Cyprus Prepares for Interactive Gambling

20 September 2004

The Republic of Cyprus, which was welcomed into the European Union in May 2004, will soon adopt new regulations for both traditional and online gambling. The first drafts of new gambling laws have been prepared by a team led by Paddy Whur of the Nottingham-based law firm Poppleston Allen, and the main government bodies have already given their support for the laws to appear before Parliament sometime next month.

"Gambelli really means that if you are an E.U. state, you need to be getting your house in order. Otherwise you're going to be leaving yourself open to foreign operators coming in and challenging your system."
- Paddy Whur
Advisor to the Cypriot Government

One of the main motivating factors behind the government's plans to overhaul gambling legislation is the proliferation of illegal gambling in Cyprus. The government estimated in 2003 that the illegal gambling market had grown to be five times the size of legal market, meaning the government is missing a huge amount of potential tax revenue.

After signing on to help the government overhaul its gambling legislation, Paddy Whur and his team would eventually conduct a study of their own concluding that the illegal market was probably closer to eight times larger than the legal market.

Joining the European Union, and hence inheriting a new sets of rules (such as those set out by the Gambelli decision), also served to facilitate the revamp.

Whur said the government had ignored its outdated legislation for the last five years.

"Once they started to talk to me," Whur explained, "the Gambelli decision prompted them to realize that putting their head in the sand wasn't an option. Gambelli really means that if you are an E.U. state, you need to be getting your house in order. Otherwise you're going to be leaving yourself open to foreign operators coming in and challenging your system."

In addition to being a partner at Poppleston Allen, Whur serves on an advisory group to Britain's Department of Culture, Media and Sport in relation to the country's new gambling legislation. He advises Ladbrokes and represents them in contested hearings in England and has represented Internet operators in Gibralter, Belize and the Caribbean over the course of the last decade.

Whur learned that the Cypriot government planned to tender the overhaul of its betting laws and traveled to Cyprus in August 2003 to assemble a team to vie for the project. While in Cyprus, he enlisted the help of Kyrpos Ioannides of KGMC Advocates and Marios Klitou of Klitou & Partners. Professor Colin Manchester from Birmingham University in England also joined the team, which beat out international competitors Deloitte, PriceWaterhousecoopers and KPMG for the rights to work with the Cypriot government.

Before drafting Cyprus' gaming legislation, the team conducted a report on the current state of the betting industry within Cyprus and the ways that it might change due to international trends in the industry, the growth of e-commerce and technological developments. Special attention was given to the betting regimes of other E.U. countries, their tax systems and their methods of combating illegal betting. The report was delivered to the Betting Steering Committee, which consists of representatives from Cyrpus' five main ministerial departments.

Based on the results of its report, Whur's team then drafted its suggested regulatory framework, which satisfied the Betting Steering Committee.

"We were told that this was the fastest piece of legislation that the civil servants had seen prepared in Cyprus," Whur said.

One of the main problems," Whur said, "was that the taxes for traditional betting were, as he put it, "higher than I'd seen in any worldwide jurisdiction--and it was a point-of-sale taxation."

So the team suggested the government switch to a gross profit tax regime at 15 percent, a move they think should eliminate illegal betting on the island.

The government originally intended to revamp only its existing regulations on traditional betting, but during the reporting stage of the process, Whur's team advised the Betting Steering Commission that Cyprus could benefit greatly by implementing a regulatory structure for online gambling.

"I explained to the government what had been happening in the U.K. with regard to online reform and also other jurisdictions like Malta, which had seen an opportunity in online gaming," Whur said, "and we recommended as well as dealing with traditional stuff that they should look at actually creating a licensing system to permit online betting and online casinos and poker rooms from Cyprus."

The government approved the suggestion, and Whur's team set out to create a second set of regulations to cover online gambling.

The legislative draft recommends adopting a 0.0 percent tax rate to entice operators to set upon the island. Only an annual license fee would apply to operators.

"One of the benefits they have is an exceptionally good legal accountants (sic) and banking system in Cyprus," Whur explained, "and the double taxation benefits for foreign companies setting up in Cyprus are also beneficial. So we've tried to persuade them that the best thing to do to get interest is to keep taxation as low as possible, and we've actually recommended zero, which we think the government is going to go for."

If ratified, the legislation proposed by Whur's team would establish licensing schemes for online lotteries, betting exchanges, casino gaming and sports betting.

Both the traditional betting legislation and the I-gaming legislation would establish a new gaming regulator that would consist of at least one representative from each of the government's five main ministerial bodies as well as an independent chairman with industry knowledge. Additionally, a built-in criminal offense for cheating would lead to criminal sanctions and license revocation for any operator involved in cheating.

Betting exchanges would be permitted to operate from Cyprus, but would not be allowed to match bets on racing. There's only one track on the island, and according to Whur, "the pool of horses and pools and jockeys and owners is so small that we think there is a real chance of the system being corrupted if betting exchanges are allowed to take bets on local events."

The Betting Steering Committee has already scrutinized both pieces of legislation and approved nearly every tenet. The committee will introduce the regulations into Parliament sometime next month when its members return from summer vacation. Whur expects both pieces to pass into law quickly.

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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