Europe’s Biggest Gambling Reform Without a Gambling Directive: The Paradox of the New EU AML Package

Europe’s new anti-money laundering legislative package (the AML Package) is set to be the biggest overhaul in anti-money laundering (AML) and counter terrorist financing (CFT) rules in recent times. It marks a shift from minimum harmonisation through directives to a European directly applicable AML/CFT rulebook, especially through the Regulation on the Prevention of the use of the Financial System for the purposes of Money Laundering or Terrorist Financing (the AMLR).

The AML Package’s scope is ultimately AML/CFT rules, yet it paradoxically resulted in, to date, the most extensive European law codification of the field of European gambling regulation.

Gambling Providers as the subject of Harmonized Rules

The AMLR includes ‘providers of gambling services’ among its categories of ‘obliged entities’. This is not a legislative novelty, as previous European instruments addressed gambling from an AML/CFT perspective already, starting with Directive 2005/60/ECfor casinos and more broadly with Directive 2015/849/EC. Those instruments were Directives, requiring transposition into national law. By contrast, the AMLR, as an EU Regulation, will be the first European instrument to directly harmonize AML/CFT rules across Member States.

In the context of gambling service providers, such harmonisation sits at odds with their regulatory backdrop.

Member States maintain divergent gambling laws and licensing regimes, with no harmonised EU framework. They fundamentally disagree on what constitutes lawful gambling, particularly online. This divergence is highlighted by the European Commission’s infringement proceedings against Malta concerning Article 56A of the Gaming Act, unfolding in parallel to the AML Package being negotiated and finalised.

The Commission holds that Article 56A breaches EU law by effectively preventing enforcement of European judgments against Malta-licensed gaming operators. The Malta Gaming Authority, however, maintains that the provision introduces no new grounds for refusing recognition or enforcement beyond those already contained in Brussels Ibis and merely codifies Malta’s long-standing public policy on gaming matters.

Against this backdrop, the online gambling sector has seen an unprecedented rise in claims, mainly by Austrian and German players backed by litigation funders, seeking refunds of gambling losses from Malta-licensed operators. They argue before their national courts that, without a local licence, the provider’s services were unlawful despite being licensed in Malta. If those judgments are enforced in Malta, Article 56A may permit refusal of enforcement on public policy grounds.

While the issue remains unresolved, the Court of Justice of the European Union (CJEU) has already issued preliminary rulings on several adjacent legal questions.

The Unresolved Issue Faced and Indirectly Codified

The harmonisation aspirations of the AML Package effectively collided with Member States’ current positions on the sector, and the fact that it remains unharmonized. 

Such divergence is evident from the text of the AMLR itself, with Recital 63 being significantly revealing. It sets out that national measures regulating the organisation of gambling can contribute to reducing associated AML/CFT risks only if such national measures are genuinely pursuing goals of public policy, public security or public health. 

That is very qualified commentary and an affirmation that national measures on the organisation of gambling must be genuinely pursuing such goals, despite the AMLR not being intended to target gambling regulation.

Equally noteworthy is the AML Package’s Directive on the mechanisms to be put in place by Member States for the prevention of the use of the Financial System for the purposes of Money Laundering or Terrorist Financing (AMLD6). Its article 4(2), establishes that all Member States must ensure that providers of gambling services are regulated. At the same time, Recital 95 seeks to provide clarity on areas that are not harmonized at Union level, noting that for national gambling measures to be compatible with Union law, ‘such measures need to attain a general interest, be non-discriminatory and suitable for achieving that objective, and must not go beyond what is strictly necessary to achieve it’.

The AMLD6 also sets out that where Member States subject the provision of services that are regulated under the Union AML/CFT framework to specific authorisation requirements, they should also be responsible for the supervision of those services. In doing so, it specifically goes on to state that such requirement to supervise does not prejudice the conclusions that the CJEU might draw on the compatibility of national measures with Union law.

Effectively, the AML Package seeks to harmonize AML/CFT regulation within Europe, while extensively codifying the current position considering the lack of harmonisation on gambling and ultimately not taking a stance in relation thereto.

First Steps Towards Harmonisation?

Some initial steps towards a basic level of European online gambling harmonisation can however be inferred from the AML Package. 

The most evident and direct is that subjecting providers of gambling services to harmonized AML/CFT rules would result in functional regulatory conformity across the EU through uniform AML/CFT compliance rules. 

But perhaps more insightful for EU gambling regulation advancement is that, at the most fundamental level, the AMLR represents the first time in European legal history that a definition of ‘gambling services’ has been codified within a European Regulation.

Prior AML Directives, referred to gambling without providing any clear EU level definition thereof. A similar approach was made in EU legislation in other domains, such as in the Electronic Commerce Directive, the Services Directive and the Audiovisual Media Services Directive.

On the contrary, the AMLR provides for an extensive definition of what constitutes a ‘gambling service’ in Article 2(1)(12) and its interpretation for AML/CFT purposes will inevitably largely impact the gambling sector.

Furthermore, supervisory convergence as regards AML/CFT may become an inevitable topic which will need to be faced under the AML Package. 

The Regulation establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism and amending Regulations (the AMLA Regulation), which establishes the EU’s Authority for Anti-Money Laundering and Countering the Financing of Terrorism (the AMLA), provides for an EU regulator which (amongst others) directly supervises ‘selected obliged entities’. Only the very largest credit/financial institutions would qualify, and thus direct AMLA supervision of gambling providers is not going to materialize.

That said, the AMLA’s supervision of the gambling sector might be inevitable. Ultimately, gambling providers are envisaged to be direct or indirect customers of such selected obliged entities. How AMLA considers the AML/CFT posture of selected obliged entities against servicing gambling customers, especially those involved in cross-border gambling, may inevitably drive practical reality and instigate internal market pressures.

Terence Cassar is the Gambling, Technology and Commercial Law Partner at GTG Legal.