EVER TOUGHER TIMES FOR UNLICENSED ONLINE OPERATORS IN ITALY

On 23 December 2005 the Italian Parliament approved the 2006 Financial Act (“06-FA”) that entered into force as of 1 January 2006. Some of the provisions carried by the 06-FA are set to substantially affect the business of those online operators that have so far aggressively targeted Italy-based customers and marketed their services locally without holding an Italian gaming licence.

The provisions set out in articles 525 to 549 of 06-FA introduce various amendments to the existing gaming and betting legislation. Among other things fresh regulations and technical requirements have been enacted dealing with the so-called new slots, the new generation of legal slot machines (both AWPs and play-for-fun ones), and a more favourable tax regime has also been introduced with regard to the offer of licensed gaming and betting services.

Yet the single piece of fresh legislation that will no doubt prove very controversial and that is quite likely to trigger at some point legal action before domestic courts as well as in Luxembourg, are the heavy restrictions imposed to Italy-based Internet service providers (“ISPs”) under articles 535 to 538 of the 06-FA. A rough English translation of said provisions follows below.

535. Regardless of any criminal action possibly taken by the prosecutor and by the law enforcement authorities if an offence is perpetrated, the Ministry of Finance - Autonomous Administration of the State Monopolies (AAMS) notifies the ISPs about all cases where their Web connection services are utilised to offer gaming and betting services without the prescribed AAMS licence, authorisation or permit, or otherwise in violation of Italian gaming laws and regulations.
536. The addressees of such notification are required to restrict Internet access as long as it concerns the offer of the illegal gaming and betting services referred to at paragraph 352. To this end the ISPs will have to take appropriate technical measures in compliance with AAMS directions.
537. In case of breach of paragraph 353 provisions, an administrative fine will be levied by AAMS ranging from €30.000 to 180.000 for each violation.
538. The post and telecommunication police and the financial police bodies will team up with AAMS for purposes of enforcing paragraphs 536 and 537 provisions in accordance with criteria and procedures that AAMS itself will establish jointly with the Ministry of Internal Affairs.

Although the 06-FA is already effective, it will probably take at least a few weeks for AAMS to draw up and then circulate to all ISPs a blacklist of “illegal” online operators whose website access must now be restricted to Italy-based customers.

In terms of flash comments on the restrictions quoted above, it would appear that AAMS and the Italian law enforcement authorities are firmly determined to clamp down on all unlicensed online operators. Indeed, as no distinction is made in the law between foreign operators holding an EU licence and those carrying a licence issued in an offshore jurisdiction, in theory an English-based bookmaker marketing and advertising its “.com” online services in Italy stands as many risks of being soon taken offline by the Italian ISPs as does an Internet casino with a Caribbean-granted licence.

It is also interesting to note that 06-FA targets ISPs as opposed to the other players of the game, namely Italian punters and players on the one side and foreign based online operators on the other. Such a different focus is explained by the fact that not only did the Italian legislation already cover illegal gambling from the player’s prospective (the criminal code bans any type of gambling in Italy with the sole very opinable exception of the four existing brick-and-mortar casinos) and from the unlicensed operator’s side (see also the full advertising ban introduced in May 2005), but mainly by the need to provide the enforcement authorities with more effective tools to chase any actual breach of the law.

While there continue to be no reported cases of Italian punters having yet been prosecuted under the criminal code for having engaged in online betting with an unlicensed foreign operator, and because it is equally difficult to enforce the marketing and advertising restrictions against operators who are not physically based in Italy, the legislator has decided to step up the pressure on the ISPs.

Given the understandable and justified disappointment the 06-FA has already spurred in the industry as also confirmed by the complaint the European Betting Association is reported to have already filed with the EU Commission, it is easy to anticipate that the provisions in comment will force all major online operators with a significant portion of Italian business to take action.

In the long run a judicial outcome is to be expected because one or more concerned operators and the ISPs too could well challenge the 06-FA in domestic courts and eventually before the European Court of Justice.

Even those EU jurisdictions, one for all Malta, where online gaming and betting is legal and fully regulated could possibly consider taking on Italy if its legislation should be found to create state monopoly-driven barriers to the cross-border offer of services within the EU.

With specific respect to its gaming laws (see Gambelli Ruling and other similar cases reported since) Italy in fact already has a questionable legislative and judicial record which might result in the Brussels authorities soon opening a file against Rome on fresh charges of breach of the Treaty of Rome

In the short run though, a more pragmatic and business-oriented approach is advisable for those operators who do not wish to miss out on Italy. This means that if the Italian gaming and betting market is found to be highly strategic and very profitable for their global expansion plans, pending always possible developments at judicial level the foreign operators should in the meantime try and legalise their local presence by taking over an existing AAMS licences.

Clearly the above move entails an important investment in terms of both money and operational strategies and would then still require the licence buyer to fully abide by Italian laws and relevant AAMS regulations. Yet this is indeed the action that some top European bookmakers have already taken thereby confirming that the prospect of mounting an endless legal battle against 06-FA is not the only viable option if good business on such a crucial market like Italy is at serious risk.

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Quirino Mancini, partner
Sinfisi Ceschini Mancini