Steven De Schrijver from Astrea Advocaten discusses the changes to the Belgian gambling law, its constitutionality and effect on online licensing.
On 1 January 2011 the amended Belgian gambling legislation has entered into force. One of the major modifications is that this legislation contains an explicit regulation for online games of chance and wagers. The Belgian legislature has set up a closed licensing system, which implies that offering online games of chance and wagers requires an online licence (licences A+, B+ or F1+). The number of available online licences is limited to respectively nine A+ licences (for casinos), 180 B+ licences (for gaming arcades) and 34 F1+ licences (for wagers). In addition, an online licence requires a mandatory physical connection to the Belgian territory: only those operators licenced to operate in the real world (and holding a principal licence A, B or F1) can obtain a licence to offer the same games of chance and wagers in the online world (additional online licence A+, B+ or F1+). The Belgian gambling legislation thus introduces a parallelism between the offline and the online licences.
The amended Belgian gambling legislation contains a very broad prohibition clause. Not only is it forbidden to “operate in any place, in any form and in any direct or indirect manner, games of chance or gambling establishments without a licence”, but also “participating” in illegal (ie, offered without a licence) games of chance, “facilitating the operation” of illegal games of chance, “advertising”’ for illegal games of chance or “recruiting” for illegal games of chance is forbidden. Moreover, all these acts are punishable with criminal sanctions. According to the legislative proposal the act of ‘facilitating the operation’ of illegal games of chance includes providing online access to those games and carrying out financial transactions without which it would not be possible to participate in those games.
As a consequence, the Belgian online gambling legislation has far-reaching consequences not only for those operators offering games of chance and wagers, but also for players, advertisers, internet service providers, financial institutions and whoever may be considered to ‘facilitate the operation’ of an illegal game of chance.
For the purpose of this article we will not examine in detail the consequences of the amended Belgian gambling legislation, but will limit ourselves to pointing out two recent developments: the recent entry into force of two executive measures completing the regulatory framework applicable to online games of chance and a recent judgment of the Belgian Constitutional Court concerning the compatibility of several provisions of the online gambling legislation with EU law.
As the amended Belgian gambling legislation only constitutes a framework legislation, the Belgian government had to complete the gambling legislation with measures of an executive nature (“Royal decrees”). On 1 September 2011, the regulatory framework applicable to online games of chance has been completed by the entry into force of two Royal decrees. The first Royal decree lays down the form of the supplementary licence and how application for an additional licence must be submitted and verified, while the second Royal decree enumerates the quality requirements to be met by the applicant for an additional licence.
The first Royal decree imposes the applicant to enclose with its application a plan containing the name of the website, the structure of the website, the place where the website will be administered, the points of contact and the responsible party for the administration of the website. Applications will be treated within a period of six months starting from the application. The second Royal decree contains obligations with regard to the applicant’s creditworthiness, the security of payment transactions between the operator and the players, the operator’s policy with regard to the accessibility of games of chance for socially vulnerable groups, a complaint procedure, advertisement policy and fiscal obligations. In addition, the Royal decree states that the applicant is responsible for a permanent data connection between the website and the Gaming Commission (ie, the administrative authority responsible for issuing licences and controlling the application of the gambling legislation).
With the entry into force of these Royal decrees, applications for an online licence A+, B+ or F1+ can be lodged. However, the regulatory framework applicable to online games of chance is not yet complete. The framework legislation imposes several other conditions that should be detailed in Royal decrees. Those include the conditions applicable to offering games of chance (including the registration and the identification of players, age control, the games of chance offered, the payment methods, etc.), the rules pertaining to the supervision and control of the offered games of chance, the games of chance that can be offered and further rules with regard to information for players concerning the legality of online games of chance. As long as those conditions are not fully detailed in Royal decrees, the regulatory framework applicable to online games of chance remains incomplete. This further increases the legal uncertainty in a domain that already yields much contestation.
CASE LAW OF THE BELGIAN CONSTITUTIONAL COURT
In 2010 Telebet, Betfair International and the Remote Gambling Association initiated a case before the Belgian Constitutional Court in order to contest the constitutionality of several provisions of the online gambling legislation. One of the arguments invoked was that the online gambling legislation violated the freedom to provide services, as protected by Article 56 of the Treaty on the Functioning of the European Union (TFEU). In its judgment of 14 July 2011, the Belgian Constitutional Court has dismissed the arguments set forth by the requesting parties and held that the online gambling legislation does not violate the freedom to provide services.
In this article we cannot examine the entire reasoning of the Constitutional Court in detail, but we will limit ourselves to draw attention to three specific points in the court’s reasoning and comment briefly upon them.
First of all, the Constitutional Court confirms that two conditions of the Belgian online gambling legislation restrict the freedom to provide services. Indeed, the Constitutional Court held that since A, B or F1 licence holders must dispose of a games of chance institution established in Belgium or organise wavers in Belgium, the condition to hold an A, B or F1 licence as a condition to request for an online licence A+, B+ or F1+ violates the freedom to provide services: it prevents operators established in the European Union from offering online games of chance in Belgium when they do not hold an A, B or F1 licence. Moreover, the Court was of the opinion that requirement that the servers where the data are stored and through which the website is administrated have to be located in a permanent establishment in Belgium prevents the A+, B+ or F1+ license holders to use a server established in another EU Member State.
Second, the Constitutional Court held that those restrictions on the freedom to provide services, as set out in the previous paragraph, are justified in light of the case law of the Court of Justice of the European Union. Regarding the parallelism between offline and online licences, the court observed that it is not forbidden for a foreign undertaking to hold an offline licence A, B or F1 through an intermediary established in Belgium. Within this framework, the Constitutional Court quotes Secretary of State Devlies, according to whom ‘offline licences, and in particular licences A, B and F1, are available in a non-discriminatory way for undertakings established in other EU Member States, regardless of their establishment’.
We believe this quote merits closer scrutiny, because the acceptance by the Constitutional Court of the non-discriminatory nature of the requirement to hold an offline licence in order to obtain an online licence has an important consequence: while discriminatory restrictions of the freedom to provide services can only be justified on grounds that are explicitly enumerated in the TFEU, in other words, public policy, public security and public health, non-discriminatory restrictions can also be justified by a broader category of grounds, namely reasons of overriding general interest. Since the Constitutional Court accepted the non-discriminatory nature of the requirement to hold an offline licence A, B or F1 as a condition to obtain an online A+, B+ or F1+ licence, it could consider as grounds for justification not only the explicitly enumerated grounds public policy, public security or public health, but also those grounds that the Court of Justice has recognised as reasons of overriding general interest. The latter include objectives of consumer protection, the prevention of both fraud and incitement to squander money on gambling, and the general need to preserve social order.
It is interesting to contrast these Constitutional Court’s reasoning with the recent judgment of the Court of Justice in Engelmann (Case C-64/08), a case concerning the Austrian gambling legislation. Austrian legislation requires that holders of concessions to operate gaming establishments have their seat in Austria. The question before the Court of Justice was whether such a requirement was prohibited by the freedom of establishment, as protected by Article 43 EC (now: Article 49 TFEU). The Court of Justice held that a seat requirement restricts the freedom of establishment “as it discriminates against companies which have their seat in another Member State and prevents those companies from operating gaming establishment in Austria by way of an agency, branch or subsidiary” (point 32 – we underline). In addition, the Court of Justice reiterated in Engelmann that a discriminatory restriction is compatible with Union law “only if it is covered by an express derogating provision, … namely public policy, public security or public health” (point 34).
The question is then whether the Constitutional Court could consider that the parallelism between offline and online licences is a non-discriminatory restriction. We do not think so. Again, recent case law of the Court of Justice suggests that such a requirement is discriminatory in nature. In Commission v. Germany (Case C-546/07), the Court of Justice has clearly stated that “the requirement that an undertaking create a permanent establishment or branch in the Member State in which the services are provided runs directly counter to the freedom to provide services since it renders impossible the provision of services, in that Member State, by undertaking established in other Member States”. And, the Court of Justice added, such a requirement “creates direct discrimination, contrary to Article 49 EC, against service providers established in Member States” (point 40 – we underline).
On this basis we believe that the Constitutional Court should have judged that the parallelism between the offline and the online licences is a discriminatory restriction of the freedom to provide services that can only be justified by reasons related to public policy, public security or public health, and not by any reasons of overriding general interest. The Constitutional Court has not followed this path. In the light of the recent and clear case law, the Constitutional Court should at least have indicated the reasons to set aside that case law.
Third, the Constitutional Court referred to the parliamentary proceedings according to which the presence of servers on the Belgian territory is necessary to enable an immediate control by the Gaming Commission and the police. Moreover, still according to the parliamentary proceedings quoted by the Constitutional Court, a control at a distance through the operating system could not guarantee that findings are true and complete. Without any examination, the Constitutional Court has accepted this reasoning as a given and concludes that the condition that the servers must be established on Belgian territory is an appropriate and necessary measure in the light of the objectives pursued by the Belgian legislature.
This reasoning of the Constitutional Court pertains in fact to nothing more than rubber-stamping the Belgian legislature’s reasoning. In our view the Constitutional Court should have been more critical. In Engelmann, Austria argued in a similar way that a seat requirement pursued the objective to effective control of gaming operators with a view to preventing those activities from being carried out for criminal or fraudulent purposes. However, in that case the Court of Justice held that “the categorical exclusion of operators whose seat is in another Member State appears disproportionate, as it goes beyond what is necessary to combat crime”, since there are “various measures available to monitor the activities and accounts of such operators” (point 37). The Court of Justice has gone so far to explicitly enumerate some of those measures: the possibility of requiring separate accounts audited by an external accountant to be kept for each gaming establishment of the same operator, the possibility of being systematically informed of the decisions adopted by the organs of the concession holders and the possibility of gathering information concerning their managers and principal shareholders. Concerning the sanctions, the Court of Justice underlined that “any undertaking established in a Member State can be supervised and have sanctions imposed on it, regardless of the place of residence of its managers”.
With the Belgian legislation applicable to online games of chance and wagers, the Belgian legislature has opted to regulate online games of chance and wagers, instead of forbidding online games of chance and wagers. With this short contribution we wanted to demonstrate that the regulatory framework shows at least two major deficiencies: first of all, it is incomplete and, secondly, notwithstanding the recent judgment of the Belgian Constitutional Court, it is questionable whether it is compatible with EU law.