Online Gaming and Gambling : what is the French legal framework ?  

 "For a French updated Version click here"

 

update 2017/02/14 

 

Online Gaming and Gambling : what is the French legal framework ?  

 

Many games on the internet offer the possibility of spending money, the player hoping in return to earn a prize or a sum of money.

 

The question is simple: Are those games legal under French law?

 

We will consider the current legal framework of these games (part 1) and the most frequently used bypasses and exceptions to their prohibition (2nd part).

 

Remark: This article provides general information on gambling. It in no way  replaces  legal advice from a lawyer. Please contact :

 

Me Pascal Reynaud

Attorney at law, member of the  Strasbourg bar Association (France)

reynaud.avocat@gmail.com 

 

1.   The principle behind the  prohibition of gambling under French law

 

The main legal provisions regarding gambling are found in the Code de la sécurité intérieure (domestic security code) section 320-1 and following (Hereafter CSI) and in the Law No. 2010-476 of 12 May 2010 on  opening online gambling to competition and regulating it  of  . Previous laws on gambling  were repealed  in 2012. But similar provisions can be found in  the CSI.

 

The CSI is based on the  principle that  games of chance, betting, lotteries, gambling and casinos are prohibited unless the operator can benefit from an exception  to the law, or has obtained an authorization and approval  by the French administration.

 

1.1 Reminder of the legal framework for gambling

 

Before starting a gambling game on the internet, it is necessary to determine whether it falls into a category prohibited by law. .

 

For example, betting is prohibited in France. There is no legal bookmaker except:

PMU (on & offline)

o and operators of sports and horse betting approved by Arjel the regulatory authority for online games.

 

Similarly, organizing poker games for real money is forbidden in France, except:

o in offline casinos and in the 5 gaming circles still operating.

o for online gambling operators licensed by the ARJEL,

 

Section 5 of the Act of May 12, 2010 put a general prohibition on gambling for minors, except when it falls under the very specific provisions relating to charity lotteries and funfair games.

 

Proposing a forbidden game to the public is a criminal offense. Violation of this prohibition is punishable by  imprisonment for up to three years and a fine of up to 90,000 euros, as well as many additional penalties including penalties for legal persons.

 

In principle, except if the player participates in any way in the organization of an illegal game, he cannot be criminally convicted.

  • However, in certain circumstances, the player may be considered an accomplice to the offence, a fence or a participant in laundering operations and, as a result, may be  criminally prosecuted.
  • One exception is the horse bettor who may be prosecuted if he entrusts his bet to an illegal bookmaker (Art. 4 Act of June 2, 1891 regulating horse racing).

 

Very often, tax penalties are added to Criminal penalties. Recently, the French Supreme Court confirmed this double sentence (Cass. Crim., June 5, 2013 No. 12-83288), for a defendant guilty of both criminal and fiscal offenses.

 

What are the main legal bases of those bans ?

 

1.1.1. The prohibition of games of chance 

 

 A game  may be prohibited if it is deemed a game of chance (art. Article L324-1 CSI).

 

The concept of "game of chance" was legally defined in Article 2 of the Law of 12 May 2010 in its initial version of 2010:

 

Art. 2 " a game of chance is a game for money where  chance predominates over skill and combinations of intelligence to obtain a  gain."

 

For example, concerning the classification of Poker as a game of chance, at least two Court decisions  classified poker  as a game of chance,  a third recently ruled otherwise(CA Toulouse, 3rd c. Corr., Jan 17. 2013, No. 2013/54). But the French Cour de cassation (French supreme court) ruled that poker is a game of chance (Cass. Crim., October 30, 2013, No. 12-84784).

 

 The legal definition of gambling has changed since March 17, 2014 for online games in the context of the law of 12 May 2010.

 

Now the legal definition of a game of chance online is the same as the  definition of the lottery  given  below:

 

"Art 2 Act of 12 May 2010. The game of chance in this Act means the operations referred to in Articles L. 322-2 and L. 322-2-1 of the CSI. "

 

1.1.2. A ban on lotteries with fees

 

French law contains provisions that prohibit lotteries (Art. L322-1 and following CSI).

 

It is mainly based on these provisions that legal action may be taken against a game which offers a prize or a sum of money, following an outlay on the part of the player.

 

Legally, the definition of a prohibited lottery is very wide. According to Article L 322-2 CSI is deemed to be a lottery:

 

"All operations offered to the public, whatsoever they are called, intended to engender the hope of a gain which would be due, even partially,  to chance, and for which a financial sacrifice is required from the participants by the operator".

 

This is not just a "lottery" in its usual sense. Many games may fall under this definition of a lottery.

 

What are the rules governing the use of this ban?

 

1.2 "The 4 steps test” to determine the legality of a game

 

A lottery becomes an offence if all four of the following conditions are met :  If one of the four elements is missing, the game becomes lawful.

 

1. there is  hope of a gain,

2. the offer is made to the general public by the organizers

3. the player pays to play

4. The winner is determined by chance.

 

These conditions were applied in a recent decision of the Court of Cassation of 14 May 2014 concerningthe "Francky surf" terminals. This game is illegal for the following reasons: chance is predominant in determining the winner; it is possible to win prizes; the  partcipant must pay to play; the organizers have acted knowingly.

 

 The first condition : the hope of a gain for the player:

 

Hoping to earn money, a prize, or a service with monetary value is sufficient to characterize the hope of a "gain".

 

If the player wins nothing and just pays to play for fun, this condition is not met and the game is legal.

 

What can be said about paying games that just offer free parties, virtual points, new powers for the characters, or a better ranking? These social games are very common on networks like Facebook. The question is open, and French legislation should be clarified on this point.

 

It seems that if the benefit offered to the player has a direct monetary equivalent in the game, such as an official currency or a real prize, the gaming operator is running a legal risk. Indeed, the player hopes to "win" something. On the contrary, higher rankings of the player, the benefit of new powers, a virtual currency with no real equivalent should not fall into the scope of the prohibition.

 

Remark : For hardware machines (i.e. slot machine) that rely on chance, article L324-2 al. 1 CSI still prohibits indirect benefit and especially winning freeroll. This provision, introduced in 1983, establishes a particularly severe system for all devices that may constitute gambling outside legal casinos. This provision was intended to reverse court decisions  stating that obtaining free games from a slot machine was legal. Is this ban on freeroll hardware games machines  applicable to online games? In principle, the notion of "device" excludes the Internet games. But a broad interpretation of the notion of "device" is possible for a court. There has been, to our knowledge, no French court decision  where  online games are concerned.

 

 The second condition : the public nature of the offer:

 

The game offers must be public to be illegal. This means that  if the online game  is accessible from France, it is illegal.

 

Providing the game to a limited group of people on a subscription basis, with prior registration or as part of a private club with sponsorship is not likely to transform the game  into a  private one.

 

Only money games  played with close friends or family are legal.

 

The third condition : a financial outlay on the part of  the player:

 

The game must  be free for the participant if it is to be declared legal.

 

The player must be required to  to buy credits to enter the game, or to continue to play (Cass civil. Com., Jan. 20, 2015, No. 13-28521). The game is thereby not free, which makes it potentially illegal

 

Concerning the amounts paid by the player, the courts have been particularly stringent. They consider the financial participation of the player as essential, regardless of the amount or the nature of the expense for playing. A Few pennies is sufficient to prohibit the game. Even if he wins money, the simple  contribution demanded to play makes the game illegal. 

 

Offering a free channel and a paying channel is risky. In practice, some sites offer money access and free access at the same time. It could be argued that if the game is partially not free, the free condition is not respected. Others argue that the fact that since the expense is optional it falls into the legal category.

 

Article 322-2 CSI does take into account games where the operator  charges participants to play.    But read a contrario, this article seems  to allow an "optional" expense from the player.

 

Can this "double entry" solution which  was lawful for sweepstake (on this specific issue see 2.2 and especially Paris court of appeal November 14, 2003),  be extended to all types of lotteries, even  non-advertised games?

 

In practice, it appears that the courts seek to determine whether access to the game is really free and effective and analyse the reality and effectiveness of the free access to the game, even if in parallel there remains an optional premium channel with fees.

 

Judging from our analysis of recent cases, to be legal the gaming operator must prove that there are :

• a free channel for all games with hope of gain,

• an easy access to the free channel without compulsory expense linked

• an equal chance of  winning chance  on  free and  paying  channels,

• sufficient information for the player on the existence of the free channel, not simply included in the rules of the game.

• Available statistics on the use of free channels., which would be a good indicator of their existence. 

 

Failure to comply with all these points puts the gaming operator at criminal risk Indeed, free channels  are often fictitious or extremely difficult to access. Moreover, if free access is largely open to the public, then what is the advantage for the organizer ? Why would a player pay if he can play for free with similar chances of gains?

 

The Francky Surf decision, which provides additional information on this topic (decision of the Supreme Court May 14, 2014) states:

 

"(...) The court also held that access to the game was necessarily subject to challenge either by a channel called "fee/free "which allowed access to the game only after payment of a access service on the internet, or by the channel called "free-free" which statistics showed to be little used compared to the "fee/free" channel, as well as being  almost impossible to use and barely known to players who were only familiar with  the  paying  option; (...),  The court concluded that a purely free was actually almost illusory and in fact the game was only available after paying to  access yet another paying service; it follows that even if, as argued forcefully by Gilles X,  ... the money introduced into the terminal did not itself allow  direct access to a game, but to the mandatory prior purchase of another service, this precaution was not enough to make access to the game completely free "

 

 Associating free playing and paying  for a separate service does not protect the operator. For example, the fact that  the price paid to play also allows the participant to buy internet access time was enough to convict the organizer of the game (Visionex, C cass. May 28, 2014, No. 13-83759;. CA Paris, April 16, 2013, RG 11/02854) :

 

"(...) Given that  that these terminals are clearly not a sweepstakes and that they encourage the player, in the prospect of gaining  access to games presented as free, to make a cash payment, the Court of Appeals, (…), justified its decision;

 

The operator should distinguish the free game and access for a separate purchase. Otherwise, such a system will be perceived as an incentive to play illegal games.

 

 The fourth condition: the chance factor 

 

It is sufficient that chance play a role in determining the winner and /or the gain, even a minor role, to meet that condition.

 

This condition is naturally satisfied in the case of a classic lottery or a bet.

 

On the contrary, physical sports (football, tennis, bowling ...) are not considered as games governed by chance. Similarly, "intellectual" games like chess are not subject to chance. It means those competitions are legal even if the player wins a prize after paying to play.

 

But this condition is more questionable for "skill games" where chance plays a minor or residual role.

 

However, since 2014 and the new Article L 332-2-1 CSI banning skill-based gambling, this element of incrimination would be secondary. The debate is open. Despite the legal uncertainties in this regard, we will continue to place ourselves in a traditional reading of the offense requiring random determination of the winner.

 

The chance factor is not limited to a simple draw in a traditional lottery. It is also any "uncertainty" about the outcome of the game. Indeed, the very definition of chance gives way to multiple interpretations: 

 

Virtual financial games with fees should be examined . Do those "games" on stock indices fall under the gambling law ?  It may be argued that  financial markets are by definition risky and unpredictable ... Therefore, a judge could find a "chance factor" there, which would make them illegal. 

But for others, financial market games put into play a "competition" of skills; the management of a stock portfolio of virtual actions, indexed on the actual stock exchange, is not a game of chance.  Such games  would be lawful in the absence of a French case precedent  on that topic. The scope of  French financial regulation is another question. 

 

Remark: Under paragraph 3 of Article L. 324-2 CSI, skill games machines which are based on    agility and show that it is possible to win more than five free plays per game or to win cash are prohibited. Is this prohibition of skill game devices  applicable to online games or apps ? It is usually understood as applicable to "offline" devices, such as terminal games placed in a cafe. Could a court extend its interpretation? The question is open; no decisions have been handed down  for the moment.

 

1.3 The role of the law of 12 May 2010 in liberalizing some internet games

 

The Act of 12 May 2010 authorizes sports and horse betting and some circle games (currently only poker) on the Internet, provided that the gaming operator obtains a license from the Regulatory Authority of Online Games (ARJEL).

 

To go further: see the 2013 report of the ARJEL (10/09/2014 posting).

 

In practice, ARJEL’s approval involves heavy investments due to the requirements of French law. In addition, a tax system makes the French market accessible to only the largest private operators .

 

But above all, the law of 2010 has not liberalized lotteries, casinos and other games of chance that remain banned on the internet. Casino games are not allowed on the Internet in France.

 

There is no approval of software online gambling games in France, outside  the scope of  ARJEL’s control (i.e. horse and sports betting, poker).

 

Lotteries are still a monopoly of la Française Des Jeux (FDJ). Only the FDJ can legally offer those games because of their very special legal status. Indeed, the French State holds 72% of the FDJ’s stock.

 

 2. Commonly used methods of circumventing the ban : 

 

Five techniques  are frequently used to circumvent the  the laws banning online games

 

Some are legal, others far less so...

 

These solutions are to :

• base the game abroad (2.1)

• organize sweepstakes (2.2)

• organize games in funfairs, charity games and traditional bingo

• organize competitions which do not involve chance (i.e. skill games) 

• organize a lottery with fees on television, on the radio or in papers and the online press.

 

2.1. Baseing  one’s activity abroad while targeting  the French territory?

 

This is  a dangerous solution. Often the operator of the game seeks to base its business in a more    "welcoming" country, both legally and fiscally. However, this does not  guarantee shelter from prosecution by the French authorities.

 

Indeed, directing one’s activities, toward French players from a website based abroad without the approval of the ARJEL remains illegal (Cass. Criminal Division, 22 May 1997 No. 94-85933).

 

Regardless of the fact that a license was granted by a foreign state (i.e. Malta), even inside the European Union: there is no online gambling license granted by another State that is valid in France.

 

What are the measures taken by the French authorities against these sites?

 

they consist in  blocking access to the games through French internet service providers(ISP)

First, there is  an injunction to close the access site to French residents, then more seldom, an order to block access to players on the website by the ISP.

 

Around 1,500 sites and web hosts have received formal notification from Arjel indicating  they must   close the illegal site to French residents within 8 days. Most often, the site then proceeds to filter out French residents and prosecution stops  there.

If the foreign site does not comply, ARJEL asks  the Tribunal de grande instance of Paris to order ISP to block access to the site.

So far,  33  orders to ISPs have been issued against 65 foreign illegal sites.

 

Much more rarely, there is real criminal prosecution against illegal sites. To our knowledge, only four foreign companies have been criminally prosecuted since 2010 for online gaming sites, including:

In February 2014, Personal Exchange Limited for the site mybet.com (fined € 300,000 fine), the Eveleaf gaming companies (€ 15,000 fine) and Gnuf Limited (fined € 15,000);

In September 2013, Globet International Sports betting LTD (fine € 200,000).

 

Additional measures for blocking financial flows are possible. It seems that these are  difficult to implement according to of ARJEL’s the 2013 report ( p.40)

 

2.2 Organizing sweepstakes

 

As an exception to the prohibition,  the Consumer Code contains specific provisions on the sweepstakes. Sweepstakes are widely used to promote business products and services in France.

 

A legal solution: 

 

These lotteries are legal under the new Article L 121-36 of the Consumer Code and it is  fully applicable to the Internet.

 

Since 2011, it has been possible to organize commercial lotteries  reserved to one’s  own customers and thus offer lotteries with "obligation to purchase".

 

For its part, Article L.322-2-2 CSI now provides that sweepstakes are a legal exception to the ban on lotteries.

 

Recently, the Law of 20 December 2014  dramatically reduced the constraints that previously existed in the Consumer Code.

 

Following a re-examination of the lottery regulations by the CSI in the spring of 2014, the government opted for a more liberal regime for sweepstakes in December Having weighed lottery regulations in spring 2014 for lottery in the CSI, the government opts for a liberal regime in December for sweepstakes. (See the Senate site for the justification by European law)

 

Thus, it is no longer prohibited to charge consumers who participate in sweepstakes There is no need to offer to reimburse consumer participation  or to file the rules of the game to a French bailiff.

 

What limits for sweepstakes?

 

First, to prohibit a sweepstakes, it must be proved that it is an "unfair" commercial practice.

The "unfair" commercial practice is defined as being contrary to the requirements of professional diligence  and having the capacity  to distort the consumer’s economic behaviour. Distorting the consumer's economic behaviour means impairing the average consumer’s ability to make an informed decision and, that such impairment is significant enough to change the decisions the average consumer makes.

The Consumer Code provides a list of "deceptive" or "aggressive practices " that are deemed "unfair" and therefore prohibited. (see Article L.121-1;.L.122-11 artart 122-11-1 C. Cons...)

 

For example, according article L122-11-1 (8°) are deemed aggressive commercial practices that are intended to give the impression that the consumer will win a prize but must pay in advance to win it..

 

In addition, the new possibility of providing premium fees associated with Sweepstakes is going to generate "false" sweepstakes but "true" money games.

 

The question is where  will the border line between legitimate sweepstakes with fees as defined in the consumer Code  and the lottery demanding financial sacrifice which is prohibited by  Criminal law (322-2 CSI).

 

How  the lottery and consumer information are presented to the public will play a major role again. Writing  rules or terms and conditions for the game to better inform the consumer and to clearly present the chance factor  still seems unavoidable under the requirements of Article L. 120-1 of the Consumer Code.

 

We believe that to remain lawful, the main purpose of the operation must be selling the good or service the advertisement is made for. If the main purpose of the operation is to sell a game of chance, the game operator is putting himself at risk. He is then organizing gambling rather than a sweepstakes. The courts will have to draw the line in each case ....

 

To be continued...

 

-----------------------------------------------------------------------------------------------

Pascal Reynaud © 2015

Attorney at law at the Strasbourg bar (France)

reynaud.avocat@gmail.com 

www.reynaud-avocat.com

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