Interview of Vladyslav Yarovoi, CEO VigoLex, for Login Casino
Searches in IT companies, the fight against online casinos against the backdrop of an attempt to legalize gambling – are among the most discussed topics in Ukraine. To find out how law enforcement is acting and what the consequences of the latest court decisions will be read in this interview.
In December 2019 and less than two months from the beginning of this year, there were several resonant events. First, the National Commission for the State Regulation of Communications and Informatization (NCCIR) published a notice on its website announcing the court’s decision to immediately block online gambling resources.
Secondly, the National Bank and later the cyber police sent a letter to the banks about the need to suspend payments to gambling institutions and, accordingly, payments to players. Online casinos, bookmakers and even information resources have been included in the cyber police list.
Thirdly, in December last year, a bill № 2634 (dated December 19, 2019) was submitted to the Verkhovna Rada of Ukraine, which provides amendments to the Tax Code of Ukraine in order to introduce taxation, in particular, for foreign online gambling operators, which provide services to sole traders as well as software providers and others.
Fourthly, there have recently been searches in IT companies that develop software for gaming operators.
The assessment of each case was given by Vladyslav Yarovoi.
There are no official statements from providers regarding the NCCIR letter (at least in open sources). What, according to the law of Ukraine, should they do after publishing such a notice?
First of all, it should be understood that the announcement on the NCCIR website performs a purely informational function. As of February 18, 2020, there is no publicly available court decision in the Unified State Register of Court Decisions under the number specified by the regulator.
Until a copy of the investigating judge’s order is obtained, providers are entitled to disregard the NCCIR information message. It can be seen that all the resources listed in it were blocked, so most likely a copy of the order was sent to the operators directly.
However, the question remains why the order is not in the official register, although the next order of the Dniprovsky district Court of Kyiv dated 30.01.2020 has been already posted.
What are the criteries for selecting these sites, considering that some information resources are also listed?
Since the investigating judge’s order on arrest in case № 757/3623/20-k is not publicly available, it is impossible to determine the reasons for the arrest and, accordingly, the criteria by which the web resources included in the list were selected.
Practice shows that they block access to the main web resources, as well as their “mirrors” if there is reason to believe that they are used for gambling (access to gambling in the form of slot machines, poker cards, virtual roulette and opportunities to bet on sport events, etc.) and/or committing other crimes.
I also remind that the decision of the court and, in particular, the investigating judge’s order can be challenged and acts against information resources can be regarded as unlawful.
It should be noted that on February 12 another message appeared on the NCCIR website concerning the decision of the investigating judge of the Dniprovsky district court of Kyiv in case № 755/1439/16-k (criminal proceedings № 12016100040000990) concerning blocking of a number of web resources, including favorit.com, www.favbet.com, and others.
What is the responsibility of Internet-providers and banks if they do not comply with the NCCIR requirements, the recommendations of the National Bank and the cyber police (by the way, it expects financial institutions to provide information on the measures taken)?
Firstly, the blocking the web resources specified in the court order is not a requirement of the NCCIR but a resolution set out in the order of the investigating judge, which is subject to mandatory enforcement. Regarding the recommendation of the NBU, stated in the letter “On the strict observance of the Law of Ukraine” On the Prohibition of Gambling Business in Ukraine” № 57-0009/2674 of 17.01.2020, it should be noted that the NBU letter is not a legal act, mandatory to implementation, and has only a recommendation.
Secondly, according to the content of this letter, the NBU “emphasizes the need to strictly comply with the requirements of the Law and to prevent payments directly or indirectly related to gambling business.”
I believe that banks and other financial institutions will be much more cautious in cooperation with customers in this area.
Why in the period of the ban on online gambling occurs initiative to include them in the list of subjects of taxation? And why are they so actively struggling now (although, they used to pretend not seeing it before)?
Although the ban on gambling in Ukraine is still in force, the information space around this topic is now filled with a variety of ideas and suggestions. This is not surprising since after the law on gambling legalization is passed, Ukraine will undergo a radical change in the gambling market. Therefore, the initiative to include gambling in the list of taxable entities is not surprising.
Bill № 2634 (from 19 December 2019), which provides amendments to the Tax Code of Ukraine for tax purposes, including the income of foreign gambling operators, caused a storm of criticism. Obviously, the document needs a thorough revision. There are reasonable grounds for believing that the purpose of this bill is not to impose taxes on the income of foreign companies but to control Internet space. Numerous uncertainties can become tools of censorship.
Regarding the active struggle against online casinos, searches in IT companies, this, in my opinion, can also be explained by the desire of the state to fully take control of the market. Therefore, we see an attempt to stop as many players involved in the industry as possible in order to start on a new basis. Also, it helps the interested players to stimulate the acceleration of adoption of the Law and the introduction of transparent and clear rules.
In what countries the situation is similar, that is, the struggle against illegal gambling operators on the Internet for a complete ban on gambling? What remedies are used there and what liability is there for the violation of the law?
In general, all countries around the world are facing the same challenges in trying to regulate the gambling market. On the one hand, state regulators seek to limit the harmful effects that gambling can have on society, on the other, given the magnitude of monetary circulation in the market, many states find it difficult to ignore the positives of legalized gambling, in particular, filling the state budget, creating jobs, and promoting tourism.
Most developed countries of the world have their own levers of control over the market operators activities. Everyone wants to balance the positive and negative aspects of gambling. For example, current UK gambling legislation allows gambling, but it also provides considerable penalties in case of a breach of the requirements.
The United States of America, which has a strict gambling ban in the vast majority of states, encourages citizens to contact with the authorities on suspicion on the organization of gambling.
The most difficult challenge for state regulators, however, was and still is – control of online activity. The ability to get around blocking, jurisdiction issues and other features of online gaming keep making the Internet space a sort of “gray” area that is very difficult to control.
For example, online casinos are banned and permanently blocked in Russia, but organizers have hundreds of “mirrors” that continue to bypass all restrictions.
In many African countries, there is a de facto ban on online gambling, but there is no real technical opportunity to block all online resources in the continent.
A successful example is China, where the government completely controls the information space, which is why it is extremely difficult to provide gambling services.
What are the trends in the fight against illegal online gambling in countries where gambling is officially authorized?
The tendency may be the increase of the control by the state authorities in the targeted struggle against online gaming operators, operating on the black market bypassing the licensing rules. For example, the Australian Government has announced its intention to work with local Internet providers to block Australia’s online casinos and gaming platforms.
Also, despite Malta’s high-profile gambling market, the state’s gambling regulator has recently announced its involvement with local authorities to push illegal gambling out of the country.
With the development of artificial intelligence and the ability to process large amounts of data, the effectiveness of the struggle against illegal online gambling will increase.
However, it is clear that the organizers of illegal online casinos are also constantly improving and inventing new ways to provide services around the world bypassing all restrictions.
Were there legitimate grounds for searches in IT companies in Kyiv and Kharkiv? Did they really break the law banning gambling?
First of all, whether there are legitimate grounds for a search is decided by the investigating judge or court.
However, based on public information, one of the companies was engaged in traffic for online casinos, another had a Maltese license and, accordingly, a Maltese company providing various services in the gambling industry.
According to the information we know, criminal proceedings were opened under Art. 200, 2032, 209 of the Criminal Code of Ukraine.
Based on the fact that the main claim is Art. 2032, and in accordance with paragraph 3 of Art. 1 of the Law of Ukraine “On Prohibition of Gambling Business in Ukraine” responsible entities are gambling organizers – individuals and legal entities – business entities engaged in gambling and gambling activities for profit.
Accordingly, in my opinion, neither the first company nor the second one is the subject of these offenses of Art. 209 was to be derived from the illegality of the proceeds of gambling, and in relation to Art. 200 – it is difficult to say whether the companies engaged in illegal activities with transfer documents, payment cards.
How can software developers who work with gambling operators located in Ukraine secure themselves from such searches?
Fully protect yourself from searches will be almost impossible, but I will give some recommendations to such companies:
- Make a contract with an attorney-at-law who will represent and protect the company in case of a search.
- Ensure that important documentation/equipment is properly stored. It is better to have cloud servers (or real ones, but in other country) where all your software/documentation will be stored.
- It is desirable to be able to remotely block all computers in the office and further encrypt all information on the computer.
- Use licensed software.
- Enter a security system in your company.
- Provide instructions for the whole team about what to do and say during the search.
- Remember: according to Art. 63 of the Constitution of Ukraine you have the right not to testify against yourself, family members or close relatives, so warn the team that everyone has the right to remain silent.
- Sign contracts with your contractors with a defined fee for creating software (the main thing is not as a percentage of online casino revenue).
There are many other measures needed to protect the business because it is a complex question.
And most important, if you are simply developing software, you are not violating the laws of Ukraine on the prohibition of gambling!
And if they have already come to developers with a search, what to do in the first place and how then to recover the seized property, to close criminal proceedings against employees (if opened), etc.?
If it happens to you:
- Immediately call your attorney-at-law, as it will depend on him how well the search will be conducted.
- If it is technically possible, block all equipment.
- Be sure to ask for a copy of the investigating judge’s order or court order where the place of search, the grounds for such conduct, the information is intended to find are stipulated.
- Under no circumstances should you try to interfere with the searchers, but keep a close eye on their actions and, where possible, record them. Here main work will be to your lawyer, but by the time he arrives, you have to make sure that they act according to the law.
- There must be at least two witnesses who are observing all the actions of law enforcement officers during the search. That is why the search should be done room by room, not everywhere.
- If certain equipment is removed, require proper fixation of its characteristics by investigators (name, serial number, etc.). Otherwise, when you win, you may get not your equipment back.
These are basic tips that will help you save your money and win a lawsuit.