The Italian criminal penalties imposed on intermediaries acting on behalf of foreign licensed companies, for collecting bets without a licence and police authorisation, are contrary to Community law, the European Court of Justice concluded.
In a 2003 judgment known as the Gambelli case, the court had already laid down the fundamental principle that, within the context of the gambling market, any restrictions imposed by a member state which seek to protect general-interest objectives such as the protection of consumers, must be “consistent and systematic” in how they seek to limit activities.
In practical terms, this means that a member state cannot invoke the need to restrict its citizens’ access to gambling services if at the same time it incites and encourages them to participate in state games of chance or betting offered by national operators or by a monopoly.
The European Court of Justice maintained that any restrictions on the activities of companies operating in betting businesses constitute obstacles to the freedom of establishment and that a prohibition, enforced by criminal penalties, on participating in betting games constitutes a restriction on the freedom to provide services.
Several member states have been reluctant to apply the Gambelli-case ruling.
The recent ruling, (known as the Placanica case) serves as a reminder for such states to rectify their position in line with Community law.
In terms of Italian law, the organisation of games of chance or the collecting of bets is subject to possession of a licence and a police authorisation. Any infringement of these rules carries criminal penalties of up to three years’ imprisonment.
In 1999, following calls for tenders, the Italian authorities awarded 1,000 licences for sports betting and 671 new licences for betting on competitive horse events. The calls for tender excluded in particular operators in the form of companies whose shares were quoted on the regulated markets.
One such company was the company Stanley International Betting Ltd, an English company quoted on the London stock exchange and licensed to operate as a betting company by the City of Liverpool. This company operated in Italy through ‘data transmission centres’ (hereinafter referred to as DTCs) run by independent operators with contractual links to the company itself . These operators place a data transmission link at the disposal of bettors so that they can access the server of Stanley’s host computer in the UK
The three Italian DTC operators were charged in the Italian courts with pursuing organised bet-collection activity without the required police authorisation. The case was eventually referred by the national courts to the European Court of Justice for a ruling as to whether the Italian legislation on betting and gambling was compatible with the fundamental Community principles of freedom of establishment and the freedom to provide services.
The European Court of Justice affirmed, in line with its previous rulings on the matter, that when a member state prohibits, on pain of criminal penalties, the pursuit of activities in the betting and gaming sector without a licence or a police authorisation, it is imposing restrictions on companies’ freedom of establishment and freedom to provide services.
The court acknowledged that moral, religious or cultural factors, as well as the morally and financially harmful consequences for the individual and for society associated with betting and gaming, may justify such restrictions. However, such restrictions must satisfy the principle of proportionality.
The court then proceeded to examine the particular requirements imposed by Italian legislation. Italy sought to justify its licencing requirement by invoking the objective of preventing the exploitation of activities in the betting and gaming sector for criminal purposes.
The European Court of Justice noted that a licencing system may constitute an efficient mechanism enabling the control of operators active in that sector. However, the court maintained that the restriction on the number of licences that were given for the whole of the national territory, could not of itself justify the obstacles to the freedom of establishment and the freedom to provide services brought about by such a restriction. The court observed that it is up to the Italian courts to determine whether, in limiting the number of operators active in the betting and gaming sector, Italian law was genuinely contributing to the objective of preventing the exploitation of activities in that sector for criminal or fraudulent purposes.
The court also affirmed that the blanket exclusion of companies from tender procedures for the award of licences went beyond what is necessary in order to achieve the objective invoked by the Italian government. The court asserted that there are other ways of monitoring the accounts and activities of operators which impinge to a lesser extent on the freedom of establishment and the freedom to provide services. One way of doing this could be through the gathering of information on the companies’ representatives or their main shareholders.
In so far as police authorisations are concerned, the court observed that the procedure for the granting of a police authorisation presupposed the award of a licence. Therefore, such a procedure is illegal in terms of Community law on the basis of the same grounds quoted in relation to the award of licences.
Consequently, the lack of a police authorisation cannot be a valid ground for complaint in respect of persons who have been unable to obtain such authorisation because, contrary to Community law, they were barred from any possibility of being granted a licence in the first place.
The European Court of Justice also noted that in principle, criminal legislation is a matter for which the Member States are responsible. However, Community law sets certain limits to that power. Criminal legislation may not restrict the fundamental freedoms guaranteed by Community law. The court concluded that a member state may not apply a criminal penalty for failure to complete an administrative formality where, in breach of Community law, such completion has been refused or rendered impossible by the Member State concerned.
Industry has welcomed this ruling as a clarification of the legal position of regulated European-licensed operators. It is now up to the European Commission to enforce this legal position by taking action against those member states which nonetheless refuse to apply the rulings of the European Court and continue to discriminate against legitimate gambling service providers.
• Dr Vella Cardona M’Jur, LL.D. is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
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