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The Entain DPA and the Grey Markets

A Deferred Prosecution Agreement was reached on 05 December 2023 between the CPS and Entain PLC relating to the historic investigations of HMRC into allegations of bribery.

A financial penalty and disgorgement of profit totalling £585 million, a charitable payment of £20 million, a costs order of £10 million…. Along with an agreement to exit all gambling markets which are not yet subject to gambling regulation.

Whilst the eye watering financials of the Deferred Prosecution Agreement between the CPS and Entain PLC (“Entain”) are capturing the attention of most, the online gambling operators will be far more concerned by this accompanying agreement to exit the grey markets. This includes Brazil, Chile, Peru and Mexico, as well as any market where gambling is not currently lawful as a matter of local or EU law.

 

The Underlying Case

The case relates to alleged failings of Entain during the period July 2011 to December 2017. At the time the company was named GVC Holdings and the primary allegation was the failure to prevent bribery occurring in one of the unregulated markets Entain operated in; Turkey. Kenny Alexander was the Chief Executive of GVC for 13 years, stepping down in 2020, and an investigation into corporate wrongdoing and bribery by the HMRC relating to the Turkish subsidiary, Sportingbet, occurred during his tenure.

The HMRC investigation began in 2019, with a primary focus on tax concerns, however, in 2020 the scope of this investigation was widened to include potential corporate offending under section 7 of the Bribery Act. This continued for three years, with Entain admitting in 2023 that there may have been historical misconduct relating to employees and third-party suppliers of the company.

Online gambling is illegal in Turkey, and GVC had allegedly been using a variety of methods to continue their operations in spite of this, including cash collection networks and payment processes which would conceal the transaction from the local financial institutions.  Sportingbet was sold in 2017 in time to be out of the picture before the Ladbrokes deal went though.

With this in mind, it is perhaps not surprising that the CPS have sought this agreement not to operate in the grey markets alongside the financial penalty. In many ways it is logical, a responsible operator would think twice about providing gambling in a country where there is no regulation – or it would even be illegal to do so. But taking the first of these two, what jurisdiction does a country have over the gambling laws of another?

What are the Grey Markets?

In simple terms, there are three gambling markets across the world. White markets are those with thorough regulation, often wealthy countries with robust regulatory systems in place. Great Britain, several US states, Malta, Gibraltar, Isle of Man and Curacao are all examples of white markets, albeit some more reputable than others. The black market contains jurisdictions which prohibit gaming. This tends to include countries in Asia and Africa with large Muslim majorities, as well as some European countries like Albania. The grey markets are more complicated.

The grey markets encompass jurisdictions where gambling is not strictly illegal, but there is no real regulatory system in place to manage it. Grey markets include Thailand, South Africa, Nepal, Niger, Rwanda, Morocco, Madagascar and Ethiopia. Some grey markets can be an attractive option for online operators, but they are not without risks – both financial and regulatory.

There can be some confusion about what different licences allow an operator to do. To take for example a  Gambling Commission (Great Britain) licence. This operating licence, depending on the type, will allow an operator to provide certain facilities for gambling to customers in Great Britain. There is nothing in the Gambling Act 2005 which specifically limits this provision solely to British customers (noting the exception of section 44 relating to prohibited territories).

The Gambling Commission themselves have stated:

“Ultimately, The Gambling Commission does not provide a list of jurisdictions outside Great Britain that licensed operators can or cannot provide gambling services to…. The Commission expects operators to conduct their own due diligence and put controls in place to ensure they meet legal requirements in other jurisdictions”.

This leaves operators open to take the risk. Many other jurisdictions (the white markets) have their own regulatory systems and to provide facilities for gambling to these markets without a local licence would be illegal in that country- regardless of holding a Gambling Commission licence. But the grey markets are a whole different story.

 

Why does this matter?

There are numerous online operators who utilise the grey markets as part of their businesses. They are interesting, innovative and often attractive markets. Many operators have found it to be beneficial to be an existing operator in an emerging market, more recently for example, the Netherlands and Ontario.

However, it is important to keep sight of why the regulations are important. Protection of customers and finances, keeping crime out of gambling and keeping gambling fair and open are all pillars of gambling which we might take for granted. The regulators within the white markets are unlikely to look at operators providing gambling in the grey markets all too kindly; for reasons ranging from integrity to tax implications. Furthermore, most will have systems in place to discover where its operators are marketing, in Great Britain the regulatory returns filed annually will show the Gambling Commission all markets being operated in.

So now there is an agreement in place between the CPS and Entain that Entain will not operate within the grey markets, breach of which will result in continued prosecution. However, without this agreement, would such an imposition be enforceable? It has been attempted previously, with regulators using what powers they have, but rarely is it successful. The only card a regulator can play is ‘you can’t play with us if you’re playing with them’. But when every online operator licensed in a certain jurisdiction is also operating in the grey markets,  these threats don’t have much weight. Would they really ban everyone?

The full DPA is available here – Rex v Entain PLC – Deferred Prosecution Agreement | The Crown Prosecution Service (cps.gov.uk)

For more information contact Amanda Usher or your usual Woods Whur contact.