Gaming law in the Netherlands has seen numerous developments in the first months of 2008. The European Commission took a new step in the infringement proceeding targeting the sports betting monopoly. The proposed Online Gaming Act has been rejected by the Senate. The highest administrative judiciary intends to ask preliminary questions to the European Court of Justice on the allocation of sports betting and horse betting licenses. Despite these developments, the government has made it clear that it does not intend to liberalize its policy on gaming. Moreover, Justice Minister Ernst Hirsch Ballin has stated that he intends to maintain the prohibition on online gaming by addressing payments service providers and Internet service providers assisting online gambling operators.
The Rejected Proposal for an Online Gaming Act
Currently, all offering of online gaming to Dutch residents is illegal. This includes the offering of online gaming to Dutch residents by operators licensed in other member states. It is not possible to obtain a license for offering online gaming in the country.
The proposed Online Gaming Act was a part of the government's fight against online gaming operators. The proposed act would have created an exclusive but temporary license for online gaming. Justice Minister Hirsch Ballin's intention was that the temporary offer would be an experiment to gain knowledge on, and experience with, online gaming. The experimental license was supposed to be granted to Holland Casino, the state-owned casino gambling operator. Holland Casino, in turn, was supposed to offer a trustworthy and safe alternative for the estimated 400,000 Dutch residents that are currently gambling with illegal operators. The proposed act has met fierce criticism from the European Commission, high advisory bodies and members of the Senate. One of the points of critique was a possible infringement of European law. Two rounds of debate were held in the Senate, and on April 1, 2008, Senate members voted 35-37 against the proposed act.
It is noteworthy that a majority of the Senators did not express any concern about a possible infringement on European law, or about provoking the European Commission to initiate a second infringement proceeding on Dutch gaming regulations. The main arguments expressed in the debate ranged from a wish by the conservative Christians and socialists for a total ban on online gaming and a strict enforcement policy on illegal operators on the one side, to, on the opposite side, the liberals’ wish to admit more companies in the participation of the experiment.
However, the rejection of the proposed Online Gaming Act does not mean that the government's efforts to create an exclusive license for Holland Casino have come to a full stop. Justice Minister Hirsh Ballin has stated that he now intends to incorporate the exclusive online gaming license in the newly-proposed Gaming Act. This new act is intended to replace the 1964 Gaming Act. The justice ministry expects that this separate piece of legislation will be discussed in the Tweede Kamer, or Lower House, this summer. Setting aside the possible incorporation of regulations on online gaming in the near future, the proposed act would not drastically change Dutch gaming policy. In our view, the most notable change is the installation of a Gaming Authority with more competences than the current Gaming Board.
Reasoned Opinion on Sports Betting Monopoly
The European Commission has initiated an infringement proceeding against the Netherlands because of the single-license system for sports betting. The commission has stated in its letter of formal notice, dated April 4, 2006 -- and in its supplementary letter of formal notice, dated March 21, 2007 -- that this monopoly on sports betting infringes the freedom to provide services, contained in Article 49 of the European Community Treaty (EC Treaty).
On February 28, 2008, the European Commission issued a press release stating it had sent a reasoned opinion to the Netherlands regarding its policy on sports betting. A reasoned opinion initiates the second stage of an infringement proceeding. (The third and final stage is a proceeding before the European Court of Justice.)
In the reasoned opinion, the Dutch government was reportedly asked to change its current regulations into regulations that are compatible with European law. However, Justice Minister Hirsch Ballin has thus far refused to publish the reasoned opinion. During the second senatorial debate on the Online Gaming Act, Mr. Hirsch Ballin stated that when his reaction to the European Commission is published, he will publish the reasoned opinion. It is expected that Mr. Hirsch Ballin will ask for an extension of the date by which a response must be given. If so, it is expected that the reasoned opinion and the reaction will be made public in late June of this year.
During the senatorial debate Mr. Hirsch Ballin emphasized that he does not agree with the Commission’s point of view. He persisted in his position that the Dutch policy on sports betting does not contravene Article 49 of the EC Treaty. Mr. Hirsch Ballin also noted that the European Commission expects the Netherlands to recognize sports betting licenses issued in other member states. According to Mr. Hirsch Ballin, however, there is no case law by the European Court of Justice stating that the principle of mutual recognition of licenses is relevant in gaming law.
At the moment, two cases involving online gaming operators are pending before the highest judiciaries. In the proceedings on the merits, the De Lotto v. Ladbrokes case is pending before the highest civil judiciary, the Supreme Court. The opinion of Advocate General Keus is noteworthy in many respects and discussed below. In the administrative case, Betfair v. Ministry of Justice, preliminary questions from the Council of State to the European Court of Justice are expected.
De Lotto v. Ladbrokes
The dispute between De Lotto and Ladbrokes was decided in summary proceedings by the Supreme Court on February 18, 2005. The pending litigation constitutes the proceedings on the merits.
De Lotto demanded an injunction verdict, prohibiting Ladbrokes from offering games of chance to Dutch residents. De Lotto stated moreover that Ladbrokes, by offering said services, committed a tortious act. According to De Lotto, Ladbrokes is, de facto, given an unjustified advantage, because De Lotto is bound to strict Dutch licensing obligations and requirements while Ladbrokes is not. In the proceedings on the merits, a more substantive examination of the conformity of Dutch gaming policy with European law, and of the role of the sports betting licensee, De Lotto, can be made in comparison to the summary proceedings.
In his opinion, delivered during the hearing on April 4, 2007, Advocate General Keus referred to the infringement proceedings initiated by the European Commission. Other preliminary questions from courts in other member states that are relevant to this case are also discussed, as is the fact that the Council of State intends to ask preliminary questions regarding the allocation of sports betting licenses. According to Mr. Keus, an infringement proceeding by the European Commission is a more suitable framework for a substantive examination of the Dutch gaming policy, compared to the national civil dispute between De Lotto and Ladbrokes. Mr. Keus emphasized that if the European Commission proceeds with the infringement proceeding, this will lead to a final answer from the European Court of Justice on the conformity of Dutch gaming law with the EC Treaty.
Although Mr. Keus concluded that Ladbrokes' appeal on European law should be rejected, he also provided guidelines for the subjects of possible preliminary questions, and proposed two possible, preliminary questions regarding the compatibility of European law with the Dutch situation.
The first proposed question is based on a comparison of the current gaming policy and its aims -- as described by Mr. Hirsch Ballin -- with a situation in which there is no national regulation of gambling, and asks if the current situation is compatible with European law. However, this proposed question takes for granted that the Dutch gaming policy is aimed at, and suitable for, the containment of the human urge to gamble. This is the definition of the aims of the current gaming policy expressed by the government, a view which Ladbrokes opposes.
The second proposed question relates to the specific nature of a civil injunction proceeding by a licensee against a non-licensed competitor. Mr. Keus proposes to ask the European Court of Justice whether an injunction verdict by a judiciary, which leads to a specific restriction on the freedom to provide services, should also be justified by a reason of overriding general interest -- such as the protection of consumers, prevention of problem gambling and the counteraction of fraud and criminal activities -- as defined in case law by the European Court of Justice.
Betfair v. Ministry of Justice
In Betfair v. Ministry of Justice, the highest administrative judiciary -- called the Council of State -- stated in a letter to the litigating parties on Feb. 4, 2008 that it intends to ask preliminary questions regarding the compatibility of the Dutch allocation of the exclusive license for sports betting and the exclusive license for horse betting.
In its proposal for preliminary questions, the council formulated questions on the principle of mutual recognition of gaming licenses, the transparency of the allocation of an exclusive license and the automatic renewal of gaming licenses.
The litigating parties were offered a four-week period during which to formulate comments on draft preliminary questions that were proposed by the council. It is not yet clear when the final questions will be made available by the council.
Possible Blocking of Financial Transactions and Access to Web Sites
In a press release dated Jan. 29, 2008, the ministry of justice stated that it will “take a firm line” against financial institutions that offer services to unlicensed gaming operators. On March 4, 2008, Justice Minister Hirsch Ballin sent a letter to the Senate which mentioned his intention to address not only financial institutions, but also Internet service providers.
The justice ministry compiled a blacklist of 30 online operators that are aimed at the Dutch market. This list will be issued this spring to the Dutch Banking Association. The ministry expects financial institutions to refuse clients who are either operating illegal online gaming Web sites in the Netherlands, or clients who operate online gaming Web sites from abroad and are excepting Dutch residents as clients. The press release stated that the ministry will take legal action against companies who “nevertheless have relations with clients who operate illegal gaming websites in the Netherlands.” It is noteworthy that the press release was not issued by the public prosecution department but the justice ministry, which, itself, has no authority to indict individuals or companies -- it can merely file a complaint with the public prosecution department.
On the evening of Jan. 29, 2008, a debate on the proposed Online Gaming Act was held in the Senate. Senators referred to the press release that was issued in the morning and asked if this “firm line” includes criminal prosecution, which Mr. Hirsch Ballin promptly confirmed.
These statements by Mr. Hirsch Ballin resulted in several critical reactions in the press from the Dutch Banking Association and Currence, operator of leading Dutch payments service provider IDEAL. A spokesman for Currence mentioned in a radio interview on Jan. 30, 2008 that it is in principle unwilling to comply with Mr. Hirsch Ballin's request, for as long as no judge rules that facilitating payment transactions to gaming operators is illegal. The Dutch Banking Association mainly pointed to the practical problems and stated that the debate on the acceptance of clients should only relate to Dutch accounts, held by Dutch companies at Dutch banks.
The criticism from the Dutch Banking Association, as expressed on its Web site, may have been effective. In a letter to the Senate dated March 4, 2008, Mr. Hirsch Ballin was less threatening in his remarks than in his Jan. 29 statement. Mr. Hirsch Ballin now stated that only the provision of bank accounts to online gaming operators is illegal. The justice minister also acknowledged that banks cannot completely monitor or block financial transactions between Dutch residents and online gaming operators. Dutch banks cannot prevent Dutch residents to transfer funds through a third party, such as an online bank account at a bank in another jurisdiction (Mr. Hirsch Ballin explicitly mentioned a PayPal account). Since PayPal has a banking license in Luxemburg, the justice ministry stated that it cannot oblige a bank with a foreign license to break up its relations with online gaming operators.
Because of the fact that the blocking of Dutch payments service providers can be circumvented, Mr. Hirsch Ballin stated on March 4, 2008 that he intends to address Internet service providers, as Internet service providers can remove, or block access to, illegal Web sites. Mr. Hirsch Ballin stated that the police and the public prosecution department can indicate this possibility to the Internet service providers regarding online gaming operators. The justice minister stated that such an approach on illegal Web sites by police and public prosecutors often leads to a "positive action" by the Internet service providers.
According to Mr. Hirsch Ballin, the public prosecution department is willing to take action against operators of online gaming, and against intermediaries such as payments and Internet service providers that serve these operators.
However, if the approach as described above proves to be ineffective, Mr. Hirsch Ballin has threatened to propose legislation that blocks transactions to and from online gaming operators. This legislation would be similar to the U.S. Unlawful Internet Gambling Enforcement Act. The justice minister did not mention that similar regulations to the UIGEA that prevent financial transactions to and from online gaming operators have already been criticized by the European Commission as infringements of the free movement of capital, as laid down in Article 56 of the EC Treaty.
On March 3, 2008, France received a detailed opinion from the European Commission following a draft decree similar to the UIGEA, and Germany has received a letter of formal notice because of the its Interstate Gambling Treaty. The letter of formal notice contains criticism on the prohibition of financial transactions with online gaming operators. These documents are a clear sign that the (eventual) Dutch legislation, prohibiting financial transactions to or from online gaming operators, can also be non-binding because such legislation potentially constitutes a violation of European law, notably Article 56 of the EC Treaty.
Despite several setbacks in administrative proceedings and the creation of a state monopoly on online gaming, Justice Minister Hirsch Ballin seems to be reluctant to make a move towards liberalization of the Dutch gaming market. With the latest statements on the blocking of payments and Internet service providers, Mr. Hirsch Ballin has shown that he intends to take the fight against online gaming operators to a new level. While it has become clear that the blocking of financial transactions can be easily circumvented, it is still unclear how Internet service providers will react to the government's appeal to block access to online gaming Web sites.