The New U.K. Online Gambling Law: Cyberlaw 3.0 – or a Return to Cyberlaw 2.0? (Guest Blog Post)

The New U.K. Online Gambling Law: Cyberlaw 3.0 – or a Return to Cyberlaw 2.0? (Guest Blog Post)

Photo credit: "United Kingdom High Resolution Casino Concept" // ShutterStock

Photo credit: “United Kingdom High Resolution Casino Concept” // ShutterStock

By guest blogger Marketa Trimble

The new amendments to the U.K. gambling law in the Gambling (Licensing and Advertising) Act 2014 will take effect on November 1, 2014, following a U.K. judge’s rejection of a challenge to the validity of the Act earlier this month. With this new Act becoming effective this week, we might wonder whether it returns U.K. gambling law to cyberlaw 2.0 – to the legal order that Michael Geist in 2003 defined as (among its other features) “a shift from a borderless network to borderless law.”

The new U.K. Act significantly changes online gambling regulation in the United Kingdom. Until now, U.K. regulation was based on the “place of supply”: online gambling operators could legally offer online gambling to U.K. customers (meaning customers connecting to the internet from inside the United Kingdom – see U.K. Gambling Commission document, p. 6 here) as long as operators were licensed in a jurisdiction within the European Economic Area (comprising the 28 member countries of the European Union and Iceland, Liechtenstein, and Norway), in Gibraltar, or in any other jurisdiction approved by the U.K. government. The result of the “place of supply” regime was that only 15-20% of online gambling operators were licensed by a U.K. licensing authority, while the remaining operators operating in the United Kingdom held licenses elsewhere. Approximately 55% of all operators offering online gambling to U.K. customers were licensed in Gibraltar; Malta was another popular licensing jurisdiction for operators.

With the 2014 Act, the United Kingdom is switching to a “point of consumption” regime. Online gambling operators who want to offer online gambling to U.K. customers will now have to be licensed by a U.K. licensing authority. This change is problematic for existing operators and jurisdictions (such as Gibraltar) that have benefited from the prior regime, and the Gibraltar Betting & Gaming Association challenged the Act in court.

In the judgment, Justice Nicholas Green concluded that the U.K. government and Parliament were entitled to pursue with the Act their goals of consumer protection and the protection of the public order, and therefore could require that online gambling operators offering online gambling to U.K. customers be licensed by a U.K. licensing authority. Justice Green found nothing in the design of or justification for the Act that would be inconsistent with U.K. law or with European Union law as it has been interpreted in decisions of the Court of Justice of the European Union, including several Court of Justice decisions that addressed the regulation of online gambling.

In 2003, Michael Geist described cyberlaw 2.0 using a “point of consumption” online gambling regulation scheme as an example – an example of a territorially expansive law that a national legislator purposefully uses to impose its national law on persons and entities located everywhere, including outside its jurisdiction. Certainly, the new U.K. law has extraterritorial effects; not only must any company that wishes to offer online gambling to U.K. customers be licensed in the United Kingdom, but any company outside the United Kingdom that does not wish to be regulated by the U.K. gambling regulator must not offer online gambling to U.K. customers – if it does, it is committing a criminal offense in the United Kingdom. This prohibition applies not only to online gambling companies but also to those that advertise online gambling. The requirement that companies outside the United Kingdom stay out of U.K. “cyberspace” to avoid U.K. online gambling regulation requires companies to satisfy the U.K. regulator’s definition of an effective blocking of U.K. customers, although the U.K. regulator in mid-2014 still seemed to be considering what techniques constitute effective blocking (geoblocking) (see two U.K. Gambling Commission documents, p. 6 here and p. 6 here).

The extraterritorial effects of the 2014 Act are not new; even before the Act, unlicensed operators were prohibited from offering online gambling to U.K. customers, but the earlier law applied to unlicensed operators only when at least one piece of their equipment was located in the United Kingdom. The 2014 Act expands the application of the law to anyone who offers online gambling to U.K. customers – even if an entity has no online gambling equipment in the United Kingdom. And only a U.K. licensing authority can grant a license for online gambling offered to U.K. customers under the new law. With these changes, the United Kingdom is now taking full responsibility for enforcement against operators and advertisers that offer online gambling to U.K. customers. However, as I explained in my 2012 proposal for an international convention on online gambling, international cooperation is a sine qua non for national online gambling laws to be effective and enforced.

National online gambling laws are not always effective and enforced because countries have limited abilities to enforce their laws and regulations against operators and advertisers outside the reach of the countries’ enforcement power. Although countries might be able to rely on enforcement through collaborating entities that are essential for online gambling operators’ and advertisers’ operations, such as payment processors and internet service providers, direct actions against non-compliant foreign operators and advertisers require that countries have foreign partners – other jurisdictions that can and will assist in enforcement. Countries often require that their gambling licensees abide by not only their own laws and regulations but also by all or at least some of the laws and regulations of other jurisdictions in which the licensees operate. This regulatory scheme can facilitate effective cross-border enforcement of national online gambling laws and regulations and avoid any need for national authorities’ decisions to be recognized and enforced in foreign countries – a recognition process that would not be possible because decisions based on public laws are typically not recognizable and enforceable in foreign countries. If a jurisdiction licenses operators within its territory, it can also enforce its laws against its licensees, including in situations where licensees are in breach of the gambling laws and regulations of other jurisdictions.

The 2014 Act might not be a step back to cyberlaw 2.0; it might in fact be a step toward cyberlaw 3.0. Cyberlaw 2.0 was designed to serve a country’s objectives of having its laws and regulations govern all those persons and entities whose activities on the internet reached customers in its jurisdiction. However, a country could not achieve its objectives without effective cooperation from other countries in enforcement against persons and entities outside the country’s enforcement power. Cyberlaw 3.0 gives equal weight to other countries’ abilities to assert their own laws and regulations, thereby preventing the “struggle to assert national sovereignty over policy choices” against which Michael Geist warned in 2003. By taking responsibility for enforcement in its own jurisdiction, the U.K. regulator can effectively cooperate with regulators in other countries and ensure that online gambling laws and regulations are respected by those who operate in the United Kingdom. The reliance placed on regulators in other EEA and other white-listed countries by the United Kingdom before the 2014 Act prevented the United Kingdom from being an effective partner to the other jurisdictions in enforcing the other jurisdictions’ online gambling laws and regulations.

Operators that have offered online gambling to U.K. customers in the past but have been licensed until now only outside the United Kingdom paint a grim picture of impending chaos that will be created both by pressure on operators to be subject to yet another licensing scheme and by the lack of capacity of the U.K. regulator to license all operators and related entities. However, it is important to note that many large operators, manufacturers, and other entities holding gambling licenses are already licensed in multiple jurisdictions; in fact, the number of licensing jurisdictions in the world substantially exceeds the number of countries in the world because countries often comprise multiple jurisdictions with separate licensing regimes. Although the effects of the costs associated with licensing in additional jurisdictions cannot be ignored, multi-jurisdictional compliance is certainly common in the industry.

With or without an international convention, the gambling industry (or the “gaming industry” as it prefers to be called) could be a remarkable – and perhaps unexpected – trailblazer in the effective legislation of online activities. Naturally, issues remain, including the optimal approach to user evasion of geoblocking and the technical feasibility and practicability of countries’ requirements that operators maintain at least some of their online gambling equipment in the countries (a requirement contained, for example, in section 89(2) of the 2005 Gambling Act). It is also possible that the gambling law area will prove to be the only area, or one of only a few areas, of law actually suitable for this method of cross-border enforcement of national laws on the internet.