Speech at the EASG Seminar in Warsaw on 21-23 September 2000

The Finnish way

Notes on Internet gambling in Finland

1. Gambling in Finland in general

In Finland all gambling and lotteries operated against payment are means of obtaining money used by non-profit associations. Private companies are not allowed to conduct lottery activities, including slot machine and casino activities, even if the proceeds were to be used for charitable purposes.

As a rule money gaming, which refers to operating games in which the player can win money, is only permitted under a Government licence. Only one licence is valid at the same time for each type of money gaming. At present the right to operate money games is shared so that three associations have a licence. Only the National Lottery of Finland, Oy Veikkaus Ab, which is totally owned by the State, may engage in money lottery and betting business. Toto games may only be operated by Suomen Hippos, which is the central organisation of horse breeding organisations in Finland. Casinos in turn may be run by Rahaautomaattiyhdistys (Slot Machine Association), which is a public law association better known as RAY or Raha.

Special provisions apply to slot machine activities, as an exception to the rest of money gaming. Only the public law association Raha, which has been established for this purpose, can get a licence for keeping slot machines available for the public in pursuance of the law.

The proceeds from money games for charitable purposes amounted to a total of FIM 4.5 billion (about $700 million) in 1999.

2. Internet games in Finland and elsewhere in the world

2.1 General

Since the middle of the 90s, the explosive growth of Internet operations has been astonishing. After the problems relating to the safety and reliability of money transactions were solved someway, there were no technical barriers to the breakthrough of all kinds of economic activities on the Internet. Millions of people have already access tot the Internet by wire, but it is obviously the wireless Internet that will sweep the board. On the other hand, we cannot yet predict for sure the nature and extent of economic activities in the Internet.

We have already seen the first significant Internet bankruptcies. Trading in clothes did not prove successful in the United Kingdom, nor does trading in books by a company called Amazon appear very lucrative. It is probably that the commercial strengths of the Internet can be best utilised in those fields of commercial activity where no heavy logistic solutions relate tot the product tot be sold. One of the fields liable tot expand on the Internet is money gaming.

Today many countries permit provision of games on the Internet. With a browser an occasional surfer can fairly easily find 600-1 000 Internet addresses providing or advertising money games. A major part of game providers have established themselves in tax havens or countries applying no legal limitations on cross-border gambling.

Among the first companies to start Internet gambling were an Icelandic and a Liechtenstein lottery company. At present, also Swedish companies, a betting company Svenska Spel Ab and a toto game company ATG, provide games on the Internet. In addition, many UK betting companies provide games via the Internet. Today, there are well-known Internet game companies in Switzerland and Austria as well.

Many gambling companies have a supply of games in the Internet in many languages. It has been interesting to notice that some UK and Australian gambling companies provide their games not only in English but also in such less known languages as Finnish. Even though some gamblers have been happy about this, authorities have found the situation awkward, as a cross-border gambling causes many difficult legal problems which culminate in the issue of regional applicability of gambling provisions.

2.2 Finnish solution to Internet gambling

In Finland, Internet gambling was launched in 1996. The National Lottery of Finland, Oy Veikkaus Ab, was then given a licence by the Government to operate its games on the Internet. At present Suomen Hippos has also a licence to operate games on the Internet. Hippos has not, however, started the activity yet

In Finland, the urgent requirement for receiving a licence for operating Internet games was to arrange game operations so that games were not sold across national borders and that playing on credit was not permitted. The purpose was to make sure that the principle of the national treatment established by the EC Court of Justice in connection with the Schindler case in 1994 will work and that the injuries caused by gambling will not increase.

Accordingly, it was not permitted to sell money games across the borders to countries or areas whose legislation could restrict or totally forbid the provision of foreign games. This solution was mainly adopted for the reason that providing games on the Internet without regional restriction or restriction relating to the group of playing would cause many problems. When gambling industry crosses the borders, decision-making, as regards what kind of games are provided an on what terms, will rest on the legislation of the place of establishment. Similarly it seems that the decisions on the taxation of gambling industry as well as decisions on the use of revenues raised from the operation are taken under the legislation of the game provider’s place establishment. The result could be that the injuries caused by gambling remain to be solved by the players’ country of establishment, whereas the economic advantage gained from gambling industry will benefit the game providers’ country of establishment.

Therefore, it had to be considered how to solve the above mentioned problems relating to cross-border provision of games. At the time there were no efficient technical solutions, and in practise, there may not be any now either. The National Lottery of Finland personal identity code and an account with a Finnish financial institution may register as a player. This is a way to restrict the group of players to persons living in Finland or having other ties to Finland.

Playing on credit is prohibited by opening an account for the registered player in the National Lottery of Finland. The player may deposit a maximum of FIM 30 000 (about $4 700) into the account. The lottery company charges the playing account according to the stakes the player has chosen. If the player wins, the company transfers the profit into the playing account. If the balance in the playing account exceeds FIM 30 000, the exceeding amount is automatically transferred into the player’s account with the financial institution.

At the present lottery company has 70 000 registered players, of which 40 000 play regularly on the Internet. Given that the company does not advertise Internet gambling opportunities, the figures are relativity high.

Nevertheless, registering as such does not guarantee that a player cannot play for example on his portable computer or mobile phone or even outside Finland’s borders. This is, however, regarded as a minor fault in the judicial system, as the arrangement has made it possible to restrict the group of players in practise to those having a Finnish identity code. Consequently, despite the global nature of Internet gambling, it has been possible to construct a system which in practise does not enable playing on credit or playing across the borders of different legal systems.

You could ask, of course, if this arrangement should be regarded as contrary to the principle of non-discrimination referred to in the EC Treaty. Gambling services are not offered to all persons within the community who might be interested in buying them. Probably this is not a serious problem, however, because the EC Court of Justice has approved, both in the Schindler decision mentioned above and in the decisions taken later in the Läärä and Zenatti cases, that Member States may restrict or even totally forbid lotteries in their territories, and in fact all Member States have forbidden the operation of foreign lotteries in their territories.

2.3 Directive on electronic commerce

There are no provisions on lotteries in the European Union. By the decisions of the EC Court of Justice, the questions relating the lotteries have expressly been left to national authorities to be solved under national provisions.

In June this year, the European Parliament adopted a Directive on electronic commerce. This Directive aims to promote free movement of information and secure an equal and comprehensive accessibility of information society services. The Directive also aims to cope with the central problems caused by the fact that there has not been a generally accepted way of handling the question concerning a legal system to be applied to cross-border operations on the net. Under the provision concerning the scope of application of the Directive, lotteries were, however, excluded from the scope of application, except sales promotion lotteries where the purpose is to encourage the sale of goods and service.

2.4 Positions concerning the Internet

In legal literature there are very few articles so far about Internet gambling and legal issues relating to this, given the large number of problems in the field that not have been solved yet. Nor are there many court decisions or other official declarations. In this connection I would, however, like to mention some articles and positions published lately.

The Gaming Regulators European Forum (GREF) gave a position statement in Helsinki on 15 May 1998, according to which games may be provided in the Internet as long as this does not lead to infringement of national or autonomous regional legislation. In addition, the supply of games could be legally based on reciprocal arrangement between States.

Bill Lahey from Australia and Thomas Auriemma from the USA have written a report on gambling to IAGR (International Association of Gaming Regulators). Lahey has mainly described monitoring of Internet gambling by means technical equipment, and Auriemma has written about the solution of problems relating to Internet gambling by means of regulation.

In Finland professor Juha Laine has written about legal problems of Internet gambling in the legal journal Lakimies. Laine has taken a somewhat critical attitude to the Finnish solution for Internet gambling, registering players, adopted by the National Lottery of Finland. He claims that the preconditions for registering can possibly be regarded as discriminatory by nature.

In a Swedish administrative law journal, a Swedish Doctor of Laws, Mrs Marianne Hattig, surveys Internet gambling from the Community law point of view an tries to solve the problem concerning the legal system to be applied to cross-border gambling. She considers that the legal system to be applied should be determined by the focus of gambling. She does not say, however, which operations have to be taken into account and what grounds have to be borne in mind when defining the focus of gambling.

A Swedish working group appointed by Ministry of Finance supported Hattig’s focus theory in its report published March 2000 (SOU 2000:50). The working group considered that the focus would be where the game provider’s administration and development are. Furthermore, the working group considered that the location of the server was not of importance, because the server may lie anywhere without the operation being disturbed. On the other hand, several servers in several places producing different partial operations may be linked to the operation.

3. Dilemma of Finnish Internet gambling

In Finland, the self-governing region of land has its own lottery legislation. As regards its basic principles, this lottery legislation is similar to the national legislation of Finland. Yet, there are exceptions. Only land’s Slot-machine Association, PAF, is entitled to engage in slot-machine and casino operations as well as in betting operation. For the operation of other games, the government of land may issue several licences. In practise, this has not been done. On the contrary, PAF has recently been given a licence to operate all kinds off money games on the Internet. The revenue from the lotteries in land must also be used for the promotion of non-profit activities.

Even though the region has legislative and administrative powers only within the restricted areas defined in the Self-Government Act, the Government of land believed it had the authority to issue PAF a licence to operate games via the Internet everywhere in Finland. On the basis of the focus theory referred to above, the Government of land considers that the legislation to be applied is determined by the location of the server and the game provider’s administration. They are both in land. You could ask, of course, why PAF does not provide its Internet games to other players than those who live in Finland, because the consider that the legislation to be applied should be determined on the basis of the focus theory.

At the beginning of 2000, PAF launched its gambling operations on the Internet, but restricted the right to play to persons with a Finnish identity code and an account with a Finnish financial institution, in the way adopted by the National Lottery of Finland. This has led to a situation where two Finnish gambling associations with an exclusive legal right are engaged in gambling operations in the territory competing with each other with similar betting game products. Given the reasoning to the decision given by the EC Court of Justice in the Läärä case, the situation that has evolved should be considered as contrary to the principle of non-discrimination included in Article 12 of the Treaty of Amsterdam.

Despite efforts it has not been possible to solve the problem through negotiations. To cope with the situation, Ministry of the Interior has asked the Supreme Court if the Government of land had the authority to issue PAF a licence to operate gambling on the Internet. Before solving the question of authority, the Supreme Court may also have to solve a principal question of where Internet games are operated. The matter is still pending, therefore I cannot tell you what solution the Supreme Court has adopted.

In principle this decision is very important. If the Supreme Court considers that the Government of land has the authority to issue PAF a licence to operate gambling on the Internet everywhere in the country, it means, at least as regards money lotteries and betting games, the traditional exclusive right system will collapse. Factually the decision would mean that the Lotteries Act should be amended so that provision of the territory of the European Economic Area. The decision could also reflect on other private law sectors of money gaming. Toto games operated by Suomen Hippos should possibly be opened to competition, too, whereas the decision would probably not affect the exclusive right arrangements relating to slot-machine and casino operations.

J.Laiho