April 23, 2010

Czech Republic tries to ban advertising from foreign gambling sites

Czech betting companies could get relief from international competition if a proposed amendment is passed that bans foreign online betting companies from advertising in the Czech Republic, but the ongoing debate reveals loopholes in European gambling law, experts say.

Online betting is an industry worth 29 billion Kč a year in the Czech Republic, with foreign online gambling companies - many of which are based in tax havens like Gibraltar and Malta - accounting for 4 billion Kč last year, according to the Association of Betting Service Providers. Czech tax laws require gambling companies operating in the country to make charitable contributions of up to 20 percent of revenues on top of normal taxes, giving companies operating with European licenses, but catering to Czech clients, a distinct advantage.

"These foreign online betting companies have no license from the Finance Ministry, and they pay no taxes in the Czech Republic, so we therefore support banning advertisement of foreign companies here," said Radek Ležatka, spokesman for the Finance Ministry.

Under the new amendment, foreign gambling companies will not be allowed to advertise in the Czech Republic, nor offer Czech-language services on their Web sites. But gambling industry insiders have cried foul over the amendment, saying it contradicts European law.

The European Parliament set down a definitive ruling on the regulation of online gambling Sept. 8, 2009.

"The EU internal market should not be taken as the basis for regulating [the gambling] industry. Rules governing online gambling should not be laid down by the EU, as member states are quite capable of regulating the industry themselves," the Parliament's report says.

The disagreement between Czech authorities and foreign gambling companies stems from differing interpretations of that ruling.

"The European Court decided that the national governments of EU member states are entitled to prohibit in their territories illegal gambling operators. We expect the government to take clear and effective steps that will lead to the removal of ... foreign companies that profit in the Czech Republic without paying fees," said Marek Herman, director of the Association of Betting Service Providers.

But, according to Clive Hawkswood, chief executive of the Remote Gambling Association, a UK-based organization promoting the regulation of the European gambling industry, the situation isn't that simple.

"If someone in the Czech Republic is playing poker through a company based in Malta, are they crossing the border? The question is where the gambling takes place: where the company is based and licensed or where the consumer is based. Companies argue one way, and governments argue another," he said. "European law says you must provide access to your market if the company is licensed in that jurisdiction, but there are grounds on which you can restrict access to licensed foreign companies if, for example, they increase crime. But it's difficult to prove that you will cut down crime only by banning foreign companies."

If the amendment is passed by Czech Parliament, it will then be examined by the European Commission.

Czech gambling companies have complained about the advantage foreign companies have over their businesses since online gambling was legalized in 2009.

Petr Šrain, spokesman for Fortuna, one of the largest online betting companies in the country, said unregistered foreign companies have "stormed the Czech gambling market."

"Foreign companies are a serious problem for us and put us at a real disadvantage. We hope the government will do something about it," he said.

Fortuna also does business in Slovakia, Poland and Croatia, where the company "respects local legislation," according to Šrain.

"We are registered in all of the countries where we do business, and we pay taxes there," he added.

Bwin, a gambling company that is registered in Gibraltar and operates in the Czech Republic, remains cautiously optimistic about the government's decision, according to spokesman Klaus Lackner, who said, "A well-functioning regulatory regime must be proportionate, nondiscriminatory and fully adapted to the Internet and the cross-border nature of the online gaming and betting sector in order to effectively foster consumer protection."

"National regulation can only curtail the black market if the national line-up is more attractive than unlicensed international offers that, in the online environment, are only one click away. bwin is confident that, after the upcoming elections, the new Czech government will take these elements into consideration and engage in a constructive information exchange with the private sector," he added.

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