High stakes as betting industry gambles on law change

With some half a billion euro gambled online in Romania last year alone, the Romanian authorities are attempting to get the games industry regulated. But last week, the EC criticized Romania’s draft law, saying it discourages cross-border competition between providers of online gambling, and raises concerns that the Romanian Lottery could extend its monopoly over the online segment as well.

Dana Verdes

More than half a billion euro – this is how much Romanians gambled online last year alone, Ana-Maria Baciu, associate manager and gaming practice coordinator at NNDKP, told Business Review. The industry has boomed in the past few years and is enjoying bigger and bigger wins in Romania as well.

This is surprising, as Romania currently actively prohibits the provision of online gambling activities. The emergency government ordinance (EGO) 77/2009 makes the organization of gambling activities through the internet, intranet or other communication systems a criminal offence. The punishment for individuals is imprisonment for a period of one to five years or a fine, while

companies face a fine of about EUR 2,500-25,000 and the dissolution of the firm.

But the law does not preclude local punters from participating in online gambling provided by companies established in other European states. Cristian Radu, managing associate at Tuca Zbarcea & Asociatii, told BR that currently online games of chance are offered in Romania by organizers based in countries with permissive regulations such as Gibraltar, the Isle of Man and Malta. “In general, players prefer the online segment because the fiscal authorities cannot tax daily gains of more than RON 600 (approximately EUR 140),” said Radu.

In spite of all these interdictions, many gambling firms currently provide websites in the Romanian language, directly targeting local consumers.

Examples are www.sportingbet.ro, www.bet-at-home.com, www.gamebookers.com, www.bet365.com/ro and www.bwin.com/ro.

“Also, online gambling activities are openly advertised in Romania through different means of communication, from the television to the internet, outdoor and printed advertising. Despite this, to the best of our knowledge, the Romanian authorities have not pressed any charges, so far,” said Baciu.

EC responds to Romania draft law

Romanian policy-makers have made a first step in regulating this area of gambling. In June this year, the budget, finance and banking parliamentary commission proposed a series of regulations regarding the authorization and running of online gambling, to be adopted by the above mentioned law.

The Tuca Zbarcea & Asociatii managing associate says that one of the reasons for the initiative is the huge popularity of online gambling among Romanian consumers. “Evasion of regulation in this area deprives the budget of sources of revenue. The draft law was also sent to the European Commission (EC) for approval,” said Radu.

In an official answer sent to Romania last week, the EC says that the draft law for the EGO 77/2009 discourages cross-border competition between organizers of online gambling. One of the topics on which the EC has requested additional information concerns the status of the Romanian Lottery and the possibility that its monopoly on betting on the segment could expand online.

If the EC extends its investigation of the Romanian Lottery case, the Romanian government could abandon plans to regulate online gambling, having to choose between maintaining the privileged position of the Romanian Lottery and taxing the online sector, which has an annual value of online gaming of over EUR 500 million. In general, EU member states are entitled to establish state monopolies to combat social problems related to gambling, but they cannot act solely to protect state interests in obtaining benefits from gambling.

Romania is not the only European country dipping its toe into the water. Cristian Costea, partner at Bostina & Asociatii, told BR that for online gambling in particular most European countries have adopted or recently drawn up draft laws to allow the organization of online gambling. In fact there is a real boom in this area, with no fewer than eight European countries including Romania notifying the EC of their intention to amend national legislation in this field.

View from Brussels

At the beginning of last year, there was an EC initiative to regulate gambling by rules applicable to all EU member states.

“However, no agreement has been reached, as the regulation of gambling has been deemed to come under the jurisdiction of national law. The national regulation of gambling is influenced by the position of states on various public policy issues such as combating crime and money laundering, fraud, corruption, addiction prevention and the protection of minors, and consumer protection,” said Razvan Popa, counsel at Kinstellar.

Back in 2006, Commissioner McCreevy responded to a question on gambling posed by Arlene McCarthy, chair of the committee on the internal market and consumer protection, during the European Parliament’s plenary session in Strasbourg, stating that EU-wide harmonization of legislation regulating gambling at present was not likely, the NNDKP official told BR.

The Bostina & Asociatii partner said that in the short run the EC has proposed solidifying the cooperation between national authorities in the

member states on online gambling. “Last but not least, it should be noted that the EC has already prepared a green paper which will contain references to issues that may arise from gambling, figures relating to market volume, and issues related to cooperation in the field of the legal regulation of online gambling,” said Costea.

The lack of uniform regulations has led to a multitude of cases registered before the European Court of Justice and the opening of infringement procedures against countries such as Denmark, the Netherlands, Finland, Italy, Germany, Sweden and Hungary. The position of the European Court of Justice has not been uniform. Moreover, the European Parliament and the Council of Ministers have adopted a number of non-legislative initiatives in the past two years, touching on sensitive issues of taxation and state monopolies.

In principle, it is recognized that the legislative framework regulating the conduct of online gambling in the EU depends on the political climate. Member states with a permissive legal regime (such as Britain and Malta) reject legislation in this field, claiming that gambling is a service like any other, to which the rules on free movement of services should apply.

“The hidden reason for such a position is that by regulating and taxing online gambling in each of the states which it is operated, betting firms’ host states would lose an important source of income. Currently, the companies pay taxes only in they state where they are registered, although their services are consumed in other member states,” said the managing associate of Tuca Zbarcea & Asociatii.

As the online gambling sector with a cross-border dimension is growing, it is becoming a really significant stake.

In 2008, online gambling services accounted for annual revenues in excess of EUR 6.16 billion, 7.5 percent of the overall gambling market, a segment which is expected to double in size in five years.

Romanian regulations on online gambling at a glance

The Draft Law of the emergency government ordinance 77/2009 stipulates some significant changes and maintains some important requirements.

The organizer must be a Romanian legal entity and all technical support equipment for organizing and transmitting online gambling activities must be located in Romania.
The draft law provides for quite burdensome financial obligations for organizing online gambling activities, namely license fees of between EUR 50,000 and EUR 200,000, the authorization fees expressed as a percentage of the sums collected by the organizer, a security fund of EUR 1 million, and share capital requirements of about EUR 125,000 to EUR 250,000, all depending on the gambling activity.
The draft law prohibits individuals from participating in Romania in online gambling activities not authorized on Romanian territory, a criminal offence punishable with imprisonment for a period of six months to two years or a fine.
However, it is unclear whether online mutual betting will be permitted under the draft law and, if so, whether it will also be part of the legal monopoly established in favor of the National Lottery Company or will be accessible to any interested person.

Status of online gambling laws in EU states

There are countries where gambling activity is considered a state monopoly, reserved for public organizations, such as Sweden and Luxembourg (including the online segment).
In other countries, gambling offline and online is regulated and liberalized, such as Great Britain, Italy, France and Estonia.
At the opposite end is Germany which prohibits online gambling. Here, internet operators are required to block consumer access to German websites offering such services, and banks are forbidden to operate online gaming services for their customers.
In Germany’s case, the ban may be lifted and the market liberalized following recent decisions by the European Court of Justice which found that German law violates EU law, being a disguised form of protecting the interests of state monopolies in this field.
Finally, there are states where online gambling activity is not subject to regulations (similar to the situation in Romania), such as Greece.

SOURCE: Tuca Zbarcea si Asociatii

dana.verdes@business-review.ro

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