Black markets and illegal gambling operators

DCMS White Paper, April 2023

 

 

Introduction

Chapter 3 of the White Paper deals with “the threat of an online gambling black market” and expresses  legitimate concerns about “an increasing number of illegal websites… run by individuals with suspected links to serious and organised crime”.  It points out that “the black market is relatively easy for people to access who are actively trying to find and gamble with illegal operators online”.

To counter the threat, it is proposed to give the Gambling Commission “new powers”, which are explained (in bold font) at paragraph 42 of the White Paper –

“We will introduce legislation that will give the Gambling Commission the power to apply to the court for an order that requires ISPs [Internet Service Providers], payment providers and other providers of ‘ancillary services’ to implement measures aimed at disrupting the business of an illegal gambling operator.”

The shift in language from “black market” to “illegal gambling operator” should not pass unnoticed, because the two are far from synonymous. Disrupting the business of an illegal gambling operator “with suspected links to serious and organised crime” is unlikely to be controversial. But it might surprise anyone instinctively inclined to applaud the above proposal to learn that what it calls an “illegal gambling operator” includes a licensed operator in a foreign jurisdiction who is operating wholly within the terms of his licence and in accordance with the laws of that country.

This article will examine: (1) the UK’s claim to jurisdiction over gambling operators licensed overseas; (2) the enforcement of extra-territorial claims to jurisdiction; (3) how the Gambling Commission currently addresses the problems of enforcement; (4) the White Paper proposals to facilitate enforcement; and (5) how third parties may be affected.

1. The UK’s claim to jurisdiction

The standard justification for UK regulation of a licensed overseas operator is ‘player protection’: it is pointed out that the issue by an overseas regulator of a licence to provide gambling facilities does not guarantee that the licensee is a responsible or even an honest operator.  Much depends on who issues the licence. The White Paper explains –

“The Commission is also seeing an increasing number of illegal websites that originate in jurisdictions with either extremely permissive regulatory regimes or no regulatory oversight, and/or are being run by individuals with suspected links to serious and organised crime”.

Four different scenarios are grouped together in that passage, not necessarily deserving of the same regulatory response: illegal websites; websites originating in jurisdictions with extremely permissive licensing regimes (i.e. not illegal under local law); websites originating in jurisdictions with no regulatory oversight (i.e. not prohibited by local law); and websites run by individuals with links to serious and organised crime.

Not every gambling licence issued overseas falls into one or other of those four categories. There are jurisdictions where gambling is recognised by the High Court as “subject to appropriate levels of regulation”  [1]; and others where regulatory control  is less permissive than in the UK, and “forms of gambling permitted in the United Kingdom are either prohibited or provided only by a State or State sanctioned monopoly or exclusive licensee.” [2] There are also countries whose licensing regimes, although they may diverge from the paths taken by the 2005 Act or the Gambling Commission, have adopted an approach to regulatory control which by no stretch of the imagination can be called “extremely permissive” – it just happens to be different from ours. The Gambling Commission acknowledges these, and there is mutual cooperation between some of them and the Commission.

(Since publishing this article, I have been reminded that until 2014 Antigua, Alderney,  Gibraltar, the Isle of Man and Tasmania, amongst other  jurisdictions, were awarded ‘white listed status’ by the Secretary of State on the basis that they offered “equivalent levels of protection and regulation to the UK”.)

In 2014, however, the UK government effectively decided that if online gambling services originating from anywhere overseas can be accessed by someone in Great Britain, then the provider of them must hold a licence issued by the Gambling Commission in addition to whatever licence or licences he holds in his home country. If he does not hold an operating licence from the Gambling Commission, then in the eyes of UK law he is operating illegally, no matter how “appropriate” the level of gambling regulation where he is licensed, no matter how “equivalent” it may be to UK levels of player protection, and no matter how strict the terms of his overseas licence.

Gambling (Licensing and Advertising) Act 2014

Broadly speaking, section 33 of the Gambling Act 2005 (“the 2005 Act”) makes it an offence for anyone who is not the holder of an operating licence issued by the Gambling Commission to provide facilities for gambling. [3]

Until 2014, section 36(3) of the 2005 Act provided that section 33 applied to the provision of facilities for remote gambling only if at least one piece of remote gambling equipment used in the provision of the facilities was situated in Great Britain.  Section 36(3), however, was amended by the Gambling (Licensing and Advertising) Act 2014 (“the 2014 Act”) so as to apply section 33 to the provision of facilities for remote gambling, even if no piece of gambling equipment is situated in Great Britain, if the gambling facilities provided overseas are used in Great Britain. Although section 36(3A) goes on the say that an offence under section 33 is only committed if the person providing the gambling facilities knows or should know that the facilities are used or likely to be used in Great Britain, “knows or should know” and “used or likely to be used” are broad concepts which in practice extend the reach of potential criminality to just about anyone who places a gambling website on the Internet. (I deal with geo-blocking and virtual private networks later in this article.)

The Gibraltar Betting and Gambling Association challenged the legality of the 2014 Act by way of judicial review. The Government of Gibraltar, together with the Gibraltar Gambling Commission, joined as interested parties [4].  In the course of his judgment, Green J explained the effect of the amendment to section 36(3) [5] –

“It is apparent, therefore, that an off-shore provider of gambling services will provide ‘facilities for gambling’ in the UK simply by virtue of the fact that he creates facilities which may be accessed in the United Kingdom; and this arises even if the operator has no physical presence in the United Kingdom.”

That passage revives some old chestnuts: are off-shore gambling services on a website accessed in the United Kingdom or from the United Kingdom? In other words – and for the purposes of gambling regulation – does the website come to the UK player, or does the player go to the website? If we take the location of the off-shore website to be where the server is, how does the UK justify its regulation by the Gambling Commission?

Green J doesn’t indulge in those abstract considerations: it is a ‘given’ in his judgment that an offshore Internet gambling site that is accessed from the UK is accessed in the UK; and he offers the following justification for UK regulation of it –

“It seems to me that if the Government cannot lawfully move to a point of consumption regime that the prospect of any form of regulation of remote e-commerce becomes exceedingly difficult.”

The principal legal challenge in the Gibraltar case was that the licensing regime brought in by the 2014 Act was unlawful in that it was a disproportionate restriction on the freedom to provide services guaranteed by Article 56 of the Treaty on the Functioning of the European Union. The challenge failed.  This is not the place, nor am I the person, to embark on a discussion of the EU jurisprudence which led to Green J dismissing the claim; but a passage in his 100-page judgment is indicative, to my mind, of a general approach that was destined to be fatal to the application:

“Routinely, the [European] Court has acknowledged that many Member States view gambling as impinging harmfully upon their moral, religious and cultural traditions and beliefs and gambling is frequently associated with a “high risk of crime”. … The Court also recognises that gambling incites spending which “… may have damaging individual and social consequences”. This is not an area where the ordinary libertarian instincts of the Court to encourage free and unfettered trade are discernible. As already observed… the Court has stated that free competition in relation to gambling tends towards consumer harm not benefit.”[6]

2. Enforcement of Extra-territorial Jurisdiction

An Internet search of the words ‘extra-territorial jurisdiction’ yields a number of near-identical hits, most of which seem to derive from a succinct entry in Wikipedia. (Either that, or the entry in Wikipedia derives from them.) –

“Extraterritorial jurisdiction (ETJ) is the legal ability of a government to exercise authority beyond its normal boundaries. Any authority can claim ETJ over any external territory they wish. However, for the claim to be effective in the external territory (except by the exercise of force), it must be agreed either with the legal authority in the external territory, or with a legal authority that covers both territories.

Enforcement of a unilateral declaration of overseas jurisdiction is likely to be problematic. The White Paper’s statement – “Most sites are based in overseas jurisdictions where prosecution would be impractical” – is something of an understatement: it is not the impracticality of prosecution which stands in the way of enforcement, it is the lack of jurisdiction.

One of the arguments in the Gibraltar case was that the 2014 Act regime would be ineffective in protecting consumers because it could not be properly enforced and that this rendered it disproportionate, given the high burden it imposes on operators and the relative benefits of alternative proposals [7]. The argument was rejected. At paragraph 116, Green J said –

“By the very nature of the internet there will be difficulties for any regulator in exercising total supervision over offshore operators. The Government recognises that there is no such thing as an enforcement regime which is 100% perfect or efficient. But it takes the view that a combination of goodwill amongst service providers, the threat of criminal and other regulatory sanctions, and cooperation with foreign regulators, will prove sufficiently robust. Unless it is possible to discern material and central errors in this reasoning this is a perfectly logical policy stance for Parliament to take.”

And at paragraph 176 –

“In my judgment, Parliament was perfectly entitled to form the opinion that the new regime would not create significant enforcement problems.”

3. The Gambling Commission’s approach to enforcement

The Gambling Commission’s current approach to the enforcement of its extra-territorial jurisdiction is along the lines identified by Green J, and is explained in paragraph 39 of the White Paper:

• In most cases, the Commission will begin by issuing a Cease-and-Desist letter, requiring the operator to stop offering services to, or permitting access by, British consumers.
• The operator may then agree to ‘geo-block’ its services, preventing access to its website from computers located in Great Britain.
• If there is no satisfactory response to the Cease-and-Desist letter, the Commission will employ ‘disruption techniques’, using the errant operator’s partnerships or relationships with other companies. These techniques include asking web hosting companies to suspend or ‘block’ (IP block) British consumers from accessing the websites, contacting payment providers to remove payment services, and liaising with social media sites to prevent websites appearing on search engines or being hosted.
• The Commission also engages with international regulators, “sharing information and raising the prominence of this issue.”

I have italicised the words “or permitting access” in the first bullet-point above, because the discussion about disrupting the business of an overseas operator not licensed in the UK frequently vacillates between the regulation of gambling websites targeted at GB customers, and the regulation of websites merely accessible by them. For example, in the Gibraltar litigation, Green J said –

“It seems to me obvious that in relation to an activity which is potentially socially divisive, such as on-line gambling, that those who provide the service should be subject to regulation in the State they target”. [8]

And he also said –

“… an operator, wherever they are located in the world, whose services are capable of being used by customers in Great Britain and who is not licensed by the GC will attract criminal liability if it advertises its services in this jurisdiction. This will apply even if the operator has no intention of targeting British customersbut is not able effectively to block such customers accessing its services.” [9]

[emphasis added]

The language – “permitting access”, “targeting British customers” – suggests that a degree of recognisable culpability is expected in overseas operators before they are branded as criminals. But that is not so. The 2014 Act criminalises the mere provision of an overseas gambling website not licensed by the Gambling Commission if it is used by GB customers and the person providing it ought to know it is likely to be used by them.  Although there may be little sympathy for an unlicensed operator who deliberately targets GB players with gambling facilities, I am uncomfortable about criminal liability attaching to an overseas operator who is licensed by his domestic regulator, “has no intention of targeting British customers”, but is unable to stop GB players accessing his website.  He is certainly not targeting GB players: if anything, they are targeting him.

Geo-blocking

The inability “effectively” to block British customers points to the deficiencies of geo-blocking.

Geo-blocking is the restriction of access to Internet websites, depending on the geographical location of the person seeking access. The IP address of the device used by that person determines the country of use, and ‘geo-blocking’ software on the website is able to block access to it from that country.

A person wishing to circumvent geo-blocking can do so using a Virtual Private Network (“VPN”). The Internet is full of advertisements for VPN software, telling prospective purchasers: “How to get around geo-blocking with a VPN”.   A typical advertisement reads –

“Looking to get around geo-blocking and spoof your location? We explain how to bypass online censorship and access region-locked services.

VPNs work by routing your traffic through a server in another country. This hides your real IP address — which is often used to determine your location — and replaces it with a temporary, country-specific IP address. As a result, most geo-restricted platforms can’t tell the difference between a VPN user and someone who’s actually in the required location.”

I was bemused to find VPN software on my iPhone and iPad, which had been installed (without asking me if I wanted it) on a routine systems update.  But ‘free’ VPNs are not always compatible with the software on gambling sites.  Many purchased VPNs, however, claim that they are.

It seems to me that the disruption of the business of a licensed overseas operator, whose website geo-blocks access from Great Britain but is accessed by GB players using VPNs to ‘spoof’ their location, is not so much a measure aimed at the overseas business, as it is a restriction on the freedom of GB players to gamble where they wish. In the Gibraltar case, Green J said –

“Even where operators are subject to appropriate levels of regulation overseas there are different regulatory standards and approaches. There is limited consensus in areas such as standards and software testing which inevitably means that British consumers may experience varying levels of protection depending on which operator they deal with.”

That is undoubtedly so. But I question whether it is the legitimate business of the UK government to prevent British consumers choosing to access overseas online websites that are “subject to appropriate levels of regulation overseas” – and making that choice because they are indifferent to the fact that the ‘appropriate’ regulation in question is not conducted by the Gambling Commission, and are unconcerned that they “may experience varying levels of protection depending on which operator they deal with”.

4. The White Paper proposals

The White Paper proposes that the threat from online gambling sites can be countered in two ways:

The first is aspirational: the Gambling Commission would like to strengthen its engagement with international regulators and reach agreements with them to take more effective action when an operator licensed in one jurisdiction operates illegally in another.

The aim is that:

• an operator licensed overseas “could face regulatory action” in that jurisdiction for operating without a licence in Britain; and likewise –
• operators licensed in Britain “could face action by the Commission” if they were found to have operated illegally in the jurisdiction of one of the Commission’s international partners.

It is difficult to see how this proposal is about player protection. If it is, it is rather insulting to the international regulator and an awkward admission by Gambling Commission to say: “We are asking for your cooperation in making sure that for their own protection our citizens don’t gamble with those whom you have licensed, and for their own protection your citizens don’t gamble with those whom we have licensed.”

The second would give the Commission’s ‘disruption techniques’ the force of law. Currently, they rely on the voluntary cooperation of Internet Service Providers, Payment Providers and those who host social media sites: the proposal in the White Paper is that anyone who does not cooperate voluntarily could be made to do so under the compulsion of a court order. It is helpful to refresh memories of the proposal itself –

“We will introduce legislation that will give the Gambling Commission the power to apply to the court for an order that requires ISPs [Internet Service Providers], payment providers and other providers of ‘ancillary services’ to implement measures aimed at disrupting the business of an illegal gambling operator.”

The wording, perhaps, could be improved: the idea is to give the courts the power to make such an order, and the Gambling Commission (and only the Commission) authority to apply to the court for that power to be exercised.

5. Impact on third party “providers of ancillary services”

It is not altogether clear what is meant by “providers of ancillary services”. We can hazard a guess at the general meaning – but how wide is the net to be cast? I am instinctively uneasy that anyone who provides ‘ancillary services’ (i.e. not facilities for gambling), should be strong-armed by court order to give unwilling assistance in disrupting the business of an otherwise lawful overseas operator.

Nor is it clear how far ‘disruption’ may legitimately go.  Are the websites of blameless third parties to be taken down? Are they to be regarded as regrettable but unavoidable collateral damage in the crusade to ensure that no one in Great Britain has Internet access to a gambling site that is not supervised by the Gambling Commission?

The White Paper tries to play down what to my mind is an extraordinary and far-reaching proposal. With beguiling insouciance, the paper says: “We expect that in most cases service providers will as at present act on the information provided by the Commission, and it will not be required to use its power to apply for a court order very often.”  But that doesn’t reassure me: I am old enough to remember the archetypical schoolmaster who told us, with an unpleasant smile, that he didn’t expect to have to use (very often) the cane that he smacked into the palm of his left hand – leaving no one in doubt that he had every intention of using it as often as occasion demanded,  if we didn’t do exactly as he said.

Conclusions

The Internet was first made available to the public in April 1993. It is understandable that a mere 30 years later, we are still grappling with the implications of it and trying to ensure we reap the benefits while mitigating against the harms – many of which are only now being realised; and some, no doubt, are yet to be identified.

I am concerned that in our determination to bring down ‘the bad guys’ of online gambling, we may be insufficiently mindful that some of ‘the good guys’ might get caught in the cross-fire.

 

Gerald Gouriet KC

Inner Temple, London

 

 

[1] Per Green J in Gibraltar Betting & Gaming Association Ltd v The Secretary of State for Culture, Media & Sport, [2014] EWHC 3236 (Admin).

[2] Idem @ 24.

[3] Not every ‘facility for gambling’ falls under section 33. Lotteries, for example, are treated separately: the offence of facilitating a lottery is given by section 259.

[4] Gibraltar Betting & Gaming Association Ltd v The Secretary of State for Culture, Media & Sport

[5] Idem @ paragraph 114

[6] Ibid @ 104

[7] For example, “passporting”:  where a licence issued by a recognised overseas regulator would be sufficient authority for an operator to provide gambling facilities to customers in the UK.

[8] @ 157

[9] @ 50

 

The full text of the White Paper can be found here