A recent Italian Supreme Court case, concerning the prosecution of an individual for offering gambling services without fulfilling the necessary licensing provisions, has upheld that Italy’s regulatory framework was incompatible with EU law and the Placanica ruling.

On 4 May 2007, a change in the caselaw of the Italian Supreme Court took place when it delivered its judgment¹ in the criminal proceeding referred to its attention against Mr. Scollo, an Italian operator of a data transmission centre (DTC) linked to the English licensed bookmaker, Stanley International Betting Ltd, allowing Italian gamblers to place bets, pay stakes and receive winnings through Stanley International’s server, for pursuing the activity of collecting bets without the requirements prescribed by the applicable Italian legislation.

Current Italian legislation requires a gambling operator to obtain a concession and a police authorisation in order to permit the activities of collecting, accepting, booking and forwarding offers of bets, including by telephone or by data transfer, in Italy. The carrying out of such activities for these purposes without the required concession, licence and police authorisation constitutes an infringement punished by criminal sanctions².

Referring to the recent ruling³ of the European Court of Justice (hereinafter the ‘ECJ’), better known as the Placanica ruling, the Italian Supreme Court ruled that the national regulations and particularly the criminal sanctions established in relation thereto, are not applicable to the matter in reference.

The Placanica ruling

The Placanica ruling arose from a referral to the ECJ by the Court of Larino as regards the Community principles of freedom of establishment and the freedom to provide services (stated in Articles 43 and 49 respectively of the EC Treaty) in the course of the criminal proceeding brought against Mr Placanica (and others), who operated a DTC linked to Stanley International Betting Ltd and had therefore been indicted for breach of the national legislation governing the unlicensed collection of sports bets.

In 1999, Italian authorities issued 1,000 licenses for sports betting and 671 new licences for horse events, valid for a period of six years and renewable for the same period, as a result of the national call for tender launched in December 1998. In accordance with previous Italian legislation, the tender procedure prevented listed companies – such as Stanley Leisure Plc, the company that controls Stanley International Betting Ltd, from applying for such concessions.

Whereas the ECJ underlined that its role is to provide national courts with guidelines as to the interpretation of Community law, it observed that a member state may not impose criminal penalties for failure to complete an administrative formality where such completion has been refused or rendered impossible by the member state in contravention of EU law.

Referring to its previous case law principles (and notably Gambelli), the ECJ left the interpretation of national law provisions and its compatibility with the abovementioned EC Treaty principles to national courts.

The Italian Supreme Court acknowledges Placanica

It is thus necessary to put things into context and to examine the judgment of the Supreme Court in order to understand the real implications of the Placanica ruling on the Italian gambling regime.

In the Scollo case, the Public Prosecutor of the Court of Appeal of Catania challenged before the Supreme Court the decision of the Court of first instance to revoke the preventive seizure of the premises and equipment of the DTC operator, Mr. Scollo, taken on the assumption that Italian law was not compatible with the EC Treaty principles regarding freedom of establishment and freedom to provide services.

Therefore, the Supreme Court was called upon to determine whether the Italian legislation in reference is compatible with the EC Treaty principles.

The starting point of its judgment is the examination of the Italian legislation, applicable to the matter in reference, assuming the lack of a community regulation concerning gambling services. The Court then examined the relevant case-law, with specific reference to the ECJ ruling in Gambelli and the consequent Italian Supreme Court judgment, ‘Gesualdi’⁴.

In its examination of Gesualdi, which referred to a similar matter involving DTCs, the Supreme Court noted that restriction of the above-mentioned EC Treaty principles could be justified by reference to the necessity to channel gambling activities into systems that are controllable, with the objective of preventing their exploitation for criminal purposes and found that the tender procedure launched in 1998 did not discriminate against foreign companies at all, even indirectly, since it had the effect of excluding not only the foreign companies whose shareholders cannot be precisely identified, but also all the Italian companies whose shareholders cannot be precisely identified.

On the contrary, in the Scollo case, the Supreme Court reached the conclusion that Italian courts may not prosecute Mr. Scollo under the above mentioned gambling criminal sanctions acknowledging the principles of the Placanica ruling.

Comments

This change in the Italian Supreme Court case law has been warmly welcomed by private foreign gambling operators as a first step towards liberalisation of the Italian betting market.

Nevertheless, as a matter of fact, the ruling did not condemn the Italian regime for breach of Community principles. Both the ECJ and the Supreme Court considered the concession/licensing system as a reasonable means of enabling the authorities to monitor gambling, it being understood that such a system is aimed at pursuing the aims of public and social order, consistent with the EC Treaty (for example, to prevent the exploitation of those activities for criminal or fraudulent purposes) and in due consideration of their proportionality, necessity and lack of discrimination.

In this purpose, it has also been recognised by the ECJ that the Italian policy of controlled expansion in the betting and gaming sector ‘is consistent with the objective of drawing players away from clandestine betting and gaming – and, as such, activities which are prohibited – to activities which are authorised and regulated⁵.’

Indeed, the principle of mutual recognition concerning the requirements to access gambling activities is not yet applicable. On the contrary, the recent Bolkestein Directive⁶ on the liberalisation of the services in the internal market through the principle of the ‘country of origin’, expressly excludes its application to gambling activities.

Accordingly, the Supreme Court condemned the modalities with which the Italian regime has been put into effect, acknowledging the reliefs of Placanica’s ruling notably as regards:

– the limited number of concessions to be attributed;

– the method of awarding the above-mentioned concessions, by means of a tender procedure which excludes certain types of operator as listed companies; and

– the renewal of the concessions and the absence of a new tender procedure after the Budget Law for 2003⁷, that lifted the restrictions of the tender procedure.

In this regard, the Supreme Court takes into consideration that the matter referred to its attention is clearly connected to a national legislation which has now been superseded.

In the middle of 2006, the Italian government took initiatives to reorganise the distribution of the gambling services offered on horse and sports events⁸. Therefore, on 28 August 2006, the competent Autonomous Administration of State Monopolies (hereinafter, AAMS) published two calls for tender to grant concessions to Italian or foreign operators which were able to comply with a series of requirements concerning their reliability to manage these kind of gambling activities in Italy. Several well known foreign bookmakers were recorded among the participants and are now entitled to organise betting operations. To sum up, at the beginning of 2007, nearly 14,000 new betting licenses (for sports and horse race betting shops/terminals) were awarded.

As recognised by both the ECJ and the Supreme Court, the situation referred in these rulings have been superseded by the current national legislation which could not be of relevance for the purposes of determining the pending actions. However, the ECJ assumed as an appropriate course of action the award by public tender of an adequate number of new licences through a procedure which is open to operators who have been unlawfully barred from any possibility of obtaining a licence under the last tender procedure⁹.

Finally, as regards the consequences flowing from the unlawful nature of the exclusion of a certain number of operators from the tender procedure for the award of concessions, it must be noted that the Supreme Court has clearly indicated that the national regulation for the cases before 2006 shall not be applicable only if the DTC is operated on behalf of a bookmaker that could not participate in the tender procedure in 1999 and that the operators fulfil all the requirements for the license authorisation (concerning morality and criminal proceedings).

In conclusion, it is still not possible at this stage to speak about liberalisation of the Italian gambling market. Needless to say, Italian law still prohibits an operator which is fully licensed in another EU member state but does not hold an Italian concession and police authorisation from carrying out its activities in the Italian territory. It is thus necessary to wait for the new ad hoc regulation by AAMS concerning the offering of online gambling activities from European licensed operators and their relevant requirements.

 

1. Corte di Cassazione – Third Criminal Section – judgment no. 16928 of 4 May 2007. See also judgment nos. from 16968 to 16973.

2. section 4 of Law no. 401 of 13 December 1989 connected with section 88 Royal Decree No 773 of 18 June 1931 (Testo unico delle leggi di pubblica sicurezza – TULPS).

3. ECJ- Grand Chamber – judgment concerning the joined cases C-338/04, C-359/04 and C-360/04 of 6 March 2007.

4. Corte di Cassazione – judgment No 111/04 of 26 April 2004.

5. See the Placanica ruling.

6. Directive of the European Parliament and Council dated 12 December 2006 no. 2006/123/CE (section 2, par 2 H).

7. Section 22(11) of Law No 289 of 27 December 2002.

8. Section 38, par. 2 and 4, of Decree no. 223 of 4 July 2006, subsequently converted into law 248 of 4 August 2006.

9. (par. 63) The Placanica ruling.