Wednesday, 21 March 2007

Gambling in Luxembourg

On March 6th the Grand Chamber of the European Court of Justice gave its judgment in the Placanica case (Joined Cases C-338/04, C-359/04 and C-360/04). The gambling (regulation) community had set its sights upon this case as a means of offering some clarity to the ECJ’s earlier case-law. Given that this case will prove decisive for the approach Brussels will take regarding this sector, state monopolists and private operators alike have been waiting with baited breathe for this judgment.

Since this is the first posting on the TILEC Blog concerning gambling, it is worth noting the following highlights from the ECJ’s earlier gambling related case-law. In Schindler (Case C-275/92) the ECJ recognized gambling constitutes a service, thus falling under the scope of Article 49EC (paras. 25-29). While discussing the possible justifications for restrictions to the freedom to provide services the ECJ noted that lotteries have a ‘peculiar nature’, which is based upon:

  1. Moral, religious and cultural aspects of lotteries;
  2. The high risk of crime and fraud which accompanies lotteries;
  3. Damaging individual and social consequences which may arise from the fact that lotteries amount to an incitement to spend;
  4. Lotteries contribute to the financing of ‘benevolent or public interest activities’.

With regards to the last factor the ECJ noted that while this could not amount to an objective justification to support a restriction it was ‘not without relevance’. Nevertheless these four factors provided Member States with a considerable degree of latitude to restrict gambling activities as they deemed fit (paras. 59-61).

The freedom to provide gambling services reappeared in Läärä (Case C-124/97) where the ECJ concluded that the assessment of particular national legislation can only be made by reference to the objectives of the provisions in question (para. 36). Different ‘systems of protection’ adopted by other Member States have no role to play in such assessments; which would appear to contradict more general case-law relating to the avoidance of double regulatory burdens. Two cases Zenatti (Case C-67/98) and Anomar (Case C-6/01) saw limited developments in the ECJ’s approach; however the most important developments, prior to Placanica, appeared in Gambelli (Case C-243/01) and Lindman (Case C-42/02).

For two principal reasons Gambelli is important. Firstly, by referring to the suitability of restrictions on the supply of gambling, the ECJ noted that such restrictions must be suitable for achieving the legislative aim. Any restrictive measures therefore had to be ‘consistent and systematic’ (para. 67) with the aim. Thus public order concerns could not enable Member States to maintain restrictions on the supply of gambling if at the same time state monopolies encouraged residents to gamble. Secondly, the ECJ recognised the importance of controls and supervision which occur in the supplier’s home Member State and required the authorities in the destination Member State to take these into consideration (para. 73).

Finally, the decision in Lindman gains its significance from the fact that the ECJ raised the importance of proving causal relationships between the concern which Member States sought to guard against and the actual dangers which their residents face (para. 26). The extent to which this amounts to an evidentiary burden is unclear, but it serves to steer Member States away from relying upon very abstract terms, such as ‘crime and fraud’, without substantiating such claims.

With all spectrums of the gambling regulation debate claiming that the Gambelli case supported their view, that of Placanica diminishes the margin of discretion which Member States enjoy in regulating gambling. Placanica does not sow the seeds for the demise of state monopolies, nor does it require the liberalisation, deregulation or harmonization of national gambling markets. However, it does provide for a level playing field for national and non-national operators where competition for the market is allowed. Concurrently Member States are required to be consistent in the execution regulatory policies if they wish to bar service providers established in other Member States from accessing their markets. The remainder of this entry will provide an overview as to how Placanica achieves this.

Having recalled its earlier (abovementioned) case-law including the fact that Member States are free to establish the objectives of their gambling policies and the level of protection sought, the ECJ considered the nature of the Italian licensing regime which was in place. With regard to licensing gambling providers, the ECJ stated that the fact that licenses were limited in number was in itself insufficient to justify a restriction to the freedom of establishment and the free movement of services (para. 51). The ECJ then explicitly separated the objective of reducing the number of gambling opportunities from that of channeling gambling into a controlled environment away from crime and fraud (para. 52.). Should the first objective have been the sole objective then it would be inconsistent for the state to allow gambling opportunities to increase. However, the objectives of the Italian legislation were to eradicate crime and fraud, and thus a policy of controlled expansion was deemed permissible. Such controlled expansion allowed for advertising, an extensive range of games and the use of new distribution methods, even where restrictions were in place upon the cross-border supply of gambling services (paras. 52-55). Perhaps as a reflection of Lindman the ECJ notes the Italian government’s evidence which portrays the significant size of the illegal gambling market in Italy. A larger illegal market could thus allow Member States more leeway in expanding state offerings of gambling services while restricting the cross-border provision of such services.
The ECJ then considered the tender procedures by which the limited number of licenses was awarded. In this regard it was found that by imposing a blanket exclusion on operators who are quoted on regulated markets in other Member States the Italian legislation was disproportionate. Such an arbitrary exclusion went beyond what was necessary to secure that this sector is free of crime and fraud in Italy (para. 62). This exclusion, which arose from shareholder transparency requirements amounted to an infringement of Articles 43 and 49 EC. This bodes well for some degree of recognition of home state control of gambling providers and the avoidance, or at least the reduction, of double regulatory burdens. Yet the degree to which Member States open themselves up to this depends upon the objectives of their policies, and the degree to which they seek to uphold such protection.

Will Placanica fuel for European Commissioner McCreevy’s drive to ensure a level playing field for all gambling service providers? My money is on that it will, and that the regulation of gambling will remain a burning issue for sometime to come.

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