Legal Corner: Applying the anti-circumvention theory to fight illegal operators
Many Lottery operators are challenged by the activities of operators which are operating illegally within their jurisdictions. During the EL Legal & Regulatory Affairs seminar, the “anti-circumvention” theory was developed as an important tool to fight against these illegal operators. Such illegal operators violate the prohibition existing in many jurisdictions to offer bets on lottery products (the so-called secondary lotteries).
The first argument they use is that EU law provides that a license in one EU jurisdiction entitles them to operate in all EU jurisdictions. This argument has already been rejected by the European Court.
The second argument they use is that the law in the jurisdiction where the consumer resides, is actually not in compliance with EU law and the case law of the European Court due to a lack of proportionality of the restrictions and/or inconsistency of the policy.
This argument is often only used for the purpose of circumventing the laws which apply to the jurisdiction where the consumer resides. The concept of “illegal gambling” was addressed in the Spanish Presidency Report of 11 May 2010: “Legal framework for gambling and betting in the Member States of the European Union”. In its conclusion, the Spanish Presidency Report states that illegal gambling may be defined as “gambling in which operators do not comply with the national law of the country where services are offered provided those national laws are in compliance with EU Treaty principles.”
The question of illegal gambling was addressed for the first time in 2014 at a “common” level in the Council of Europe Convention on the Manipulation of sport competitions. According to art 3,5 (a) “illegal sports betting” means any sports betting activity whose type or operator is not allowed under the applicable law of the jurisdiction where the consumer is located.
In the Italian Laezza case the European Court declared that the objective pursued by the Italian government, is justified “by the interest in ensuring the continuation of the lawful activity of collecting bets in order to curb the growth of parallel illegal activities”. In the Stanleybet judgment, the Court explains that if the gambling regime is found to be incompatible with EU law, it “does not necessarily lead to an obligation for the Member State concerned to liberalise the market in games of chance if it finds that such a liberalisation is incompatible with the level of consumer protection and the preservation of order in society which that Member State intends to uphold.” It adds that “Member States remain free to undertake reforms of existing monopolies in order to make them compatible with Treaty provisions, inter alia by making them subject to effective and strict controls by the public authorities”. In other words, Member States are and remain free to determine what constitutes “illegal gambling”, even if their gambling regime is found to be incompatible with EU law.
In the Carmen Media case, the Belgian and Austrian Governments raised for the first time the question as to whether Carmen Media may rely on EU rules on the freedom to provide services, given that the operator established itself in Gibraltar, and was encouraged in that respect by tax incentives, only in order to evade the stricter rules that would have been applicable to it if it had established itself in the territory of the Member State towards which its business is directed and wherein the consumer resides.
As the Court mentioned: ”It should also be remembered that the Court of Justice has previously held that the question of the applicability of Article 49 EC ( now article 56 TFEU) is distinct from that of whether a Member State may take measures to prevent a provider of services established in another Member State from circumventing its internal legislation”. While the circumvention theory could be used for tax purposes, it is equally possible to use it to address the illegal offer as such to counter the EU internal market discussion.
This issue, while raised, was not addressed in the Carmen Media case, but may become relevant again. The issue is whether an operator can (ab)use EU law to try to get access to a jurisdiction where the game he wants to offer will always be prohibited. The fact that he has a license for such game in another jurisdiction is not relevant. Neither is the discussion relevant whether the gaming policy of the jurisdiction he is targeting is or is not incompatible with EU law. Indeed, as the European Court said clearly, even if a gaming policy is found to be incompatible, it does not mean that such state must open its market to permit all games. Certain types of games can still be prohibited and offering such games from abroad with the sole objective of circumventing the applicable laws does not give such illegal operator the right to invoke EU law in its favor.
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