Netherlands: Amendment of the Gaming Act: analysis of aims and objections

Article by Justin Franssen

On 20 September 2006, the Parliament voted for a temporary amendment to the Gaming Act of 1964, which grants an exclusive license to Holland Casino to offer remote gaming. Revenue earned on this new monopoly will be entirely for the benefit of the national treasury.

The law can only be obstructed as a last resort by the First Chamber. Will the First Chamber be influenced by the severe critique from the Council of State and the European Commission on the law? A preparatory hearing at the First Chamber is scheduled for 7 November 2006. So what exactly are the critical comments from the Council of State and the European Commission?

The position of the Dutch Government

In the Explanatory Memorandum (30 362 no. 3) it is evident that the Netherlands‘ government strives, inter alia, towards providing an alternative to the illegal games of chance supplied via the internet. Moreover, in pursuit of its aim of providing an alternative to foreign games of chance, the government also aims to call a halt to money being drained away to other member states. In survey reports prepared in 2003 and 2004, the Netherlands‘ government draws the conclusion that participation in games of chance through new media sources is on the continual increase.1 The Netherlands‘ government estimates the amount spent on internet gaming at €144 million per annum. This projected figure makes no distinction between illegal, non-regulated gaming, and the regulated games of chance from other member states, thereby ignoring the basic principle of mutual recognition of the scope of protection afforded by other member states. Purportedly, Dutch players are insufficiently assured of adequately safe payment transfers, distribution of prizes and other forms of consumer protection.

The government also maintains that the objectives of the gaming policy, namely combating gambling addiction, consumer protection and the prevention of criminality, necessitates an exclusive licence for operating games of chance via the internet, as a dependable alternative to illegal websites. Once again, the government fails here to differentiate between the illegal and non-regulated supply of addictive ’short-odds‘ games of chance, against which consumers have little protection, and the regulated supply of relatively harmless games of chance (such as foreign (state) lotteries), under which Dutch citizens do enjoy equally sufficient consumer protection.

Regarding the effectiveness and proportionality of the law

The government holds the notion that augmentation of the Dutch gaming market will lead to further supply, in other words over and above the existing supply offered by Dutch operators of games of chance. The government further believes that an increase in the number of (monopolised) national games of chance is wholly reconcilable with its fundamental policy of channelling games of chance, under its premise that the policy is de facto aimed at reducing participation in games of chance, and is actively restrictive in both word and deed.

In the meantime the third Motivaction report,2 commissioned by the Netherlands Gaming Control Board, illustrates that participation in games of chance via the internet has actually diminished, and that there is no evidence of any truly problematical behaviour. Moreover, the introduction of a state monopoly on internet gambling will give rise to an entirely new pool of players who currently do not play games of chance via new media. Motivaction even goes as far as to suggest that as many as 535,000 Dutch citizens are expected to partake in this new supply of games. Motivaction further goes on to conclude that it is far from certain whether participation in illegal games of chance will indeed slacken, or whether Dutch citizens will switch to the new source of games provided by the Dutch State. Based on the Motivaction report, it can be concluded that the introduction of a monopoly will lead to a significant stimulation of gambling (as opposed to the reduction contemplated), and that scientifically speaking, there is nothing whatsoever to indicate that setting up a monopoly will induce any positive substitution effect. The scientific research carried out by Motivaction therefore correctly questions the effectiveness and proportionality of the setting up of an interactive gaming monopoly. There are sound indications that the objectives of the gaming policy cannot be realised by implementation of the restrictions currently proposed. On the contrary, the introduction of an on-line monopoly will fail to contribute towards a consistent and coherent reduction of gaming activities as required by the European Court of Justice in the Gambelli case. Furthermore, the Netherlands‘ government has provided neither statistics nor other proof that participation by Dutch citizens in the regulated gaming supplied by other member states is harmful (for example, remote participation by the Dutch in the British National Lottery), or even more harmful than participation by Dutch citizens in a similar game in the Netherlands. The European Court of Justice ruled, inter alia, in the Lindman case that such evidence is required if (discriminatory) measures are implemented in violation of the EC-treaty.

Licensing issues

In the Explanatory Memorandum, the legislator states that the decision to award the temporary licence to the state-run Holland Casino was based, inter alia, on the fact that Holland Casino is already supervised by the Government, is said to have experience in gaming via the internet and maintains sound responsible gaming policies. Holland Casino obtains the sole right to operate games of chance via the internet (‚e-gaming‘). Other domestic and foreign candidates will have no possibility whatsoever to obtain the licence. If the internet is used purely as an alternative for sales and a communication channel for existing gaming products, for which an off-line licence has already been issued, this, according to the Netherlands‘ government, qualifies as ‚ecommerce‘ and not ‚e-gaming‘. Ecommerce is currently permitted by a number of national monopolies, such as ‚De Lotto‘ and the ‚Staatsloterij‘. Moreover, in the case of e-commerce, interested national and foreign candidates are excluded from the allocation of the licence, even after expiry of, for example, the five-year licence held by De Lotto. The same holds true of all (expiring) Dutch gaming licences.

The fact that potential interested candidates from other member states are excluded from the allocation or renewal of (gaming) licences seems in violation of the basic principles of antidiscrimination, transparency and competition, as embodied in the Treaty of Rome and case law of the European Court of Justice (Gambelli ruling), and cannot be justified by compelling reasons of public interest.

Is the law discriminatory?

From the Explanatory Memorandum, it is also possible to discern that residents outside the Netherlands, after physical registration in the Netherlands, have access to cross-border participation in games of chance, through information society instruments. This is no different from the current supply of ecommerce by other Dutch gaming monopolists. De Lotto and the Dutch State Lottery have already created the (passive) possibility for cross-border participation by individuals residing outside the Netherlands. Nonetheless, the Netherlands‘ government upholds the view that any gaming provider in other Member States commits an offence if Dutch players are not excluded from cross-border participation. Indeed, with the introduction of the amended gaming laws (pursuant to article 1 preamble and under © of the Betting and Gaming Act), participation by Dutch citizens in any internet gaming other than that provided by the Dutch State constitutes a criminal offence. This seems disproportionate and manifestly discriminatory.

Criticism by the European Commission

By Notification 2005/0388/NL pursuant to Directive 98/34 EC (Notification Directive), the European Commission has drawn up an extremely critical response to the Netherlands‘ legislative proposal.

Violation of Article 49 EC Treaty

The European Commission asserts that the proposed article 27(m), in conjunction with article 1 preamble and under (a) of the Netherlands Gaming and Betting Act, has an extraordinarily broad scope of action, since these provisions provide a general ban on the use of information society services to provide the opportunity to compete for prizes or premiums, whereby winners are selected through chance, unless an (exclusive) licence has been granted. It is further asserted that the combined effects of the proposed articles 27(m) and 27(o) prevent licensed service providers established in other member states from complying with such requests made at distance and at the individual request of Dutch citizens. The Commission is of the opinion that the proposed legislative amendment forms a (further) restriction on the terms of Article 49 of the EC Treaty.

Monopoly (interactive) gaming as a fund-raising instrument

The European Commission asserts that it is apparent that the Netherlands‘ government is primarily concerned with the loss of income (estimated by the government at EUR 144 million in 2004) that now flows to illegal and foreign services providers. The prevention of the draining away of monies abroad does not form an objective justification for the obstruction of the free movement of services. The substantial emphasis placed by the Netherlands‘ government on filling its coffers is also apparent from the tremendous advertising campaigns which the state gaming operators (may) make in order to attract new players, and from the projected accrual of approximately half a million new Dutch gamblers upon the introduction of the new state monopoly, and also from the explicit acknowledgement of the Netherlands‘ government that the increase in gaming tax is a financing measure.

Repudiation of the principle of mutual recognition

With respect to the contention made by the Netherlands‘ government, namely that the new provisions on games of chance provided on the internet serve to offer a reliable alternative to nonregulated supplies, the Commission states that gambling and gaming services in all 25 member states are regulated, aimed at the protection of common public interests. The Commission deems it unnecessary to restrict all cross-border gaming activities marketed by licensed service providers in other member states, since providers in other member states are also subjected to adequate monitoring.

Monopoly is not effective

Furthermore, the Commission correctly notes that an independent committee of experts in the Netherlands, the Working Group Betting and Gaming Act, has presented the conclusion that a restriction on the number of providers does not curb criminality and illegality. Hence, the proposed monopoly is not only disproportional and unreasonable, but is also ineffective and unsuited to achieve the policy’s objectives. The Commission states literally: ‚In view of the foregoing the Commission is of the view that the restrictions ensuing under the proposed new provisions in article 27 (m+n) of the Betting and Gaming Act cannot be justified by compelling reasons, nor can they be deemed to be proportional to the intended aim.‘

Criticism by the Council of State

On 19 August 2005 and in a further report, dated 7 November 2005, the Council of State has also voiced criticism on the law.

The Council of State observes that in numerous legal scholarly publications, comments have been made with respect to the manner in which the Netherlands‘ gaming policy is applied in practice. The Council raises questions regarding the consistency of the Netherlands‘ policy and alleges that the legislative proposal possibly compromises the credibility (in terms of Gambelli) of the Netherlands‘ policy. On the one hand, Netherlands‘ gaming is being enlarged, whilst on the other hand, gaming providers are being placed at a disadvantage. The Council also wonders, notwithstanding that the new monopoly is of a temporary nature, whether this complies with the laws on competition, given that the sole licensee, the state-run Holland Casino, is given a head start on any competitors that may later be admitted.

With regard to the proportionality of the proposed measures, the Council of State wonders whether the choice of licensee is justifiable in light of the fact that also, other potential providers (both from the Netherlands and other member states) are equally able to comply with the requirements laid down by the Netherlands‘ government. It is stated by the Council of State, in following the European Commission: ‚(…)It is highly conceivable that other potential providers, established in the Netherlands or in other EU member states, are equally able to meet these requirements. The question therefore rises whether confinement to this one provider does not unjustifiably sideline providers from other Member States (who could equally be subjected to adequate monitoring), thereby infringing the free movement of services as described in article 49 of the EC Treaty.‘

(1) Report ‚Internet Gaming‘, Motivaction, December 2003 and ‚Gaming via New Media‘, Motivaction, December 2004.

(2) ‚Games of Chance via new Media‘, Motivaction, December 2005. 3. C-42/02