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Assessing the proportionality of specific corporate requirements imposed on gambling operators in EU

Online gambling in EU

Seat requirements

The CJEU has held that “the requirement that an undertaking create a permanent establishment or branch in the Member State in which the services are provided runs directly counter to the freedom to provide services since it renders impossible the provision of services, in that Member State, by undertakings established in other Member States”. (C-546/07 Commission v Germany, par. 39.) The CJEU has furthermore underlined that “if the requirement of authorization constitutes a restriction on the freedom to provide services, the requirement of a permanent establishment is the very negation of that freedom. For such a requirement to be accepted, it must be shown that it constitutes a condition which is indispensable for attaining the objective pursued.” (See, inter alia, Case C-452/04 Fidium Finanz AG, ECR [2006] I-09521, par. 46.)

The Court has stated that a requirement for a licence holder to have its seat in the national territory is a discriminatory restriction which can therefore be justified only on the grounds of public policy, public security or public health. (Dickinger and Ömer, p.79, Engelmann, p. 34) The Court has, in this context, underlined that “it is settled case-law that the concept of public policy, first, presumes that there is a genuine and sufficiently serious threat to a fundamental interest of society and, second, must, as a justification for derogation from a fundamental principle of the Treaty, be narrowly construed.”  (Par. 82 of the Dickinger and Ömer.)

In Engelmann, the national (Austrian) legislation provided that one of the conditions for granting concessions for the operation of land-based games of chance was that operators should have their seat in Austria. The Austrian Government claimed that the purpose of this was to permit effective control of operators in the gambling sector, with a view to preventing those activities from being carried out for criminal or fraudulent purposes. The obligation would permit, in particular, a degree of control to be exercised over the decisions taken by the company’s organs by reason of the presence of representatives of the State in organs such as the supervisory board.

The CJEU ruled however that, without it being necessary to determine whether that objective can fall within the definition of public policy, “the categorical exclusion of operators whose seat is in another Member State appears disproportionate, as it goes beyond what is necessary to combat crime. There are indeed various measures available to monitor the activities and accounts of such operators”. (Engelmann, par. 37, with reference to, inter alia, the judgments in the cases Gambelli and Placanica.)

The Court referred, inter alia, to the possibility of requiring separate accounts audited by an external accountant to be kept for each gaming establishment of the same operator, the possibility of being systematically informed of the decisions adopted by the organs of the concession holders and the possibility of gathering information concerning their managers and principal shareholders. Any gaming establishment in the Member State can be supervised and have sanctions imposed on it, regardless of the residence of its managers. Member States can also carry out supervision on premises of the gaming establishments located in national territory in order, in particular, to prevent any fraud being committed by operators against consumers. (Engelmann, par. 38-39.)

In Dickinger and Ömer, the Court assessed a similar condition for the exploitation of online casinos. The national (again Austrian) law provided that the holder of the monopoly of operating lotteries must have its registered office in national territory. According to the Austrian Government, this obligation should allow effective monitoring the holder of the monopoly for online casinos, and it is necessary to ensure effective supervision of the operator, inter alia by the presence of State commissioners in its supervisory bodies. The CJEU ruled that it is for the national court to determine, first, whether the objectives in question are capable of falling within the concept of public policy, and, if so, whether the obligation concerning the registered office satisfies the criteria of necessity and proportionality. In particular, it must be considered whether there are other less restrictive means of ensuring a level of supervision of the activities of operators established in another Member State equivalent to that which can be carried out in respect of operators whose registered office is in the country of the provision of the service. (See par. 83 and 84 of Dickinger and Ömer.)

Legal form for operators of games of chance

The CJEU has clarified that the requirement of a particular legal form for operators of games of chance such as a public limited company may, by virtue of the obligations binding certain kinds of company with respect in particular to their internal organisation, the keeping of their accounts, the scrutiny of which they may be subject and their relations with third parties, be justified by the objective of preventing money laundering and fraud. (Dickinger and Ömer, par. 76; Engelmann, par. 28-30.)

Minimum share capital requirements

Similarly, the requirement for a share capital of a certain amount may prove to be of use in order to ensure a certain financial capacity on the part of the operator and to guarantee that it is in a position to meet the obligations contracted towards winning gamblers. The observance of the principle of proportionality requires however that the restriction imposed does not go beyond what is necessary for achieving the aim pursued, having regard to other possible ways of ensuring that the claims of the winning gamblers will be honoured by the operator.(Dickinger and Ömer, par. 77.)

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