Official magazine of the International Masters of Gaming Law
®
MALTA MARKET FOCUS
INTERNATIONAL MASTERS of GAMING LAW MAGAZINE
VOLUME 4 | NO. 2 | APRIL 2024
ENFORCEMENT GETS SERIOUS
PLUS: LAUNCHING OF A NEW 1-ON-1 INTERVIEW FORMAT DISPUTE RESOLUTION IN NEWLY LEGALIZED US STATES AGE VERIFICATION IN REAL MONEY GAMES VOLUNTARY CURBS ON ADVERTISING IN PORTUGAL AND A REGULATORY UPDATE FROM ITALY CROSS BORDER M&A IN LATIN AMERICA & AROUND THE GAMING WORLD ..& MUCH MORE!
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IMGL MAGAZINE | JULY 2023 IMGL MAGAZINE | JANUARY 2023
MALTA’S FATF GREY-LISTING IMGL OFFICERS 2024
Officers of IMGL for 2024
SUSAN BREEN Secretary MISHCON DE REYA LONDON +44 20 3321 7434 [email protected]
QUIRINO MANCINI President TONUCCI & PARTNERS ROME, ITALY +39 06 322 1485 [email protected]
ERNEST C. MATTHEWS IV Vice President, Affiliate Members INTERNET SPORTS INTERNATIONAL LAS VEGAS, NEVADA +1-702-866-9128 [email protected] BIRGITTE SAND Vice President, Affiliate-Regulator Members BIRGITTE SAND AND ASSOCIATES COPENHAGEN, DENMARK +45 24 44 05 03 [email protected]
MARC DUNBAR Executive Vice President JONES WALKER TALLAHASSEE, FLORIDA +1 850 214 5080 [email protected]
PETER KULICK 2 nd Vice President, Treasurer DICKINSON WRIGHT PLLC LANSING, MICHIGAN +1 517 487 4729 [email protected] COSMINA SIMION 1 st Vice President SIMION & BACIU BUCHAREST, ROMANIA +40 31 419 0488 [email protected]
KATHRYN R. L. RAND Vice President, Educator Members UNIVERSITY OF NORTH DAKOTA LAW SCHOOL GRAND FORKS, NORTH DAKOTA
+1 701 777 2104 [email protected]
KATE LOWENHAR-FISHER Assistant Treasurer EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER EVERI HOLDINGS INC
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | APRIL 2024
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PRESIDENT’S WELCOME
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Better together
QUIRINO MANCINI President INTERNATIONAL MASTERS OF GAMING LAW
T
his issue of the IMGL Magazine was being finalized on the eve of our spring conference in Tampa Bay, Florida, meaning that attendees will get the added benefit of a physical copy to take away with them. Our conferences are a vital part of what it means to be an IMGL member. Indeed, they are considered so important that our founders (of which I was one) included a requirement to have attended an IMGL conference into the criteria for membership. Why was this done? As well as indicating a level of enthusiasm, it singles out those who will get the most out of membership by committing themselves to the learning and networking that are at the heart of the organization. That’s why the Tampa Bay organizing committee have gone to great lengths to arrange a unique social program including a tour of the city’s aquarium, a tequila tasting experience for younger members, our opening and closing receptions and, of course, another of our legendary gala dinners. It is not all socializing, of course, and our education program is as strong as ever with speakers and panellists from four continents contributing to a packed agenda. I must express my appreciation and gratitude to the organizing committee for their hard work in creating an event which will, I’m sure, live long in the memory. One highlight of our Tampa Bay conference is the second edition of our student writing competition which will see another young gaming lawyer given IMGL’s support as they embark on their careers. I am grateful to Kathryn Rand and her colleagues on our education committee for the work they have put in to both solicit entries and select this year’s winner.
I am delighted to report that our relationship with gaming regulators continues to mature and develop. As well as a burgeoning partnership with IAGR, which you will hear more of as we approach our joint conference in the autumn, we have a new event happening in Tampa. We sometimes forget how pressurized regulators are, having to manage the political demands of law makers whilst working with the industry. Our first regulator’s breakfast will be a “safe space” for upwards of 30 public officials to network, share experiences and hopefully advance the cause of better regulation. Our executive direction, Brien Van Dyke, recently conducted a survey of members which was instructive. Thank you to everyone who completed the survey. As ever, your contributions were thoughtful and highly relevant and will inform our future plans for the organization. It is always good to hear direct from members what they value about the organization and, of course, areas where we could serve them better. The results will be shared with attendees at our spring conference. If you haven’t been able to travel to Tampa Bay, you’ll have another opportunity to connect with fellow IMGL members at our autumn conference in Rome in October. This is a joint event with IAGR and is sure to be a sell out so I encourage you to register early via our website. Meanwhile, I hope you enjoy this edition of the IMGL Magazine and look forward to your feedback. Quirino Mancini
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IMGL MAGAZINE | APRIL 2024
EDITORIAL
A view from the top
How time flies. We are already in the fourth year of the IMGL Magazine and I have been gratified by the positive feedback received. I trust we have set a high bar for quality required by an authoritative publication. That said, I have been thinking for some time about ways to contrast the substantial, sometimes long and technical articles with a lighter format with personal insights, without compromising the high-level content that our readers are acquainted with. The result is a one-on-one interview format with senior figures in our industry sharing perspectives well beyond corporate messaging: personal observations on the industry, developments and challenges and not least on what it’s like to do their jobs. I am delighted that we are kicking off this new format with Mr John McManus, an eminent industry figure who sits at the top table at MGM Resorts International. While I love the idea of sitting down with John and discussing industry matters over a beer, the reality is that we spoke over Zoom while we were both travelling for work. I would like to thank John for his willingness to join us in this new format and his generous allocation of time and thoughts to our readers. There has been a lot of talk about enforcement in recent years. In Europe, enforcement actions by
regulators have often been focused on licensed operators. From the perspective of the licensees, this can be quite frustrating: As a ‘tradeoff’ for the payment of license fees and sizeable sums in tax, licensed operators can feel they end up under fire from regulators, media and politicians, while unlicensed operators continue unimpeded. This can be for various reasons, depending on the jurisdiction and the powers of regulators. Legally advertising their licensed products is one of the few tangible advantages that licensed operators enjoy, yet it appears that this advantage is increasingly whittled away as advertising bans have spread like a virus throughout Europe. I was interested to read from our Portuguese colleague of industry efforts in his country to agree to voluntary controls on promotional content as a way of avoiding restrictions on advertising. It is not easy to get such voluntary deals to stick especially if companies operating in the grey market are able to do so with impunity. Which brings us back to enforcement. We know from criminology that law-abiding (corporate) citizens feel satisfaction when they see those that break the law suffer the consequences. The opposite is also true: nothing erodes confidence in the law more than seeing corruption and
SIMON PLANZER PHD, Editor in Chief IMGL MAGAZINE
Contents 6
Brazil scores a winning goal with sports betting & igaming regulations France opens market for games based on monetizable digital assets
13 18 22 26 32 38 41 45 50 54 58
Artificial Intelligence in the Gaming Industry
Void In Quebec: Sweepstakes Contests in La Belle Province
Preparing for India’s new data protection law
Full revamp of Argentina’s AML/CFT regulations applicable to the gambling sector
Unregulated Skill Gaming – Is it time for regulation? How do virtuals with AI technology get licensed? Time for Africa? Regulator’s big beasts visit Botswana
The case for legalized gambling: how legal, regulated sports betting benefits society
The domino effect of regulation
IMGL’s spring conference in Tampa Bay will banish the winter blues
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | APRIL 2024
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EDITORIAL
crime go systematically unpunished. A higher priority given to enforcement against illegal offers is a welcome and, some might argue, overdue development in the eyes of the licensees. Australia has been a leader in this area. Over the past five years, the Australian Communications and Media Authority has blocked close to a thousand unlicensed gambling and affiliate websites. It continues to use a range of measures including disruption of payment and the targeting of individuals to discourage illegal operators and protect its licensed industry. Our colleague from the UK has a detailed report on efforts by the UKGC to take a similarly comprehensive line there. Enforcement plays a key part in protecting consumers and should, therefore, be in every jurisdiction’s interests. But in a transnational online business, no single regulator can succeed alone. Recent announcements promising greater international cooperation indicate that this message is being taken seriously. Those countries who wish to position themselves as responsible licensors of gambling companies have an interest in being quick to sign up to such alliances. Reducing unlicensed gaming will meet every regulator’s mission and greater channelization should mean they have the tax revenues to pay for it. Dare I add that greater channelization is also linked to the attractiveness of the licensed product? The more limitations are imposed, the harder it is for the licensees to compete with unlicensed competition. But that feels like the subject of a future editorial. Yours sincerely, Simon [email protected]
Click on the links above to read back issues and our archive of gaming law articles visit www.IMGL.org/publications
IMGL Magazine is owned, published and distributed by: The International Masters of Gaming Law PO Box 27106, Las Vegas, NV 89126 USA The IMGL is a domestic non-profit corporation registered in Nevada, U.S. with registration number NV20121147120 Editor in Chief: Simon Planzer PhD, [email protected] Publication & Marketing Committee: Co-chairs , Stephanie Bell and Simon Planzer Members : Henrik Hoffmann, Kok-Keng Lau, Christine Masse, Peter Kulick, Anna Soilleux-Mills, Veronique dos Reis Head of Publications: Phil Savage [email protected] Design and production: SportBusiness Communications. Copyright: All rights reserved to IMGL. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher. The articles expressed in this publication do not necessarily reflect the views of IMGL but those of the authors. The publisher and editor do not accept any liability for the contents of the authors’ contributions.
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IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | APRIL 2024
BRAZILIAN UPDATE
ENFORCEMENT
Tackling the illegal gaming market from a UK and European perspective O ver the past few years co-operation between enforcement agencies at both national and international levels has demonstrated that it is possible to tackle the black market and close down access to illegal gaming sites and products that frequently target the vulnerable. The UK has seen the use of criminal sanctions both in relation to the use of illegal gambling premises and illegal websites. In addition to reviewing some key criminal cases in the UK this article will consider the successful use of cease and desist orders and other business disruption tactics by European Gambling Regulators and the international co-operation that has developed between regulators in sharing details of intelligence and enforcement action.
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Use of criminal proceedings and sanctions in the UK The United Kingdom has achieved significant success in the past three years in tackling illegal gambling as a result of government agencies working together through the Government Agency Intelligence Network (GAIN). Regional Organised Crime Police Units have worked closely with the Gambling Commission, Licensing Authorities and HM Revenue and Customs to disrupt and close down illegal gambling activity within Great Britain. This combined with the increased use of the Proceeds of Crime Act 2002 to prosecute offenders for money laundering offences has meant that the authorities are able to strip the perpetrators of their assets and illegal profits and secure longer prison sentences rather than prosecute for offences under the Gambling Act. The maximum penalty for the unlawful use of premises or unlawful provision of facilities for gambling is 51 weeks. For money laundering offences the maximum prison sentence on indictment is 14 years. As recently as 28th February, 2024 the Welsh Regional Organised Crime Unit, in conjunction with officers from the Gambling Commission, HM Revenue and Customs and Cardiff City Council Licensing executed six search warrants and raided an illegal poker den in an industrial unit in Cardiff. Two individuals were arrested for Money Laundering Offences and offences under the Gambling Act. 1 The first use of the Proceeds of Crime Act by a Licensing Authority to prosecute illegal gambling was back in 2014 when Enfield Council in North London carried out a similar raid of an illegal poker den known as Big Bluff. This was a case where the “proprietor” had been granted a Club Gaming Permit which authorises the playing of poker at restricted stakes by members of a bona fide club. The proprietor had previously been warned to comply with the terms of the Permit by the Authority and Police following a compliance visit. It was estimated that the proprietor had taken over £400,000 out of what transpired to be an illegal commercial business. He was subsequently convicted of money laundering offences and received a prison sentence of 15 months, and following his release, faced forfeiture proceedings in relation to assets the Council had managed to
track down and seize. The Licensing Authority is able to use amounts forfeited to put towards the costs of an investigation and prosecution. If a Licensing Authority prosecutes for offences under the Gambling Act, they incur considerable costs. Even if there is a costs order in their favour, they will not recover the true costs of the investigation and the proceedings. Similar combined enforcement action has been successfully used to identify operators of illegal lotteries on social media and, in particular, on Facebook. In February 2022 the Gambling Commission issued a press statement confirming that, in conjunction with two Regional Organised Crime Units, they had identified and targeted key individuals profiting from illegal schemes. The Commission highlighted that in these cases the promoters were targeting the vulnerable: “There were hundreds of people taking part in these lotteries, but it was important to identify those who were organising and moderating them illegally. Working alongside our colleagues at Facebook and the police, we are pleased that key individuals have been identified and this type of activity, which only increases the risk of gambling harm, has been disrupted.” 2 The police added: “It’s important to acknowledge the harm illegal gambling can cause, especially when unregulated lotteries like these benefit from targeting some of the most vulnerable people in our communities, especially those caught up in a cycle of addiction”. 3 As a result of one of the investigations an individual was the subject of a Proceeds of Crime Act forfeiture application at Middlesbrough Magistrates Court in March 2022. The police seized £140,000 from the individual’s bank accounts, which was confiscated as being the personal profit derived from the illegal activity. The court ordered the forfeiture of the whole amount. The case officer commented: “No one should profit from criminal activity and the Proceeds of Crime Act enables police and partner agencies to confiscate cash, including money held in bank accounts and other physical assets gained through illegal means. This result serves as a stark warning that
1 https://www.south-wales.police.uk/news/south-wales/news/2024/march/illegal-gambling-den-raided-as-part-of-national-police-intensifica- tion-against-fraud/#:~:text=The%20den%2C%20which%20occupied%20the,chips%2C%20and%20multiple%20flatscreen%20televisions. 2 UK Gambling Commission statement 3 North East Regional Special Operations Unit statement
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licensed industry that it would take action to protect the regulated industry from unlicensed and illegal operations. In 2021 the government increased the application and annual fees payable to the Gambling Commission. An element of the increase was to enable the Commission to increase its enforcement activity in tacking illegal online activity. The Commission has agreements with Internet service providers (ISPs) and payment providers that they will not service unlicensed operators and uses these very successfully to disrupt illegal activity. As part of its activity in tackling illegal activity on social media, the Commission succeeded in taking down nearly 400 illegal lotteries advertised on Facebook in the period 2020/2021 alone. The French regulator has also recently taken similar enforcement action against social media sites. In its advice to the government that informed last year’s White Paper on gambling reform, the Commission specifically raised concerns over the proliferation of unlawful raffle style sites and the fact that the prizes offered were encouraging those who could least afford it to buy tickets. Many of the schemes are structured in a way that it is actually more expensive to enter by an alternative “free” method and the Commission continue to receive a large number of complaints where either the prize advertised is not awarded or the closing date is changed, reducing the chance of winning for those who have already entered. There are strict rules in the UK’s Advertising Codes as to how such competitions are presented and promoted and the Advertising Standards Authority (ASA) do undertake significant enforcement activity in this field. If rulings are not complied with then the ASA has powers to refer cases to Trading Standards for prosecution. The government has confirmed in the White Paper that it will be reviewing the exemptions in the Gambling Act that permit “free draws” where there is a genuine choice of entering for free or paying to enter. It has also indicated that, given that parliament never intended that the exemption should extend to offering big ticket items such as cars and houses, it will introduce a form of regulation of promotions where the prize exceeds a prescribed limit. It has further indicated that promoters will be required by licence conditions to comply
anyone involved in such activity can expect to find themselves the focus of intense security and any so-called ill-gotten gains can be forfeit.” 4 In 2017, the Gambling Commission prosecuted two individuals for the operation of an illegal unlicensed gambling site, FutGalaxy.com, which targeted children. Its virtual currency “FUT” coins could be used to gamble and then be converted into FIFA coins that could be traded on a secondary unauthorised site operated by one of the defendants. Fines and costs orders totalling nearly £250,000 were imposed on the two defendants. One of the most recent cases involving the use of criminal powers has seen a significant gambling operator investigated by HM Revenue and Customs (HMRC) for offences under the Bribery Act 2010. The full facts of the case will not be made available until the ongoing investigation into allegations against individuals have been completed – this could take years if there are trials and appeals. However, the Deferred Prosecution Agreement between the Crown Prosecution Service (CPS) (as the prosecuting authority in the case (on behalf of HMRC) and Entain plc, approved by the President of the King’s Bench Division in a judgement delivered at Southwark Crown Court on 5th December, 2023 has potentially wide implications for gaming companies that “do business in the UK” wherever they are located given the extra-territorial application of the Bribery Act. 5 The financial penalty and disgorgement of profits in the case totalled £585m along with £10m in costs payable to the CPS and HMRC, and a charitable payment of £20m. This however does not reflect the wider financial impact on Entain in being required, as part of the decision, to withdraw from a considerable number of jurisdictions where their activity was “non-legal”. The extent of the impact of the judge’s categorisation of the terminology will only become known once the Statement of Facts is published. 6 Business Disruption Measures At the time of the implementation of the remote licensing regime in 2014, the Commission gave a commitment to the
4 Cleveland Police statement 5 For more see https://www.transparency.org.uk/bribery-act-and-adequate-procedures-guidance/Bribery%20Act#:~:text=The%20Bribery%20 Act%20has%20extra,reach%20of%20the%20Bribery%20Act. 6 Rex v Entain PLC - Deferred Prosecution Agreement | The Crown Prosecution Service (cps.gov.uk) https://www.cps.gov.uk/publication/ rex-v-entain-plc-deferred-prosecution-agreement
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with the same social responsibility requirements as licensed gambling entities. Another provision in the White Paper that will enhance the Commission’s powers to tackle illegal gambling is currently before parliament as part of the Criminal Justice Bill. The Commission will be given powers (as will other regulators) to apply to a court for a payment or web blocking order, which will enable it to disrupt illegal activity where they are unable to secure co-operation from ISP’s and payment processors. To demonstrate the potential effectiveness of such powers, the Danish Gaming Authority recently announced that it had secured a record number of court orders blocking 83 websites offering illegal gambling In Denmark, 8 of which involved skins betting sites. I had reason to review 6 separate cease and desist orders issued by the Gambling Commission during the course of last year. Most were for skins sites that either allowed the customer to cash out or exchange skins for items of marketable value. As the Deputy CEO of the Gambling Commission said in a speech to the Swedish Regulator’s Conference in early March: “What is an illegal, unlicensed operator for me in Great Britain may be a legitimate, licensed business for you, and vice versa.” 7 The Commission has, understandably, been taking a particularly tough line with the advertising of illegal sites that are targeted at self-excluded customers. All UKGC licensed remote operators are required to sign up to and participate in the National Multi-Operator Self Exclusion Scheme, GAMSTOP. As flagged in their last enforcement report, the Commission’s intelligence unit has picked up numerous illegal gaming sites advertised as being “Not on GAMSTOP” that are specifically targeting vulnerable customers who have entered into self-exclusion on GAMSTOP. However, the advertising of such sites is not restricted to gambling operators. Two of the cease and desist orders we dealt with last year involved businesses
t hat were not part of the gambling industry but were permitting “Not on GAMSTOP sites” to be advertised in their journal. It was a hard lesson for the company as the Commission requested that their ISP block the sites and it resulted in the complete closure of an international non- gambling business for six days. The company had not responded to the Commission’s order and so the message is clear: do not ignore a cease and desist order from a Regulator. International Co-operation between Regulators The last point I want to cover is the increase in international co-operation between gambling regulators in intelligence sharing to tackle illegal activity. In Europe there has been long standing co-operation amongst the members of GREF (Gambling Regulators European Forum) in the sharing of intelligence and enforcement activity. On 2nd February 2024 the International Association of Gaming Regulators (IAGR) announced the formation of the Illegal Gambling Working Group following extensive discussion at their 2023 Botswana conference. The Gambling Commission has volunteered to steward the Group. This will clearly be a topic of interest at the combined IMGL – IAGR autumn conference in Rome. At the March conference Sarah Gardner addressed in Stockholm, she confirmed the signing of an updated Memorandum of Understanding with the Swedish Gaming Authority, being just one many such agreements the Commission has with other regulators – both national and international. In her speech she referenced some statistics that are worthy of note. In just one year the Commission increased their enforcement activity by over 500 percent between 2021/22 and 2022/23 and doubled the number of successful positive business disruption outcomes, in addition to the action taken against illegal promotions on social media.
ANDREW COTTON Senior Associate Solicitor, Irwin Mitchell For information contact +44 (0)207 421 3994 [email protected]
7 https://www.gamblingcommission.gov.uk/news/article/swedish-gambling-regulator-conference-sarah-gard- ner-speech
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IMGL MAGAZINE | APRIL 2024
ONE-ON-ONE
View from the top: John McManus, MGM IN THE FIRST EDITION OF THIS NEW FORMAT, EDITOR IN CHIEF, DR. SIMON PLANZER INTERVIEWED THE CHIEF LEGAL OFFICER OF MGM RESORTS INTERNATIONAL. JOHN MCMANUS DESCRIBES VIVIDLY WHAT IT’S LIKE TO DO HIS JOB, THE CULTURAL AND LEGAL CHALLENGES OF AN INTERNATIONAL BUSINESS, WHAT HE LOOKS FOR IN OUTSIDE COUNSEL AND PROVIDES SOME SAGE ADVICE FOR THOSE JUST STARTING OUT
Simon Planzer: John, you’re the Chief Legal and Administrative Officer and Secretary for MGM Resorts International, to give you your full title. What does your job comprise and what are the most satisfying aspects of your position? John McManus: I suppose the most satisfying aspect is that I get to do an enormously wide variety of things. I work an extremely varied day and I never know from one day to the next what to expect. I also get to work on a great many diverse topics, some exciting, some stressful, but there really is no average day. We have experienced highly publicized incidents, we had a tragic shooting, we have our share of litigation regulatory crises and significant M&A activity. So my days are never boring.
challenges in the business arise. I help identify the various moving parts, pinpoint where we might have an exposure or where we have opportunities, and I help craft solutions to the challenges. Some days a crisis may develop and we need to issue communications to shareholders or the public. I make sure that when we do that, we’re being thoughtful about how we represent ourselves and that we properly consider facts and consequences. There will be other days when there’s a team working on a transaction and I may need to weigh in to help resolve an issue to get to the finish line. Those are the exciting parts and at the end everyone’s happy when we succeed. Some days are easy but there are others where I’m stressed out. My career has permitted me to engage across such a varied number of issues. I used to think I was quite proficient in a few areas, but now the scope of the role is so broad that I feel I know
A big part of my role is as problem solver and counsellor where
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a little about a lot of things. That has forced me to become a good delegator and to build a great team around me. I work with some great people, and I also get to develop some younger lawyers. I have had to learn how to manage issues rather than be the one that works them myself. SP: MGM’s roots were as a Las Vegas land-based casino business. Today, the company has evolved into a global gaming brand with a presence across the world as well as online operations through BetMGM and the respective joint venture with Entain. What have been the main legal and regulatory challenges of that transformation and how have you managed them? JM: Historically, you’re right, we’ve been a land-based casino company, and that is a very important part of the business. Recently we have moved heavily into the digital space with joint ventures with Entain, and acquisitions overseas. Going from being a US land-based operation to an international digital business has really changed our focus and there are probably two parts to that. The first is geographic. When we enter new jurisdictions, we have to be mindful of different sensitivities in different places. There are legal differences of course, and I lean heavily on local in-house lawyers and external counsel in those markets. But there are also cultural differences that we have to understand and work with. The second part concerns the differences between land-based and digital businesses. When you have a heavy land-based presence you have to have a great deal of legal certainty. If you’re investing several billion dollars into a resort, you need things to be pretty black and white and that leads to a tendency to be quite conservative. Historically, in the online space, there has been a lot of uncertainty with regards to the law and companies
have had to navigate that, making judgements as best they could. That means online operators will typically have a higher tolerance of risk and there’s nothing wrong with that. The winds of regulation change, things are interpreted in a different way, and you have to respond, sometimes in quite dramatic ways. You may have to shut down or completely change how your product is offered, but that is accepted as normal. In the land- based business things are more absolute and rigid and we have to make sure we’re above criticism. That’s not just a clash of cultures, it’s the reality of being successful in each of two quite different spaces. When we put those two spaces together, we have to find a balance where we’re protecting our valuable land-based licences on the one hand, without preventing our online business from seeking and exploiting opportunities on the other. Sometimes that means asking our online teams to be more conservative so as not pose a risk to the land-based business. That’s especially important as US regulators tend to judge you based on what you’re doing worldwide. Similarly, you shouldn’t rule out sound opportunities simply because you may be criticized. Everyone understands the concept of the black market and we know that’s not where we want to be. Where that starts to get challenging is when you think you have a viable legal position and then the rules change. We see this especially in Europe where there are supposed to be protections for commerce that should apply across borders. Then it seems there is also the ability to pass laws related to gaming. That’s not a situation the US is used to dealing with. These are not just questions of whether or not it’s legal to operate. For example, thinking about Europe’s more aggressive approach to responsible gaming. How does that translate into
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a US land-based environment? The corporate governance requirements and making it all fit together well for the business really are a challenge. SP: That’s been a big change for the business but what transformation has it meant for you in your role? JM: I’ve had to learn ways of finding a balance between the competing interests of different lines of business; to ensure that we’re not setting too conservative a tone but we’re also not exposing ourselves. It’s searching for the right risk profile to advocate for in the business and making sure both sides of the business understand that. For the online teams, they have to know they’re now part of a bigger enterprise that faces these other risks that we have to be cautious about. SP: You mentioned that you see cultural differences around the world and have to lean on your local in-house lawyers and external counsel. Is it just about everyone being professional or are there more profound differences that you have observed? JM: With external counsel, there really are differences in how legal advice is given and what you as the client can expect. There are big differences between countries and the level of comfort outside counsel has with giving advice. There are some jurisdictions where the outside counsel feel they’re really part of the business team and they’re giving advice and guidance. In other places, they are inclined just to give you the law and leave the business people to make the judgement. Some see their role as just to set out the law rather than applying it to your situation. You have to be mindful that the legal advice you are given in Japan, for example, is very different from what you would get in the United States. Then, of course, there are also big differences between legal systems. There are code-based systems versus common law systems, and you just have to adapt to the jurisdiction you’re in. As in-house counsel, I try to know my limitations. I’m pretty proficient in the US but much less so elsewhere, so I’m
much more deferential to outside counsel in places where I’m not competent. I also rely on our in-house lawyers in those jurisdictions. SP: We see regulators, in Europe especially, imposing fines on companies for violations that predate acquisitions. How do you mitigate against such risks and conduct effective due diligence? JM : Unfortunately, that’s just one of the costs of trying to grow your business. You have to take some level of risk. You generally can’t do asset acquisitions; you buy companies and they come with a set of liabilities. You try to find out as much as you can through the diligence process and then make a judgement about whether that’s an acceptable level of risk. Other industries like chemical manufacturers have made acquisitions where they’re now facing mass class actions over incidents that predate their ownership. On a relative basis, the risk of a potential fine for a prior action is something you can manage. It’s just important to do thorough and thoughtful due diligence and rely on local gaming counsel to understand the landscape and the kind of exposure you could be open to. Typically, the lawyer’s risk tolerance is lower than that of the business people. If it’s purely a financial exposure rather than something that threatens your license, then in the end, it’s an economic decision. SP: European data protection laws seem very strict and regulators have imposed high fines following data breaches. Does this approach cause companies like MGM to tighten up their processes and is this a development you also expect to occur in the US in the near future? JM: It’s a different system in the US, but there is still very significant exposure. More commonly, we face actions from state attorney generals, enforcement following a data incident or class actions from private attorneys, and the FTC can issue fines as well. With our entry into the European online market, we certainly have plenty of risk and we also have data risk in
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the US. We try to do our best to be compliant, manage our data correctly and cooperate with the authorities when there is an incident. This is an area where everyone is focused right now. We had a well-publicized cyber event in the fall of last year. It was not an enjoyable experience, but I felt we were well prepared for it. SP: With some of the big main US players moving into cash positivity, how do you see that changing the industry worldwide in terms of consolidation and investibility? JM: BetMGM is separate a JV with Entain so I’m not speaking for them. But if we look at others in the US, I wouldn’t be surprised to see them trying to grow outside their home market, and obviously FanDuel is already part of Flutter. That’s what we’re doing too with LeoVegas and other interests in Europe. Companies that want a digital business are looking for places to grow so there is a natural desire to look to other places to expand. At ths stage I don’t see that transforming the online digital market but it certainly has the potential to introduce new competition SP : IMGL general members are typically practising attorneys. What value does external counsel bring to you as head of in- house legal, when do you decide to bring in outside counsel, and what can these counsels do to support General Counsels even better? JM: In US, a gaming specialty is becoming less common which can be a problem. As companies grow, they develop ever-larger in-house staff and US regulators will often say they want to hear more from the company than their lawyers. That does mean that we’re in danger of losing expertise. The depth of experience and expertise you build up by representing just one company is much less than you get from handling multiple matters for multiple clients. I like to use outside counsel when we’re in a new jurisdiction to better understand local issues and navigate the licensing
process. I also rely on them when we have a difficult issue or one which means we have to be more adversarial with regulators. In terms of what I value from outside counsel, being responsive is one. I appreciate those that take the time to learn about the company and its issues and be proactive in giving advice. In general, I like outside counsel to give me as much advice they are comfortable giving. It’s then up to the in-house counsel to make a judgement on what to use. We have to make the ultimate decision on what to recommend to our internal clients, but more information is definitely good. SP: IMGL is very supportive of students of gaming law as the next generation of gaming attorneys. You studied at Vanderbilt University and the University of Miami School of Law. What are the skills and assets that you learned there and that remain relevant for your daily work. What advice do you have for those just starting out? JM: I had a double major when I was at Vanderbilt and one of those was in philosophy. Philosophy teaches you about how to make logical arguments which was helpful at the time and has stayed with me. At Miami my traditional legal education was good and various things I learned still apply in the work that I do every day. What I think I would advise those starting out is not to get stuck in one area of the law that you focus on exclusively, even if that’s within the gaming discipline. Learn as much as you can about the subject because you really don’t know what’s coming next and where things might lead. I’ll give you an example. Early in my career at MGM I volunteered to work on a residential condominium project even though I didn’t have any experience in that area. It turned out to be a springboard to a number of other opportunities and gave me the exposure to senior management that probably got me to where I am today. So, it’s about being open, raising your hand and trying new things. Do that and things will probably go well.
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IMGL MAGAZINE | APRIL 2024
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IMGL MAGAZINE | JANUARY 2024
SECURITY DEPOSITS
A fresh breeze through the German online gambling market? WITH SOME OPERATORS STRUGGLING TO POST A REQUIRED €5 MILLION IN SECURITY, A NEW OPTION IS BEING EXPLORED AS KARIN BEUMER REPORTS
T he regulation of online gambling in Germany has undergone significant changes with the establishment of the Gemeinsame Glücksspielbehörde der Länder (GGL) in 2021. 1 Despite efforts to create a more uniform regulatory framework through the German Interstate Treaty on Gambling (ISTG) 2021, challenges persist, particularly concerning the stringent security deposit requirements imposed on operators by the GGL. This article examines the challenges faced by online gambling operators in meeting these requirements, including the disproportionate financial burden placed on smaller companies and the current lack of flexibility in deposit options. In response to these challenges, a novel approach is proposed, combining a third-party funds foundation with a bond insurance product to provide operators with a more cost-
effective and efficient means of fulfilling their regulatory obligations. This innovative solution aims to enhance the security of player funds while reducing the financial strain on operators and promoting regulatory compliance. A forthcoming practical case study will demonstrate the feasibility and effectiveness of this approach, providing valuable insights into its potential to address the challenges of online gambling regulation in Germany. Through collaboration between industry stakeholders and regulators, this innovative solution has the potential to pave the way for a more inclusive, sustainable and responsive regulatory framework for the German online gambling industry. Introduction
In 2021, the German Interstate Treaty on Gambling
1 Gemeinsame Glücksspielbehörde der Länder (2024). Wir regulieren den länderübergreifenden Glücksspielmarkt in Deutschland. [online] gluecksspiel-behoerde. Available at: https://www.gluecksspiel-behoerde.de/de/.
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(Staatsvertrag zur Neuregulierung des Glücksspielwesens in Deutschland) (ISTG) 2021 was introduced as the fourth version of the German online gambling treaty. Before this, each Federal State of Germany had its own regulation. Despite being in place since 2012, the previous treaties failed to unify all German states, leading to uncertainty among both players and operators. With the Gemeinsame Glücksspielbehörde der Länder (GGL) now regulating since January 2023, a more consistent landscape is being persued, however, some argue it added confusion. For example, each state can still decide whether or not they will provide licenses for the provision of casino games, or if this type of license will remain exclusively in state hands. 2 Consequently, while regulation has become more uniform, exceptions to the rules have made navigating the German online gambling landscape a challenge for operators. Rethinking security deposits On top of the labyrinthine regulatory environment, when it comes to the licensing process, operators face another challenge. ISTG 2021 requires all license applicants to provide a security deposit of EUR five million or higher (up to EUR 50 million) to the GGL. 3 GlüStV 2021 (translated) states: „The granting of the permit requires that the applicant provides security in the form of an unlimited, self-liquidating bank guarantee from a credit institution located in the European Union or in a contracting state of the Agreement on the European Economic Area, to ensure payment claims of the players and state payment claims. The security deposit amounts to five million euros. It may be increased by the authority granting the permit up to the amount of the expected average turnover for one month, but no more than 50 million euros.”
The security deposit is required despite the fact that, during the application process, operators are already thoroughly vetted as to their financial stability. As such, having to deposit EUR 5 million or more to the GGL seems excessive, while outstanding player amounts can be secured in more effective ways. Insisting that all companies, no matter their size or financial position, pay a uniform deposit creates an unfair advantage for larger companies over smaller ones that may not have access to such large amounts of cash. Furthermore, the security is required to cover state payment claims, not just player protection. In that case, one might wonder why such a high level of background research is involved in the application process when an applicant could simply put forward cash. Germany claims that its regulation, similar to other regulated jurisdictions, aims to guide players away from the black market towards the regulated market. Unfortunately, the current numbers on the German market do not show much progression in that regard, a situation that is caused in part by a limited number of licensed operators and a
less attractive offer for players. 4 Practical case study
Frustration at the current challenges of operating in the German market have drawn criticism. Despite this, the GGL, in contrast to many other regulators, has shown that they are willing to listen to the industry. When a joint group of industry professionals and lawyers presented the GGL with a new method for providing the security deposit, they found that the regulator was open to discussion and showed a keen interest. The method presented to the GGL entails a new form of guarantee, designed to be proportionate for all companies, big or small, which combines a foundation (stichting in Dutch) 5 for the safeguarding of player funds with a bond insurance
2 Hofmann, J., Spitz, M. and Hamburg, M. (2023). Gambling Laws and Regulations Germany 2024. ICLG. Global Legal Group. Available at: https://iclg.com/practice-areas/gambling-laws-and-regulations/germany 3 Staatsvertrag zur Neuregulierung des Glücksspielwesens in Deutschland 2021, 4c.3. Available at: https://www.gluecksspiel-behoerde.de/images/ pdf/201029_Gluecksspielstaatsvertrag_2021.pdf. 4 Deutscher Sportwettenverband (2023). New study: State Treaty on Gambling misses targets. DSWV. Available at: https://www.dswv.de/ neue-studie-glucksspielstaatsvertrag-verfehlt-ziele/. 5 A stichting is an orphan entity in the Netherlands, closest English translation being foundation. It is most commonly compared to an anglo-saxon trust, without capital or owners, that may be used for multiple purposes. In this it is not used as a trust with a trustee, or even an entity that may use the funds it holds for investments, but solely as an entity managed by a board of directors and supervisory board members to hold third party
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IMGL MAGAZINE | APRIL 2024
SECURITY DEPOSITS
Conclusion The innovative approach of combining a foundation for the safeguarding of player funds with a bond insurance product presents a promising solution to the challenges faced by operators in meeting the strict security deposit requirements set by the GGL. This method not only enhances the security of player funds, but also provides operators with a more cost-effective and efficient way to fulfill their regulatory obligations. By leveraging the proven concept of third-party funds foundations, coupled with the addition of insurance coverage, operators can achieve compliance with the GGL requirements while minimizing their financial burden and risk exposure. The combination of (Dutch) third-party funds foundations with insurance elements offers a reliable and secure mechanism to safeguard player funds. Furthermore, the forthcoming practical case study will provide concrete evidence of the effectiveness of this approach, demonstrating to the GGL how the combination of foundation and insurance can offer a viable alternative to traditional cash deposits. This case study will offer valuable insights into the operational feasibility and regulatory acceptance of this innovative method, paving the way for broader adoption within the German online gambling industry. The approach not only addresses the challenges posed by the current security deposit requirements but the way it has been designed, presented to and received by the GGL shows the potential for collaboration between industry stakeholders and the regulator to drive innovation and foster a more favorable regulatory environment for online gambling in Germany.
product. This combination allows operators to provide an additional layer of security to the German regulator, which should enable them to obtain their online license backed by a bond issued by an approved insurance company. This bond represents a promise to pay a specific amount of money in the future when called upon, effectively placing the insurer in the position of financial guarantor and fulfilling the EUR 5 million requirement set by the GGL. Using third-party funds to provide sufficient guarantees to players is an approach that is already tried and tested in the Netherlands, although without being combined with an insurance product. The Dutch regulator accepts the foundation to be sufficient security for the player funds and does not require security to cover any statutory fines. By combining the Dutch approach with the insurance provided by a bond, a secure and affordable solution has been created which allows all market players to meet the requirements of the GGL. As expected, when player funds are guaranteed by means of a third-party funds foundation, insurance companies found that their risks are substantially lowered, thereby opening up the possibility to provide insurance for less than one fifth of the costs of putting up a EUR 5 million guarantee. The GGL seems to recognize this as well, and an interesting case study will be moving forward to demonstrate to the regulator how this method will work in practice. A group of operators who already hold licenses (for which they have provided security in the form of a cash deposit) will submit a change to their financial security arrangements. This will trigger a formal response from the GGL will decide whether to approve or deny this new method of providing the security.
KARIN BEUMER Client director, EM Group Netherlands For information contact +31 6 5140 0498 [email protected]
funds. So the ‘stichting’ is merely a vehicle to own third party funds accounts with the objective to safeguard these.
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IMGL MAGAZINE | APRIL 2024
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