At the End of 2010, Romania Takes a Gamble on Online Gambling
Published on “Bizlawyer.ro”, 2010
At the end of 2010, players on the Romanian gambling market, both gamblers and organizers, turned their attention to the Official Gazette, expecting the publication of the long-awaited law that was to radically change the legal framework governing the online gambling market.
Finally, on December 21, 2010, Law 246/2010 for the approval of Emergency Government Ordinance 77/2009 on the organization and operation of gambling activities (“Law 246/2010”) was published. The law brings long-needed changes to the language on the ordinance, but at the same time contains certain provisions that are not only conflicting, but often unclear.
The Romanian gambling market has grown significantly in the recent years, thus becoming an important but insufficiently exploited source of income for the state budget. Against this background, both the participants on the gambling market and the relevant authorities felt the need for more elaborate legislation in this field, which was initially adopted in 2009 through an emergency ordinance (Government Emergency Ordinance 77/2009 on the organization and operation of gambling activities – “GEO 77/2009”), followed by the methodological norms for the application thereof (approved by Government Decision 870/2009 –“GD 870/2009”).
However, it seems that the need to bring additional income into the state budget was so pressing, that the authorities omitted at that point to notify the European Commission of the new legislation, prior to its adoption, as required by the European regulations, thus creating the risk of the European Commission initiating the proceeding requesting a finding that Romania infringed its obligations (the so-called infringement proceeding).
At that point, GEO 77/2009 regulated and classified the gambling activities permitted in Romania as follows: (i) lotto games; (ii) betting, namely mutual betting and fixed odds betting; (iii) gambling specific to casino activities; (iv) slot-machine games; (v) bingo games performed in game rooms; and (vi) bingo games organized through television network systems. Of these activities, lotto games and mutual betting were placed under the legal monopoly of the National Company “Romanian Lottery.”
Survival of the fittest on the gambling market
The 2009 legislation “sorted out” the gambling organizers through the restrictive (mostly financial) conditions imposed. Most significantly, it provided that the organizer must be a Romanian legal person.
Secondly, it required the organizers to obtain a license for organizing gambling activities, for each gambling activity it intends to carry out, as well as an authorization for operating gambling activities. The authorization is valid for 5 years from the date of its issuance, provided that the annual fees regarding the license and the authorization, which vary depending on the gambling activity conducted, are paid.
Additionally, the legislation establishes a minimum share capital that must be subscribed and paid up by the gambling organizer in addition to the obligation of the applicant to create a burdensome security fund for the purpose of covering the risk of non-payment of the obligations to the general consolidated budget, the amount of which is dependent on the type of gambling activity for which the license is requested.
The legal obligations imposed upon the gambling operators do not end here, as there are additional regulations that impose another set of requirements and restrictions regarding the nature of the location, the minimum number of gambling means, locations or technical equipment.
In this context, it appears that, starting with 2009, the Romanian gambling market is open only to big companies who can afford to comply with all these legal requirements and still make a profit.
Outlawing online gambling?
The most controversial aspect of the 2009 legislation was without a doubt the qualification as a criminal offense the organization of gambling activities through the Internet or Intranet communication systems, as well as through other communication (landline or mobile telephony) similar systems. The sanction provided was imprisonment from one to three years or criminal fine for natural persons, whereas legal persons were subject to a fine ranging from RON 10,000 to RON 100,000 and the additional punishment of the dissolution of the legal person.
Thus, GEO 77/2009 transformed the already existing de facto passive prohibition of online gambling into a regulated active prohibition.
Additionally, advertising, publicity or other promotional activities regarding any of the activities or gambling prohibited by GEO 77/2009 were qualified as a minor offense subject to a fine ranging between RON 50,000 and 100,000. Thus, as long as online gambling is prohibited in Romania, they may not be promoted here either.
Despite these legal provisions, many gambling organizers offered freely online gambling, including after the GEO 77/2009 came into effect, through sites in Romanian (using both gTLD domain names “.com” and domain names bearing the extension corresponding to Romania “.ro”), thus directly targeting Romanian consumers.
Moreover, online gambling was openly promoted through various mediums, from television to websites, to outdoor publicity. Despite this, it seems that the authorities did not apply any sanctions up to now.
According to certain unofficial sources from the gambling market, the estimates for the year 2009 put the value of the amounts gambled online by Romanians at EUR 500 million.
New times call for new legal provisions
On July 2, 2010, the Romanian authorities notified the European Commission of the bill for the approval of Emergency Ordinance nr. 77/2009 on the organization and operation of gambling activities (the “Bill”), intended to bring a series of changes to the provisions of GEO 77/2009, most likely as a result of the correspondence between the Romanian authorities and the Commission’s representatives as well as of the lobbying of certain influential persons with special interests on the market.
The European Commission issued a detailed opinion (detailed notification) regarding the Bill, whereby it brought arguments in support of its position that the Bill restricts the freedom to provide services, while Great Britain filed comments. Malta also issued a detailed opinion with respect to the Bill.
In this context, the form in which Law 246/2010 was finally adopted and published in the Official Gazette nr. 854 of December 21, 2010, may seem surprising to organizers of online gambling activities on the international market who are interested in expanding their activity to Romania.
Strengths and weaknesses of the new legislation
As expected, Law 246/2010 decriminalizes the organization of online gambling activities and supplements the classification of gambling activities permitted in Romania with the following activities:
a. bingo games organized through communication systems such as internet, landline or mobile telephony systems;
b. online betting representing the fixed odds betting activity, organized through communication systems such as internet, landline or mobile telephony systems;
c. online gambling representing all gambling activities, other than those defined that are carried out by methods other than those defined at letters a), e), f), g) and h), which require the physical presence of the gamblers, organized and transmitted by communication systems such as internet, landline or mobile telephony systems and for which an organizer of gambling activities has obtained authorization and license – respectively online gambling specific to casino activities and slot machine games.
Additionally, the monopoly of the National Company “Loteria Romana” is extended to cover lotto games and mutual betting, although – quite inexplicably – lotto games are expressly excluded from the list of online gambling activities permitted in Romania.
In addition to online gambling, Law 246/2010 allows economic operators who hold authorizations to conduct casino gambling activities to organize poker tournaments, subject to the payment of an organization fee in the amount of RON 200,000.
Despite the detailed opinion issued by the Commission regarding the restriction of the freedom to provide services, Romania persists in its position: only Romanian legal persons may be organizers of gambling activities.
Additionally, all the technical support equipment for organizing and transmitting online gambling activities must be located in Romania. With respect to this latter aspect, the situation is not as gloomy as it initially seemed, as Law 246/2010 provides an exception from this rule. Thus, operators authorized for online gambling in another Member State are allowed to have this equipment located anywhere in the European Union, provided that it is connected to the public or private bodies that will monitor the online gambling activities in Romania.
However, it is still unclear how the authorities will construed and implement this exception. Will it suffice if the equipment will be held in another Member State by an affiliate of the Romanian entity if the respective affiliate is already licensed in the European Union or will the Romanian entity applying for a license be also obliged to obtain the license to operate in another Member State in order to hold equipment outside Romania?
At least for now, these questions have yet to be answered. Additionally, Law 246/2010 provides that the application norms to be adopted will include additional conditions that must be met by the operator to obtain the online gambling license and authorization. Thus, Law 246/2010 leaves room for the Romanian authorities to further surprise us.
Together with the right to organize and operate online gambling activities come the financial obligations for those interested in these activities in Romania.
These obligations consist in the payment of annual fees for the license and authorization for online gambling activities, in addition to the requirements regarding the minimum share capital and the creation of the security fund intended to cover the risk of default on the payment of the obligations to the consolidated state budget.
The authorities have decided to (more or less) streamline the annual fee amounts for the license and authorization, as well as of the minimum share capital for online gambling activities with those already in effect for offline gambling activities (most likely at the request of the European Commission), but did not apply the same rule to the security fund.
Thus, whereas for offline gambling activities the amount of the security fund depends on the number of electronic slot machines or posts, gambling tables or locations, up to a specific threshold, the security fund for online gambling activities is fixed (RON 400,000, 600,000 or 1,000,000, depending on the type of the gambling activity) and does not depend on the volume of the activity conducted.
An additional interesting aspect is the fact that the authorities did not take into account the specific nature of online poker and set the annual fee for the relevant authorization based on the same formula as the one for the other casino – specific gambling activities, namely as a percentage of the amounts effectively collected by the organizer, but no less than RON 400,000.
Monitoring online gambling activities – a new business opportunity
Whereas the old legislation placed the responsibility of monitoring the activities in the gambling filed on the Ministry of Public Finance, directly or together with other state institutions, Law 246/2010 provides for the possibility of online gambling activities being monitored and supervised by state institutions/authorities or by authorized operators.
The authorization requirements will be established pursuant to methodological application norms, but those interested in this business opportunity must know that the operators that will be authorized must create a security fund intended to cover the risk of default on the payment of the obligations to the consolidated state budget in the amount of RON 10,000,000.
Thus, even if the additional authorization requirements that will be imposed through the application norms will not be too restrictive, the financial burdens will definitely make those interested think twice about the advantages and disadvantages of this business opportunity before applying for such an authorization.
Law 246/2010 maintains the most perplexing provision of the bill notified to the Commission, namely criminalizing the participation of players (physical persons) from Romania to online gambling activities not authorized on the Romanian territory. Such act is qualified under the Law as a criminal offense and sanctioned by imprisonment from six months to two years or by criminal fine.
Additionally, the law expressly prohibits the promotion, through permitted online gambling or related activities, means or activities that are prohibited or (interestingly enough!) are not regulated by the Romanian legislation. Aside from the substantial criminal fine (between RON 50,000 and 100,000), under Law 246/2010, the breach of this prohibition is subject to the additional sanction of revocation of the license granted for the organization of the respective activity.
Furthermore, the sanction punishing the promotion of prohibited gambling activities and games (namely the criminal fine between RON 50,000 and 100,000) also applies to marketing, advertising, publicity and other promotional activities regarding online gambling activities not authorized in Romania.
The long-awaited law by gambling operators, although intended to adapt the legislative framework to the realities of the Romanian gambling market contains many ambiguities and unclear or contradictory provisions.
In this context, it remains to be seen how the relevant Romanian authorities will treat the possibility of foreign operators authorized in other EU member states providing online gambling services in Romania and the participation of physical persons to any such activities in Romania.