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SHaping the future of european gaming lawAUTUMN ISSUE 2013[]Binary OptionsA regulatory analysisIncludes: UpdATES on UK, France, Ireland and Norway.

[]Contents4 IMGL Officers7 Message from The President9 Editor’s Message10-12 Norwegian Jurisdiction profile14-16 Latest Developments inFrench Gaming Regulation18-20 The United Kingdom:Licensing and taxation ona point of consumption basis22-24 Irish Regulatory ReformGathers Pace30-31 IAGR Column: Regulator andIndustry Collaboration32-34 The Remote gamblingindustry as a potentialmarket for capital investorscover feature26-29Binary OptionsR Paul Davis offers a regulatory analysisCONTACTSInternational Masters of Gaming Law -www.gaminglawmasters.comEditorNick Nocton: njn@jgrlaw.co.ukDesigner: Kyle YoungProduction & Studio Manager:Craig Young, craig@igamingbusiness.comHead of iGaming Business:Alex Pratt, alex@igamingbusiness.comHead of Operations:Shona ODonnell, shona@igamingbusiness.comSalesIan Larcombe, ian@igamingbusiness.comPamela Hugill, pamela.hugill@igamingbusiness.comJake Lemer, jake.lemer@igamingbusiness.comSubscriptionsAccount Manager:Jaspal Bambhra, jaspal@igamingbusiness.comPrint: Printed in the UK by Pensord Press, www.pensord.co.ukPublished by: iGaming Business Ltd, St. Mark’s House,Shepherdess Walk, London N1 7LH, UK T: +44 (0)20 79543515 F: +44 (0)20 7954 3511 www.igamingbusiness.com.European Gaming Lawyer is published bi-annually© International Masters of Gaming Law 2013. All rightsreserved. No part of this publication may be reproduced ortransmitted in any form or by any means, or stored in anyretrieval system of any nature without prior written permission,except for permitted fair dealing under the Copyright Designsand Patents Act 1988. Application for permission for use ofcopyright material including permission to reproduce extractsin other published works shall be made to the publishers.Full acknowledgement of author, publisher and source mustbe given.The paper used within this publication has been sourced froma Chain-of-Custody certified manufacturer, operating withininternational environmental standards such as ISO14001 andEMAS. This is to ensure sustainable sourcing ofthe raw materials, sustainable production andto minimise our carbon footprint.European Gaming Lawyer | Autumn Issue | 2013 | 3

[ IMGL Officers ]J. Kelly DuncanJoerg HofmannJamie NettletonMichael E. ZatezaloPresidentJones Walker LLPNew Orleans, Louisiana, USAVice PresidentMelchers Law FirmHeidelberg, GermanySecretaryAddisons Lawyers,Sydney, AustraliaTreasurerKegler, Brown, Hill & Ritter Co.L.P.A.Columbus, Ohio, USATel: +1 504 582 8218kduncan@joneswalker.comT:+49 6221 1850 0j.hofmann@melchers-law.comT:+612 8915 1030jamie.nettleton@addisonslawyers.com.auT:+1 614 462 5400mzatezalo@keglerbrown.comDouglas Florence Sr.Keith C. MillerTony ColesMelissa TriplettVice President,Affiliate MembersAvigilonLas Vegas, Nevada, USAVice President,Affiliated EducatorsDrake University Law SchoolDes Moines, Iowa, USAImmediate Past PresidentJeffrey Green RussellLimited,London, UKExecutive DirectorInternational MastersOf Gaming Law,Boulder, Colorado, USAT:+1 702 683 6016douglas.florence@avigilon.comT:+1 515 271 2071keith.miller@drake.eduT:+44 20 7339 7000arc@jgrlaw.co.ukT:+1 303 449 9955imgldirector@aol.com4 | European Gaming Lawyer | Autumn Issue | 2013

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[ ]President’s MessageJ. Kelly Duncan, kduncan@joneswalker.comPresident J. Kelly Duncan,sAs my second and final year asPresident of the International Mastersof Gaming Law winds down, I amvery encouraged by the progressthat I see in the relationship betweengaming regulators and the industry that they regulate.The invitation by the International Associationof Gaming Regulators to the IMGL to co-locatetheir conferences in Oslo was enthusiasticallyreceived by the members of our organization. Theco-location of these preeminent organizations’conferences presents our respective members withan unprecedented opportunity not only to meetand discuss in both professional and social settingssignificant issues facing the ever changing globalgaming industry, but to seek actual agreement relativeto long-discussed regulatory reforms. As such, the2013 IAGR Conference and the 2013 IMGL AutumnConference in Oslo are a reflection of the mutualinterest of regulators and the regulated in not onlyimproving their communication, but also identifyingand implementing investigation, enforcement,and compliance practices that are reasonably andrationally designed to ensure the integrity of thegaming industry.Several of the sessions at the IMGL AutumnConference will specifically focus on regulatoryreform. A forum on Cross-Border Regulatory Reformrelative to online gaming will analyze regulatorymodels that should be considered in this fastgrowing area of the gaming industry that demandsa harmonious regulatory regime designed to ensurecross-border reciprocity of laws and standards. Apanel on Internet Gaming in Developing Markets willaddress regulatory approaches in established onlinegaming jurisdictions to nascent ones in, for example,the United States, and a panel on the EU Action Planwill address the challenges in the EU in effectively andreasonably regulating online gaming. Thesespeakers from around the world are uniquelyqualified to identify both the challenges for newInternet gaming jurisdictions and lessons learnedfrom established ones. I am equally excited aboutour panel on Regulatory Reform & Implementation.Moderated by former Illinois gaming regulatorand gaming company general counsel Donna More,participants on this panel will include such notedgaming regulators as Susan Hensel, who is thecurrent President of IAGR; the UK’s Jenny Williams,Commissioner & Chief Executive, GamblingCommission; and Andre Wilsenach, ExecutiveDirector, Alderney Gambling Control Commission,as well as industry Chief Compliance Officer FrankDonaghue of Penn National Gaming, and formerIowa and Mississippi gaming regulator, SeanMcGuinness. This panel will address some of theregulatory reforms discussed during the 2011 IMGLConference (a link to which appears on the IMGLwebsite) and, more importantly, the prospects forimplementation of same.Panels reflecting the evolution of the gamingindustry worldwide will focus on Mobile Gaming,Social Gaming, Binary Options, and trends in theliberalization of gaming laws in Europe and theUnited States, while others will address developmentsin more traditional forms of gaming, including SportsBetting and Lotteries. Finally, with U.S. jurisdictionscoming online, poker liquidity - whether achieved bystate-to-state compacts or sharing of liquidity withestablished European jurisdictions - will be examinedwith a view to jurisdictions, such as Canada, thatalready have cross border compacts in operation.Based on the foregoing, I cannot think of abetter final Autumn Conference during my tenureas IMGL President. I look forward to seeing manyof you in Oslo.European Gaming Lawyer | Autumn Issue | 2013 | 7

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[ ]Editor’s MessageWelcome to the Autumn 2013edition of European GamingLawyer, one of a stablepublications produced by theInternational Masters of GamingLaw (IMGL). European Gaming Lawyer focuses onEuropean and Global legal and regulatory issues ofinterest to practitioners, executives and academicswithin the gaming sector.This is the first edition to be published for IMGLby iGaming Business and to be distributed togetherwith iGaming Business magazine. IMGL is excitedto work with iGaming Business, as we believe thatthis partnership will help us to further improve thequality, reach and impact of the publication.It is our aim to bring to readers topical andinsightful content from contributors who are at theforefront of gaming law and regulatory matters andhopefully to stimulate debate and discussion on keyissues facing the gambling industry. In this editionwe have a number of contributions updating readerson important developments in various jurisdictionsincluding the Republic of Ireland, France and theUnited Kingdom as well as a comprehensivereview of the position in Norway. We also have athought-provoking article on the regulation ofbinary options, a product showing considerablegrowth in recent years but in relation to whichregulatory inconsistency prevails, and an articlefocussing on opportunities for capital investment inthe remote gambling sector.We also have our regular contribution from thePresident of the International Association of GamingRegulators, an organisation with which IMGL enjoysvery close ties, and I would like to thank Susan Henselfor her support in this regard and to congratulateher on her achievements in that post, which she willshortly hand over to her successor.I am grateful to all of our authors for taking thetime to prepare their contributions and I look forwardto receiving further proposals for stimulating articlesin future editions.Best wishesNick Noctonnjn@jgrlaw.co.ukEditorEuropean Gaming Lawyer | Autumn Issue | 2013 | 9

Norwegian Gaming regulations –Jurisdiction profileJoakim Marstrander & daniel Henriksen.Joakim MarstranderDaniel HenriksenintroductionDuring recent years the landscape of the Norwegiangambling market has changed dramatically due to thevast number of internet based gambling companiestargeting the Norwegian market. Although this hasbeen a welcome development for Norwegian gamblersand players, the Norwegian authorities has anotherpoint of view, seeing it as an unwelcome, challengeto the state owned gaming monopolies. As a resultthey have to their furthest extent tried to stop thisinternet based gambling invasion, through the variousprovisions of the Norwegian gaming laws, with veryvaried results, in spite of relative recently implementedfinancial transfer bans and marketing prohibitions.Norwegian gaming regulationsThe basic premise under Norwegian law is thatall forms of gaming are prohibited, except wherepermission to operate such activities is grantedunder the authority of a legal statue. According toarticle 298 and 299 of The Norwegian Penalty Code,it is a punishable offence to operate activities inthe form of a “game of chance” not sanctioned byspecial legislation. “Games of chance” includes alltypes of betting and other types of gaming in whichthe element of winning is the key. Hence, poker isreckoned to be a “game of chance” by the authorities,however this has recently been challenged by a verdictin the High Court stating that “Texas Hold’em” is tobe considered as a game of skill.Despite the abovementioned general prohibition,there have long been statutory exceptions. These arecurrently laid down in three acts, which in detailedterms allow certain operators to be granted permits.These are (i) The 1927 Totalisator Act (horse racebetting), (ii) The 1992 Gaming Act and (iii) The 1995Lottery Act.These three acts so forth constitute a coherentand exhaustive regulation of all forms of lottery andmoney gaming legally operated in Norway.In practice, it is The 1927 Totalistator Act and The1992 Gaming Act that by far have been the mostimportant, regulating all forms of gamingthrough exclusive rights arrangements. Thesystem developed under the Totalisator Act ineffect gives Norsk Rikstoto Foundation an exclusiveright to arrange horse race betting and The GamingAct establishes the state owned gaming company,Norsk Tipping AS, granting to it exclusive rights toother sports based betting and certain numbergames (Lotto).In practice this means that all traditionally largegaming activities are subject to the exclusive rightssystem operated by either Norsk Tipping AS or theNorsk Rikstoto Foundation.The Lottery Act of 1995 is in principle thegeneral act, comprising all other forms of lotteryand gaming. This follows from the wide definitionof “lotteries” given in Article 1(a) of the Act as all“activity in which a participant may for a stakeacquire a prize as a result of a draw, guesswork orother procedures which wholly or in part producesa random outcome”. The definition of lottery isevidently wide and embraces almost all games thatare traditionally offered at traditional casinos. Alsogames such as bingo, horserace betting, sports bettingetc. are considered to be lotteries and thereforeunder the regulation of the Norwegian GamingActs. Only smaller and less important forms ofgaming and lottery may be granted a license underthe Lottery Act, and only when the profit is donatedto humanitarian and socially beneficial non-profitorganizations.It is prohibited and punishable to operate gamblingservices in Norway contrary to the abovementionedgambling regime. A secondary law (Forskrift omforbud mot spillbetalingsformidling, 2010) prohibitsbanks to transfer money to foreign gaming companies.However, it’s important to emphasize that it is notillegal to gamble in Norway. Nor is the governmentpracticing any IP blocking towards foreign gamingproviders. It is therefore fair to say that there are richpossibilities for foreign gaming providers to offer theirservices to Norwegian customers.10 | European Gaming Lawyer | Autumn Issue | 2013

Marketing ProhibitionNot only the operating, but also themarketing of unlicensed gaming isprohibited according to the NorwegianGaming Acts.As a result, marketing of games andlotteries on the Internet is prohibited,with the exceptions of the games offeredby Norsk Tipping AS and Norsk RikstotoFoundation. In principle, the prohibitioncovers all forms of marketing that istargeted against Norwegian consumers andencourages gaming.However, the general marketingprohibition for unlicensed gaming operatorsdoes not appear to hinder internationalgaming providers from marketing theirproducts through marketing channels basedoutside of Norway, e.g. based on the EUbroadcasting directive 89/552/EEV whichapplies for Norway.As a result, international gamingcompanies often use TV-channels, websitesand servers based outside Norway tomarket and to offer their services. Thismarketing, although frowned upon by theNorwegian gaming authorities, is not illegalas a long as the marketing is not directlytargeted against the Norwegian players.Conclusive in this matter is whether or notthe games offered are primarily designatedfor the Norwegian market.Financial Transaction blockingAs a result of the expanding gamblingpossibilities offered to the Norwegianplayers, the Norwegian authorities passeda secondary law in 2010, prohibiting banksfrom transferring funds to unlicensedgambling operators.The financial transaction block is allembracing, and includes all forms ofpayment methods offered in Norway. As aresult, all transfers of funds from Norway toa user location with the Merchant CategoryCode (MCC) 7995 (gambling activities) willbe blocked by the service provider.Transaction blocking is therefore notdependent on whether or not the institutionis based in Norway or operates from theEuropean Economic Area, but how thetransfer is categorized under the MCCsystem.If the transfer is marked as a 7995transfer it will automatically be blocked as aresult of the prohibition.Having said that, credit transfers servicedthrough online banking transfers or bankgiro, will not be automatically blocked as aresult of the prohibition, unless The GamingAuthority passes a decision concerningblocking of certain account numbers. InJune 2010 and January 2011, such decisionswere passed by The Gaming Authority and15 specific account numbers were blockedfor standard credit transfers.In principal the prohibition thereforeblocks all forms of transfers to unlicensedgaming operators.However, nearly all of the gamingcompanies have now turned towards thirdpartysolutions. As a result of this, and thatnearly none of the gaming companies stillhave their Norwegian bank accounts, it hasbecome hugely complicated for The GamingAuthority to pass new decisions blockingIt’s notjust luckWe’re experts in Gaming LawA&L Goodbody’s Betting and Gaming Groupis one of the leading specialists on Irish gaming,betting and lotteries law. We combine expertisefrom across the Firm to give co-ordinated andspecialised legal advice to land based casinos,online casinos, betting exchanges, lotteries,bookmakers and suppliers of software andgaming equipment to the industry.For further information please contact:Joe KellyCo-Head of Betting and Gaming GroupT: +353 1 649 2429E: jkelly@algoodbody.comJohn CahirCo-Head of Betting and Gaming GroupT: +353 1 649 2943E: jcahir@algoodbody.comIRISH LAWFIRM OF THEYEAR 2013A&L Goodbody is client-oriented andpragmatic, and always adds value.Chambers Europe 2013DUBLIN BELFAST LONDON NEW YORK SAN FRANCISCO PALO ALTOEuropean Gaming Lawyer | Autumn Issue | 2013 | 11

transfers to certain account numbers. As aresult, the transfer of funds through standardcredit transfers is once again open.The Norwegian Gaming Boardrecently published its evaluation reportof the transfer ban. The Gaming Boardconcludes that the transfer ban has nothad the desired effect, and that transfersto international gaming companiesunlicensed in Norway still continuesundisturbed, in spite of the prohibition.The Gaming Board is not satisfied with thedevelopment, but lacks the authority andtools to counteract the development.The prohibition is therefore highlyineffective and the Gaming Authorityhas few or no measures against thesetransactions as the prohibition is onlyapplicable for transactions marked asgambling related, and as the third-partysolutions remove this connection, theprohibition is nearly impossible to enforce.Violations of theNorwegian gaming provisionsIn the event that a gambling operator isin breach of the provisions laid down inthe Norwegian gaming acts, this could inprinciple lead to criminal sanctions. Butso far, the Norwegian Gaming Authorityhas only issued administrative sanctionsto companies in breach of the Norwegianregulations. However, if the gamblingoperator is very aggressive towards theNorwegian market and does not complywith relevant administrative sanctionsissued by the Gaming Authority, thepossibility of criminal proceedings cannotbe excluded.The prosecution of a foreign basedgaming company would, however, raisejurisdictional issues pursuant to TheNorwegian Penal Code. As of today, itis unclear whether or not Norway willhave jurisdiction with regards to a penalprosecution of such companies.This is supported by the statements madein the Norwegian white paper (Ot.prp. nr.44 (2002-2003)) where jurisdictional issuespursuant to The Norwegian Penal Codeare discussed in context with Norwegiangaming companies offering unlicensedgambling from branch companies basedoutside of Norway. The committee statedthat the prosecution of a gaming provideroffering unlicensed gambling from anothercountry to Norway would be difficult, unlessthe offered game is illegal in the countryfrom which it was provided.However, The Norwegian Gaming Boardstated in a case against eurolotto.com inApril 2011, that Article 12 of The NorwegianPenal Code would be applicable as the effectof illegal targeting and marketing towardsthe Norwegian market will fulfill theconditions laid down in Article 12 of TheNorwegian Penal Code.Under the current situation criminalproceedings as a result of infringements toNorwegian gaming laws therefore constitutesa challenge for the Norwegian Authorities,and our impression is that it is thereforeunlikely that the Norwegian Authoritieswould pursue such a case exhaustively.EU/EEA CompatibilityNorway is obliged, as a European Free TradeAssociation (EFTA) Member State and partyto the European Economic Area (EEA)Agreement, to comply with the provisions ofthe EEA Agreement.Several gaming organizations and gamingcompanies are critical of the Norwegiangaming system, and are of the opinion thatthe gaming system is in defiance with theEEA Agreement. Some gaming companieshave challenged the Norwegian gamingregulation under the references to the EEAAgreement. Particularly relevant in thismatter is Article 36 of the EEA Agreementregulating the freedom to provide services.Relevant in this matter is Case E-3/06,“Ladbrokes”, relating to the Norwegiansports betting regime. Ladbrokes claimedthat they were legally entitled to providetheir services to and within Norway as aconsequence of their valid gaming licenseissued in another EU/EEA State.As a result of Ladbrokes claim, OsloCity Court asked the EFTA Court for theirevaluation on the matter. The EFTA Courtconcluded that each EEA Member State hasthe right to require possession of a license,thereby rejecting the automatic recognitionof a license issued by another EU/EEAMember State. The City Court thereforerejected Ladbrokes claim.The Norwegian system has on thesegrounds, so far, proved itself to be incompliance with the relevant provisions ofthe EEA Agreement and the relevant EU/EEA case law.Closing remarks and thoughts on achanging regulatory landscape in Norway.The Norwegian gaming regulations may atfirst seem rigorous and make the Norwegiangaming market seemingly unavailable forinternational gaming providers. But likemost international based operators youwill probably experience that a wide rangeof gambling service can be offered to theNorwegian players without any interferenceof the Norwegian Gaming Authorities if theseservices are rendered from outside Norwayand not marketed aggressively and explicitfor the Norwegian market and player.If relatively basic ground rules arefollowed the operators should steer clear ofthe Norwegian gambling prohibitions andmay even find that the Norwegian internetbased gambling market is more open thanat first glance. This will especially apply forthe games qualified as “social gaming” asthese games will not fall under the gamblingdefinition according to the Norwegianregulations, and can thus be offered freely toand within Norway.With regards to changes in the Norwegiangaming regulations, it would not be anhonest assessment if we were to claim that amore open legislation is on the horizon.However, gambling regulations arechanging rapidly across Europe, andthe Norwegian Gaming Authorities arewatching these developments closely,especially with regards to the newlyimplemented changes in Denmark.The new Danish gambling regimetogether with potential changes in theSwedish system and the developments inEuropean countries may even eventuallypush through a change in Norway as well.Joakim Marstrander:Joakim Marstrander is Head ofthe Commercial Law departmentin Deloitte Law firm in Oslo,Norway. He can be reached atjmarstrander@deloitte.no or+47 48126326dANiel Henriksen:Daniel Henriksen is an AssociateLawyer in the Commercial Lawdepartment of Deloitte Law firm inOslo, Norway. He can be reachedat dhenriksen@deloitte.no or + 47450 39 855.12 | European Gaming Lawyer | Autumn Issue | 2013

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Latest Developments In French Gaming RegulationTatjana Klaeser, ULYSTatjana KlaeserFrom gaming to gambling – Skill, social andmobile gaming on the regulators’ radarWith its wide success and increased monetization,the gaming industry has necessarily attracted theattention of regulatory institutions throughout Europewho critically observe the shift from casual gamingdesigned to bring people together towards commercialservices essentially aiming at generating profit.This raises the question of where to draw the linebetween casual gaming and speculative gambling.The French legislator seems to consider thatboth industries should fall under one and the sameprohibition principle, already contained in the LotteriesAct (see below). Discussions on the reform of Frenchconsumer law plan to extend the prohibition of lotteriesto games of skill interpreted in the broadest sense, so asto also include social and mobile games.Thus, France may well be paving the way for otherEuropean regulators to take action as regards thesocial gaming industry. Yet, the French government’sapproach cannot efficiently meet the motives of publicinterest invoked to justify legislative interference.Current legal frameworkUnderstanding the impact of the proposed amendmentsrequires a prior overview of the current situation.To date, the French legal framework in relation togambling is constituted by several pieces of legislation,the exact scope of which is not precisely defined andmainly relies upon case law:- The 1836 Lotteries Act concerning theprohibition of lotteries, recently included underArticle 322 of the Homeland Security Act, whichbans “any operation offered to the public, under anydesignation whatsoever, which creates the expectationof winning a prize by means of chance”;- The 1983 Act concerning the prohibition ofgames of chance included under Article 324 of theHomeland Security Act which mainly prohibitsholding a gambling establishment open to thepublic, exploiting unauthorized games of chancewith a monetary stake, importing, manufacturing orexploiting any machine working on a chance basisand procuring any direct or indirect advantage uponcommitment of a stake ;- The 2010 Online Gambling Act which definesa game of chance as “a paying game where chancepredominates over skill and on the combinations ofintelligence to obtain the prize”;- Article L. 121-36 of the Consumer Codeconcerning commercial lotteries which considersthat “advertising operations in writing which tendto raise the expectation of a prize attributed to eachparticipant, whichever the modalities of drawing,can be made only if they do not impose any financialcontribution or expense of any form. When theparticipation in the operation is subject to a priorpurchase, the operation is only illegal if it is unfair”.On these grounds, French case law and scholarshipauthors traditionally consider that a given game qualifiesas a game of chance or lottery subject to licensing orprohibition provided that four specific cumulativeelements are fulfilled: (i) an offer to the public, (ii)requiring a financial sacrifice, (iii) which creates theexpectation of a gain, (iv) by means of chance.If one of the elements is missing, the game is legalper se. However, if a game fulfils all 4 conditions andis not operated by a duly licensed company, it wouldbe considered illegal in France should the operatoraccept wagers from the French public.Proposed amendments withinthe Assemblée NationaleThe proposed amendments to French gaming law ascontained in the Bill on Consumption 1 appear not torecognise the typical, industry-based differences madebetween gaming and gambling as they plan to includeboth under one and the same general prohibitionprinciple laid down in the Lotteries Act. Furthermore,no distinction is being made within the variousareas of gaming, whether as to the device beingused (computer, mobile, social media) or the type oftransaction proposed (e.g. pay-to-play or freemium).This leads to a gap between legislation and themarket due to a lack of understanding by the Frenchlegislator of the variety of gaming activities at stakeand the fact that the specific features of each shouldbe taken into account within an adapted regime.Basically, in the eyes of the French regulator ofonline games of chance (ARJEL), it just comes downto protecting consumers against “supposedly free ofcharge online games, games supposedly based uponskill or games where the gains are supposedly virtual”as expressed in its wishes for 2013 2 .This call for legislative intervention was echoed14 | European Gaming Lawyer | Autumn Issue | 20131http://www.senat.fr/leg/pjl12-725.pdf2http://www.arjel.fr/IMG/pdf/2013-voeux-arjel.pdf

y the Government under the form ofamendment 960 to the Bill on Consumptionintroduced on 20 June 2013 before theAssemblée Nationale by the Rapporteur ofthe Commission of Economic Affairs, Mr.Razzy Hammadi.The amendment seeks to extend theprinciple of prohibition of lotteries containedin Article 322 of the French HomelandSecurity Act to: “All operations available tothe public, under any name whatsoever, thatgive rise to the hope of winnings that wouldbe, even partially, due to chance and forwhich a financial sacrifice is required fromthe participants by the operator.It further adds that “This prohibitionincludes games whose operation is based onthe player’s know-how (read “skill”).The financial sacrifice is consideredfulfilled when the organizer requires anadvance payment from the participants,even if a subsequent refund is made possibleby the rules of the game”.An exception is nevertheless foreseenunder the supervision of the FrenchAudiovisual authority, for TV games andcompetitions utilising premium-charge callsor sms ancillary and in direct relation toa broadcast television or radio programs,as long as a refund of communication andcorrespondence costs is provided upon theparticipant’s request.The declared purpose of amendment 960is twofold: first, to clarify the prohibitionof so-called skill games and, secondly, toban so-called “free” games in which playerscan be refunded their stakes according toa refund clause, otherwise than under thelimited TV and radio exemption.Amendment 960 also intends toharmonize French gaming legislation byaligning the definition of online gamesof chance provided by the 2010 OnlineGambling Act with that contained inthe French Homeland Security Act.Unfortunately, it does so in a mostrestrictive manner. While the OnlineGambling Act refers to predominance ofchance over skill to fulfill the condition ofchance, the new version of the Lotteries Actintroduced by amendment 960 – to serve asa general reference – considers chance to befulfilled in any case if the game is only verypartially relying upon chance or even whenthe outcome of the game solely depends onthe player’s abilities.This excessively broad wording wouldlead to the prohibition of any type ofpublicly available game or competitionwhich requires a financial sacrifice andmay offer a chance to win an advantage.Considering, on the basis of French case lawand the 1983 Act, that internet connectioncosts are deemed a financial sacrifice andthat extra playing time can be interpreted asa prize, the four cumulative conditions for agame to qualify as a game of chance are metby almost any game, competition or evensports challenge.The Bill seems completely oblivious to bestpractices developed by the social and mobilegaming industries such as the limitation ofpay-ins through micro-payment transactionsor the absence of pay-out possibilities andthereby, somewhat inadvertently, placesLONDONLeading the fieldREGULATORY • COMMERCIAL • CORPORATEwww.jgrlaw.co.uk • +44 (0)20 7339 7000 • gaming@jgrlaw.co.ukEuropean Gaming Lawyer | Autumn Issue | 2013 | 15

all video, skill, social and mobile games orcompetitions on shaky legal grounds, alongwith illegal gambling operations.MotivationThe motives invoked to justify stateintervention rely on the protection of publicinterest and public health as the governmentputs forth issues similar to those raised bygambling activities: risk of addiction, moneylaundering, fraud, manipulation of resultsdue to the use of bots.Regrettably, these motives do not rely onany facts, studies or numbers showing anykind of correlation between skill, social ormobile gaming and these risk factors.In the eyes of French authorities, a legalclarification is all the more needed as, in itsdecision of 17 January 2013, the Court ofAppeal of Toulouse held that, for experiencedplayers, poker could be considered a skillgame. Consequently, the defendants weredischarged from organizing illegal pokergames which involved more than a hundredplayers. This characterization would suggestthat it is possible to legally organize pokergames without having been previouslyauthorized which is why an amendmentclearly extending the scope of the prohibitionto skill games has been introduced.Legislative developments and agendaAmendment 960 was adopted in first readingduring the night of 27 to 28 June 2013without causing much of a stir, becomingthe current Article 72 quarter of the Bill onConsumption 3 .Any proposal to soften its provisions,whether within the Assemblée Nationaleor the Senate, such as the suggestions tosubject gaming to regulation 4 , carve outcompetitions 5 or only prohibit gameswhich contain a significant proportion ofchance 6 , were withdrawn or rejected forthe time being. Slight modifications aimedat the exclusion of postage fees from thenotion of financial sacrifice or the exclusionof promotional lotteries permitted underthe Consumer Code from the generalprohibition were however adopted furtherto the discussion of the Bill to before theinternal Commissions of the Senate 7 . A firstsign that there is still room for debate.The Bill will be examined and voted uponin a public session at the Senate duringthe first weeks of September. If the twochambers of Parliament agree on the samedraft, the Bill could already be adopted andtranslated into legislation.Critical assessmentArticle 72 quarter of the Bill on Consumptionoffers a welcomed harmonization of a legalframework on gambling so far constituted byscattered pieces of legislation and case law.Unfortunately, it does so at the expense of thestakeholders and legal certainty.Instead of enshrining once and for all thata game of chance is “a paying game wherechance predominates over skill and on thecombinations of intelligence to obtain theprize” as already defined by the OnlineGambling Act since 2010, the legislatorstretches the notion of chance beyond reasonin favour of a general prohibition whichis neither compatible with the legitimatedemand for entertainment arising frominformation technologies consumers, norwith the policy pursued on the other hand forregulated gambling.As pointed out correctly by Member ofParliament (and of the opposition) Jean-François Lamour in his speech before theAssemblée Nationale, a pure and simpleprohibition runs the risk to backfire andfuel the black market instead 8 ; because thedemand is not only undeniable, it is also verymuch legitimate in a modern economy.More alarmingly, in the absence ofa legal gaming offer, a pure and simpleprohibition also runs the risk to triggerplayer migration from gaming to gambling,which raises much more concerns in termsof pathological gambling and fraud.In the context of a gambling market opento competition since 2010, a strict prohibitionof gaming operations, whether skill, social ormobile, for reasons of public health and publicsafety hardly seems proportionate. On thecontrary, should the current version of the Billpass the vote, its provisions would breach thegeneral principles of freedom of commerceas well as the fundamental European lawprinciple of freedom of services provisioncontained in the Treaty on the Functioningof the European Union 9 . The suggestedchanges are simply not in line with anecessary, proportionate, non-discriminatory,coherent and systematic policy to fight againstfraud and addiction, as repeatedly requiredby European case law 10 if, on the other hand,gambling is open to licensing.Player protection and the fightagainst fraud and money-laundering areconsiderations called for by the gamingindustry and social media themselves sincelong-term growth in times of economicmodels based on user-generated content canonly be achieved in a trustworthy marketand through a trustworthy platform.Reasonable regulation is an essentialcomponent of a user’s trust towards theonline economy. A regulatory regimemindful of the actual issue at stake, namelythe risks brought by excessive speculation– naturally related to the level of chance– would be a positive improvement andactually allow operators to contribute tothe system by generating tax revenues.With regulatory requirements upon thegaming industry milder than those appliedto gambling (for instance by introducing anotification procedure rather than licenseapplications as such), the condition ofproportionality could be safeguarded in linewith sound EU law principles.TATJANA KLAESERTatjana Klaeser is a Member of theBrussels Bar Association and Headof Gaming Law Practice with Ulyslaw firm, to get in contact, email:tatjana.klaeser@ulys.net3http://www.senat.fr/leg/pjl12-725.html.4See amendment n° 689 before the Assemblée Nationale by MP Sandrine Mazetier http://www.assemblee-nationale.fr/14/amendements/1156/AN/689.asp.5See amendments n°11, 31 and 64 before the Senate http://www.senat.fr/amendements/commissions/2012-2013/725/Amdt_COM-11.html6See amendments n°14, 28 and 61 before the Senate http://www.senat.fr/amendements/commissions/2012-2013/725/Amdt_COM-61.html7See amendment n° 79 before the Senate http://www.senat.fr/amendements/commissions/2012-2013/725/Amdt_COM-79.html.8http://www.assemblee-nationale.fr/14/cri/2012-2013/20130290.asp#P1813_3765.9h Refer to Article 56 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:115:0047:0199:en:PDF10CJEU, 24 March 1994, Case C-275/92, Schindler ; CJEU 21 Sept. 1999, Case C-124/97, Läärä ;CJEU, 21 Oct. 1999, Case. C-67/98, Zenatti ; CJEU, 6 Nov. 2003, Case. C-243/01, Gambelli ; CJEU,13 nov. 2003, Case C-42/02, Lindman ;CJEU, 6 March 2007, Case C-359/04, Placanica ; CJUE, 8 Sept. 2009, CaseC-42/07, Santa Casa ; CJUE, 3 June 2010, Case C-203/08, Sporting Exchange Ltd and CaseC-258/08, Ladbrokes ; CJUE, 8 July 2010, Case C-447/08 et C-448/08, Otto Sjöberg, AndersGerdin ; CJUE, 8 Sept. 2010, Case C-46/08, Carmen Media Group Ltd, Case C-316/07 MarkusStoB ; Case 409/06 Winner WettenGmbH ; CJUE, 9 Sept. 2010, Case C-64/08, Engelmann ; CJUE, 30 juin 2011, Case C-212/08,Zeturf.16 | European Gaming Lawyer | Autumn Issue | 2013

OnlineSports BettingA Market Assessment and OutlookSecond EditionA reportby iGamingBusinessOnline Sports Betting: A Market Assessment and Outlook (SecondEdition) examines the main issues surrounding the growing digitalsportsbook industry.Key Features:• Global betting market overviews by region• Strategies into areas of opportunity: how you can expand and grow• Important factors affecting growth in the industry and how to avoidthe pitfalls• Discover the marketing strategies of online and mobile sportsbooks• Regulatory issues and the growing role of smartphones and how it’saffecting sports betting offerings• Social media and in-play bettingThe report will also feature commentary from leading executives in thedigital gaming industry who provide their own expert views on whatis next for sports betting. It will provide case studies of major digitalsportsbook operators, betting exchanges and suppliers and determineswho the winners and losers will be.Ask for your free executive summarytoday quote 13ISportsBetting2 and emailreports@iGamingBusiness.com.Call +44 (0) 207 954 3489 to order yourcopy of Online Sports Betting today.www.igamingbusiness.comThe leading provider of information for the online gaming industry.

The United Kingdom: licensing andtaxation on a point of consumption basisTony Coles and Andrew Cotton, Jeffrey Green Russell LimitedTony ColesAndrew CottonIntroductionThe move to licensing and taxation of remotegambling on a point of consumption basis in theUK gathers pace. The Gambling (Licensing andAdvertising) Bill (the “Bill”), which will amendthe licensing requirements of the Gambling Act2005, received its first reading in the House ofCommons on 9th May 2013 and is expected tobecome law by the end of 2013 and take effect fromas early as April 2014.Meanwhile, on 16 August, HM Treasury publishedit legislative proposals on taxation, in light of theresponses received from the industry to its taxconsultation.The Gambling(licensing and Advertising) BillWhat is the effect of the Bill?i) The Bill will extend the territorial applicationof Section 33 of Gambling Act 2005 (the offenceof providing facilities for gambling), requiring allremote operators to obtain an Operating Licencefrom the Gambling Commission if they wish to dobusiness with British residents. The Bill will do this bysubstituting Section 36(3) as follows:Section 33 applies to the provision of facilities forremote gambling only if –(a) at least one piece of remote gambling equipmentused in the provision of the facilities is situated inGreat Britain, or(b) no such equipment is situated in Great Britainbut the facilities are capable of being used there.[emphasis added]ii) The Bill also proposes the repeal of the offence ofadvertising foreign gambling (Section 331) and wouldthereby remove the current exemption permittingoperators licensed in EEA and “white-listed”jurisdictions to advertise their services in Britainwithout a British licence.iii) It would also extend the territorial scope of theoffence of advertising unlawful gambling (Section330) and the regulations controlling the advertisingof remote gambling by way of remote communication(Section 328) by amending Section 339(9) in line withthe amendment made to section 36(3).The Case for ChangeMuch has been written before concerning the basisfor the imposition of point of consumption licensing,and many have speculated as to the possiblesusceptibility of the measures to a challenge on thebasis that their compatibility with European law.For its part, the government concludes that, “thecurrent system is flawed and can no longer adequatelyensure the protections for British customers the[Gambling] Act envisages in a changing Europeanand International landscape”.It cites the following as justification for theproposed changes:• Although the majority of operators targetingBritish customers are subject to established andeffective regulatory regimes, not all are. The GamblingCommission are aware of emerging Europeanjurisdictions where very little is known about the levelof regulation and consumer protection.• There are different regulatory approaches overseaswith limited consensus in areas such as standardsand software testing resulting in varying levels ofprotection for British customers.• There is a potential risk that match fixing andsuspicious betting practices are taking place onoverseas licensed sites.• It is becoming increasingly difficult to identifythe level of regulatory oversight of gambling servicesand equipment when operators are permitted tolocate equipment in different locations. This canlead to confusion for consumers and prevents theGambling Commission from being able to directlyinvestigate complaints.The Gambling Commission has been pressing the UKgovernment to make the changes for some time citingthe difficulty it has in fulfilling its statutory obligationsto advise the government on gambling, its regulation18 | European Gaming Lawyer | Autumn Issue | 2013

and impact, in circumstances where itregulates less than 15% of the online Britishmarket. The Chief Executive of the GamblingCommission, Jenny Williams, has suggestedthat to achieve consistent regulation and toensure the government is properly informedon regulation, it is necessary to repatriateregulation of the domestic British market.ImplementationOn the basis of the Bill passing into lawin December 2013, it is expected thatimplementation would be in April 2014 andthe Commission anticipates that it will startinviting applications for licences in February.Under transitional arrangements operatorsalready licensed in EEA and white-listedjurisdictions will be able to apply for interimlicences, which will enable them to continueoperating pending the grant of a full licence,subject to compliance with the Commission’sLicence Conditions and Codes of Practice.The Commission will be consulting withstakeholders on ways in which existingcodes of practice and licence conditionsmight be improved, including on theCommission’s approach to the protectionof player funds and on internationalliquidity in poker networks. The Chairmanof the Commission Philip Graf has saidas follows, “Currently, there is a range ofapproaches internationally to regulatingpoker networks. We have been very activein IAGR’s work exploring potential goodpractice in such regulation - a degree ofconsensus is needed if jurisdictions are tobe comfortable in allowing their playersto be pooled with those subject to otherjurisdictions’ requirements – or lack ofthem.” However, he confirmed that theCommission does want to facilitate crossjurisdiction liquidity pooling providedplayers are properly protected.EnforcementIn the same speech Mr. Graf gave anassurance that, once licensed, operatorscan expect their right to operate into theUK market to be protected from illegalcompetition. However, the government doesnot currently intend to introduce powers toblock websites or financial transactions. TheCommission has expressed confidence thatthe commercial advantages of being able toadvertise openly, backed by the regulator’srole in deterring illegal advertising wouldkeep the black market relatively small.Although the Commission has prosecutionpowers it does not expect to have to usethem often as experience had shown thatthose asked to desist from any involvementin illegal advertising do so once the illegalityis pointed out.Point of Consumption TaxationMeanwhile, the proposed transition totaxation on a point of consumption basisis expected to leave those operators whoare licensed outside of the UK, but who arecurrently permitted to advertise here andaccept UK customers without having topay UK gambling taxes, with a significantlyincreased costs.Following the announcement in the2012 Budget that the taxation of remoteEuropean Gaming Lawyer | Autumn Issue | 2013 | 19

gambling in the UK would be reformedand changed to a “place of consumption”basis the government consulted on itsproposals between April and June last year.On 16th August 2013 the Treasury issued itsresponse to the consultation and up-datedits policy position. Until 30th Septemberit is undertaking further consultation onthe issues raised by the draft legislativeprovisions published with the response, andin particular on the key definition of “UKperson” and the proposed measures forregistration, assessment and enforcement. Itproposes to introduce the requisite legislationin the 2014 Finance Bill with implementationplanned for 1st December 2014.The rate of remote gambling duty payablewill be confirmed by the Chancellor ofthe Exchequer in his Spring 2014 Budget,and operators will continue to lobby hardfor rates lower than the 15% rate whichcurrently applies to the relevant duties.i) Definition of UK Person:The government originally proposedthat operators would be expected to takereasonable steps to determine the location oftheir customers in order to ensure that thetaxes could be levied on those transactionstaking place with persons located in the UK.However, the majority of operators whoresponded to the consultation successfullyargued that it would be very difficult toidentify the location of each transactionand costly to oversee, and had concernsabout a lack of certainty regarding the whatsteps might be considered “reasonable”. Themajority of consultees favoured a systemwhereby their UK customers are determinedby reference to where they usually live andthe government now proposes to adopt sucha definition. Therefore remote gamblingundertaken by a customer who usually livesabroad whilst temporarily in the UK willnot be liable for tax, whilst bets made by UKresidents whilst temporarily abroad will.ii) Enforcement measures:The government reports that the majorityof respondents supported the introductionof a strong and robust enforcement regime.It has now provided greater detail of theproposed enforcement measures. In the firstinstance these will include:• working with other tax jurisdictions torecover outstanding tax debts, includingthrough the EU Mutual Assistance in theRecovery of Debt scheme;• requiring operators based injurisdictions with which the UK doesnot have collection agreements to eitherappoint a joint and severally liable fiscalrepresentative or appoint an administrativerepresentative and provide security;• requiring operators with a poorcompliance history to provide security.Failure to comply with requirements toappoint a fiscal representative or a securitywill be made criminal offences.In “serious cases of non-compliance”where an operator breaches certain triggers,HMRC will initiate a process that willrequire the Gambling Commission tosuspend its Remote Operating Licence.These will include:• Failure to register for the paymentof duty• Failure to adhere to key registrationrequirements• Where there is a failure to abide by“time to pay” agreements• Where an assessment for unpaidduty is made and not paid by the due date• Where there is late payment withdefault extending to 3 months for 2accounting periods or one accountingperiod where the default extends to 6months, within a 5 year period.Following suspension of an OperatingLicence if tax remains outstanding after 6months HMRC will require the GamblingCommission to permanently revoke thelicence, subject to the right of appeal tothe Tax Tribunal. The government intendsto prevent the Commission issuing a newlicence until any outstanding “tax failures”have been rectified.In unveiling the latest proposals theEconomic Secretary to the Treasury, SajidJavid said, “It is unacceptable that gamblingcompanies can avoid UK taxes by movingoffshore, and the government is takingdecisive action to ensure this can no longerhappen in the future. These reforms willensure that remote gambling operators whohave UK customers make a fair contributionto public finances.”In addition to the tax implications ofthe legislation licensed operators will berequired to contribute to British problemgambling research, education and treatmentand regulatory costs. The Remote GamblingAssociation has voiced concerns over thesubstantial increase in costs that the changeswill bring, which it says may drive smallercompanies out of business. Certainly, thereare real risks that the increased costs willaffect investment, adversely affect prices/odds and restrict competition. Meanwhile,black market operators may seek toavoid UK licensing and tax altogether,undermining the position of thosecompanies who comply.There is talk of a potential challengeto the compatibility of the proposalswith European Union legislation but thiscould not be mounted until the Act receivesRoyal Assent.Tony Coles is a Consultant inthe Gaming and Betting Group atJeffrey Green Russell Limited, andis Immediate Past-President ofIMGL. He can be reached by Email:arc@jgrlaw.co.uk.Andrew Cotton is a Solicitorin the Gaming and Betting Groupat Jeffrey Green Russell Limited.He can be reached by Email:acc@jgrlaw.co.uk.20 | European Gaming Lawyer | Autumn Issue | 2013

Irish Regulatory Reform Gathers PaceJoe Kelly, John Cahir And Katie ByrneJoe KellyJohn CahirKatie ByrneIntroductionOn 15 July 2013, the Irish Minister for Justicepublished the “General Scheme of the GamblingControl Bill”, a 90-page blueprint of a proposed newregulatory framework for gambling in Ireland.The publication of the Scheme signals a firmintention on the part of the Irish government tointroduce a comprehensive licensing regime forIreland’s gambling sector, and to modernise theexisting outdated legislation.Gambling is currently regulated in Ireland by a1931 Betting Act and a 1956 Gaming and LotteriesAct, neither of which is equipped for the moderncommunications environment. The result is thatseveral aspects of Irish gambling law are “grey”,particularly in relation to remote gambling, which isnot specifically addressed by either piece of legislation.While the gaps in the 1931 and 1956 Act, anda dearth of enforcement on the part of the Irishauthorities, have allowed land-based and onlineoperators to establish gambling businesses in Irelandwithout being licensed to do so, the absence of legalcertainty is unsatisfactory, and it has deterred manyoperators from considering locating in Ireland or thetargeting the Irish market.Legislative reform has been on the agenda forsome time now. In 2006, the “Casino RegulationCommittee” put forward 32 recommendations for theregulation of gambling in Ireland. That report wasnot acted on for a few years, but following a publicconsultation which concluded in September 2009,the Department of Justice set up a “Casino GamingControl Unit” to grasp the nettle of gambling lawreform. This Unit produced an “options” paper, settingout specific proposals in relation to the regulationof gambling in Ireland, which was published inDecember 2010.This article synopsises the key features of theScheme of the Gambling Control Bill. It is howeverimportant to bear in mind that the Scheme is a draftdocument, which is likely to evolve substantially asthe legislative process unfolds.Scope of new gamblingregulatory regimeIn general terms, most forms of gambling will, subjectto restrictions, be permitted under the proposedlegislation (including casino gaming, betting, lotteries,bingo, gaming and amusement arcades), but allgambling operators (both land-based and remote)supplying gambling services to Irish customers will berequired to obtain a licence. The specific category/typeand number of licences will depend on the nature andsize of the gambling operation.In total, the Scheme proposes the creation of43 new licences, covering both land-based andremote gambling activities, which broadly fall into6 categories: betting licences; gaming licences (thiscategory will include lottery and bingo licences);licences for mixed remote gaming and betting;temporary licences; hybrid/cross-over licences; andpersonal licences.The Scheme also proposes the introduction of a“registration scheme” for companies who establishgambling services or gambling support services inIreland, but who do not target Irish players.There are some areas of the gambling sector whichthe Gambling Control Bill will not regulate. The mainexclusions from the Scheme are the National Lottery,the activities of Horse Racing Ireland and the IrishGreyhound Board (Bord na gCon), financial spreadbetting and the State-owned Tote.A New Gambling RegulatorUnder the proposed new regime, applications forlicences will be made to a new gambling regulator,provisionally entitled the “Office of Gambling Control(“OGCl”), although the Irish Courts will have arole in relation to appeals and certain enforcementmatters. The Scheme sets out in broad detail theprocedure which will apply to licence applications, butit is envisaged that more detailed guidelines will bepublished by the OGCI.As well as dealing with licence applications, theOGCI will also act, in effect, as an “inspectorate” forall gambling regulated under the legislation.OGCI officers will have full powers to search, seizedocuments, etc., and the OGCI will be able to seekCourt orders directing service providers, financialinstitutions, advertising services, etc, not to assistunlicensed or non-compliant remote gamblingoperators offering their services to Irish customers.The Scheme proposes the introduction of astatutory basis for cooperation between the OGCIand other bodies, including the Irish police (AnGarda Siochana), the Revenue Commissioners,22 | European Gaming Lawyer | Autumn Issue | 2013

the Private Security Authority, as well asother regulators outside Ireland. Notably,the Scheme includes a Head entitled“International Co-operation”, which providesfor consultation between the OGCI and itsregulator counterparts in other jurisdictions,with a view to entering into “memoranda ofunderstanding”, in relation to various matters.Key FeaturesBetting• The Scheme proposes the creation of10 basic categories of betting licences,including specific types of licences for landbasedbookmakers; land-based bookmakerswho also offer some remote services; remotebetting licences; on-course betting licences;betting exchange licences; pool bettinglicences; and spread betting licences.• Limited gaming may be permitted inbetting shops, although this will require aseparate licence, and cash transactions willnot be allowed.• The Scheme proposes a completeban on “fixed odds betting terminals”,although this was widely anticipated,due to the political contentiousnesswhich has traditionally surrounded“FOBTs” in Ireland.Land Based Casinos• It is proposed to cap the numberof licensed casinos at 40 (there areapproximately 30 “private members’ clubs”currently registered for the purposes of Irishanti-money laundering legislation).• Only smaller scale casinos will bepermitted – it is proposed to limit thenumber of gaming tables and gamingmachines to 15 and 25 respectively,effectively ruling out the possibility of anIrish “resort” casino. This is notwithstandingthe fact that a number of large Irish casinoprojects have been mooted in recent years.• The OGCI will be required to ensurea regional spread of casinos, according topublished criteria.• It is proposed that casino licences willbe 10 year licences, which may be renewed.• The proposed permitted hours ofoperation will be between 11:00 a.m. and4:30 a.m.• The Scheme contemplates that the saleof alcohol will be permitted in premisescontaining casinos. However, it provides thatthere must be “full and complete separation”between the area used as a casino andthe area licensed under the IntoxicatingLiquor Acts. Furthermore, the Schemecontemplates that it will not be possible foralcohol to be brought into or consumed inthe area reserved for casino gaming.Lotteries• Under the Scheme, certain smaller lotterieswill not require a licence (although theywill need to be notified in advance to theOGCI). The Scheme proposes that threetypes of lottery licence will be availabledepending on the level of prizes. Under theScheme prize funds exceeding €50,000 perweek or €250,000 per month (but subjectto a maximum of €400,000 per month) willbe permitted. This is a significant increasefrom the current prize limit of €20,000 perweek under the 1956 Gaming and LotteriesAct (although the recently enacted NationalLottery Act, 2013 includes a provisionwhereby this cap can be increased to€30,000).• To obtain alottery licence, threekey conditions mustbe fulfilled: thelottery must be inaid of a “charitable orphilanthropic cause”;there must be a linkbetween the charitableand philanthropiccause and the localitywhere the lotteryis to be held; and aminimum of 25% ofthe proceeds of ticketsales must be allocatedto the charitable orphilanthropic cause.• A separate licencewill be required forscratch cards. Themaximum prizewhich can be won ona scratch card is setat €1,750, and at least25% of the proceedsfrom the scratchcard sales mustbe allocated to anidentified charitable orphilanthropic cause.• It is contemplatedHenrik Norsk HoffmannAdvokatthat lotteries operated in conjunction witha sales or marketing initiative will require alicence.Bingo• The Scheme proposes that lotteriesand bingo will be separately regulatedgoing forward – currently, bingo isconsidered to be a type of lottery game,and therefore subject to the same rulesapplying to lotteries.• The rule that bingo must alwaysbe for charitable or philanthropicpurposes is being relaxed, but a linkto local interests will be required inmost instances. According to the proposals,there will be a cap on the amount ofbingo proceeds which can be allocatedto overheads, and minimum percentageswhich can be allocated to prize money.Gaming and Amusement Arcades• There will be 2 separate categories ofAs a leading gambling law expert inDenmark, Henrik Norsk Hoffmann plays acentral role on the Danish market.On 1 July 2013 Henrik Norsk Hoffmannlaunched a new law firm, which sets newstandards for the provision of legal services.Alsterarkaden 13, 2.OG20354 HamburgDirect: +49 40 3496 0212Mobile: +49 151 149 230 48Mobile: +45 51 90 18 77Fax: +49 40 3567 9889E-mail: hnh@hnhlaw.euSkype: henriknorskhoffmannwww.hnhlaw.euEuropean Gaming Lawyer | Autumn Issue | 2013 | 23

licence for gaming arcades and amusementarcades: a “gaming arcade licence” and an“amusement arcade licence”. The Schemecontemplates that amusement machinesmay be provided in a premises which isoperated under a gaming arcade licence, butwhere an arcade contains both amusementmachines and gaming machines, then aclear physical separation between the twotypes of machine will be required.Remote Gambling• “Remote gambling” is defined inthe Scheme as gambling in whichpersons participate by the use of remotecommunications. The term “remotecommunications” is defined as including theinternet, telephone, television, radio, or anyother kind of electronic or other technologyfor facilitating communication).• While it is contemplated that all forms ofgambling by remote means will be licensable,the Scheme provides very little detail inrelation to the proposed categories of remotegambling licences, and this aspect of theproposals requires significant clarification.• As outlined above, a number of specificlicences for remote betting activities will beavailable: remote betting licences (“category1E”); betting exchanges (“Category 1I”);spread betting licences (“Category 1J”); andpool betting licences (“category 1K”).• The Scheme provides for two types of“remote casino licences”: a “category 2O”licence for “remote casino services” and a“category 2P” licence for “support servicesin the State for a remote casino”. It is notclear from the Scheme what activities willconstitute “remote casino services” and“support services in the State for a remotecasino”, and this will need to be clarified.• A specific “remote bingo” licence isalso proposed (a “category 2Q” licence).However, no specific “remote lottery” licenceis provided for, although the definition of“lottery” includes the playing of lottery gamesby means of remote communication, so it isto be assumed that lottery licences will allowfor the remote sale of lottery tickets.• The Scheme also lists two types of “mixedremote” licences where both gaming andbetting are provided together – a “category3A” licence where the service provider is inthe State and a “category 3B” licence where asupport facility is located in the State – but nofurther detail on these licence categories hasbeen provided at this stage.Player ProtectionOne of the key principles underpinningthe proposed new legislation will be playerprotection, and the Scheme contains anumber of proposed safeguards, designedto ensure that the new regulatory regimeachieves its stated protection purposes ofensuring fairness; protecting vulnerablepersons from the risks of gambling; keepinggambling time-free; and ensuring consumerprotection and choice. By way of example:• Licence holders will be subject to a seriesof “responsible gaming” obligations.• It is proposed that the OGCI mayspecify that certain machines, or classes ofmachines, or games (including games playedremotely), may only be played using special“player cards” (i.e. a unique card (or code)that a customer will be required to obtainfrom the operator to access a certain gameor machine).• A “self-exclusion register” will beestablished for persons with gamblingproblems.• A “Social Fund” will be established,which will be used to fund the promotionof socially responsible gambling and toassist in counteracting the ill-effects ofirresponsible gambling. It will be fundedfrom contributions by licence holders.• It is envisaged that the OGCI will beable to attach specific terms and conditionsrelating to social responsibility to thegambling licences issued by it. For example,it is proposed that the OGCI will be able tomake it a licence condition that a licenceholder introduces and maintains systemsfor monitoring players whose pattern ofgambling gives reason for concern.ConclusionIn terms of next steps, a parliamentarycommittee has been appointed to consider theScheme, and has invited written submissionsfrom interested parties by 30 August 2013.Although the Scheme provides a goodstarting point for Ireland’s new gamblingregulatory framework, clarification willbe required on a number of points, andsignificant modifications will be requiredif Ireland is to produce a workable andefficient regulatory model.The proposed introduction of aregistration system for companies whichestablish gambling operations in Ireland, evenwhere they do not target Irish players, seemslike a sensible proposal.The publication of the Scheme comesat a time when other Irish GovernmentDepartments are addressing other specificareas of the gambling sector. Following theenactment of a new National Lottery Act inMay 2013, the Government has launcheda competitive process for the award ofa 20 year licence to operate the IrishNational Lottery. This process is currentlyunderway, with a deadline for the receipt ofapplications of 16 September 2013.While the National Lottery, and thelegislation governing it, will remain separateto the Gambling Control Bill, the Departmentof Finance has recently republished the“Betting (Amendment) Bill”, which isintended to introduce a licensing (and tax)regime for remote bookmakers and bettingexchange operators taking bets from Irishpunters. Any licensing regime introduced bythis legislation, if it is enacted, will no doubtneed to be revisited in the context of theGambling Control Bill, which is intendedto regulate all forms of gambling, includingbetting.Indeed, if Ireland takes steps to regulateonline betting in isolation from other formsof gambling, this arguably lacks consistency.As the reform process finally gatherspace, Ireland will need to keep a watchfuleye on Luxembourg, and to be consciousof adopting a consistent and systematicapproach to regulating (and taxing) differentforms of gambling.In any event, it finally appears that Irishgambling regulatory reform is gatheringpace. With an election due to be held in 2016,the smart money is on the Gambling ControlBill being enacted into law in late 2014/2015.JOE KELLY is a Partner at A&LGoodbody Law Firm.Tel: +353 1 649 2429 or Email:jkelly@algoodbody.comJOHN CAHIR is a Partner at A&LGoodbody Law Firm.Tel: +353 1 649 2943 or Email:jcahir@algoodbody.comKATIE BYRNE is an associate atA&L Goodbody Law Firm. Tel:+353 1 649 2000 or Email:kbyrne@algoodbody.com24 | European Gaming Lawyer | Autumn Issue | 2013

Digital CasinosA Market Assessment and OutlookOnline casinos were among the first gaming sites to appear on the internetwhen they launched in the mid-1990s thanks to the pioneering effortsof software companies. During the course of the past decade, the digitalcasino market (encompassing websites for computers, mobiles and otherconnected devices) has grown out of all recognition, maintaining itsposition as the leading gaming genre in terms of numbers of sites.Digital Casinos: A Market Assessment and Outlook examines themain issues surrounding the growing digital casino industry.Key Features:• Game genre overviews• Strategies into areas of opportunity: how you can expand and grow• Important factors affecting growth in the industry and how to avoid the pitfalls• Discover the marketing strategies of online and mobile operators• Regulatory issues and the growing role of smartphones and how it’s affectingdigital casino offerings• Social media and live dealer gamingTo ask for your free executivesummary quote 13IDigitalCasinos2.Call +44 (0) 20 7954 3489 or emailreports @iGamingBusiness.com toorder Digital Casinos today.The report provides case studies of the major casino operators and softwarecompanies and determines who the winners and losers will be. It alsofeatures commentary from leading executives in the digital gaming industrywho provide their own expert views on what is next for digital casinos.www.iGamingBusiness.comThe leading provider of information for the online gaming industry.

BINArY OPTIONS:The licensing DebateR Paul Davis, LL.D. 1R Paul Davis26 | European Gaming Lawyer | Autumn Issue | 2013IntroductionAttendees at any of the world’s major gaming oraffiliate shows (ICE, EIG, LAC) cannot have failedto notice the proliferation over the last two yearsof financially based operators, including “Forex 2 ”but mainly binary options companies. Some of thetradeshow stands have been spectacular and theapparent marketing budgets are impressive. At thelast LAC 3 – London Affiliates Conference, a roughimpression is that half the stand space was devoted tothese products; they arguably had the most strikingstands and boasted some of the best-turned-outrepresentatives.Despite the pervasive presence of binary optionsoperators in the gaming marketplace, however,leading figures in the industry proclaim strongly thatbinary options are not “gambling” products at all,but “financial services” Consumers of the productare referred to as “traders” while the technologycompanies call themselves “platforms” and theoperators “brokers.” This portraiture in the financialservices mode has profound implications for licensingpractices and consideration of the legality of offerings.Around the world, governments and regulators aretaking diverse approaches; the end game remainsobscure in several jurisdictions. As a prelude to thelive debate to be held at the IMGL Conference in Oslo,the following will set the scene and summarize thecurrent position.What are “binary options?”Binary options aren’t new. They were invented asan investment product around 1908, in Chicago,but the mathematical calculations surroundingthem were developed in the 1970s. The mostnotable mathematician and scholar involved wasby Myron Scholes, a Canadian, who won a NobelPrize for his work.“Binary,” because there are only two resultspossible for the trader’s prediction (wrong or right)on a market movement; “0” or“1” in computer language. Forexample, the trader might put money on the table andspeculate that a stock will rise to a specific value by,say 3 pm today. Either it does, or it doesn’t. If it does,the counterparty or operator pays out up to 85% ofthe original stake and returns the stake money. If itdoesn’t, most or all of the stake or investment is lost.Of course, as with all mature financial products, thereare many and subtle variations on the basic product.One popular variant is the “one touch” binary option,where the trader bets not on the final result at adefined time, but on whether the price of the subjectcommodity will touch a certain price before theexpiry of a period of time. One touch, and the traderis paid out; no touch by the end of the period, andthe stake is lost. In sum, though, the underlying assetor commodity is never owned or delivered by anyparty to the transaction; there is merely a financialrelationship based on market prices.Trading in binary options is thus a form offinancial gambling, and in that simple statement liesthe million dollar question. Is it gambling, or is itfinancial trading? It’s possible to argue that longerterm plays are financial investments, because someskill is involved in predicting the future of a market(just like a stock, currency or commodity). Of course,skill can be involved in some activities which no-onedisputes are gambling, such as betting on the outcomeof a sporting event. Indeed, outside of the on-lineentertainment environment, there is a legitimateplace for binary options in the commercial worldas an instrument for hedging future positions ofcommodities or currencies. Very short term options,however, look more like gambling because, as pricesmove in a zigzag pattern and not a straight line, whathappens in the next minute or five is an unpredictable,uncontrollable event. In terms of trader experience,too, there is a marked contrast between, for example, aCFO calmly purchasing an option to expire at the endof the year to hedge a currency position, and a privateindividual sitting down to place a stake on 15 minutes1Group General Counsel, The Counting House Group of Companies, Suite 3, 3rd Floor, Britannia House,St Georges St, Douglas, Isle of Man. paul@countinghouseltd.com2Traditionally “Foreign Exchange” refers to the commercial activity of exchanging one currency foranother. However, “forex trading” which bears some similarity with “day trading” on the stock market, hasbecome a popular form of internet speculation where amounts are staked on the direction of movementbetween two currencies, rather than the actual exchange of one currency for another. There is closeintertwining of the “forex” world with that of binary options, with many companies offering both products.

of movement and gaining a similar adrenalinrush to watching a horse race or a footballmatch with money staked on the result.Binary options are traded on stocks,options and futures markets (for example, theChicago Board Options Exchange and Amex– The American Stock Exchange 4 ) and areseen in many places as financial instruments.However, they’ve been popularized in the lastcouple of years by some very aggressive, veryclever, mainly Israeli enterprises, largely usingCyprus-based companies. Aside of a handfulof independents, the supplier marketplaceconsists of five major “platforms” – softwareproviders who have turnkey solutions foroffering binary trading on the web. Thesehave the best part of 300 “white labels”– essentially risk-taking marketing B2Ccompanies who promote the software of theplatforms on branded sites around the world,usually in return for a setup fee and a profitshare. The largest binary options platform,SpotOption, claims to support 65-70% of theworld market. All five major Israeli platformsare well funded, professionally run, and havemassive transactional volumes. However,the majority of operators using them arepresently unregulated, meaning there is noprotection of investor funds and no marketoversight of their offerings and practices.The options are traded “over-the-counter,”direct from seller to buyer, and the customerrequires little or no knowledge to participate.Naturally the operators attempt to offer their“odds” on an algorithmic basis so that theyshow a net gain for each day’s trading.The financial problems of Cyprus havecaused both platforms and operators (“whitelabels”) to re-think their dependence onthe country, its banks, and importantly itslicensing authority (CySec 5 ). Increasinglythey are looking towards Malta, the Isleof Man, and possibly other places, fortheir global regulation and credibility,while engaging in discussion withregulators regarding national licensing.This is remarkably similar to the gamingenvironment of today, and begs the questionas to which body, where gambling andfinancial services are licensed by differentauthorities, should issue the licence and bethe regulator.Why is the distinction important?Competition in the binary options3London Affiliates Conference, 7-10 February 2013, http://www.igbaffiliate.com/events/marketplace has made regulation, withthe attendant marketing opportunity, anattractive haven for many operators. Thejurisdictions of choice for licensing haveclearly debated, and in some cases struggledwith, the distinction, with varying results asexplained below.However, there are two much moresubtle and compelling reasons why binaryoptions operators really, deeply want to beconsidered purveyors of financial products.The first relates to payment card processing.If a binary option is a gamble, then the allimportantMCC – Merchant Category Code– assigned by the card schemes 6 is 7995. Thisis a restrictive code blocked by many issuingbanks, particularly in countries like Norwayand the USA, where internet gambling islargely or wholly illegal. If however thedeposit transaction when a trader funds hisaccount is a financial investment, then themerchant is able to apply for use of MCC6211, “Security Brokers/Dealers” or even6051, “Non-FI Money Orders.” The relativelikelihood of approval for a transactioneven for a country where gambling is legal,such as Spain, is significantly higher; incountries where gambling is prohibited andpayments methods are targeted as a meansof control, the difference is between virtuallyguaranteed failure of a transaction, and astrong possibility of success.Secondly, religious, cultural andlegislative differences open or closemarkets for the operators. Binary Optionsare popular in the Arab states, wheregambling is illegal under secular andreligious laws. Binary companies are keen tooffer their services in the lucrative marketsof Saudi Arabia, Qatar, the Emirates andothers, but can only do so if they are offeringfinancial services. Obviously construed asa gambling product, taking customers forbinary options would be difficult at best andlargely impossible when considering thepayment aspect.How have different jurisdictionsapproached the problem?The starting point for considerationin a European context is of courseMiFID. Section C of Appendix I setsout a list of “Financial Instruments”and, while it does not mention binaryoptions by name, includes:“(4) Options, futures, swaps, forwardrate agreements and any other derivativecontracts relating to securities, currencies,interest rates or yields, or other derivativeinstruments, financial indices or financialmeasures which may be settled physically orin cash.”From the point of view of operatorswithin the EU, this looks like a slam dunk,clear end to the debate. Binary options fitthis definition squarely, and the force ofMiFID then comes to bear; firms offeringbinary options to the public are required tobe authorized and regulated in their homestate (the state where their registered officeis located). This is a departure from theprevious situation under the ISD whereregulation was required where the activitytook place. From the point of view of anoperator with branches in several countriesit is a welcome improvement, for it opensup the possibility of passporting theauthorization throughout the EU and EEA.Within the EU, implementation of MiFIDin respect of binaries is at different stages.Elsewhere however, different approacheshave been taken. Here follows a reviewof the situation in some of the principaljurisdictions where serious considerationhas been given to the issue.CyprusCyprus has the distinction of having beena first mover in this area, and arguably ofhaving the clearest legislation on the issue.Binary options, beyond doubt, are financialinstruments in Cyprus, and regulatedaccordingly. All Cypriot firms offeringbinary options are required to bring theiractivities within the ambit of the regulatoralongside other investment companyrequirements. What has however muddiedthe waters considerable is the establishmentof a series of delaying and grandfatheringprovisions, which have essentially allowedCyprus firms to continue offering binaryoptions while their applications for licenceissue or modification are pending. At thetime of writing most Cyprus operators whohave applied for licences are “in limbo”pending determination of their applications,but are freely permitted to continue to offerproducts despite the not-yet-determinedstatus of their licence applications. A Cypruslicence remains a valuable prize, despitethe economic difficulties of the country,londonaffiliateconference/schedule4Where they are referred to as “Fixed Return Options.”5Cyprus Securities and Exchange Commission.6Visa and Mastercard, principally. American Express does not permit gambling transactions to be paid forusing its cards..European Gaming Lawyer | Autumn Issue | 2013 | 27

ecause Cyprus is an EU country but withrelatively liberal compliance and taxationrequirements; however, there is massiveunwillingness to place money with Cyprusbanks and this is a heavy disincentive. Theregulatory deposit requirement has beenclarified to reduce this disincentive, andlicensees can hold their collateral outsidethe country; however, the ability to act asa broker while the application is pendingmeans that many brokers have incurredthe relatively low cost of applying, butmay not actually proceed to full licensingwhich is more expensive and burdensome.The situation remains changeable andunsatisfactory.Isle of ManIn this prominent jurisdiction for gamingregulation, two brokers have appliedsuccessfully for gambling licences underOGRA and are up, running, and enjoyingsuccess as regulated gaming operators.That is not the end of the story, however, asthe banking and governmental difficultiesin Cyprus have sent many Cypriot-basedbrokers looking for a more stable licensingjurisdiction. Several have approached the Isleof Man with a desire to move their operationsand take licenses from the FinancialSupervision Commission. An initial rejectionof these overtures by the FSC, apparentlylargely on the basis that it didn’t have theresources to regulate binary options, hasturned into a protracted discussion about apossible hybrid approach where FSC issueslicences, but the GSC with its knowledge ofthe marketplace and procedures providesregulatory supervision on a sub-contractbasis. This is a novel approach but one whichcould pay huge dividends for the island ashundreds of jobs could quickly move there.JapanJapan is of major interest to this debate.It is the world’s most avid consumer ofForex products on the internet, with somecommentators suggesting that there aremore domestic Forex traders in Japan thanthe entire rest of the world. Despite lowerlimits, it is probably true that the net volumeof Forex trades in Japan exceeds all othercountries combined.Binary options trading in Japan ispresently unregulated, and a demonstrationthat there is no notion of criminalityis evident in the physical presence ofrepresentative offices of major platformssuch as SpotOption. Were there any fear ofprosecution no doubt the offshore operatorswould stay physically away from Tokyo realestate! However, legislators and regulatorsare aware of the growing presence of theproduct and serious review is under wayby two bodies, the governmental JapanFinancial Services Agency (JFSA) and theself-regulatory body the Financial FuturesAssociation of Japan (FFAJ). Speculation inthe Japanese press and elsewhere is that aframework has already been agreed, and thatrule changes are likely to forbid certain typesof options. Most significantly, very shortterm and high/low type options are likelyto be prohibited, as the authorities see thesemore as gambling than financial activities.Summer of 2013 was set last year as atarget date for completion of the regulatoryexercise, though at the time of writingthere has been no announcement. Leadingrepresentatives of the industry have beenengaged in continuous consultation with thedrafters and movement is expected soon.The effect of such regulation is likelyto be twofold: first, it is likely to cause asignificant reduction in volumes tradedand profitability for brokers; second, it islikely to perpetuate a black market in themost popular types which afford the bestadrenalin rush for traders!MaltaBinary options in Malta have undergonea transformation from gambling toFinancial Services. In the wake of theCypriot crisis, considerable interestwas shown by many firms in movingtheir operations and licensing to Malta.Previously subject to licensing by theLotteries and Gaming Authority, on18th July 2013 the Maltese FinancialServices Authority announced that it wastaking the view that binary options fellunder MiFID and that it would seek tolicence and regulate operators under theInvestment Services Category 3 licensingregime. An agreement was made totransfer responsibility for existing LGAoperators over to the MFSA and work isunder way. Binary options, which onceappeared to be gambling products in theMaltese environment, are now FinancialInstruments. Malta is likely to emerge asa significant base for Israeli-owned binaryenterprises, as it has the attractions, not tobe under-rated, of a warm climate, relativeproximity to Tel Aviv, an English-speakingpopulation, and a large gaming sector withcustomer service experience. The capitalrequirements for investment companiesin Malta are by contrast likely to be adisincentive for smaller brokers.TurkeyTurkey has been a popular market forbinary options operators, being a countrywhere most forms of gambling are strictlycontrolled and limited to governmentmonopolies. The irony of Turkey’saspirations to EU membership coupledwith its stark opposition to private sectorgambling is noteworthy. Historically, Forextrading has attracted the attention of theTurkish Capital Markets Board (“CMB”)and from August 2011 local licensing wasrequired for all brokers. Since then thenumber of licences granted to Turkish Forexcompanies has reached into double figures,but around two dozen foreign operatorsdeparted or switched to binary options,believing that binaries would be of limitedinterest to CMB. Not so, in mid-2012 theregulator issued a bulletin in which itaccused unlicensed brokers of criminalactivity and required internet serviceproviders to shut down several IP addressesrelated to binary sites. Implicit in the CMB’sruling is the notion that it does not considerbinary options to be financial instrumentsbut rather gambling products. At least twoTurkish brokers appear to have shut downsince, although foreign based operators stillappear keen to offer products into Turkey ifthey can solve the payments issues.The United StatesIt’s easy to make the bold statement thatbinary options trading is legal in the USA- just like driving a car, if you have therequired licence and equipment! Futureshave been regulated at a federal level in theUS for over one and a half centuries, andthe body with official oversight is the USCommodity Futures Trading Commission.The CFTC has issued a licence, forexample, to NADEX (the North American28 | European Gaming Lawyer | Autumn Issue | 2013

Derivatives Exchange) to deal in, inter alia,binary options.It is one thing to have official exchangesbrokering derivative type instrumentsbetween individuals. However, the realquestions relate to over-the-counterofferings, and offshore operators sellinginto US markets. There is no doubt asto the federal government’s position onunlicensed offshore operators; in June 2013both the Securities Exchange Commissionand CFTC took legal action against a largeCyprus-based operator, Banc de Binary.The regulators filed civil suits in Nevada,charging violation of prohibitions onoff-exchange options trading, and illegaloperation of an unregistered futuresmerchant. The penalties sought aremonetary and injunctive. This followedsimilar actions against Irish operator InTradeat the end of 2012; subsequently InTradeappears to have gone completely out ofbusiness.It is interesting to note that the USgovernment has not taken any stance thatbinary options are gambling products; theimplication is that with appropriate licensingin place, the SEC and CFTC are entirelyhappy for these instruments to be offeredto the public. From this it can be concludedthat US legislators are content that theyare Financial Instruments. This is furtherunderlined by absence of the DOJ from theabove proceedings; there is no allegation ofcriminality and no reference to gamblinglegislation. The situation remains analogousto that in the online gambling industry,where indictments have been preferredagainst a handful of major operators whileapproximately 3,000 sites remain availableto the American public. For binary options,two major enforcement actions are underway while Americans continue to haveaccess to over 100 offshore providers.In SummaryBy a show of hands, the world is movinginexorably in the direction of votingbinary options to be financial instruments.Turkey stands somewhat alone in seekingto criminalize their offering as gamblingproducts; the Isle of Man and Malta havehistorically granted licences in the gamingenvironment, but Malta has turned 180degrees to assume all responsibility in theFinancial Services sector, and the Isle of Manlooks poised to move strongly in the samedirection. MiFID appears clear on the issues,Japan and the United States are in no doubt,and in other smaller countries legislativecontrol has come from the financial sector.But are they right? In poker, there is astrong argument that traditional forms aregames of skill. Some variants, however,appear to have no element of skill and couldbe construed as pure games of chance, wherethe player has no element of control andno amount of skill can affect the outcome.Could the same be said for binary options,where longer term plays fit settled notionsof investment but shorter term speculationlooks like a pure gamble? Is trader behaviouran indicator of which side of the line theproduct falls? Certainly the very short(one minute) plays and the widespreadavailability of over-the-counter binaryoptions has moved the clientele from thefinancial community to the entertainmentarena. Is there value in the “one size fitsall” designation of binary options as eithergambling or financial, or should there beconsequences from the conclusion that someforms fit one definition while others are bestviewed as gambling products? If so, who is todraw the line and who is to regulate?Just as, in the sports betting world, in-playbetting with its shorter time frames and fastresolutions has become highly popular withthe public and the operators, shorter termbinary options find great favour with brokersbecause they allow faster churn of greateramounts of money. The dilution of skillcontent coupled with algorithmic offeringallows for greater profitability. A long termbinary option purchase looks like a stockmarket investment. A short term binaryoption purchase looks a lot like an in-playbet. How is the world of binary options to beregulated in the long term, or is it a passingfad that will recede into the backgroundwhen the “next big thing” arrives to consumethe passions of internet gamblers? Theauthor offers, with humility, the suggestionthat regulation from either sector is a goodand necessary evolution for the marketplaceas a whole, and that the legal professionhas a great deal to offer in understandingthe proposition, guiding the brokersand platforms towards a fully regulatedenvironment, and ensuring the maturity ofpublicly offered binary options trading. Ofcourse, those of us working in the criminallaw sphere, either side of the fence, willprobably also have plenty of opportunities toprosecute or defend the cowboys, for therewill always be a Wild West in any rapidlymoving internet environment.The over-riding consideration must be,of course, consumer protection. There canbe no argument that in the longer term,regulation is a desirable outcome for alljurisdictions in order that the public beprotected from sharp practice, paucityof information, misleading claims andmishandling of client monies.Lastly, we should return to the primeinterests of the platforms and brokers.Clearly it’s in their best interests to be seenas financial services, and to be licensed assuch, for the reasons laid out above. Theworld of payments, however, seems to besomewhat behind the curve at the moment.The Risk Management team at FirstData,which has a massive presence in the gamingworld, has recently declared an interest inparticipating in card processing for binaryoptions, and has expressed a preference fordealing with licensed operators. Yet, despitethe majority of licensing activity being inthe financial services sector, it has also ruledthat for the time being, all transactions mustbe coded 7995 (the gambling code). Suchrestrictive policy with the major brokersleaves emerging businesses at the mercy ofless scrupulous acquirers and, in extremecircumstances, might even lead them tomis-coding of transactions through a greyarea acquirer. It further exposes them to veryhigh pricing (but 90% of $100 is better than98.5% of nothing). Our profession can play aleading role in arguing the appropriate bestpractices for both industry participants andtheir payment product providers.r Paul Davis is the ManagingDirector of Counting House(IOM) Ltd., a payments and cashmanagement consultancy basedin Douglas, Isle of Man. Commentsand correspondence welcome:paul@countinghouseltd.comEuropean Gaming Lawyer | Autumn Issue | 2013 | 29

Regulator & Industry Collaboration: Changing the Dynamicby Susan Hensel,President, IAGR & Director of Licensing, Pennsylvania Gaming Control BoardSusan Hensel,n October, my second term asIPresident of the InternationalAssociation of Gaming Regulators(IAGR) will expire and Lau PeetMeng, Chief Executive, SingaporeCasino Regulatory Authority will take over the helm.In my time as President, thanks to the work ofa dedicated Board of Trustees, IAGR has madesignificant progress in establishing itself as the premierinternational regulators association in the world. Incoming years, the association will continue to play animportant role in the future of gaming as the industryand regulators increasingly recognize the importance ofcommunication between the regulator and the regulated.Driving this recognition are factors such asglobalization and technological change that haveput the gaming industry in an accelerated state ofevolution. There is no longer the luxury of time toresolve emerging issues. The advent of mobile phones,tablets, and social media is raising new questions.Today those questions are moving to the forefront ofregulator responsibility and industry opportunity.While we all recognize that we are operating in avery different gaming environment than even a fewyears ago, the question is how can regulators andthe industry move beyond the long talked aboutneed for collaboration to actual collaboration? Howcan we advance industry and regulatory initiativesindependently underway to achieve results?While there may not be ready answers to thesequestions, there are factors at play in the industry todaythat set the stage for exploring new approaches.With more of the same companies operating inmultiple gambling jurisdictions, there are morechances for regulators to work together in theirinvestigation and evaluation of gaming companies.Informally through professional relationshipsdeveloped as a result of organizations such as IAGRand formally through memoranda of understanding,regulators are able to share information with oneanother and cut down on duplication of effort. Wewill see more occasions for cooperation as the conceptof inter-jurisdictional gambling compacts growsand participants gain experience in how to regulateefficiently multi-jurisdictional relationships.Also helping to drive smarter regulation is thevery technology that is bringing about change. Theseadvances have given us tools that simply were notavailable before. Thanks to technology, we are betterable to develop targeted, risk-based regulation thatprovides public protection assurances while savingtime and money. Today, we can see what we couldn’tsee. We can control what we couldn’t control. Wecan send data around the world with a speed that isnear instantaneous. And we can communicate acrosscontinents as if we were sitting next to one another.These abilities are transformative.Compare a jackpot dispute in the days of crude slotmachines with one that occurs today. Then, it was amatter of player versus operator – a “he said, she said.”Today, there is a digital audit trail of all machineactivity that puts an end to any dispute.Then regulatory staff was mandated to oversee theslot count; today central control computer systemskeep track of every penny, eliminating the necessityfor regulators in the slot count room. Then there wasfear that online and mobile capability would be aloophole for underage gamers, but now fingerprinttechnology and other biometrics offer the prospectof immediate verification that the player is who theplayer says he is and is not an underage gamer. Theseassurances ease regulator worries and help open newmarkets. Then casino staff memorized thousands offaces on exclusion lists with the hope of being able tospot an intruder. Today facial recognition softwareis being explored. And then, investigators had noalternative but to travel in order to ensure applicantsuitability. Today some jurisdictions are experimentingwith video conferencing to reduce the time and travelexpense of some background investigations.IAGR has set a goal for itself to be a thought leaderin improving gaming regulation and has undertakennew initiatives as we work to accomplish that goal.We are launching a pilot program of our multijurisdictionalbusiness form so that operators canuse the same material for applications in differentmember jurisdictions and can simultaneously updatethe information when necessary. We are exploringopportunities for making remote gaming test resultstransferable across jurisdictions, reducing cost andtime to market for new games. We are also consideringwhat can be done to develop standards in the nonremotesphere. Within our portal we are developingan IAGR knowledge module so regulators can share30 | European Gaming Lawyer | Autumn Issue | 2013

est practices, discuss emerging issuesand collaborate on solutions. And we areundertaking creation of a statistical databaseproviding a knowledge asset available toregulators and those advising the industry.Finally, we are recognizing the importantrole IAGR can play in acting as a focalpoint for industry bodies such as theGaming Standards Association and theAmerican Gaming Association (AGA) andfor regional bodies such as the regionalgambling regulator associations like GamingRegulators European Forum (GREF)and North American Gaming RegulatorsAssociation (NAGRA). By establishingthese relationships, we are putting interestedpeople or organizations in touch with thepeople who can help make things happen.But IAGR, just like the industry, can onlydo so much by itself to achieve a smarterregulatory environment. In order to trulymake a difference, we need to be workingtogether. There are very real difficultiesin getting a sustained effort underway toimprove the way in which we work. Part is thereality of pressing job demands that providelittle opportunity for abstract thinkingabout how to accomplish long talked aboutobjectives. Part is that despite good intentions,it is just plain hard work to deliver on loftygoals of cooperation and collaboration thatare made from conference podiums.The challenge for the regulator andindustry is to find and exploit opportunitiesto think differently about how we interactwith one another, to find a way to changethe dynamic. We need, for instance, to betalking to one another about how we canpromote discussion between conferences.It sounds good, but how do we actually setabout making those conversations a reality?We also need to think differently abouthow we use technology. How can we leveragethe exploding technological options to dothings better? Can we, for instance, leveragewebinars, blogs, and social media sites toefficiently share information and learn withouthaving to book a flight or leave our offices?Instead of our primary focus being onknowledge sharing from our colleagues,whether regulator or industry, can we tapinto one another across classifications? Canorganizations like International Mastersof Gaming Law (IMGL), InternationalAssociation of Gaming Advisors (IAGA),and AGA share information withassociations like IAGR, GREF, and NAGRA?Can we, for instance, establish knowledgebanks across organizations rather than justwithin associations? And if so, how exactlydo we set about making that work?As I prepare to end my term as IAGR’sPresident and transition to an IAGR trustee,I leave you with these questions. IAGR looksforward to working collaboratively on theanswers that will lead both industry andregulator to a place of better regulation inthe future.SUSAN HENSEL, President, IAGR &Director of Licensing, PennsylvaniaGaming Control Board. Email:shenseljar@state.pa.usA REPORT FROM iGamingBusinessThe Changing Faceof PaymentsA Market Overview and Global TrendsKey Features■ Comprehensive overview of theglobal payments ecosystem■ Review of geographical processand behaviour surroundingpayments, as well as looking atlocal licensing across WesternEurope, and emerging and growingmarkets in Eastern Europe, LatinAmerica and Asia■ An analysis of how theavailability of more convenientoptions are creating newopportunities for alternative andnon traditional payment■ Learn about different paymentmethods: credit and debit cards,mobile, NFC, Ukash, PayPal■ Review of regulation and recentchanges made by SEPA (SingleEuropean Payments Area) and PSD(Payment Services Directive)■ Future trends in local and globalmarkets, ensuring that operatorswill be up to speed in thelandscape as it exists today and inthe future.Ask for your free executive summary today quote 13IPayments2and email reports@iGamingBusiness.comCall +44 (0) 207 954 3489 to order your copy ofiGB Payments report todaywww.iGamingBusiness.comEuropean Gaming Lawyer | Autumn Issue | 2013 | 31

The Remote gambling industry as apotential market for capital investorsBy Marc H. Ellinger, Attorney at law with Blitz, Bardgett & Deutsch, Missouri, USA andHenrik Norsk Hoffmann, Attorney at law in DenmarkMarc H. EllingerHenrik Norsk HoffmannIntroductionIn recent years land based gambling operators in theUS have experienced increased interest from hedgefunds and capital investors who are looking for newand attractive investment opportunities. Primarily,these funds and investors are seeking growth stock, asopposed to dividend company stock.While it is still a subject of discussion in the UnitedStates, the landbased industry has been presentfor a very long time and has developed into a fullylegitimate industry with high level of control andstrict compliance regulations.The industry has also improved its image, the imageof the products that it offers. A trip to a Casino togamble is now accepted as a legitimate kind of adultentertainment for everybody, and not limited topeople with gambling problems.Further, the fact that many of the largest playersin the industry are now listed on the stock exchange,as well as the active role that some of the casinoshave taken in their local communities, e.g. the rolethe casinos took in the south in the days and monthsafter Hurricane Katrina hit the area around NewOrleans with emergency housing and rebuilding ofthe community, has helped the landbased gamblingindustry’s image in the US.The general acceptance of the industry helps toexplain investors’ interest in capital investments intothe industry.Similarly, for more than a decade some of thelargest players in the European online gamblingindustry have been listed on stock exchanges aroundEurope, and the European online gambling industryhas long been run by very professional entities.However, the fact that online gambling was prohibitedunder national law in most European jurisdictionshas delayed the broad and general acceptance of theEuropean online gambling industry in public opinionin Europe as a legitimate entertainment industry.The wave of legislative reforms in this areathroughout Europe is now beginning to work in thefavor of the European online industry, and possiblyin the near future make the industry interesting forcapital investors as well.The legislative reforms in EuropeStarting with Italy in 2006, Europe has experienceda wave of legislative reforms in the area of remotegambling. The models chosen are all different butall reforms have in one form or another allowedfor privately owned operators to offer their servicesof online gambling and betting either instead ofor parallel to the state owned (former) monopolyoperators.And since Italy initiated the process of legislativereforms jurisdictions like France, Spain, theNetherlands and Denmark have joined the club ofEuropean jurisdictions where privately owned entitiescan offer betting and online gambling. AlthoughGermany has decided not to allow the offering ofonline casino games and poker, but limit the Germanreform to betting, Germany is the latest Europeanjurisdiction to join the trend of opening the gamblingmarket for private operators.One of the most important parts of the legislativereforms is the access to marketing for their gamblingoperation that is granted to private operators, whohave been granted a license to operate in a givenEuropean jurisdiction. Most jurisdictions havesecured various other measures, such as paymentblocking and ISP-blocking to keep out non-licensedoperators from the market. But not only are paymentblocking and ISP-blocking very expensive due tothe necessity of involving the court system, but theyare also slow and often prove not to be very efficientif they work at all. However, allowing the licensedoperators to advertise makes it very difficult fornon-licensed operators to build a brand and to gaincustomers and market shares, since the non-licensedoperators will not have access to marketing throughthe traditional and local marketing channels. Indeed,the control of advertising is central to the UnitedKingdom’s forthcoming reforms, with the legislativechanges not including any ISP or financial transactionblocking measures at this time.32 | European Gaming Lawyer | Autumn Issue | 2013

The right to advertise gives the licensedoperators the ability to build brandawareness and acceptance for privateoperators in the public opinion, andslowly but surely the offering of bettingand online casinos is being recognizedas legitimate adult entertainment, andno longer something illegal which shouldbe avoided.Is Online gamblinginteresting for capital investors?It is a general misperception of thegambling industry that the operation ofonline gambling is like printing money.There are many operators availableonline and the competition is only a fewclicks away. Further, because manypeople including politicians still believethat it is easy to make a lot of money withlittle effort in the online gambling industry,the revenues derived from betting andonline gambling are heavily taxed. Finally,and possibly due to the history of thegambling industry and its previous linksto organized crime, the licenses and theoperation of betting and online gamblingare subject to detailed regulation and strictsupervision and control from the localgambling boards.In other words the industry is faced witha high level of taxation, high expenses oncompliance and low margins as a result ofstrong competition.This being said the operators that knowtheir business and run a smooth andprofessional operation are making money.The bigger operators and operators thathave been established for a longer period oftime and consequently have a known andpopular brand, do generate profits that areindeed attractive for investors.With the legislative reforms in Europe,the industry is beginning to enjoy muchhigher levels of acceptance as a legitimateentertainment industry. This also means thatthe number of potential customers for theprivate operators increase. As people beginto realize that betting and playing casinogames and poker online is not illegal, andthat licensed operators are under supervisionof the national gambling control board, theyconclude that it is safe to play. The formermonopoly operators typically are offeringfewer and less interesting products at ahigher price than the private operators.Yet, in certain European jurisdictionsprivate operators face huge challengescoping with competition from the stateowned former monopoly operators. This isnot due to the state owned operators’ abilityto run their operations at a more profitablelevel, but simply because the state ownedoperators have been given a huge and unfaircompetition advantage.In Denmark the state owned operator,Danske Spil, has been forced to split itsoperation between two different companies:one company to offer the games on whichDanske Spil continues to enjoy a monopoly(horse race betting, lotteries and bingo) andanother company to offer the games that areopen to private operators as well. However,the Danish authorities allow Danske Spilto use the same brand for both companies.This allows Danske Spil to contribute mostof the brand awareness marketing costs tothe monopoly company where the marginis not under pressure from competition,giving the licensed games company anunfair advantage against the privateoperators on the market for licensed games.The authorities have also allowed DanskeSpil to cross sell their licensed games tothe customers in their monopoly gamescustomer database.Competing with large state ownedcompanies requires a considerable amountof money. Although public opinion ischanging in the favor of the industry, banksand other financial institutions have provenreluctant to get involved with the onlinegambling industry, despite the fact thatlicensed operators are legal and regulated.However, for political reasons banks,at least in Denmark, refuse to have onlinegambling operators as customers withDanske Spil as the only exception. Thisapproach from banks and the lack of accessto opening a Danish bank account meansthat it is more difficult for operators licensedin Denmark to provide optimal customerservice to their Danish customers. .With increasing levels of competitionand increasing costs for taxes and licenses,it is not unlikely that at least someoperators will need external capital tomaintain their ability to compete in termsof securing customers through marketingand promotions and by developing andreinventing available products to keep theiroperation attractive to the market.Current trends make the online gamblingindustry a good option for capital investors.Capital investment ina gambling operatorAs a consequence of the detailed regulationsand compliance requirements, incorporatedinto most gambling legislation regimes,purchasing voting power and ownershipin a gambling operator presents obstaclesthat are unknown to most other industries.Many jurisdictions require licensingnot only of the entity which is legallyresponsible for the provision of gamblingservices, but also of the key individualsthat are part of management and/or whohold a certain size of the ownership ofsuch entities.Although licensing of individuals is notrequired yet under Danish law, the Danishgambling legislation also requires disclosureof ultimate beneficial owners and certaindata regarding such individuals.The Danish legislation sets two differentthresholds. The first level is defined asqualified ownership and includes everybodywith an ownership of 10 % or more. Thesecond level is 50% ownership or more.If a person owns more than 10% ofthe license holder/applicant, then thatperson must submit a personal declarationto the Danish Gambling Authority.The personal declaration must containinformation of marital status, place ofresidence for the latest 10 years, someaspects of that person’s career and financialstatus and criminal record.The same requirement applies forexecutive officers and board members incompanies that own 10 % or more of theshares in a gambling operator licensed inDenmark.If the 50% threshold is reached, additionalfinancial information about the natural orlegal person holding 50% or more of theownership interest in the gambling operatormust be submitted including operatingbudget audited annual reports covering thelatest 5 years.In situations where the above mentionedthresholds of ownership of a gamblingoperator, which holds a license in Denmarkand which has already initiated operationin Denmark, are reached the new ownermust be approved by the Danish GamblingAuthority before the ownership title to theEuropean Gaming Lawyer | Autumn Issue | 2013 | 33

shares in that gambling operator can betransferred to the new owner.Such requirements as the ones describedabove are not unique for Denmark, butare a part of the gambling legislation inall European jurisdictions that offer thepossibility of obtaining a gambling and/or betting license. There are as manydifferent systems as there are jurisdictions,and the Danish legislation is one of theless demanding and strict in Europe, butnone of the European jurisdictions are asdemanding as some US jurisdictions.The United States AsAn Emerging MarketIn recent years, private equity firms havemade significant inroads in the gamingindustry in the United States. Perhaps theprime example of that is the controllinginterest in Caesar’s by Apollo and TPG,two of the largest private equity funds inthe United States. With the emergence ofthe online gaming industry, particularlyin Nevada, private equity firms, primarilythrough acquisitions via the gaming firmsthey currently have interests in, are startingto have a presence in the online market.Again, Caesar’s is a good example as itexpands into the online field. However, theprivate equity interest tends to be in more ofa growth model, that is appreciation of thevalue of the stock, as opposed to a dividendor return model where investors are lookingto receive profits from the earnings of thecompanies.Since online gaming is in its infancy inthe United States, it does appear that thegrowth model will become the primarymodel for online gaming companies in thenear future. Thus private equity will likelybe interested in participating in these onlinegaming operators.Private equity and capital investors thatare interested in acquiring an interest inoperators and operators which are interestedin ceding control or selling substantialownership stakes to private equity entities,should be cognizant of the complex andvaried regulatory environment in the UnitedStates. Operators are going to be licenseddirectly by a state or tribal entity whichis going to require the regulatory entity’sapproval prior to the change of controloccurring. Even if the private equity andcapital investors take a minority interest,or a passive interest, in the operator theremay be licensure requirements or waiversrequired to be issued by the local gamingjurisdictions.As most land-based casino operatorsand suppliers doing business in the UnitedStates are well aware, the licensure processin some states can be very thorough, evenbordering upon onerous. Substantialfinancial records, criminal backgroundhistories, and interviews are the norm inmost licensing jurisdictions if an entity isgoing to take control of an existing licensedoperator or have a substantial controllinginterest in such an operator. As onlinegaming is truly emerging in the UnitedStates, entities seeking to get in the fieldwill go through what may in many casesbe the first licensing experience for certainjurisdictions. This initial experience alwaysentails a more thorough review which oftenis more time intensive and possibly morecostly due to the relative lack of knowledgeof the online gaming field in mostregulatory jurisdictions.As a result, private equity interests,which have not gone through the licensingprocess, need to be cognizant that investingin online operators in the United States willentail a substantial level of investigation andregulatory compliance. Similarly, an existinglicensed operator, who has an interest inceding a portion or all of control to privateequity interests, will have to understand thatthere could be substantial delays in allowingthose transactions to occur if the privateequity operators have not previously beenlicensed in such jurisdiction.Since the online gaming market is stillsmall and new in the United States and isconfined currently to intra-state gaming,it may take some time until economiesof scale and the value of operators reacha point where private equity will have aninterest in making substantial investments.However, if the federal regulatory climatewere to change, either by action of Congressor through the judicial system, it is possiblethat the market may grow much morequickly and thus the appeal of investing inonline gaming in the United States woulddramatically increase.Ultimately, online gaming operators andinvestors who have an interest in onlinegaming operators should be laying plans toexpand into the United States market and inconjunction with the same, ensure that theywork diligently to maintain positive publicrelation strategies and effective compliancestrategies so that as the United States’market opens up they will find licensuremore easily obtained.As is evidenced in the discussion above,the United States market is substantiallybehind the European market in onlinegaming, but as time and technologyadvance, it is likely that the US market willcatch up and operators and investors needto be prepared for that occurrence.ConclusionWith the opening of the European onlinemarkets the online operators are looking atbetter access to the European markets, butthe price for this in increased marketingexpenses, gambling taxes and high licensefees places additional financial pressure onthe online operators.In a market where the banks and financialinstitutions are reluctant at best to accept theonline operators as legitimate entertainmentbusinesses the access to external capital islimited.Until now this has not really been aproblem, but with the increased costsof operation combined with increasedcompetition, it cannot be excluded thatsome operators are forced to consideralternatives to the cash flow financedbusiness model.For capital investors around the worldthis might turn out to be an attractiveopportunity to explore, much the wayinvesting in land-based casinos in theUnited States have become common.MARC H. ELLINGER, Attorneyat law with Blitz, Bardgett &Deutsch, Missouri, USA. Tel:Phone: +1 573.634.2500 or Email:mellinger@bbdlc.comHENRIK NORSK HOFFMANN,Attorney at law in Denmark, Tel:+49 40 3496 0212 or Email:hnh@hnhlaw.eu34 | European Gaming Lawyer | Autumn Issue | 2013

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