Financial blocking

German authority sends prohibition orders to payment service providers due to participation in payment transactions for gambling

For the first time, the Ministry of the Interior and Sport of Lower Saxony, as the responsible supervisory authority in Germany, has issued a prohibition order against a large, internationally active payment service provider, banning the provider from participating in payment transactions in connection with gambling in Germany.

Legal background

The prohibition order is based on section 9 para. 1 No. 4 of the German Interstate Treaty on Gambling, which authorizes the competent authority to prohibit payment providers from participating in unauthorised gambling and gambling payments. Pursuant to Section 4 para. 4 of the German Interstate Treaty on Gambling, this includes online gambling services. However, details of the provisions are discussed controversially, and there are doubts with respect to the compliance of German Gambling law with EU freedoms.

Further, respective measures on financial blocking face substantial concerns with regard to data protection law, particularly the provisions of the EU General Data Protection Regulation (GDPR). Complying with a prohibition order that bans activities with regard to online gambling payments effectively requires the payment service providers to process personal data of the users (e.g. account numbers or account owners names, the transactions subject as well as location data). It is at least disputable whether there exists a legal basis for this processing activity. Thus, the former German Federal Commissioner for Data Protection regarded respective actions against payment providers as unlawful.

What does the recent prohibition order mean for online gambling providers?

Preventing payment service providers from participating in payments in respect of unauthorised gambling may in fact also result in a significant impairment (or even cessation) of the gambling service provider's operations. The authority likely intended a corresponding indirect effect of the prohibition order for the gambling providers as in the past prohibition orders directly against gambling providers often failed due to problems in enforcement.

What can online gambling providers do?

Contact the payment providers: Gambling providers might contact their payment providers, discussing with them the possibilities to react to the order (or hearing letter) by the authority, e.g. taking legal steps to object to the order.

Take action against financial blocking: The prohibition order against the payment provider usually has an indirect adverse effect on the gambling providers. Therefore, gambling providers can take legal actions against the order based on their own rights (in addition or alternatively to legal remedies taken by the payment provider).

Apply for licenses or equivalents where possible: It is possible to obtain a license or an equivalent (e.g. transitional agreement in Schleswig-Holstein) for some forms of online gambling offerings.