Dr. Nik Sarafi, expert in German gaming law, lays bare Germany’s 2021 Interstate Treaty on Games of Chance and explains how a recently passed circular resolution could impact the market's operators. Part 1 of Sarafi's article can be found here.
3 No impact on the substantive legal situation
Administrative provisions are general arrangements in the internal administrative field which are issued by a superior authority to subordinate authorities or by the head of the authority to the administrative staff subordinate to him or her. Administrative provisions may be used to limit the existing decision-making latitude and actions of an authority to ensure uniform administrative action. It should at the same time be emphasised that the courts are not bound by the administration's interpretative guidelines and, due to the primacy of law, must base their decisions on an independent interpretation of law. As a result, this lack of any detrimental effect from organising illegal online gaming if the technical guidelines are adhered to is to a certain extent binding on the public administration in following the provisions laid down in the circular resolution, but this does not mean - should a court be called upon to decide on the reliability of a provider - that this justifies the organisation of online gaming being deemed to be illicit contrary to the circular resolution. Judicial review of administrative actions on the basis of an administrative provision guiding the exercise of discretionary powers is limited to the standards to be applied when discretionary powers are exercised in an individual case. However, it is possible to review whether the public administration has made errors in its decision, in particular whether the administration has complied with applicable laws and regulations. In short, the circular resolution is only internally binding on the public administration, but not on the courts, and - since the provisions of GlüStV 2021 are obviously contrary to Union and German constitutional law and will therefore probably be rejected in any judicial review - ultimately not binding on providers, either.
Since the circular decision contains only administrative provisions, it does not change the situation regarding substantive law or the general situation. From the point of view of the German Länder, the organisation of gaming without an official licence issued by a gaming authority of the German Länder continues to be punishable under § 284 of the German Criminal Code (StGB). And that is why the circular resolution cannot protect providers from the fact that payment of players' money to providers of illegal gaming is null and void under § 134 of the German Civil Code (BGB) in conjunction with § 184 of the German Criminal Code (StGB) and can therefore be reclaimed. The circular resolution especially does not constitute toleration, but rather merely an internal instruction to administrative authorities on how to proceed and deal with illegal online gaming from the perspective of the German Länder. Taking the perspective of the Länder (which disregards Union law) as the point of departure, the circular resolution especially cannot therefore, contrary to its wording, protect providers against being deemed unreliable by instances outside of government authorities.
Reliability is often cited in administrative regulations as a criterion for the granting of a licence, for example in § 7 (1a) of the German Air Safety Act (LuftSiG), § 5 (1) of the German Weapons Act (WaffG), § 7 of the Federal Code for the Legal Profession (BRAO) (refusal of admission to the bar) or § 3 of the German Road Traffic Act (StVG) (withdrawal of a driving licence). In trade law, for example, individuals are deemed to be unreliable if they do not offer any guarantee that they will properly pursue their trade in the future. If the philosophy underlying the circular resolution is applied to other cases where reliability is at issue, the absurdity of the notion that the circular resolution may have some kind of external legal effect, no matter how marginal, becomes evident: According to § 2 (1) nos. 3 and 4 of the German Road Traffic Act (StVG), for example, persons are only deemed to be suitable for driving a motor vehicle if a comprehensive assessment of their "overall personality", i.e. all the traits, abilities and behaviour relevant to the assessment of road hazards, does not reveal anything to the contrary. If an amendment to the law were announced which classified as unsuitable any driver who drives a car with a pollutant class lower than Euro 4 (because such drivers are held to be irresponsible due to the environmental damage caused by their vehicles, therefore posing a particular danger), this would be highly problematic in terms of fundamental rights, just as is GlüStV 2021. If, however, a circular resolution is then passed on what is likely to be the future law, and if, just a few weeks after publication of the draft law - and long before it enters into force or even before a decision has been made on its future entry into force - those drivers who still drive a car with a pollutant class lower than Euro 4 are held to be unsuitable to drive a motor vehicle in the future, it is difficult to avoid the conclusion that the repression of such a regulation in a constitutional state must be without any consequence. This is exactly the situation with regard to the circular resolution.
It is important to stress that the foregoing discussion regarding loss of reliability only applies if European law is disregarded. This is because § 284 of the German Criminal Code (StGB) does not apply to providers from other EU Member States who have a respective licence to organise online gaming in their Member State due to the primacy of EU law - providers organise online gaming in exercise of their European freedom of service. This even goes so far that non-compliance with the requirements of the circular for providers with a licence from other European Member States is not detrimental to their participation in subsequent authorisation or licensing procedures. On the one hand, GlüStV 2021 has not yet been ratified by the German Länder and therefore cannot yet have any legal force whatsoever. On the other hand, GlüStV massively violates fundamental European freedoms, European competition law and constitutional law. The European Court of Justice has already ruled several times in similar constellations that GlüStV violates Union law. With regard to the granting of licences for the organisation of gambling, the ECJ handed down a ruling on 22 June 2017 (Case C-49/16) regarding the preconditions for regulating the granting of a licence for the organisation of online gaming (Unibet International ruling). Thus, gaming laws are deemed to violate Article 56 TFEU if they discriminate against providers established in other Member States. Discrimination can be assumed to be present if the rules are applied or handled in such a way that advertising by certain providers established in other Member States is prevented or made more difficult. The Court of Justice has consistently held that such intervention is justified only if rules and arrangements are consistent. In any event, there would not appear to be any such coherence wherever authorities pursue a policy toward other games of chance which is aimed more at encouraging participation in such other games than at reducing opportunities and limiting activities in this area in a coherent and systematic manner. This would namely have had the effect of undermining the objective underlying the granting of licences: to avoid incentives to overspend on gaming and to combat gaming addiction (as held by the ECJ in Sporting Odds, Stanleybet Malta, Carmen Media Group, et al). The same is true for the probable future GlüStV 2021, on which the circular and the technical guidelines are based.
The circular resolution is therefore irrelevant to operators from another Member State which, in exercise of their European freedom to provide services, organise online games of chance in Germany. However, the situation is different for providers who already have a licence or authorisation to organise (terrestrial) gambling in Germany. For them, the circulation resolution carries the risk that they will organise online casino games in an erroneous belief in supposed toleration and thus be deemed to be unreliable - because, from the perspective of the German Länder, this is the case under current law if online gaming is organised contrary to the 3rd Interstate Treaty on Games of Chance (hereinafter: 3. GlüStV), and the circulation resolution cannot change anything in this regard. However, operators are then threatened with the loss of all licences and authorisations that have already been granted, as they would also be classified as unreliable in the terrestrial sector.
4 Parties profiting from the circular resolution
Parties profiting of the circular resolution include those actors who, in their own interest, have played a major role in shaping GlüStV 2021: state-owned companies (Länder Lotto companies) as well as the Gauselmann Group and the Novomatic Group. If they have been scheming to take over the online gaming market and carve it up among themselves, the circular resolution is a major step in the right direction for them. This development began, however, as far back as when information on how future technical regulations were to be designed was already divulged during the phase in which GlüStV 2021 was being drafted. This allowed these players to begin efforts to conform with technical directives much earlier than in the case of other European suppliers, who were not informed of the technical regulations until much later - namely when the draft act was published. GlüStV 2021 had a catch, however: after publication of the draft act, all providers would have had sufficient time - namely until 1 July 2021 - to design and offer their online services in accordance with the new regulations. This head-start over other European providers by virtue of early knowledge of the future rules and arrangements would have been lost. The circular resolution is intended to protect against this: It moved forward the entry of GlüStV 2021 into force, before it has even been ratified by the German Länder, to 15 October 2020. Instead of having at least one more year to implement the technical guidelines, European suppliers thus only had a few weeks and hence far too little time to even come close to catching up. The aim is to permanently exclude European providers from future licenses in Germany. This is because, from the perspective of the German Länder, all providers who now still offer online gaming in Germany without complying with the technical guidelines are to be classified as unreliable. The particularly lucrative market of online casino gaming will thus remain reserved for state-owned and privileged companies such as Gauselmann, which already has stakes in numerous casinos in the terrestrial sector or operates them itself in Saxony-Anhalt.
GlüStV 2021 leads to a fragmentation of the gaming market, which is no longer only legally enshrined in the GlüStV 2021, but is already being implemented de facto through the circular resolution. The online gaming market is being split up into virtual slot machines, online poker and online casino games. The virtual slot machine game is being mutilated beyond recognition by time restrictions, compulsory breaks, limits on the amount of money that can be wagered and the prohibition of automatic gaming, nor is it even allowed to be advertised as "casino". Apart from the fact that this is unlikely to be an effective "channelling mechanism", and moreover that the rules are not designed to protect players, this fragmentation is highly problematic from the perspective of competition law: by pushing current players in the market into a "virtual arcade market", the privileged operators - state-owned companies and terrestrial operators with dominant positions - can take over the online casino market with ease. This is why preliminary contractual agreements have already been concluded by state lottery companies and these dominant companies in Germany for the operation of online casinos.
The fact that the state-owned and privileged companies had a considerable degree of latitude for input not only in the drafting of GlüStV 2021, but also with the circular resolution, is due to the fact that dominant individual companies from the terrestrial gambling sector in Germany control two of the most important online gambling associations, namely the German Online Casino Association (Deutscher Online Casinoverband - DOCV) and the German Sports Betting Association (Deutscher Sportwettenverband - DSWV), by virtue of having placed members of their company management in leading positions in these associations, from where they are in direct contact with policy-makers and can directly influence future regulation. The DOCV, for example, has contacted the Gaming Board (Glücksspiel-Kollegium) and issued a favourable opinion on the tightening of technical guidelines and the deposit limit. The Gaming Board is the coordinating body of the German Länder which awards licences. As the licensing procedures of the Gaming Board have already on several occasions been held by the courts to be unconstitutional and contrary to EU law, GlüStV 2021 provides for the establishment of an institution governed by public law (Anstalt öffentlicher Rechts (AöR)), which would monitor compliance with future technical guidelines and be in charge of awarding licences.
It would appear that especially in the English-speaking area of the online gaming industry the belief has taken hold that Germany has a so-called "temporary tolerance regime" as a result of the circular resolution and that the circular resolution has become law. As explained in the foregoing, however, this is not the case. The certainty that is being suggested to providers by the circulation resolution is deceptive. The circular resolution especially is not a form of toleration from which providers could derive any legal position benefiting them. It is merely an instruction for government authorities to facilitate coordination of enforcement against (in their view) illegal gambling. This does not alter the legal situation as such - in particular, it does not change the fact that online gaming in Germany can be operated from another Member State as permitted under EU law. The circular resolution is therefore more than anything else an (intentional) troublemaker for the industry.