France Warned Against Blocking Financial Flows from Online Gaming
By Etienne Wéry and Thibault Verbiest

On Nov. 30, 2007, France notified, on the basis of directive 98/34/EC laying down a procedure for the provision of information in the field of technical standards, the draft decree taken pursuant to the law on the prevention of the delinquency that requires financial institutions to block transfers of funds from unauthorized gambling websites.

Blocking Financial Flows

The draft decree thus provides, through provisions that will be codified under Articles R. 565-1 to R. 565-4 of the monetary and financial code, that the minister of finances and the minister of interior draw up a list of persons identified as organizing a prohibited gaming and betting activity on the French territory for which a prohibition to carry out transfers of funds has been decided. This system would prevent persons who play illegal games to receive their profits.

However, a departure from this prohibition is envisaged when the financial institutions will not have sufficient information to identify the unauthorized online gambling operators. Moreover, the decree provides the methods according to which the ministers will eventually accept the requests of putting aside the prohibition which could come from the persons organizing unauthorized gambling activities, when the latter prove that certain transactions they initiate are realized within the framework of operations which are not prohibited on the French territory.

European Commission Opposition

The European Commission (EC) addressed, last Feb. 29, a detailed opinion to France, thus prolonging the standstill period to March 31, 2008.

This prolongation meant that France was not authorized to adopt the decree before the expiry of this date. France was to submit a report to the EC to explain how it would take into consideration the detailed opinion (withdrawal of the text, justification of its preservation, or amendments to certain provisions in order to make it compatible with the rules governing the internal market).

It is not known whether such a report has been submitted.

The commission will appreciate the actions to be undertaken against France according to its response, by indicating if the measures may eliminate the barriers to free movement of goods, freedom to provide services, or freedom of establishment of the operators of services which would have resulted from the adoption of the text, or if the justification put forward for its preservation proves to be acceptable.

Free Movement of Capital in Question

The EC considers that the draft decree is a restriction of the free movement of capital principle enshrined in Article 56 of the EC Treaty.

In order to comply with EC law, these restrictions must be justified by reasons of overriding general interest and be:

• Non discriminatory
• Proportionate with this objective
• Necessary to achieve the objective pursued—in this case, France puts forward an important danger for public order (money laundering) and for social order (risk of addiction)

It should underlined that the European Commission has just opened an infringement procedure against Germany, whose treaty relating to gambling that came into effect on Jan. 1, 2008 also implements measures to block the transfers of funds from and to unauthorized gambling websites.

For the commission, this system does not comply with Article 56 (2) of the treaty, which prohibits restrictions on payments.

The commission also considers that when a profit is due to the player, the transaction is a transfer of money necessary for the execution of a service, so that its prohibition is also a restriction to the free movement of capital principle provided by Article 56 (1) of the EC Treaty.

The commission had already warned Germany by sending a detailed opinion in May 2007, which is similar to the one that was sent to France, against the potential unlawfulness of such measures. However, the justifications put forward by Germany did not appear to be acceptable.

What Next?

If France decides to ignore the detailed opinion and adopt the decree, the commission could launch a new infringement procedure against this member state, which thus would come in addition to the pending one.

Nevertheless, such evolution seems very improbable insofar as France is currently in negotiations with the European commission to suggest a model for a regulated opening-up of is online gambling market.

A meeting must thus take place in March between them which could lead the commission to accept the fact France blocks financial flows initiated by operators which do not hold a French license or which are not recognized by France, in exchange for a regulated opening-up of its online gambling market. In short, these measures would be applied to authorized European operators but to unauthorized operators only…

Not to forget that France will access the presidency of the European Union next July and will certainly wish by then to have put a term to its conflict with the European commission.

To be continued…

Etienne Wéry and Thibault Verbiest are partners with Ulys Lawfirm, Paris/Brussels.