Unlicensed gambling – growing threat or exaggerated myth?
Earlier this month, Andrew Rhodes, the Chief Executive Officer and Commissioner of the Gambling Commission, took part in a two-part podcast discussion with The Gambling Files to reflect on and discuss topical issues affecting the gambling industry. Amongst the subject matter covered, Rhodes touched in Part 2: HE REVEALS MORE! on black market activity and the steps the Gambling Commission is taking to disrupt illegal gambling in Great Britain – which Rhodes claims to have resulted in significant drops in traffic to illegal operators.
This reflected themes in Rhodes’ keynote speech at the International Association of Gambling Regulators (“IAGR”) conference in Botswana on 16 October 2023, in which he noted whilst illegal online gambling market exists in Great Britain, as it does elsewhere:
“it is not a significant concern and this position hasn’t fundamentally changed. However, that does not mean there is no illegal market or no risk”.
In other news, Lucy Frazer, the Secretary of State for Culture, Media and Sport recently digested the contents of a letter from eight UK horseracing industry leaders. In the letter, the signatories reportedly warned that affordability checks, which the Government recommended be introduced in the Gambling White Paper, will cost racing £250 million in funding over the next five years and that this would be a disaster for British horseracing as punters either walk away from the sport or turn to the black market to gamble.
Potentially to back up this claim, the Racing Post then published the results of its “The Right to Bet” survey, which found that (1) one in four of the respondents would be prepared to switch to the black market if faced with stringent affordability checks; and (2) nearly one in ten have already used black market betting sites.
A petition was then posted on the UK Government and Parliament website, calling for the Government to abandon the planned implementation of affordability checks because “more intrusive checks triggered at a higher threshold risks bettors moving to the black market where there are no consumer protection or safer gambling tools”. This petition has – as at the time of writing – accumulated 76,204 signatures, three quarters of the number needed to trigger a debate in Parliament.
So, is the black market really a growing threat, or an exaggerated distraction? What are the Gambling Commission and the Government doing to curb illegal gambling? And what can businesses do if their proprietary content (intellectual property (“IP”)) turns up on unlicensed sites?
Read on for our discussion along with a helpful checklist for licensees that receive communications from the Gambling Commissions regarding black market activity.
What is black market gambling?
The term ‘black market’ gained popularity during World War II (when common household products were rationed to avoid hoarding) and generally refers to an illegitimate market in which commodities are being traded, exchanged or performed in an illegal manner.
With regard to modern gambling in Britain, section 33 of the Gambling Act 2005 (as amended) (the “2005 Act”) makes it clear that it is an offence to provide facilities for gambling to customers in Great Britain from anywhere in the world, without holding a licence from the Gambling Commission unless a relevant exemption applies. Accordingly, it is common within the industry to refer to unlicensed online operators that illegally provide facilities for gambling to customers in Great Britain, without the appropriate licence or falling under a relevant exemption, as the “black market”.
Why is unlicensed gambling bad?
As Rhodes notes in his keynote speech at the IAGR conference, every gambling jurisdiction in the world has illegal online gambling:
“Whether online gambling is prohibited or not, if you can access the internet, then you will be able to find a way to gamble. We all know this. It’s also worth pointing out at this point that what is an illegal, unlicenced [sic] operator for me in Great Britain may be a legitimate, licensed business for you and vice versa.”
From a consumer perspective, one of the fundamental problems is that black market websites are not always distinguishable from those that are locally licensed – at least to the untrained eye. This means a consumer may be gambling on an illegal gambling site without even knowing it and, in this “Wild West” of the remote sector, unlicensed operators are not constrained by regulation. It is common to see consumer reports of problems, such as the inability to withdraw funds and difficulties contacting support in the event of a complaint. Indeed, Rhodes acknowledged in The Gambling Files podcast, that recent research has shown that illegal websites actively seek to advertise to people that have self-excluded from gambling on GAMSTOP and others allow unlawful activity in itself by, for example, allowing children to gamble.
So, what is the Gambling Commission doing?
One of the Gambling Commission’s key functions is to investigate and prosecute illegal gambling and other offences committed under the 2005 Act. As Rhodes noted in his IAGR keynote speech, the Gambling Commission typically deploys an “intelligence-led approach” to combat black market operators.
This means that ordinarily, they will initially issue a cease-and-desist letter to require the unlicensed operator to suspend their operations. Failing this, the Gambling Commission will implement “disruption techniques, using its partnerships or relationships with other companies”, which can include:
- asking web hosting companies to suspend or ‘block’ British consumers from accessing the websites;
- contacting payment providers to remove payment services;
- liaising with social media sites to prevent websites appearing on search engines or being hosted; and
- engaging with international regulators, including by sharing information and raising the prominence of the issue – and Rhodes used the keynote as an opportunity to call for collaboration in this regard.
In addition, Rhodes described in his speech more novel steps that the Gambling Commission is taking to disrupt unlicensed, illegal online operators through collaboration with others:
“…this means we’ve been going further upstream, further away from where our formal powers begin and have been looking to work with others to get between those illegal operators and British consumers and generally frustrate their business and force them out of our market.”
And this has included:
- working with [Gambling Commission] software licensees to prevent access to popular products when their games appear to be available on illegal sites; and
- engaging with [Gambling Commission] licensees if we discover their affiliates have placed adverts on illegal sites – ensuring licensees remove advertising and encouraging an assessment of business relationships with these affiliates.
By taking these steps, Rhodes claimed that the Gambling Commission has “increased… enforcement actions by over 500 percent between 2021-22 and 2022-23” and “more than doubled the number of successful positive disruption outcomes” leading to a “a 46 percent reduction in traffic to the largest illegal sites coming into [the British] market”.
Notwithstanding the bountiful fruit of its recent efforts, the Gambling Commission has always acknowledged that stronger measures are required. In its Advice to Government relating to its review of the 2005 Act, the Gambling Commission explains that:
“Under our current framework, we cannot compel third party providers to take action such as to block British access to the website, remove payment services or prevent websites from appearing in search engines. Moving to criminal prosecution has had limited effect, largely because websites can immediately disappear and reappear with a different identity (a phenomenon known as ‘phoenixing’), and their ultimate owners and lines of responsibility are very difficult to fully trace. This also makes it very difficult to accurately scope the size of the black market”.
How does this play into the White Paper?
Before it was even published, the black market was the backbone of many highly politicised debates concerning the White Paper and the proposals to be made therein. Affordability (and more specifically, mandatory deposit and/or loss limits) in particular, led to outcry from the sector and various interested parties commissioned research to try to truly gauge the extent of illegal, unlicensed gambling in Great Britain.
In particular, a 2021 PwC report entitled “Review of unlicensed online gambling in the UK” commissioned by the Betting and Gaming Council, claimed that the proportion of UK online gamblers using unlicensed operators in November 2020 had increased to 4.5 per cent – or around 460,000 people – from 2.2 per cent over the previous one to two years. In addition, the study found that stakes with unlicensed operators had doubled to £2.8 billion.
Neil McArthur, the then Chief Executive of the Gambling Commission, poured cold water on the PwC report in a letter to cross-party MPs investigating the harmful effects of gambling, reportedly stating it was “not consistent with the intelligence picture” and that the impact of the black market “may be being exaggerated“.
When the White Paper was finally published in April 2023 – some 30 months after the call for evidence – it was broadly accepted to be balanced and evidence-led. Chapter 3, which considered the potential for reform in the Gambling Commission’s powers and resources, outlined the Government’s views on black market gambling and whether it presented a tangible risk. Specifically, the Government acknowledged that although estimating the size of the black market is difficult, it was clear that “excessive commercial caution risks driving customers to the black market where they can be exposed to a variety of risks”. The Government further noted that there has been a rise of illegal operators in other jurisdictions with:
“either extremely permissive regulatory regimes or no regulatory oversight, and/or are being run by individuals with suspected links to serious and organised crime.”
It then went on to acknowledge the Gambling Commission’s disruptive approach was working well to an extent (a statement with which we agree), but recommended that the Gambling Commission’s powers to action be strengthened to create a safety net, giving the Gambling Commission the versatility to “apply to court as a last resort” if required:
“When Parliamentary time allows, we will introduce legislation that will give the Gambling Commission the power to apply to the court for an order that requires ISPs [internet service providers], payment providers and other providers of “ancillary services” to implement measures aimed at disrupting the business of an illegal gambling operator”.
While a laudable aim, changes to legislation take time and given other legislative pressures and the impending General Election, it is not clear when these changes will take effect – there certainly was no mention of such a bill in The King’s Speech on 7 November 2023. This contrasts with affordability checks (which the White Paper recommends become mandatory for operators to carry out when consumers reach specific loss thresholds), which have already been subject to a public consultation by the Gambling Commission and may take effect much sooner.
Lessons for licensed operators
For the meantime, Rhodes emphasised in his keynote that the Gambling Commission will continue to use its existing powers (and authority) to tackle illegally, unlicensed gambling. As noted earlier, this may include the Gambling Commission contacting its own licensees to try to persuade them to take steps to disrupt illegal gambling.
If you hold a British licence and are contacted by the Gambling Commission about a black market website, we recommend that you take professional advice. You may also want to consider taking one or more of the following steps:
- verify that your content is being used / your adverts are being placed on an illegal website. Involve your tech teams as they should be able to confirm whether the content is legitimate or an infringing copy of your IP;
- check that games / links are accessible in Great Britain and if they are, whether you receive any British traffic from the site in question;
- identify the operator of the website and/or the affiliate that is placing advertisements on the illegal site;
- consider whether you have a contractual relationship with the operator / affiliate or any member of its group. If you do not have a direct contract with the operator/ affiliate or one of its group companies, consider whether there may be an indirect relationship (for example, via a content distributor or affiliate program);
- if a contractual relationship exists, investigate how this arose and review all due diligence you conducted on the third party/ies during the contractual relationship;
- send a cease-and-desist letter (takedown notice) to all entities that you can identify as being involved; cite restrictions in your contract (if relevant);
- if the third party does not cease the activity or justify their actions:
- terminate any contracts with them promptly. Note that inclusion of such a termination right is a requirement under Social Responsibility Code Provision 1.1.2 of the Licence Conditions and Codes of Practice;
- consider contacting third parties such as hosting providers, domain registrars and third-party search engine such as Google who may otherwise be able to stop the website being accessible by customers in Great Britain;
- engage professionals to review:
- your systems and processes for identifying use of your content / placement of your ads on illegal websites; and
- your standard contracts,
to mitigate the risk that your IP rights are exploited illegally in the future; and
- update the Gambling Commission within the deadline they have set on the outcome of your investigation and the steps you have taken to:
- address the present infringement of your IP rights; and
- mitigate the risk of a similar situation occurring again.
Please get in touch with us if you would like assistance responding to a Gambling Commission request, or if would like to discuss the themes in this blog more generally.