Europe Grapples with Online Gambling Laws

Like many jurisdictions around the world the European Union has found itself having to grapple with the question of how to deal with online gambling from a legal standpoint. The effectiveness of the internet as a distribution mechanism for online casinos, poker rooms and sport betting services has lead to exponential growth in the industry over the last decade to the point where a specific legislative response has been required.

Most countries around the world have struggled with to put in place effective legal measures to either ban or regulated online gambling. Prohibition has proved practically very difficult to enforce – as the Australian experiment proved, while effective regulation is not without its challenges either. But the European Union has had to deal with the added complexity of applying overarching EU legal principles to a group of member states pushing different cultural and political agendas and wishing to take a legal approach of their very own, often inconsistent with EU law.

The EU law relevant here has its roots in the European Communities Treaty ("the Treaty"). Specifically, Article 49 of the Treaty provides that "restrictions on freedom to provide services within the Community shall be prohibited...". This prohibition is often referred to as one of the Four Freedoms Principles - a central tenet of the Treaty designed to foster free trade in services between EU Member States ("EU members") and discourage protectionism.

In simple terms, the law renders it illegal for an EU member to enact laws banning services provided by foreign (ie from another EU member) corporations to its residents where that same service is able to be provided by local corporations. EU members are well within their rights to ban the provision of any service to its residents on any grounds, so long as the ban applies equally to local service providers.

How is this relevant to online gambling? Well the European Commission, the EU executive arm charged with enforcement of the Treaty, and the European Court of Justice have made it clear on numerous occasions that the freedom to provide services principle applies to online gambling as it does to other services. As a result, where an EU member has a locally sanctioned online gambling operation, like a monopoly lottery operation selling tickets online, then it cannot ban similar services from being offered to its residents by operators based in other EU countries.

A number of EU member have, much to their chagrin, incurred the wrath of the European Commission for passing laws banning online gambling in contravention of EU law. Both France and Germany more recently have found themselves the subject of European Commission infringement proceedings for passing laws deemed ‘illegal’ pursuant to EU law. And of course the other problem with passing laws inconsistent with the Treaty, is that they are difficult to effectively enforce against operators who are easily able to legally challenge any prosecutions brought against them. A number of online gambling operators have recently challenged online gambling bans in European countries on the basis that the bans are illegal.

France for their part have responded to the European Commission infringement proceedings by undertaking to scrap their existing online gambling ban and replace it with a regulatory regime to come into effect in early 2010. Under the new regime the French market will be opened up to any foreign online gambling operator able to secure a license. A number of other EU member states similarly being forced to rethink their prohibitive stance taken toward online gambling . No less than 10 EU members have been the subject of infringement proceedings in the last 12 months.

And not content with stamping out protectionist practices within the EU, the European Commission has even cast a judgmental gaze across the Atlantic at the US Government’s legal approach to online gambling, with a recent EC report concluding US laws are in breach of international free trade obligations, and potentially actionable before the World Trade Organization.

Never a dull moment in the world of online gambling.