Offshore Betting and Gambling Licensing - The Pseudo Regulation of Betting
By Martin Purbrick, Chairperson, ARF Council on Anti-Illegal Betting and Related Financial Crime
The growth and globalisation of internet-based (‘online’) illegal betting in the past several decades has been accompanied by the expansion of offshore jurisdictions that purport to license online gambling and betting on markets in other jurisdictions. This is highly problematic for the effective regulation of betting and other forms of gambling, which traditionally has been a local national responsibility.
The increasing impact of illegal betting on racing and other sports’ integrity, on financial and organised crime, and other negative issues such as loss of potential tax revenue, and social impacts such as problem gambling, necessitate that the activities of offshore gambling regulators be scrutinised by national governments and appropriate international organisations to assess how they are affecting national social policies.
Objectives in the regulation of online gambling inevitably reflect local national social, cultural, economic and political circumstances, and consequently require a local regulatory approach. The issues to be addressed by gambling regulators include “containing gambling addiction (as a public health matter), protection of minors, consumer protection (in particular minimising misleading advertising and unfair commercial practices), upholding the integrity of sports (preventing sports manipulation such as match-fixing), preventing money laundering and fighting crime more generally (fraud, organised crime).”[1]
There are clearly social, economic, and criminal aspects to the negative social impact of illegal betting, as shown in ARF Council reports. What must increasingly be assessed is what role do the offshore gambling licensing “pseudo regulators” play in the expansion of online illegal betting by providing camouflage to their actual illegality at the point of sale of bets to consumers?
Illegal Betting, the Macolin Convention and Betting Regulation
Online betting has made many jurisdictions’ gambling legislation – often written pre-internet – obsolete, as it allows betting operators to target consumers across the globe regardless of whether or not they are licensed to operate under the laws of jurisdictions in which their consumers are located.
The relevant gambling laws in every jurisdiction differ, but either the operator or the consumer, or both, may breach the law by betting or gambling when no licence exists in the local jurisdiction.
‘Illegal betting’ is best defined by the Council of Europe Macolin Convention on the Manipulation of Sports Competitions as follows:
“Illegal sports betting” means any sports betting activity whose type or operator is not allowed under the applicable law of the jurisdiction where the consumer located.[2]
If an online operator accepts bets from a consumer in a jurisdiction where the operator is not licensed then this is – by the Council of Europe definition – “illegal” betting. But many betting operators who operate in jurisdictions where they are unlicensed are able to argue that they are not engaged in illegal activity because there is no express law preventing online operators from accepting bets from persons located outside the jurisdiction in which the operator holds the licence; others simply ignore local laws because they know there is almost no likelihood of a successful prosecution being brought.
As illegal betting is clearly defined, it follows that legal betting can also be inferred from this definition. As sports betting activity should only be legally allowed under the applicable law of the jurisdiction where the consumer is located, it follows that the regulatory status of the betting operators should also be recognised under such local laws. Offshore pseudo gambling regulators are not part of a national regulatory structure and hence have no relation to national laws of any jurisdiction except that in which they sit.
The European Union, as a single market of 27 countries, has grappled with the national regulatory requirements relating to betting and other gambling and largely concluded that there are a diverse range of regulatory frameworks. The approach taken by the EU is essentially that although a single market for the provision and use of cross-border gambling services constitutes an economic activity that falls within the scope of the fundamental freedoms of the Treaty on the Functioning of the European Union, there is no obligation of mutual recognition of authorisations or licences to provide gambling services granted by an authority in an EU country.[3]
The Court of Justice of the European Union (CJEU) “has also repeatedly recognised EU countries’ rights to restrict the cross-border supply of certain gambling services where necessary to protect public interest objectives such as the protection of minors, the fight against gambling addiction, and the prevention of crime and fraud.”[4]
To be considered legal sports betting, it must be allowed in law where the consumer is located. Regulation of the gambling activity of a consumer is based on those national laws. As noted above, it has been legally recognised that it is the right of countries in the EU to restrict gambling (including sports betting) based on public interest. This principle that countries should have the right to restrict gambling based on public interest applies even more so for each sovereign country across the world regulating gambling within its own borders to its own consumers.
Betting and Gambling Taxation
The desire to restrict gambling for social reasons has led to the use by governments of taxation as a tool to limit gambling by raising the price of betting through high levels of taxation. The growth of online betting challenges the efficiency of this approach, and it is further undermined by offshore jurisdictions that purport to license online gambling and betting.
Consumers are attracted to betting and gambling with online operators not licensed in their local country because such operators often offer a vastly superior product choice (i.e. sports and bet types to bet on, modes of betting such as in-play which may not be available in the local market) and much better prices (i.e. betting odds), since these operators are not limited by any condition of licence. Because of this, the impact of increased taxation in limiting gambling is diminished. Firstly, taxation is less efficient to ensure a suitable price point for betting that is a deterrent to people to gamble too much. Secondly, online betting provided by betting operators based remotely outside of the jurisdiction where the consumer is based, many claiming to be licensed in an offshore jurisdiction, undermines gambling taxation revenue. Betting and gambling operators licensed in offshore jurisdictions contribute zero taxation to the country where the consumer is based.
While offshore pseudo regulators may claim to offer a range of regulatory conditions for licence holders, taxation revenue is not one of these and clearly this is a major part of the attraction of such “licences”.
Offshore Gambling Licensing
Offshore international gambling and betting licensing hubs are jurisdictions that have established regulatory frameworks to attract online gambling and betting operators by offering licences. These hubs often provide favourable conditions such as lower taxes (i.e. no tax paid in the jurisdiction where the point of sale takes place), streamlined regulations (i.e. under-regulated), and legal stability (i.e. no legal scrutiny). The number of these hubs is growing, and consequently so is the problem of illegal betting being camouflaged by pseudo-licenses.
As the table below shows almost all of the offshore betting and gambling licensing hubs are small island territories with small populations (the exceptions being Panama and the Philippines).
The growth of illegal betting involves a failure in many countries to provide an appropriate legal licensed and regulated betting structure for consumers. This has led to the growth of offshore online betting (and also gambling), and in parallel a system of offshore gambling licensing hubs that offer regulation for remote betting and gambling. The inherent contradiction of this situation is apparent: countries where the regulation of betting and gambling has been insufficient do not need an offshore entity purporting to fulfil their regulatory role. The regulation of betting and gambling is a responsibility for the government of the country where the consumers accessing the services are located.
In contrast, many jurisdictions have shown that a clear definition of illegal betting in law, and flexibility for the legal market to compete within reason on price and product, can provide effective channelling of illegal betting demand to the local, well-regulated market, protecting consumers from gambling harm and providing tax benefits for local society, rather than leaking money to offshore entities. It is time for national gambling regulators and government policy makers to look more closely at this growing offshore pseudo licensing system and state clearly that it is detrimental to effective national social policies.
[1]European Commission, Evaluation of Regulatory Tools for Enforcing Online Gambling Rules and Channelling Demand towards Controlled Offers, November 2018(https://op.europa.eu/en/publication-detail/-/publication/6bac835f-2442-11e9-8d04-01aa75ed71a1/language-en)
[2]Council of Europe, Convention on the Manipulation of Sports Competitions,Article 3, 5a., 18 September 2014 (https://rm.coe.int/16801cdd7e)
[3]European Commission, Gambling Case Law (https://single-market-economy.ec.europa.eu/sectors/online-gambling/gambling-case-law_en)
[4]European Commission, Gambling Case Law (https://single-market-economy.ec.europa.eu/sectors/online-gambling/gambling-case-law_en)