Legal action to counter new UK gaming measures gains government support

Some 240 eGaming representatives – gaming companies, suppliers,
government departments, accountants and lawyers – attended the 4th KPMG eGaming Summit at the Sunborn Yacht Hotel, Gibraltar in April to gain an industry up-date from the Regulator, hear of jurisdiction’s progress as a global communications hub – consider the impact of remote gambling across Europe, the introduction of bitcoins and dangers of upcoming UK legislation

Gibraltar’s internet gaming sector, employing 3,000 people, is “reasonably confident” that there will be few – if any – operators defecting back to the UK to cut costs, despite new licensing and tax systems being introduced there from the end of this year.

But the jurisdiction’s eGaming industry that accounts for some 80% of UK bets seems resigned to the fact that taking legal action is probably the only means left available to try to prevent planned licensing changes and imposition of a 15% point of consumption (POC) tax that will add significantly to operating costs.

If a court battle does result, Gibraltar’s government “will certainly intervene… to ensure that the interests of Gibraltar and its people are represented and protected, we will not initiate action, but were action to commence we would certainly seek to make sure that our people are supported – something in which we have an absolute responsibility”, Albert Isola, Minister for Gaming told 240 international senior eGaming delegates at the 4th annual KPMG eGaming Summit in April.

eGaming accounts for over 21% of Gibraltar’s gross domestic product and has attracted all major operators to create the world’s premier remote gaming jurisdiction. Together, they contribute €53.5m through duty receipts, corporation tax and employment taxes.

Government and industry representatives have so far failed to influence British Ministers and officials on the need to make any changes with the result that the Gambling (Licensing and Advertising) Act, having completed its Parliamentary passage, is expected to receive Royal Assent in May and the Tax Act, containing the PoC measure, in June.

The Gibraltar Betting and Gaming Association (GBGA) is so concerned at the new licensing measures – which it claims will significantly reduce rather than improve consumer protection and lose rather than add revenue for the UK Treasury – that an application for a High Court Judicial Revue is envisaged to stop implementation of the Acts.

Licence applications and fees are likely to produce “a mere £15m” a year for the Gambling Commission (GC), but HMRC is looking to get at least £270-290m a year from an estimated 3m-plus active UK punters. Duplication of compliance costs will add
further to the operators’ burden.

Industry advisor, QC and former Chief Minister, Sir Peter Caruana, told delegates at the summit, that the UK measures “substantially weakens consumer protection by multiplying the supply chain with a range of weak suppliers”.

He revealed that Gibraltar had unsuccessfully proposed that the UK adopt “a system of modified passporting… that would have allowed the UK regulator to rely on local regulators in approved jurisdictions of local gaming companies, as an extension of the UK regulator and in which the government and the UK regulator had confidence”.

The UK’s insistence on remote gambling operators, including those from already well-regulated jurisdictions, having a separate British licence, “establishes a quite unprecedented system that effectively allows operators with little or no market penetration and no UK business and no UK nexus, to obtain a licence.” As things now stand, Caruana insisted the UK “will not be able to effectively and reliably regulate operators spread around the world”.

He warned “the cloak of a UK licence regulated by the Gaming Commission will, to the rest of the world – rightly or wrongly – be interpreted as having a badge of reliability, quality and respectability”. It meant rubber-stamping the reputation of jurisdictions in which operators are established, and “they may not be worthy of it, adding to the risk and damage to the UK’s reputation”.

Border limits powers

The Commission will have “wide-ranging powers to enable it to ensure compliance and to investigate and prosecute offences, including powers to access licenced and unlicenced premises and premises used in conjunction with gambling, (such as the gambling operator’s head office)”.

But as Phil Brear, Gibraltar’s head of gambling regulation, pointed out to his audience: “Let’s not forget that regulated powers stop at the border and the typical (to be UK licenced) operator is based hundreds, if not thousands, of miles away from the licencing jurisdiction, often speaking a different language, not subject to EU controls, and usually with no local regulator at all!”

Even under the existing licensing arrangement, the UK Commission had seen three licensed gaming operators fail in six months “All gave off distress signals and all went under without paying customers back and I would say these are structural matters the Commission should have been alive to – but it wasn’t”, Brear revealed. “Losing one may be unlucky, losing two may be careless, but losing three – in six months – really begs some questions about the process!”

Statistics show that if somebody is gambling in the UK at present, they are 7-10 times more likely to be on-line with a Gibraltar operator than anybody else; the fear is that higher operator costs as a result of the UK’s new measures will drive consumers to overseas companies, often in the Far East, that have less stringent, if any, consumer protection controls.

Brear suggested that “some existing UK operators will go to the wall – they will either be taken over or become shadows of their former selves – UK companies will make and report lower profits to the Exchequer, and some will no longer be UK companies and so report nothing at all.”

He told his audience: “A legal challenge is more likely than not and we are very much in the thick of it and it looks like it will be that way for some time.” A court action would seek to show that the UK measure is unnecessary, lessens consumer protection and adds unreasonably to operators’ costs.

In EU law, the UK has to have a reason to change its legislation to make it more difficult and expensive for the licensed and regulated industry to operate there. And I don’t believe it has had a problem with consumer protection”, Brear maintained. And he added: “[Also, the UK’s] action must be proportionate – no more than is necessary.”

EU law provides freedom to supply services across all Member countries and makes clear that the only justification for placing restrictions is if there is a legitimate aim. Caruana said: “There is no evidence to show (the existing licensing system is wrong) and there are alternative, less burdensome proposals to achieve the aim that will enhance, rather than degrade the supposedly legitimate aim of protection of UK citizens”, he said. “It remains to be seen whether the industry or any part of it, will choose to back the legal challenge.”

The concern of Gibraltar’s 28 eGaming operators is not just about the costs resulting from the new licence regime, but also the damage to the on-line gaming industry’s reputation generally. If some UK licence holders have insufficient financial controls and do not operate sound anti money laundering processes, it will combine to “degrade existing levels of consumer protection”.

And the result could fuel demands more widely for still greater controls or restrictions against overseas operators! Nevertheless, there is a common view that concerns about the impact of the UK measures on Gibraltar tend to be overstated.

Some established operators may chose to make alternative arrangements, others could reconfigure their operations, but the eGaming sector is still growing here and will continue to do so”, Caruana maintained.

Michael Carlton, chief executive of Victor Chandler, the jurisdictions first on-line gaming company with the largest number of employees, advised delegates: “Gibraltar is our home where 90% of our staff is based. However, that is not to see that there may be opportunities to locate some parts of our operation to other jurisdictions.”

Jurgen Rautier, chief executive of William Hill (Gibraltar) that employs 450 people locally, saw opportunities to develop new international business, but only in well-regulated markets. He said: “People are becoming more mobile and in the two days before the Grand National last year, we took 2,500 bets per minute”, and there is a transition from traditional means of betting towards mobile solutions.

Martin Welgold, chief financial officer for the Gibraltar-based bwinParty, the world’s largest on-line gaming company, confirmed his company had no intention of departing. “Only 10% of our business comes from the UK”, he pointed out.