TRADUCTION

Re :             Notification 2005/388/NL

                   Modifications to the Act on games of chance, containing temporary provisions on games of chance via the Internet

                             Comments pursuant to Article 8.2 of Directive 98/34/EC of 22 June 1998, as amended by Directive 98/48/EC

Sir,

On 29 July 2005 the Commission received the above-mentioned draft technical regulation.

The draft legislative amendment to the Act on games of chance (Act of 10 December 1964) affects all gambling services, offered by Dutch service providers as well as licensed service providers established in other Member States, via the Internet, which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services. 

The draft legislative amendment is not only limited to ‘traditional internet gambling services’ (use of a PC to get access to a website via the Internet) but would also affect a wide range of other information society services, as defined by Directive 98/48/EC, including interactive digital television (iDTV) gambling which is offered at a distance by electronic means at the individual request of a recipient of services, e.g. where the gambler can place a bet on events transmitted on a computer or television screen (mainly related to sporting events but also to non sporting events, such as reality shows),  or other forms of promotional games where the bet may be transmitted over the Internet for example via a mobile phone. The Article-by-Article explanation confirms that the provisions are intended to cover other telecommunication services including gambling via a mobile telephone etc (see explanation of Article 27(m)).

Comments

1.   Preliminary remarks

Article 1a to which the proposed Article 27(m) refers contains a general prohibition to use information society services to conduct a competition for prizes or premiums if the winners are selected by any form of chance, unless a license is issued by the appropriate authorities. The scope of the provision is therefore extremely broad.

Article 27(m) itself lays down that licences to organise games of chance via the Internet can only be issued in accordance with the provisions laid down in the Dutch text.

Moreover, the combined effect of the proposed Article 27(m) and Article 27(o) would restrict licensed gambling service providers established in other Member States from offering their cross-border promotion and advertising of gambling services - which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services - into the Netherlands.

In addition to the comments below relating to the apparent incompatibility of this restriction with Article 49 of the EC Treaty, the Commission requests the Dutch authorities to provide an exhaustive list of the information society services that this proposed amendment would apply to. Alternatively, the Dutch authorities may wish to list which forms of gambling services, media games or promotional games offered over the Internet are not covered by the proposed provision.

The present comments focus on the compatibility of the draft amendment with Article 49 of the EC Treaty, on the basis of considering how the provision will impact on a sub-category of these services, in particular:

-         gambling services, which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services;

-         promotional services relating to gambling services, which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services (Dutch licence required to promote any form of gambling services); and

-          promotional games where the purpose is to encourage the sale of goods or services covered by Directive 2000/31/EC on electronic commerce.

          2.    Gambling services in the light of Article 49 of the EC Treaty and the jurisprudence of the

 European Court of Justice

The Court of Justice has consistently held that Article 49 of the EC Treaty requires the elimination of restrictions on freedom to provide services. All measures which prohibit, impede or render less attractive the exercise of such freedoms must be regarded as constituting such restrictions [1] . The Court of Justice has held for sports betting services that Article 49 of the EC Treaty relates to the services which a provider established in a Member State offers via the Internet - and so without moving - to recipients in another Member State with the result that any restriction of those activities constitutes a restriction on the freedom of such a provider to provide services.

The Commission therefore believes that the notified provisions in the proposed Article 27(m and n) of the Act on games of chance represent a restriction to Article 49 of the EC Treaty. This is recognised by the Dutch Government who in the explanatory memoranda under point 6.1 states that the proposed restriction infringes the free movement of services within the meaning of the EC Treaty, as when this legislation enters into force, it will only be possible for a single provider to organise legal games of chance via the Internet in the Netherlands.

In the light of the jurisprudence of the Court of Justice, the Commission notes national measures admissible as restrictions to Article 49 of the EC Treaty are those which:

-          are justified by imperative reasons relating to the public interest in so far that the relevant interest is not protected in the Member State in which the provider is established; and

-          are not disproportionate, i.e. are not excessive and not replaceable by less restrictive measures.

The Court of Justice has, in the Gambelli case (C-243/01), held that restrictions can be justified by imperative requirements in the general interest, such as consumer protection and the prevention of both fraud and incitement to squander on gaming. However it has also ruled that:

-          such restrictions must be suitable for achieving those objectives, inasmuch as they must serve to limit betting activities in a consistent and systematic manner

It appears however from the explanatory memorandum that the Dutch Government is mainly concerned by the lost revenues (estimated by the Government to be 144 million euro in 2004 which goes to (illegal and) foreign service providers). Though State operated gaming services may make a significant contribution to the financing of benevolent or public interest activities such as sports, according to the case-law of the Court of Justice, this cannot in itself be regarded as an objective justification.

The Commission understands that the policy objectives of the Dutch Government, as regards regulation and control of games of chance on the Internet, are also to prevent gambling addiction, protect consumers and to counter illegal and criminal acts. The explanatory memorandum makes it clear that the new provisions relating to games of chance offered via the Internet seek to provide a legal and reliable alternative to non-regulated gaming sites. The Commission notes however that gambling and gaming services are regulated in all 25 Member States in view of protecting the same public interest objectives. For example, as regards the prevention of economic crime and money laundering, the Commission has not identified valid justifications why the Dutch legislator might believe that it is necessary to restrict all cross-border gaming services offered by licensed suppliers legally established in another Member State where they are subject to appropriate controls. Such a possible justification appears even less founded if one considers that, in the context of Community law, Article 12 of the Money laundering Directive 91/308/EEC, as amended by Directive 2001/79/EC, obliges Member States to apply provisions of this Directive to all professions and categories of undertakings which engage in activities which are particularly likely to be used for money-laundering purposes.  

It follows that gaming service operators may be already obliged to report suspicious activities to their national authorities competent for combating money laundering on the basis of national legislations implementing Directive 91/308/EEC as amended. Such operators are already subject in their State of establishment to other laws, regulations or codes of conduct providing for specific controls aimed at preventing other forms of economic crime. In view of the Dutch Government’s ambition to combat crime the Commission notes that an independent Dutch Expert Committee, the Werkgroup Wet op de kansspelen, which had a mandate to evaluate the relevant Act and its effects, concluded that the limitation of the number of providers did not prevent criminality and illegality. [2]

In conclusion, the Commission points out that the restrictions emanating from the new proposed provisions in Article 27(m and n) of the Act on games of chance, do not appear to be justified by this overriding reason. Neither do the restrictions seem to be considered proportionate to the stated aim. The Commission believes that the proposed Article 27(m) in conjunction with Article 1(a) of the Act on games of chance, insofar as it relates to provision of gambling services which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services could represent an infringement of Article 49 of the EC Treaty.

3. Promotional services relating to gambling services

The Commission understands that a Dutch internet licence, granted by the Minister of Justice, will be a precondition for any operator who wishes to promote any form of gambling services to Dutch citizens and that any other licensed gambling service providers established in other Member States would be prevented from promoting their services into the Netherlands by virtue of Section 1b of the existing Act on games of chance.

The application of such restrictive measures which would prohibit publication of advertisements for gaming services offered by gaming service providers, notably those established in other Member States, would appear to hamper the export of on-line and off-line media sales services by Dutch newspapers and other media. The Commission notes that the European Court of Justice has for instance held that the right to provide services may be relied on by a press undertaking as against the Member State in which it is established when its services are provided to persons established in another Member State. More notably, the Court has stressed that this is particularly the case when a Member State restricts the right of press undertakings established in the territory of that Member State to offer advertising space in their publications to potential advertisers established in other Member States [3] .

Moreover, the restrictive measures resulting from the proposed Article 27(m), combined with the proposed Article 27 (o), are likely to hamper the possibilities of advertising service providers established in other Member States to offer their services to the Dutch public concerning on-line gambling service providers not established in the Netherlands.

In this respect, it is important to note that the Court of Justice has held that a measure such as the prohibition on advertising even if it is non-discriminatory, has a particular effect on the cross-border supply of advertising space in economic sectors which have a cross-border dimension, and thereby constitutes a restriction on the freedom to provide services within the meaning of Article 49 of the EC Treaty [4] . 

Here again, the Commission points out that the restrictions emanating from the proposed Article 27(m) in conjunction with Article 1(b) of the Act on games of chance do not appear to be justified by and proportionate to this overriding reason, insofar as it relates to promotion and advertising relating to gambling services, which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services.

4. Promotional games

The exclusion of gambling activities from the scope of application of Directive 2000/31/EC on electronic commerce (the e-commerce Directive) covers only games of chance, lotteries and betting transactions, which involve wagering a stake with monetary value. Although these activities are excluded from the e-commerce Directive it must be noted that any restriction to the freedom to provide on-line or off-line services must comply with the principles set out in the EC Treaty and notably, as indicated above, with Article 49.

In view of the Dutch Government’s remarks under point 6.2 of the Explanatory Memorandum, the Commission wishes in particular to draw the Dutch Government’s attention to the fact that the above-mentioned exclusion in the e-commerce Directive does not cover promotional competitions or games where the purpose is to encourage the sale of goods or services and where payments, if they arise, serve only to acquire the promoted goods or services.

Thus, in accordance with Articles 3 and 6 of the e-commerce Directive, the Dutch Government may not restrict the freedom to provide information society services, including promotional games (which allows for free entry or require a purchase to participate), from another Member State.

In conclusion, the Commission believes that the proposed Article 27(m), in conjunction with Article 1(a) and (b) of the Act on games of chance, insofar as it relates to provision and use of promotional games which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services, appears to represent a breach of Articles 3 and 6 of the Directive 2000/31/EC on electronic commerce.

5. Conclusion

The Commission considers that the restrictions emanating from the proposed Article 27(m) are likely to have far reaching consequences for freedom to provide services linked to games of chance, which are services normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services, insofar as all provision of gambling and related promotional internet services originating from licensed operators established in another Member State will be totally prevented.

In view of these comments, the Commission would like to invite the Dutch Government to consider measures which are less restrictive to intra-community trade.

Yours faithfully,

Vice President Günter Verheugen