It has been the accepted driving principle behind successful gaming regulation that government could exercise social control by determining the legality or illegality of what occurs within its geographic borders. A license or similar consent to conduct gaming is a thing of value to be sought after, protected and respected. It is the license to conduct gaming activity that provides the player with the assurance of a fair game and security for their wager. And it is within a regulated scheme that taxes are levied, money laundering deterred and corruption discouraged.
In recognizing the right of a government to control gaming activity, which is accepted in virtually every nation and state in the world today, there is recognition that the conduct of gaming is the exercise of a privilege subject to regulation. The environment in which modern, effective regulation evolved was one where geographic borders were defined and location meant not only a brick-and-mortar operation, but also the ability of the regulator to reach out and touch its licensees in a meaningful way, impacting law abiders while punishing wrongdoers. The enforcement of the law is the cornerstone of an effective regulated environment.
The only meaningful exception to geographically contained gaming, at least in the U.S., was sports wagering, which had its early “illegal” origins with the corner bookie and flourished with the advent of the telephone and other wire-based technologies. Even then there tended to be a bright line between what was illegal and what was legal. Governments could express themselves through permissive or restrictive legislation and, to the extent practical, enforce their laws.
The Myth of Online Privileged Activity
The first key to successful gaming regulation is an acceptance and respect for the laws and regulations of a sovereign. Online gaming presents a great challenge to the concept of consent of the governed, or regulated, operators and respect for laws. The key components that lead to the problem of meaningful regulation are the four main drivers of the activity. Technology, geography, economics and a dab of politics make for a combination that has seen not only the growth of a thriving black market, but also a strong trend among regulated entities to display a certain disrespect for expressions of government as to the legality of online gaming activity. By defining a territory as “gray,” an operator creates its own unilaterally declared shield against compliance with local law.
The lack of geographic borders married with technology is a problem for introducing “real” regulation. From its earliest days, online gaming regulation has been challenged by the inability of geographically constrained enforcement authorities to do anything about activity originating outside of defined sovereign borders. IP blocking and financial transaction restrictions are almost the only tools available to a regulator absent a system of mutual international respect for each others’ laws. We used to call that “full faith and credit,” but enter the Byzantine world of international politics, and the common goal of mutual respect for each other’s regulation of online gaming is a very low priority.
Legal Challenge and Sanctuary
The landscape that has best represented the clash of expressed intent to regulate, or prohibit, versus the economic driver to overcome the notion of “privileged online gaming” has been within the European Union, its administrative bodies and courts.
In the case of the EU, the concept of the free movement of goods and services across sovereign borders has served as the clarion call of some elements of the online gaming industry in challenging almost any effort at online regulation. Whether it be Germany, Portugal, Spain, the Netherlands, France, Austria or Italy, the effort of any of the sovereigns to define their online gaming sphere has been met with challenge by at least portions of the online gaming sector.
EU challenges to online gaming control have questioned the role of exclusive grants to monopolies,1 advertising restrictions,2 and limited or prioritized licenses,3 among other complaints.
Against this background of a combination of well-grounded as well as predominately delay-oriented legal challenges, it has been difficult for EU sovereigns to find their way to a workable regulated environment. If online taxes in a licensed environment are viewed as too high, some online operators choose to offer unlicensed activity. If ring fencing limits the liquidity in the poker world necessary for a solid economic result, the answer for some operators is to reject such constraints and proceed as a rogue online operator.
Efforts to enforce laws or regulations against violators are stymied by the sanctuary of location in jurisdictions that cannot or will not assist sister jurisdictions in enforcing their laws. It is in this instance that geography triumphs over the enforcement of regulations. And it is in the instance of an environment of non-enforcement that the many compliant operators, or those who would choose compliant operation, are victimized by the indifference and lack of cooperation of the international community.
Can We Get There?
The answer to the question of meaningful online gaming regulation lies in no small part on re-establishing the concept of privileged activity that can be conducted in a harmonized regulatory environment. Those online operators who respect, or are willing to respect, the legitimate regulated schemes of the jurisdictions in which they operate lawfully are entitled to the protection and certainty that a reliable regulated environment provides.
The fact that geographic borders have been made technologically obsolete does not mean that respect for sovereign geographic space needs to be surrendered. The drivers for regulation that made the brick-and-mortar environment a successful experience for players and their regulating authorities are the very same drivers that should dictate why and how online gaming gets the stability it deserves. Sovereigns must agree to give full faith and credit to the regulatory schemes of fellow sovereign nations. Respect for others’ laws means the willingness to assist enforcement, at least from a “cease and desist” perspective. Eliminate sanctuary locales that are used to defeat legitimate regulation, and online gaming will take a giant leap forward.
There are no bona fide losers in a well-regulated online gaming environment. Players have the security of fair play with protected wagers and deposits. Online operators know that an investment made is one upon which a return can be realized, based on a quality gaming experience. Finally, a nation can keep faith with its own citizens’ social contract by prohibiting, licensing or allowing unrestricted online gaming, taxed or untaxed, as reflects the legitimate expressions of its own people. It may well be that the various political subdivisions of the United States, while late to the landscape of online gaming regulation, will, due to their tradition of regulation and respect between the states and federal government, be the catalyst that drives online regulation from fiction to fact.
Footnotes
1 ECJ Case C-409-06 Winner Wetten Gmbh v. Buergermeisterin der Stadt Bergheim September 2010 (Germany).
ECJ Case C-42/07 Portugueasa de Futebol Professional and Bwin International Limited v Departamento de Jogos de Santa Casa da Misericordia de Lisboa September 2009 (Portugal).
ECJ Case C-258/08 Sporting Exchange v. Minister van Justitie, and Ladbrokes Betting & Gaming, Ladbrokes International v. Stichting de Nationale Sporttotalisator 2009 (the Netherlands).
2 Bruges Commercial Court, Belgian State v. Unibet and The Belgian Football League March 2010 (Belgium).
ECJ Cases C-447/08 and C-448/08 Criminal proceedings against Otto Sjoberg and Anders Gerdin, July 2010 (Sweden).
3 ECJ Case C-64/08 Austria against Ernst Engelmann, Criminal Proceeding, September 2010 (Austria).
Richard Nathan is Special Counsel to the Denver law firm of Robinson Waters & O’Dorisio. A former State Attorney General in charge of the criminal division for Colorado, he has practiced gaming law for over 20 years, representing manufacturers, operators and individuals both in the United States and internationally. Nathan can be reached at rnathan[at]rwolaw.com.
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