1 and Case 2 13 to 15). Initiating a sole authorization regime valid for all EU Member States now would lead to the destruction of efforts made by Member States in terms of player protection, the fight against criminality and problem/responsible gambling. Moreover, the use of a legally unsound principle of mutual recognition has, for some time, led to a practice of shopping for licenses, whereby operators choose the Member State which imposes the lowest conditions and requirements for the domiciliation of their gambling services. Thus, in order to best address these issues at this time, the EU Commission Page 5 of 24

6 and the Member States should focus on how best to enforce their laws and determine the most effective kind of consequences that should follow from the illegal provision of gambling. 5. Why are illegal gambling sites not simply banned from the Internet? The main difficulty with banning illegal gambling sites is that illegal operators can very quickly redirect traffic to a new Internet address. As a result, all available possibilities to ban such offers should be used in order to be effective, not only Internet Service Provider (ISP) blocking. To this end, ECA strongly suggests two further means. First, a blacklist of all illegal gambling sites should be developed. Due to their AML obligations, financial institutions would then not be able to accept transactions to and from such clearly identified illegal operations. A second important avenue to pursue would be to enforce the regulation which states that illegal operations may not advertise their services. Given that advertising is the surest means of leading new customers to illegal websites, enforcing this law would be detrimental to connecting the demand for online gambling with illegal sites. As a result, it is only through a combination of enforced advertisement regulations and the banks that banning illegal operators becomes most effective. 6. Why does online gambling need my attention? As a service, gambling exists throughout the world. In order to protect consumers, particularly the young and the vulnerable, this activity must take place within a regulated environment where the enforcement of rules and laws and the payment of taxes are done under the supervision of government agencies. 7. Why is gambling such a specific product? When it takes place within a properly regulated environment, gambling is fun and harmless, for the majority of people. However, when not properly overseen, the activity may lead to problems that may occur if playing with a non-authorized operator (who may not maintain the same high levels of service as an authorized provider). The operation of a gambling platform involves a high volume of financial transactions which can be tempting for unscrupulous people. Non-supervised gambling may lead to social and health problems (e.g. addiction) if not properly overseen. Online activities are available in one s own home, 24 hours a day, 7 days a week. For these reasons it is important for the government to properly control and regulate this activity (Regarding risks inherent to online gambling, see Addendum - Case 5). 8. Why are some gambling operators fighting for a low European regulated market? Online gambling is the biggest of all markets on the Internet. Gambling operators can generate significant earnings, especially if they do not have to respect any regulations, or if the regulations or their enforcement is low. Every rule and regulation implies a limitation of what is allowed and is thus a limitation of the market. Many operators regard the obligation to pay taxes as a handicap to generating earnings. Such operators have, for a long time, been fighting to establish one gambling market covering all European countries with only one license. The online operators naturally seek to have a license in the country which demands the least amount of taxes and promises the lowest regulation or the lowest enforcement. Many operators fight to continue this practice to maintain low regulation, low enforcement and low taxation in order to keep their Page 6 of 24

7 profitable businesses as unimpeded as possible. Safe gambling offers must be designed according to the specificities of national markets and adapted to the religion and ethical views, the history and the culture of each countries for which they are intended. In order to protect their consumers adequately, only national governments can effectively regulate, enforce and control their gambling markets. They must be able to steer the demand, to expand or to limit their different gambling products, in line with the needs of a national, safe and crime-free market. 9. What advantages do strict regulations for online gambling services provide for customers? A well regulated gambling market brings many advantages to its customers. The State supervision of gambling operations ensures that all games, in correspondence with the requirements of the national gambling regulations, are fair and are executed in a safe and transparent way. In such a market, customers must be registered in order to play. This regulation excludes underage people and those who have asked to be excluded because of their problematic gambling behaviour. Their data cannot be misused or sold to third parties and all payment processes are executed in a safe and quick manner. Well regulated and controlled gambling benefits not only the customers, but society as a whole. A government can limit or expand its national gambling market based on its experiences with the developments in the market. History in Europe has shown that State supervised gambling keeps crime and problems out of gambling businesses. 10. What are the inherent dangers of illegal online gambling? There are many dangers involved in illegal online gambling with negative consequences on society and the public order. Even gambling operations licensed in other countries do not necessarily guarantee security from illegal activity, as there may be low regulation and/or poor enforcement. The biggest risks that illegal gambling operations can pose are the following: the risk that they fall into the hands of criminals, and the risk that they cannot be controlled by licenses from countries with low regulations/enforcement. This is often due to insufficient checks on the operators, the ultimate beneficiaries, the origin of their funding, and their reputations. The risk that criminal operators use their gambling operations for the purpose of moneylaundering is very high. The fact that illegal gambling offers are not regulated and pay little to no taxes makes this scenario even more probable. Other risks arise with respect to the lack of, or the insufficient amount of, monitoring the backgrounds of the operations management and employees. These risks include theft, the misuse of data and other cybercrime. Illegal offers are often unlimited, their measurements against gambling addiction are insufficient or virtually non-existent, and the fairness of the games and the dispersing of winnings are not guaranteed. Lax regulation and enforcement enhance such dangers. (See Addendum Case 5). 11. What is the size of the online gambling market? Online gambling is very successful. It is the biggest and fastest growing of all Internet markets. However, the global gambling revenue (GGR = Bets winnings) can only be estimated. This is due to the fact that the online market is comprised of a modest legal, well-regulated portion and a huge illegal, unlicensed portion. The latter is of course not transparent and the figures are not available. All sources nonetheless agree that the Page 7 of 24

8 actual total GGR of the market can be estimated to be between 12 and 16 billion Euros. Already twice the size of the total licensed land-based casino market in Europe! 12. What is the contribution of the online industry to society? In many EU Members states, most of the online gambling offers are illegal. The investments needed for setting up an online gambling operation are by far lower than the overhead of land-based operations. Generally, the level of staffing is very low and they pay little to no taxes. Correspondingly, there is little to no contribution to society from most online gambling operations. By comparison, licensed land-based casinos are heavily taxed and they create a high quantity of direct and indirect employment, employing more than 55,000 employees all over Europe. In addition, they invest large sums of money in culture, entertainment and the preservation of historical sites. 13. Should certain aspects of gambling be regulated at the EU level? The majority of the aspects relating to gambling should definitely not be regulated at EU level, but should remain in the hands of the national authorities. The reason for this is that gambling is a sensitive activity, and with the technological developments of online gambling, the reality of the market has completely changed. Gambling is embedded in the social, economic and cultural environments specific to each Member State. The ethical views, religion, cultures and historical backgrounds are considerably different across Europe. It is therefore crucial that these differences are respected by national legislation. Therefore, Member States are best placed to know to what extent gambling should be available on their territories and how to best regulate it. This being said, national laws are not always adequate to regulate all of the important aspects of online gambling services. Therefore, for some aspects, a framework of EU legislation is needed, for example to enable the Member States to effectively enforce their gambling laws. 14. Should the internet be limited to national borders and to national gambling regulation? Some operators permanently repeat the need for an open internet, without national borders. It is clear that the internet is technically a border-free medium. But gambling offers must be limited. Even the operators asking for an EU-wide offer of gambling products, which they understand as a normal product and a normal economic activity, have to limit their offers to the borders of the EU. The USA market may of course not be served by EU gambling offers. Thus, the offer of gambling products via the Internet must be limited so as to enable a close (i.e. national) control of the activity. The USA have also introduced a State-by-State gambling regulation for the very clear reason that gambling is simply not a normal product and should certainly not be exploited as a normal market. The overwhelming majority of the Member States have always adopted a prudent approach to gambling and have installed responsible regulations that allowed them to limit and control the different gambling markets. At least 20 of the 27 EU Member States are opposed to EU-wide gambling offers. The economic approach towards gambling that the EU Commission seems to prefer urgently needs a political counteract in order to avoid the totally irresponsible idea of liberalizing gambling across the EU. Page 8 of 24

9 15. What are the main regulatory deficiencies that the EU can solve? EU regulation can provide legal certainty to providers of gambling services that have been legally approved by Member States. Furthermore, the regulations may introduce common standards in player protection and in the combatting of money-laundering. An essential part will be to help the fight against unlawful suppliers through the enforcement of regulations and by combatting illegal gambling offers. 16. Why is national gambling regulation by the Member States the best way? Gambling has always been regulated in different ways throughout European countries. Whilst gambling offers were restricted in most countries, others had relatively open markets (e.g. the UK). Gambling regulation receives high political attention, as the perception of gambling is linked to the cultural, social, religious, historical and ethical standards. Most countries throughout Europe favour a well regulated, controlled and restricted gambling market, and their own national regulations are best placed to adapt gambling offers and control them adequately so as to protect consumers. (See Addendum Case 1). 17. What are the advantages of national gambling regulation in comparison with EU regulation? Some countries may wish to restrict gambling, whilst others may prefer an opening of the national market. Consequently, the amount of gambling offers can be adapted to the needs, culture and history of each country through national legislation. EU regulation should be complementary to national legislation by setting minimum standards of protection for customers as well as guaranteeing the integrity of gambling services and the combatting of money laundering. 18. Is national gambling regulation compatible with the subsidiarity principle? Yes, the subsidiarity principle has been recognized as applicable for gambling, the Liga Portuguesa case being a good example (see Addendum Case 3 69). Due to the cultural and historical differences of the Member States and the need for countries to adapt the gambling offers (and the risks of fraud and addiction linked to it) to their cultural specificities, it is crucial that for such sensitive services, Member States remain competent, and not the EU (principle of Subsidiarity). It should be remembered that the subsidiarity principle is extremely important for the EU, and should only be put aside if Member States cannot adequately legislate themselves. 19. Why are the Member States best placed to regulate gambling services? As gambling offers are embedded in the religious, ethical, social, economic and cultural environments specific to each EU Member State, national regulators are best placed to adapt the gambling market and its regulation to local preferences. The gambling cultures and historical backgrounds are considerably different across Member States. It is therefore crucial that these differences be respected, while at the same time being supported by an EU regulatory framework. Examples of important minimum EU regulations which would not infringe upon the unique needs of each Member State are player protection standards and the combatting of illegal and unlicensed offers (see Addendum Case 1). Page 9 of 24

10 20. Is a national approach to gambling legislation not contradictory to Internet services? No, an Internet service is not above any law. No one would suggest that the online market for weapons be allowed simply because it takes place on the Internet. It is essential that Member States themselves fix the rules and regulations for any activity that can be deemed as special or sensitive. The activity of gambling clearly falls within this definition. (See question 28 as well.) 21. Should the games be the same for land-based and online services? It is possible for Internet gambling operators to offer a greater variety of games than it is for land-based businesses. It is certainly acceptable that these different opportunities be taken advantage of, though it is essential that the respective regulations be sufficiently robust to cover the range of games offered by both land-based and online gambling services (See Addendum Case 6). 22. Why should the offer of gambling services be limited? Gambling operators should strive to fulfil the natural gambling needs or demand of society. This is typically what traditional licensed land-based casinos have been aiming to do, rather than to entice people to gamble (See Addendum Case 2 13 to 15 and Case 7). 23. Do the hazards inherent to gambling justify limitations? The inherent risks of gambling are considerable, especially if it is poorly regulated or illegal. It is essential that customers, particularly the vulnerable (such as minors), are protected. To this end, it is necessary that Member States limit the operators of gambling services to those approved and licensed people and companies who are fit for the responsibility. The offer of online games should be limited in order to avoid social disorder and crime. Market limitation is, therefore, the appropriate tool for Member countries to steer the market (see Addendum Case 1). 24. How can online gambling offers be limited? Limitations can be introduced by limiting the maximum bets of games, by offering selfexclusion periods, gambling time limits and loss limits for vulnerable people. Another way is to lower the attractiveness of a game by lowering the stakes and the pay-out percentage. These are very effective ways for Members countries to steer their gambling markets. If a game becomes problematic for the population, there are always ways of limiting it. On the other hand, a demand for gambling that is not problematic can lead to a market expansion. 25. What are the risks involved in online gambling? Because of the potential for high profits and easy means of manipulation, gambling has often attracted persons and institutions with criminal backgrounds or criminal intent. As a result, gambling activities require special attention regarding crime, fraud, social disorder and money-laundering. Because of the 24/7 availability, online gambling is especially in need of a unique regulatory environment due to its peculiar risks. Effective control and enforcement is needed (See Addendum Case 5). (See questions 28, 34 and 35 as well). Page 10 of 24

11 26. How can online gambling be proposed in a safe manner? The long history of effective regulation and enforcement of land-based gambling leads the way for online gambling regulations. The prudent opening of online gambling markets and the step-by-step observation and control of its evolution is fundamental for safely introducing these services. Regulators can certainly learn from the history of landbased gambling regulation. 27. Is online gambling more dangerous than land-based gambling? It has been confirmed by different court judgments that online gambling involves more dangers than land-based gambling. This is due mainly to the lack of personal contact between the consumer and operators. The direct contact is not only crucial to verify the identities of the players, but also to observe their behaviour in view of developing a personal approach to dealing with problem gambling and other measures for protection when necessary. Because Internet gambling is even accessible to all, 24/7, including to vulnerable people, additional controls are necessary (See Addendum Case 5). (See questions 28, 34 and 35 as well). 28. What risks may be involved in online gambling? Gambling can be a very pleasant activity, and consequently, it is important to keep crime out of the industry. Players should not encounter risks while participating in gambling operations and the society should be assured that these markets are steered and conducted in a responsible manner. There are many dangers involved if gambling is operated in an illegal, lightly regulated or lightly controlled manner: Gambling operators, their employees and/or gamblers may have the possibility of laundering money and financing terrorism through online gambling operations. Revenues could flow to unknown ultimate beneficiaries. Unscrupulous operators may choose countries that promise very light regulation, control and taxation. The taxation is often minimal compared to the taxation levels for licensed land-based operations. Revenues may not be declared or only partially declared within this context. Some gamblers could develop health problems and problems of gambling addiction with negative consequences on society and the public order. Underage people could participate in games. There may be manipulations of the gambling software, the random generators or, in general, on the outcome of games. It is even possible that winnings or credits are not paid to players. Players could be harassed to continue their gambling, or regularly incited to gamble more often than they normally would. Likewise, the offers could be completely unlimited. Vulnerable and underage people would be endangered by such activities. Cybercrime can very often be found in online operations of the unregulated type. Credit card data and identities could be stolen, misused or sold by the operators, their employees or third parties. The knowledge of these dangers has led to the high level of regulation and control that can be found today in the EU licensed land-based casino industry. 29. Is it illegal to gamble on un-licensed online gambling sites? In certain countries, playing on unlicensed gambling sites is illegal. As legal online gambling sites begin to be introduced, this type of prohibition is very helpful to combat the illegal gambling market. Page 11 of 24

12 30. Should responsible gambling and anti-money laundering (AML) obligations be applicable to all operators? At the moment, only land-based casinos and their online operations fall under the obligations of the third EU Anti-Money Laundering Directive. A market study (study of Gambling Services in the Internal Market of the European Union, dated 14 June 2006) showed that the legal land-based casino market represents only 14.6% of all legal landbased gambling offers. This statistic shows that large amounts of money are spent on other gambling products. In order to be able to control these capital flows, all gambling operations should fall under the EU AML Directive. Large amounts of money circulate through low-regulated or illegal gambling operations. ECA thinks that it is of the utmost importance to know where and to whom the enormous revenues of these operations flow. It is well known that illegal or non-licensed online gambling operations present a higher risk for people with problematic gambling behaviour. The games are fast, available 24/7, and in an online environment there is no physical way to observe how the player behaves. In order to protect the player and help him or her to gamble in a safer way, it is advisable that measures for responsible gambling are taken by online operators. There are a number of ways in which this can be done. The most common being introducing limits for time and money spent by or deposited into a player s account. Such limits could be either voluntary or mandatory. It is also desirable for the operator to offer the players the possibility to exclude themselves from accessing the online site either on a temporary or permanent basis. There are also Artificial Intelligence (AI) products on the market, such as Playscan, which offers a self-test and also scans the player s gambling and betting patterns. With this information, the AI-software assesses whether the player is at risk of developing a gambling problem. Players who are assessed as being at risk should be excluded from participating in gambling, from receiving marketing offers and so on. ECA believes that every online operator must have responsible gambling tools to offer in order to protect players. 31. How to prevent minors and vulnerable people from gambling online? In order to prevent minors from playing online, it is necessary to identify the person who is trying to play. A first step is to require the potential customer to register or sign-up. Once the registration is complete and certain pieces of information, such as date and place of birth, name, and address haves been obtained, the given information must be verified. This could be in the form of a scanned image of his or her identity card or passport to confirm the name and date of birth. To confirm the address, an official bill or a letter from a recognized administration could be provided. Once the customer has provided this background information, the given information can be independently checked by a respected third party. No gambling activity should be allowed before these checks have been satisfactorily completed. The full respect of this procedure will ensure that minors and vulnerable people have no access to gambling online. (See question 30 as well). 32. Should publicity for online gambling offers be regulated? The marketing and publicity of online gambling offers must be regulated in order to guarantee that minors and vulnerable people are protected. Clear and ethical rules for online gambling publicity should be part of any serious online gambling regulation (See Addendum Cases 8, 9 and 10). Page 12 of 24

13 33. What are the dangers of unregulated online gambling publicity? Operators who favour lightly regulated or unlicensed gambling are driven only by economic considerations. The consequence is that customers are often incited to gamble, as can easily be seen by the advertisements publicized by many of the unlicensed operations still available in European countries. Advertisements for illegal gambling frequently appear as website pop-ups and banners and as spam attempting to attract the users of such media. 34. How can online gambling be misused for fraud? Lightly regulated or illegal online gambling offers facilitate many types of fraud. First of all, there is a risk that the operators use their gambling operations to launder money, e.g. by simply adding criminal funds to the revenues. Second, there may be risks for the customers: winnings may not be paid or the outcome of the game may be manipulated by criminal operators. Third, customers data and credit card information may be misused, stolen or sold. 35. Are the games offered by Internet gambling operations fair? As long as there is no strong, clear and detailed legislation, state supervision and control, similar to what is applied to the licensed land-based casino industry, there can be no assurance that the games offered online are fair. The outcome of a game might not be decided by authorized random generators, but rather by the operator or an employee. Here lies a big danger for fraud and money-laundering. Furthermore, online operations could simply refuse to pay the winnings owed and decide to disappear from the Internet after having made large profits. (See also question 35). 36. How can we ensure that the games are fair? Strong regulation, state supervision and control are foundational. The approach should be the same as for licensed, land-based casinos, where all details of the games, the technical implementations and accounting standards are regulated. History in Europe has shown that strong regulation and permanent state control is the best guarantee for fair games and for keeping crime out of the gambling industry (See Addendum Case 2 37, 41 to 43, Case 3 67 and Case 4 81 and 82). 37. Is there really a risk for money-laundering in online gambling? Yes. Actually, many illegal websites are used to launder money. The large quantities of money that can be involved with gambling have always attracted criminals. The biggest risk is that the operators may be criminals and use their gambling operations to launder money. But it is also possible for customers to launder money through online gambling operations. We recommend that all gambling sectors should fall under the EU Anti- Money Laundering Directive (AML) to tackle these dangers. After a national risk analysis, the extent of AML obligations can be determined for each of the different gambling sectors. 38. How can money be laundered through online gambling services? Gambling must be kept free of crime. The ECA recommends strong state regulation and control, such as is found in the European licensed land-based casinos. The biggest risk for money laundering in gambling operations is that the operators, the management and the ultimate beneficiaries may be criminals or use their operations for Page 13 of 24

14 crime. Criminals could simply add proceeds from crime to the results of the games. Paired with very low taxation, as we can find in some European countries, this is the ideal vehicle for money laundering. Moreover, operators or their employees can manipulate the outcome of the games, steal, misuse or sell credit card data, identities and other information. On the other side of the operation, players can also use online gambling sites for laundering money e.g., players can create voluntary losses to a fixed opposing player. In so doing, large amounts of money can be laundered and sent to any bank account around the world. 39. Why should all gambling operations fall under the obligations of the EU Money Laundering Directive? Currently only licensed land-based casinos and their online components fall under the third Anti-Money Laundering Directive. Thus, only 10 to 15% of the total land-based gambling industry is covered. Other online gambling operations are not covered, even if the risk for money laundering is greater than with land-based casinos. As gambling has always been tempting for criminals, all operations should be as strongly regulated and controlled as the licensed land-based casino industry. They should therefore also have similar obligations regarding money laundering. 40. What measures should be taken to prevent money laundering? Strong and effective legislation and control is the key to preventing money laundering through gambling operations. All gambling operations should fall under the EU Money laundering Directive. State authorities should have the possibility to control all the relevant financial transactions and other relevant data. 41. What measures should be taken to verify that the player is who he/she claims to be? A first step is to require the potential customer to register or sign-up. Once the registration is complete and certain pieces of information, such as date and place of birth, name, and address has been obtained, the given information must be verified. This could be in the form of a scanned image of his or her identity card or passport to confirm the name and date of birth. To confirm the address, an official bill or a letter from a recognized administration could be provided. Once the customer has provided this background information, the given information can be independently checked by a respected third party. No gambling activity should be allowed before these checks have been satisfactorily completed. We generally recommend Stork level 3 ( as the standard for secure customer identification. 42. Why is it important, that the customers on Internet gambling sites are correctly identified? One of the reasons for regulating gambling is to create a framework within which the activity can be allowed to take place whilst protecting vulnerable persons and minors. In order to do so, naturally it is necessary to be able to identify them with accuracy. Unidentified people must be banned from taking part in gambling activities. Strong regulation and state control can help guarantee that gambling operations apply the best methods for assuring the exclusion of minors and vulnerable people. Page 14 of 24

15 43. Why must payment solutions be prescribed in online gambling regulation? Many payment options do not allow for the identification of the person that has made the transaction. Money launderers could credit a customer s account from anywhere in the world. A control of international or intercontinental money flows may easily be circumvented. It would also make it very easy for criminal operators to add money from criminal activities to the results of their gambling operations. Only strong regulation and State control can reduce these risks. 44. Should illegal online gambling be blocked? Illegal online gambling undermines the objective of having a safe, secure and fair gambling environment in a country. Regulators should therefore not only enforce the rules for registered gambling operators, but should also take necessary actions to prevent illegal online gambling operations from offering and promoting their services to customers. The blocking of illegal sites is in itself insufficient. All actors in the chain, such as banking and advertising services and Internet service suppliers must also contribute to the application of the law and refuse services to non-licensed and thus illegal companies (See Addendum Case 11). (See question 28 as well). 45. What are the minimum IT security requirements an operator should adhere to and how can they be verified? The services of an online gambling provider should at least be compliant with the internationally accepted security standard Code of Information Security ISO Compliance with this and other comparable standards should be verified by an independent auditor, as is usual practice for the validation of international standards. 46. Why are the gambling policies so different in the different countries? The history of gambling, the ethical views, the traditions and the religious beliefs of each country have led to widely different gambling market structures. Whilst in countries like, for example, the UK, the approach towards gambling is rather open, most of the other countries have chosen to allow only more reduced and limited markets. 47. What is the best way to regulate gambling? It is clear that online gambling must be strongly and seriously regulated and that the rules in place in the Member States must be enforced. Member States are best placed to regulate, enforce and more importantly, control as closely as possible the risks linked to gambling. National regulations allow the adaption of the gambling market to the beliefs, the religion and the traditions of each country. This enables EU member countries to steer their own market, to expand or to limit it. ECA further recommends learning from the experiences in the development of the regulations applied to European land-based casinos. 48. Why should beneficiaries of online gambling operations have to be Fit and proper? In order to keep crime out of the gambling industry and to guarantee a correct administration of gambling businesses, the beneficial owners, (private) shareholders and the management of gambling operations must be carefully screened by competent state authorities. Only such people with a flawless background and an impeccable certificate of conduct should be allowed to invest in or run a gambling operation. Those controls, Page 15 of 24

16 standard in the European land-based casino industry, should be stated in the EU AML Directive for all gambling operations. 49. What is important for the licensing process? The licensing process should include many checks, right from the outset, when the license is being applied for, but it should also include the control on all future operations. These checks should include, but are not limited to the following requirements. Applicants or affiliated companies, the ultimate beneficial owners, as well as the management and the employees, should not have been involved in the past in any criminal activities, criminal proceedings or tax offenses. The regulator should have to take into consideration the applicant s business reputation, his resources, the origin of his capital, his current financial position and financial background. The applicant should have sufficient experience in the relative gambling sector or explain how he plans to obtain said experience, arrange for reliable ownership and corporate structure and demonstrate his ability to conduct a gambling operation in a reliable and responsible way. 50. What is a white label? A white label is an Internet gambling platform or service produced by one company that other companies may rebrand to make it appear as though they made it. White labelling is a common economic activity where the main functions or products are outsourced to a specialist who is able to propose lower prices by benefitting from economies of scale. 51. What are the risks involved with white labels in the gambling sector? White labels do not necessarily add any risks if regulations protect the customers adequately. For this, it is essential that the customer knows or is made aware of the identity of the operator of the gambling services. White labels are just a marketing technique that is used in many economic activities without problems. All white Labels should have the obligation to inform the customers, in a clear and visible manner, of the identity of the company with which the customer is about to have a commercial relationship. It is naturally up to individual governments to fix adequate regulations for the use of white labels. 52. Should gambling operations be registered, have offices, or employees in the licensing country or in Europe? If gambling operators were obliged to be registered, have a physical address and the presence of representatives in the countries where they provide their services, then it would easily allow state authorities and customers to get into contact with the operators should problems arise. This presence would help to increase the efficiency of controls by State authorities and make this very unique business more transparent. In the operators offices, State authorities could be granted direct and real time access to original and authentic data. In other words, controls and investigations would be much more effective. In some situations, the gambling operator might also prefer direct and personal contact with customers, in order to, for example, control the age and the identity via passports and other documents. In the case of high payments or doubts about the identity of a customer, face to face contact could bring clarification and more security. Such face to face contact could enhance the security of online gambling in a considerable way. Such contact is only one of the big advantages of the licensed landbased casino industry. Page 16 of 24

17 53. Why is it so important for regulators to have direct access to all relevant data? Online gambling consists of many fully automated IT processes. In order to be able to control the application of the legislation and regulation in place, the regulator should be able to monitor and control these processes, such as the identity or the financial transactions of a customer. National auditing firms could check if the software runs the processes in correspondence with the obligations. A permanent, direct and real time access to the original and authentic data by State authorities or auditing firms should be guaranteed. In this way, the Ministries of Finance or their delegated control institutions are empowered to verify the turnover in order to apply the national tax. 54. Where should the servers of online operations be placed? The way that data is stored is constantly changing with the rapid technological advancements. In order to allow for reliable control of both the operator and the customers, ECA recommends that State authorities have a permanent, direct and real time access to the original and authentic data. This should include financial information, information about the identity of the customer, as well as the gambling data (date and time of play, bets, losses, winnings, outcome of the game etc.). If these requirements are respected, the data servers can be installed in any EEA country. National data protection rules of the country where the services are provided have to, of course, be respected (See Addendum Case 12). 55. Which taxation levels should be applied to online gambling operations? Taxation of online gambling products should be similar to their land-based equivalents, because they are the same services offered via different distribution types. Maintaining a level playing field between all operators is vital. Land-based operators should be able to compete with online services that have a comparably low need for staff and infrastructures in general. Gambling taxation is also a substantial tool which enables governments to effectively adapt their markets to their needs (See Addendum Case 13). Page 17 of 24

18 ADDENDUM CJEU CASE-LAW Case 1 CJEU, Schindler, 24 March 1994 (C-275/92) First of all, it is not possible to disregard the moral, religious or cultural aspects of lotteries, like other types of gambling, in all the Member States. The general tendency of the Member States is to restrict, or even prohibit, the practice of gambling and to prevent it from being a source of private profit. Secondly, lotteries involve a high risk of crime or fraud, given the size of the amounts which can be staked and of the winnings which they can hold out to the players, particularly when they are operated on a large scale. Thirdly, they are an incitement to spend which may have damaging individual and social consequences. A final ground which is not without relevance, although it cannot in itself be regarded as an objective justification, is that lotteries may make a significant contribution to the financing of benevolent or public interest activities such as social works, charitable works, sport or culture. Those particular factors justify national authorities having a sufficient degree of latitude to determine what is required to protect the players and, more generally, in the light of the specific social and cultural features of each Member State, to maintain order in society, as regards the manner in which lotteries are operated, the size of the stakes, and the allocation of the profits they yield. In those circumstances, it is for them to assess not only whether it is necessary to restrict the activities of lotteries but also whether they should be prohibited, provided that those restrictions are not discriminatory ( 60 and 61). Case 2 CJEU, Läärä, 21 September 1999 (C-124/97) In paragraph 60 of the Schindler judgment, the Court drew attention to the moral, religious and cultural considerations which attach to lotteries, like other forms of gambling, in all the Member States. The general tendency of the national legislation is to restrict, or even prohibit, the practice of gambling and to prevent it from being a source of private profit. The Court also held that lotteries involve a high risk of crime or fraud, given the potentially high stakes and winnings, particularly when they are operated on a large scale. Furthermore, they are an incitement to spend which may have damaging individual and social consequences. A final ground which, according to the Court, is not without relevance, although it cannot in itself be regarded as an objective justification, is that lotteries may make a significant contribution to the financing of benevolent or public interest activities such as social works, charitable works, sport or culture. As is apparent from paragraph 61 of the judgment in Schindler, the Court held that those particular factors justify national authorities having a sufficient degree of latitude to determine what is required to protect the players and, more generally, in the light of the specific social and cultural features of each Member State, to maintain order in society, as regards the manner in which lotteries are operated, the size of the stakes, and the allocation of the profits they yield. In those circumstances, it is for them to assess not only whether it is necessary to restrict the activities of lotteries but also Page 18 of 24

19 whether they should be prohibited, provided that those restrictions are not discriminatory. Although the judgment in Schindler relates to the organization of lotteries, those considerations are equally applicable - as is apparent, moreover, from the very wording of paragraph 60 of that judgment - to other comparable forms of gambling. However, the power to determine the extent of the protection to be afforded by a Member State on its territory with regard to lotteries and other forms of gambling forms part of the national authorities' power of assessment, recognized by the Court in paragraph 61 of the Schindler judgment. It is for those authorities to assess whether it is necessary, in the context of the aim pursued, totally or partially to prohibit activities of that kind or merely to restrict them and, to that end, to establish control mechanisms, which may be more or less strict ( 13 to 15). In those circumstances, the mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of the need for, and proportionality of, the provisions enacted to that end. Those provisions must be assessed solely by reference to the objectives pursued by the national authorities of the Member State concerned and the level of protection which they are intended to provide ( 35 and 36). Contrary to the arguments advanced by the appellants in the main proceedings, the fact that the games in issue are not totally prohibited is not enough to show that the national legislation is not in reality intended to achieve the public interest objectives at which it is purportedly aimed, which must be considered as a whole. Limited authorization of such games on an exclusive basis, which has the advantage of confining the desire to gamble and the exploitation of gambling within controlled channels, of preventing the risk of fraud or crime in the context of such exploitation, and of using the resulting profits for public interest purposes, likewise falls within the ambit of those objectives ( 37). It is true that the sums thus received by the State for public interest purposes could equally be obtained by other means, such as taxation of the activities of the various operators authorized to pursue them within the framework of rules of a non-exclusive nature; however, the obligation imposed on the licensed public body, requiring it to pay over the proceeds of its operations, constitutes a measure which, given the risk of crime and fraud, is certainly more effective in ensuring that strict limits are set to the lucrative nature of such activities. In those circumstances, in conferring exclusive rights on a single public body, the provisions of the Finnish legislation on the operation of slot machines do not appear to be disproportionate, in so far as they affect freedom to provide services, to the objectives they pursue. Accordingly, the answer to be given to the national court must be that the Treaty provisions relating to freedom to provide services do not preclude national legislation such as the Finnish legislation which grants to a single public body exclusive rights to Page 19 of 24

20 operate slot machines, in view of the public interest objectives which justify it ( 41 to 43). Case 3 CJEU, Liga Portuguesa, 8 September 2009 (C-42/07) In that connection, it must be acknowledged that the grant of exclusive rights to operate games of chance via the internet to a single operator, such as Santa Casa, which is subject to strict control by the public authorities, may, in circumstances such as those in the main proceedings, confine the operation of gambling within controlled channels and be regarded as appropriate for the purpose of protecting consumers against fraud on the part of operators ( 67). In the absence of Community harmonization, a Member State is entitled to take the view that the mere fact that an operator such as Bwin lawfully offers gambling services via the internet in another Member State, in which it is established and where it is in principle already subject to statutory conditions and controls on the part of the competent authorities in that State, cannot be regarded as amounting to a sufficient assurance that national consumers will be protected against the risks of fraud and crime, in the light of the difficulties liable to be encountered in such a context by the authorities of the Member State of establishment in assessing the professional qualities and integrity of operators ( 69). Case 4 CJEU, Markus Stoss, 8 September 2010 (Joined Cases C-316/07, C- 358/07 to C-360/07, C-409/07 and C-410/07) Having regard to the above, it must be acknowledged that the public authorities of a Member State may be entitled to take the view, within the margin of discretion which they have in that respect, that granting exclusive rights to a public body whose management is subject to direct State supervision or to a private operator over whose activities the public authorities are able to exercise tight control is likely to enable them to tackle the risks connected with the gambling sector and pursue the legitimate objective of preventing incitement to squander money on gambling and combating addiction to gambling more effectively than would be the case with a system authorizing the business of operators which would be permitted to carry on their business in the context of a non-exclusive legislative framework (see, to that effect, Läärä and Others, paragraphs 40 to 42; Liga Portuguesa de Futebol Profissional and Bwin International, paragraphs 66 and 67; and Case C-203/08 Sporting Exchange[2010] ECR I-0000, paragraph 59). The said authorities may indeed legitimately consider that the fact that, in their capacity as controller of the body holding the monopoly, they will have additional means of influencing the latter s conduct outside the statutory regulating and surveillance mechanisms is likely to secure for them a better command over the supply of games of chance and better guarantees that implementation of their policy will be effective than in the case where those activities are carried on by private operators in a situation of competition, even if the latter are subject to a system of authorization and a regime of supervision and penalties ( 81 and 82). Page 20 of 24

21 In that respect, it should however be noted that, having regard to the discretion, referred to in paragraph 76 of this judgment, which Member States have in determining, according to their own scale of values, the level of protection which they intend to ensure and the requirements which that protection entails, the Cour had regularly held that assessment of the proportionality of the system of protection established by a Member State cannot, in particular, be influenced by the fact that another Member State has chosen a different system of protection (see to that effect, in particular, Liga Portuguesa de Futebol Profissional and Bwin International, paragraph 58). Having regard to that margin of discretion and the absence of any Community harmonization in the matter, a duty mutually to recognize authorizations issued by the various Member States cannot exist having regard to the current state of EU law. It follows in particular that each Member State retains the right to require any operator wishing to offer games of chance to consumers in its territory to hold an authorization issued by its competent authorities, without the fact that a particular operator already holds an authorization issued in another Member State being capable of constituting an obstacle ( 111 to 113). Case 5 CJEU, Carmen Media, 8 September 2010 (C-46/08) It should be noted that, in the same way, the characteristics specific to the offer of games of chance by the internet may prove to be a source of risks of a different kind and a greater order in the area of consumer protection, particularly in relation to young persons and those with a propensity for gambling or likely to develop such a propensity, in comparison with traditional markets for such games. Apart from the lack of direct contact between the consumer and the operator, previously referred to, the particular ease and the permanence of access to games offered over the internet and the potentially high volume and frequency of such an international offer, in an environment which is moreover characterized by isolation of the player, anonymity and an absence of social control, constitute so many factors likely to foster the development of gambling addiction and the related squandering of money, and thus likely to increase the negative social and moral consequences attaching thereto, as underlined by consistent case-law ( 103). Case 6 CJEU, Zeturf, 30 June 2011 (C-212/08) It is apparent from the case-law of the Court, moreover, that the internet constitutes a simple channel through which games of chance may be offered (Case C-46/08 Carmen Media Group [2010] ECR I-0000, paragraph 101) ( 75). Case 7- CJEU, Zenatti, 21 October 1999 (C-67/98) As the Court pointed out in paragraph 37 of its judgment of 21 September 1999 in Case C-124/97 Läärä and Others [1999] ECR I-0000 in relation to slot machines, the fact that the games in issue are not totally prohibited is not enough to show that the national legislation is not in reality intended to achieve the public-interest objectives at which it is purportedly aimed, which must be considered as a whole. Limited authorization of gambling on the basis of special or exclusive rights granted or Page 21 of 24

22 assigned to certain bodies, which has the advantage of confining the desire to gamble and the exploitation of gambling within controlled channels, of preventing the risk of fraud or crime in the context of such exploitation, and of using the resulting profits for public-interest purposes, likewise falls within the ambit of those objectives ( 35). Case 8 CJEU, Placanica, 6 March 2007 (Joined cases C-338/04, C-359/04 and C-360/04) Indeed it is the second type of objective, namely that of preventing the use of betting and gambling activities for criminal or fraudulent purposes by channelling them into controllable systems, that is identified, both by the Corte suprema di cassazione and by the Italian Government in its observations before the Court, as the true goal of the Italian legislation at issue in the main proceedings. Viewed from that perspective, it is possible that a policy of controlled expansion in the betting and gambling sector may be entirely consistent with the objective of drawing players away from clandestine betting and gambling and, as such, activities which are prohibited to activities which are authorized and regulated. As the Belgian and French Governments, in particular, have pointed out, in order to achieve that objective, authorized operators must represent a reliable, but at the same time attractive, alternative to a prohibited activity. This may as such necessitate the offer of an extensive range of games, advertising on a certain scale and the use of new distribution techniques ( 55). Case 9 CJEU, Sjöberg, 8 July 2010 (Joined cases C-447/08 and C-448/08) The answer to the first question is therefore that Article 49 EC must be interpreted as precluding legislation of a Member State subjecting gambling to a system of exclusive rights, according to which the promotion of gambling organized in another Member State is subject to stricter penalties than the promotion of gambling operated on national territory without a license. It is for the referring court to ascertain whether that is true of the national legislation at issue in the main actions ( 57). Case 10 CJEU, HIT LARIX, 12 July 2012 (C-176/11) More specifically, in the area of advertising for games of chance, the Court has held that national legislation whose effect is to prohibit the promotion in a Member State of gambling organized legally in other Member States constitutes a restriction on the freedom to provide services (see, to this effect, Joined Cases C-447/08 and C-448/08 Sjöberg and Gerdin [2010] ECR I-6921, paragraphs 33 and 34) ( 17). It is clear from the Court s case-law that restrictions on gambling activities may be justified by overriding reasons in the public interest, such as consumer protection and the prevention of both fraud and incitement to squander money on gambling (see, to this effect, Case C-46/08 Carmen Media Group [2010] ECR I-8149, paragraph 55 and the case-law cited). However, the restrictions imposed by the Member States must satisfy the conditions laid down in the case-law of the Court as regards their proportionality, that is to say, be suitable for ensuring attainment of the objective pursued and not go beyond what is necessary in order to achieve that objective. It should also be recalled in this connection Page 22 of 24

23 that national legislation is appropriate for ensuring attainment of the objective relied on only if it genuinely reflects a concern to attain it in a consistent and systematic manner. In any event, the restrictions must be applied without discrimination (see, to this effect, Case C-42/07 Liga Portuguesa de Futebol Profissional and Bwin International [2009] ECR I-7633, paragraphs 59 to 61 and the case-law cited) ( 21 and 22). Since the Member States are free to set the objectives of their policy on games of chance and to define in detail the level of protection sought (see Liga Portuguesa de Futebol Profissional and Bwin International, paragraph 59 and the case-law cited), it must be held that legislation such as that at issue in the main proceedings does not go beyond what is necessary provided that it merely requires, in order for authorization to carry out advertising to be granted, that it be established that, in the other Member State, the applicable legislation ensures protection against the risks of gambling that is in essence of a level equivalent to that which it guarantees itself. The position would, however, be different, and the legislation would have to be regarded as disproportionate, if it required the rules in the other Member State to be identical or if it imposed rules not directly related to protection against the risks of gambling ( 31 and 32). Case 11 CJEU, Ladbrokes, 3 June 2010 (C-258/08) A measure which implements the national legislation at issue in the main proceedings, such as the injunction which the judge who heard the application for interim relief imposed on the Ladbrokes companies in order to block access to their internet site for persons residing in the Netherlands and to make it impossible for such persons to participate in telephone betting, is an indispensable element of the protection in respect of games of chance that is intended to be provided by the Netherlands within its own territory and cannot, therefore, be regarded as an additional restriction over and above that which arises directly from the provisions of the Wok. That implementing measure merely ensures the effectiveness of Netherlands legislation concerning games of chance. Without such a measure, the prohibition laid down by the Wok would be ineffective, since economic operators who are not licensed by the national authorities would be able to provide games of chance on the Netherlands market ( 43 and 44). The fact that an operator who offers games of chance via the internet does not pursue an active sales policy in the Member State concerned, particularly because he is not making use of advertising in that State, cannot be regarded as running counter to the considerations set out in the two preceding paragraphs. Those considerations are based solely on the effects of the mere accessibility of games of chance via the internet and not on the potentially different consequences of the active or passive provision of services by that operator ( 56). Case 12 CJEU, Dickinger, 15 September 2011 (C-347/09) Page 23 of 24

24 The answer to Question 4 is therefore that Article 49 EC must be interpreted as applying to services of games of chance marketed over the internet in the territory of a host Member State by an operator established in another Member State despite the fact that the operator: has set up certain computer support infrastructure, such as a server, in the host Member State and makes use of computer support services of a provider established in the host Member State in order to provide his services to consumers who are likewise established in that Member State ( 38). Case 13 EC, Duties for Online Gambling in the Danish Gambling Duties Act, 20 September 2011 (C(2011) 6499 final) The Commission considers that the notified Act provides for a tax advantage for online gambling operators granted through State resources. The measure is regarded as prima facie selective, since it differentiates between online gambling operators and land-based casinos operators who, in the light of the objective pursued by that regime, are in a comparable factual and legal situation. The Danish authorities have failed to demonstrate that the prima facie selectivity of the notified act is justified in the light of the logic of the tax system. Hence, the notified Act is regarded as a State aid within the meaning of Article 107(1) TFEU. The Commission, however, considers that the aid fulfils the conditions to be regarded as compatible with the internal market pursuant to Article 107(3)(c) TFEU ( 144 and 145). Page 24 of 24