France Remote e-Payments and Financial Transaction Blocking New regulatory risk under French law 21 st September 2007, London Etienne Wéry Attorney at law at the Brussels and Paris Bars ULYS law firm

Introduction  Context : while the USA passed the Internet Gambling Prohibition and Enforcement Act last year, some EU Member State’s intends to control financial transactions in their fight against prohibited lotteries, games and gambling, such as in Italy, France and Germany (or does these Member State simply intend establishing means of defense of gambling monopolies against competitor?)  Under French law, lotteries, games and gambling are prohibited in France except under very strict conditions (these monopolies are questionable after the ECJ “Gambelli” judgment ) ; France tries now to limit the lotteries, games and gambling organized abroad but accessible from France by preventing financial transactions in France  We will analyze the new prohibition that was adopted in France earlier this year and assess the current regulatory risk in France, its medium term prospects for enforceability and likelihood of repeal

I. Presentation of the law  New French law n° of 5 mach 2007 relating to the prevention of criminality (“ Loi relative à la prévention de la délinquance ”) : modification of the last chapter of the fifth part ( Livre Cinquième ) of the French Code Monétaire et Financier (‘ CMF ”) - Obligations relating to the fight against prohibited lotteries, games and gambling (“ Obligations relatives à la lutte contre les loteries, jeux et paris prohibés ”)  The prohibition measures consists, in summary, in a framework prohibiting French credit institutions to execute movement or transfer of funds coming from physical or natural person (established in France or abroad) organising lotteries, games and gambling prohibited under French law, such persons having to be listed in an official list by the French authorities  Since the majority of French players on internet does not have an account opened abroad and expect to receive gains on accounts opened in France, the majority of the industry accepting French players will be concerned by the new measures when into force.

I. Presentation of the law (2)  The law provides that French Ministers of Finance and Interior may decide to prohibit, for a duration of 6 months (renewable) any movement or transfer of funds coming from physical or natural person organising prohibited lotteries, games and gambling  i.e. only the phase of reception of funds from abroad is aimed since it is prohibited to initiate transfer of funds in France by companies carrying out activities prohibited in France  Are added to the list of persons covered any person who is co-owner of the funds (“ copropriétaire )” or co-holder of the account of which one holder organising prohibited lotteries, games and gambling is the owner, owner without usufruct or usufructary

Illustration Transactions inside of France prohibited by monopolistic rules (the question of the legality of such monopoly in another debate) Transactions coming from outside of France by abroad authorized gaming site prohibited by monopolistic rules (questionable after the ECJ “Gambelli” judgment) and by new law

I. Presentation of the law (3)  Prohibitions will apply to: –organizations, institutions and services falling under the scope of the Part I of the fifth Book of the CMF; –when such organizations, institutions and services “have or receive” (“ détiennent ou reçoivent ”) funds from the public.  Principally credit institutions are aimed, i.e. legal entities whose customary business activity is the carrying out of banking transactions (receiving of funds from the public, credit transactions and provision to customers, or administration of, means of payment) –It is unclear if the prohibition applies to all and any French company which performs a “banking activity”, or if it applies only to accredited credit institutions –threat for payment services providers in France that don’t “receive” money from the public in the sense of the EU banking directives and CMF but might temporarily “have” such funds in their hands in the name of a third party (legality of the law towards the future payment service directive (PSD) is then questionable).

I. Presentation of the law (4)  The prohibition will also apply to order of execution of movements or transfer of funds that have been transmitted before the date of publication of the black list and not yet executed in France  If movements or transfers of funds are realized within the framework of non prohibited operations in France carried on by a person/company listed : possibility of release at the request of the concerned person  The prohibition is opposable vis-à-vis creditors and any third parties claiming rights (seizure for instance) on the funds, even if the origin of their rights is earlier than the publication of the list  Special liability of the State in case of bona fide execution of the prohibition by the concerned oorganisations, institutions and services

II. Expected execution measures  Draft order (“ Décret ”) relating to the application of the law still being discussed but questions remained  Publication of a black list or a list of permitted persons as it is the case for the fight against terrorism?  Quid about the funds concerned by the prohibition : will they be blocked or rejected?  Quid about intermediaries within the framework of execution of order?  New French President was one of the originator of the law when he was Minister of Interior : it is then expected that the order will be adopted soon but it is expected that the publication of the black list shall take more long time

III. Deficiencies of the law  Voices on the market propose already possible means to avoid the application of certain prohibition measures : –situation where the transfer of funds does not contain the name of the originator of the order but other identifying module (in accordance with Regulation CE n°1781/2006 of 15 November 2006 on information on the payer accompanying transfers of funds) –in case of opening of an account abroad by the gainer –in case the transfer of gains are originated by the intermediary of other company (or site internet) than the listed one –in case of changes of name or trade name of the listed company –Internet sites that are not in French should not be listed in the black list

IV. Likelihood of Repeal  Infringement upon freedom of capital and payment transfers  Infringment upon freedom to provide services and freedom of establishment –If the French measures are seen as in the end and aimed at securing the state monopolies in the area of gambling, the criteria developed by the ECJ in the “Gambelli” judgment shall apply : “ Restrictions on gaming activities may be justified by imperative requirements in the general interest, such as consumer protection and the prevention of both fraud and incitement to squander on gaming; however, restrictions based on such grounds and on the need to preserve public order must also be suitable for achieving those objectives, inasmuch as they must serve to limit betting activities in a consistent and systematic manner. In so far as the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance or betting […], the authorities of that State cannot invoke public order concerns […] in order to justify measures such as those at issue in the main proceedings.) “

IV. Likelihood of Repeal (2)  Recent positions of the EU Commissioner for the Internal Market McCreevy and President of the Commission confirm that similar restrictive regulations for providers of gambling applicable in Germany are considered by the EU Commission as not being admissible  Recent judgment “Placanica” of the ECJ (6 mars 2007) : –national courts have to determine whether, in limiting the number of operators active in the betting and gaming sector, the national legislation genuinely contributes to the objective of preventing the exploitation of activities in that sector for criminal or fraudulent purposes. –new French law should not be seen as an efficient mechanism enabling operators active in the betting and gaming sector to be controlled with a view to preventing the exploitation of those activities for criminal or fraudulent purposes  This attempt of France to control cross-border financial transactions should then probably be considered as induced by motivation which cannot justify the restriction of the freedom of capital and payment transfers within the EU and as such should be questionable before the ECJ when coming into force

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