Entain Case Puts Dot.Com Operations In The Spotlight, Lawyers Warn

December 14, 2023
Legal experts have cautioned that the details of Entain’s settlement and subsequent warnings from law enforcement officials will likely bear on the rest of the UK market well into the future.

Legal experts have cautioned that the details of Entain’s settlement and subsequent warnings from law enforcement officials will likely bear on the rest of the UK market well into the future.

Alongside a landmark £600m ($758m) penalty for alleged bribery offences in its former Turkish business, Entain’s deferred prosecution agreement (DPA) with the UK’s Crown Prosecution Service (CPS) contained an order to exit several so-called “regulating” markets.

Specifically, the CPS cited Mexico, Brazil, Chile and Peru as jurisdictions that Entain should leave within a year, although it can apply for extensions if it believes regulation is imminent.

The orders may raise red flags for any UK-exposed operators active in those markets without a licence, but also raises the question as to whether any kind of grey-market activity could now draw the ire of British law enforcement.

Amplifying those concerns was a chilling warning issued by the country’s chief crown prosecutor, Andrew Penhale.

“The wider gaming industry may wish to reflect on the implications of this agreement for their own corporate compliance procedures and, where appropriate, take action to address and report any failings they identify,” he said.

“The CPS will continue to work closely with law enforcement partners in this area, such as [UK tax authority] HMRC, as well as the industry regulator, the Gambling Commission.”

HM Revenue & Customs (HMRC) also issued a strong statement in the wake of Entain's DPA.

“HMRC is committed to creating a level playing field for businesses and this judgment should serve as a wake-up call to others to make sure their house is in order,” said its chief investigative officer, Richard Las.

These statements add up to fair warning that new lines are being drawn on what is acceptable practice for a UK-based gambling operator, according to one legal expert.

“In this DPA, the CPS has gone further than the Gambling Commission (or, to my knowledge, any international gambling regulator) ever has, in requiring an operator to exit all but a few unregulated international markets,” said Andy Danson, a partner at Bird & Bird.

“Whilst others in the industry do not find themselves in the unenviable position of having to agree a DPA with the CPS, the prosecuting authority’s apparent lack of tolerance for any significant ‘.com’ business is a notable moment,” he said.

Analysts at Regulus Partners suggested that through the agreement, “the CPS has effectively used Entain’s alleged historical malfeasance under the DPA to call time on .com markets”.

They warned that the apparent view of investigators that it is unacceptable to be active in any market not on a pathway to regulation is likely to create challenges for financing and payments, as investors and third-party suppliers look to balance the risks of dealing with grey-market gambling companies.

Others, however, are less convinced that the warnings from the CPS and HMRC are necessarily apocalyptic for offshore gambling.

“Despite what others have written, I don’t consider that the DPA will mean that all operators must close their dot.com operations,” said Chris Elliott, a partner at Wiggin.

“Rather it serves as a reminder of the need for operators to develop and maintain a coherent rationale for not just where they derive revenue, but how they do so,” he said.

Elliott pointed to existing Gambling Commission regulations that require licence applications to explain “why you think the provision of gambling facilities is not illegal, either because you are licensed to operate in that jurisdiction or because you have satisfied yourself that it is not illegal for you to provide gambling facilities to those players”. 

The commission also expects operators “to assess the consequences of their continuing to receive a noticeable stream of income from any jurisdiction where there are real doubts about the legality of their providing gambling services to its population”.

Nevertheless, Elliot agreed operators would be smart to carefully assess their unlicensed activity in the wake of the Entain case.

“The warning given by the Chief Crown Prosecutor to the wider gaming industry … is not advice to be ignored,” he said.

“Operators who derive revenues from markets in which they do not possess a local licence must carefully examine their business practices to ensure they comply with all laws and regulations applicable to them (and not just gambling laws). This is self-evident and simply reinforces what is already expected of operators.

“However, it is a stark reminder of the enforcement risk around bribery offences, which is clearly a real and serious one, and should prompt an urgent review of anti-bribery and corruption policies to ensure they are being implemented properly,” Elliot added.

In any case, it is clear that the eyes of law enforcement will be trained more keenly on gambling in the future, said Eoin O'Shea, a partner and head of white collar crime at law firm CMS.

“This is an important case for many reasons. From an industry perspective, the CPS statement ... is notable. It could be read as a suggestion that compliance failings which go unresolved are seen as a potential gateway to, or at least a risk factor for, criminal liability,” he said.

“At one level this is not a very surprising view. But it is significant that a senior CPS prosecutor has drawn attention to it. The statement suggests that the CPS and other authorities will be focusing on the sector in the foreseeable future.”

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