The Gambling Law Review: Switzerland

Overview

i Definitions

In January 2019, a comprehensive legislative overhaul entered into effect. The revised gaming legislation does not define 'games of chance' or 'gambling'. Instead, it uses 'money games' as the key overarching notion that also refers to the legislative scope: the Gaming Act (or literally, the 'Act on Money Games') deals with a wide range of games that involve the expectation of a prize or something of monetary value in exchange for a stake (money or money-worth) or the conclusion of a legal act (Article 3(a) Gaming Act).

The Gaming Act distinguishes between 'major' and 'minor' games; notions that refer to the range that the games feature. Major games include lotteries, sports betting and games of skill that are carried out automatically, intercantonally or online (Article 3(a) Gaming Act). Minor games by contrast are lotteries, sports bets and poker tournaments that are neither automated nor intercantonal nor online (small lotteries, local sports bets, small poker tournaments) (Article 3(f) Gaming Act). The Gaming Act further defines the following commonly known gaming terms:

  1. lotteries are money games open to an unlimited number of persons, or at least a large number of persons, in which the result is determined by the same random draw or similar procedure (Article 3(b) Gaming Act);
  2. sports betting is a money game in which the winnings depend on the correct prediction of the course or outcome of a sports event (Article 3(c) Gaming Act);
  3. casino games are money games open to a limited number of persons, excluding sports betting, skill games and small games (Article 3(g) Gaming Act); and
  4. games of skill are money games in which the outcome (the prize money) depends entirely or predominantly on the skill of the player (Article 3(g) Gaming Act). In this sense, 'skill competitions' are games of skill, too. The same goes for '(daily) fantasy sports' if the predominant character of skill can be shown. The notions of pool betting and spread betting are not defined and secondary lotteries are not regulated in the law.

'Competitive sports for prizes', namely e-sports, are subject to much discussion, including in Switzerland. The regulatory authorities have not taken a final stance on the issue of e-sports. The Swiss Gambling Supervisory Authority (Gespa; this was formerly the Inter-Cantonal Lottery and Betting Commission (Comlot)) published a statement online in which it noted that neither a general definition of e-sports nor accordingly an overall qualification under the Gaming Act could be provided. E-sports were likely to qualify as games of skill that may or may not require a licence. It also quoted the Federal Office of Sports taking the view that e-sports did not currently qualify as official sports.2 If an e-sports event were to be qualified as a sports competition, it would as consequence fall outside the scope of the Gaming Act.

'Free prize draws' do not fall within the scope of the Gaming Act. According to Article 1(2)(e) Gaming Act, the Act does not apply to lotteries and games of skill carried out for a short period of time by media companies to promote sales. However, the exemption only applies if these games do not pose a risk of excessive gaming and if the free gaming option is available on the same favourable terms of access and participation as by way of a pay option or the conclusion of a legal act.

With regard to the distinction between 'speculative' and 'hedging' financial products as well as gambling products, the Gaming Act states that it does not apply to activities subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA) in accordance with the Financial Market Supervision Act of 22 June 2007 (Article 1(2)(f) Gaming Act). In other words, FINMA supervises financial products that involve elements of chance.

ii Gambling policy

Gambling generally is permitted but subject to strict regulation. Contrary to recent developments in other jurisdictions, it is not prohibited to encourage people to gamble. However, this policy is counterbalanced with the political expectation that some of the proceeds from games of chance should be allocated to society, for instance, to good causes or the federal retirement fund.

iii State control and private enterprise

The Gaming Act implemented a protectionist approach where the domestic land-based operators of games of chance enjoy the exclusive right to operate their games online, too. However, international business-to-consumer (B2C) and business-to-business (B2B) operations can serve as business partners to domestic lotteries and casinos. These limitations do not apply to the skill gaming sector.

The lottery and sports betting sectors are state-owned: the cantons (regions) have granted only two licences to large-scale public lotteries: Swisslos and Loterie Romande. By contrast, casinos can be privately held, and the same goes for games of skill operations.

iv Territorial issues

Casino games are regulated and licensed at federal level. Lotteries, sports betting, skill gaming and poker tournaments are regulated by cantonal law, with the federal gaming laws serving as the applicable framework legislation. For example, federal law addresses poker tournaments in the relevant Act and Ordinance, but the cantons hold the powers to regulate (or prohibit) poker tournaments in more detail in their implementing cantonal laws.

v Offshore gambling

Bearing in mind experiences in other markets and the limited effectiveness of the Swiss domain blocking, a significant share of remote black-market activities can be suspected in Switzerland owing to the chosen regulatory model (ring-fenced market), the long cooling-off period for international B2Cs and the high commercial value of the Swiss online gaming market. In principle, regulators and other authorities have enforcement instruments available under the applicable laws to act against unlicensed foreign operators. However, in using these instruments, there are legal, practical and technical difficulties.

Warning letters and domain blocking

Both regulators, the Federal Gaming Board (ESBK) in the area of casino games as well as Gespa in the area of lotteries, sportsbook and skill gaming, have the powers to send out warning letters to foreign operators and to put unlicensed gambling and gaming domains on a blacklist. Swiss ISPs are legally obliged to apply domain blocking to such domains. The deterring effect of domain blocking is limited for various reasons. Technically, the domain blocking can rather easily be circumvented, for instance, by the use of VPN clients. Legally, players do not risk prosecution under criminal law. Finally, there is no payment blocking available under the Swiss Gaming Act.

Prosecution and fines under criminal law

In principle, the regulators and law enforcement have the legal bases to use criminal prosecutions against unlicensed gaming offers and related advertising. These means of criminal law are readily available and used against illegal domestic offers. They can also be used against domestic advertising for foreign offers. By contrast, while these instruments are, in principle, also available in relation to foreign unlicensed offers, the authorities have thus far shown little appetite to use these means against foreign operators. This may be for various reasons, including uncertainty as per the applicability of criminal law to foreign operators and practical issues of enforceability.

Legal and regulatory framework

i Legislation and jurisprudence

The federal Gaming Act was adopted by the Swiss parliament in September 2017 and subsequently a referendum organised by an alliance of youth parties. The Gaming Act was adopted by the voters in June 2018 and entered into effect on 1 January 2019. Apart from a few exceptions defined in the law, the act serves as the legislative framework for all games involving consideration and prize.

The Gaming Act is complemented by federal secondary law, cantonal law and inter-cantonal law:

  1. the Federal Government's Gaming Ordinance;
  2. two ordinances by the Federal Department of Justice and Police: Casino Ordinance and Money Laundering Ordinance;
  3. the ESBK's Money Laundering Ordinance;
  4. 26 cantonal laws implementing the federal gaming laws; and
  5. inter-cantonal agreements through which the cantons regulate shared issues such as licensing.

ii The regulator

The ESBK is the regulator for casino games, while Gespa is the inter-cantonal regulator for lottery, sports betting and skill games. Furthermore, the Federal Department of Justice and Police exercises overall supervision regarding money games and enjoys certain powers, too.

iii Remote and land-based gambling

Although the law distinguishes between remote (online) and bricks-and-mortar (offline) gambling, there are no separate, independent online licences available in the area of lottery, sportsbook and casino games. Separate online licences can only be applied for in the field of skill games. Casinos and public lotteries can, upon approval by the respective regulator, offer their games online, too.

iv Land-based gambling

Casinos

There are currently 21 casinos in Switzerland. Casino games, games of chance on gaming machines as well as large poker tournaments can only be offered by and within the licensed bricks-and-mortar casinos. The federal government (the Federal Council) determines the number of licences (i.e., 'concessions') (Article 5(3) Gaming Act).

Lottery

While there are no bookies in Switzerland, the two public lotteries can sell their lottery and sports-betting products in their respective geographical territories, Swisslos in Italian- and German-speaking Switzerland, Loterie Romande in French-speaking Switzerland, notably through a wide network of kiosks.

Gaming machines

Depending on the applicable cantonal laws, automated games of skill may or may not be permissible in gaming halls or amusement arcades.

Poker tournaments

Cantonal laws may permit small poker tournaments on their territory, which most cantons allow for in their implementing laws. In comparison to large poker tournaments in casinos, these tournaments are subject to various regulatory limitations.

v Remote gambling

Prior to the adoption of the Gaming Act, Switzerland was one of many unregulated online gaming markets for international operators. Domestic lotteries offered a limited range of products also online without an express legal basis. By contrast, domestic casinos had no legal possibility to offer games of chance online.

The situation significantly changed with the Gaming Act. Public lotteries can offer a wide range of lottery and sports-betting products online. Similarly, casinos can offer a full range of casino games as well as poker online. Persons with residence or habitual stay in Switzerland can sign up to these licensed offers and play remotely.

Casinos and public lotteries can seek business partnerships or collaborations with international B2Cs and B2Bs, provided that certain legal requirements are met, such as the good reputation criterion (B2Cs) or a fit and proper test (B2Bs and poker collaborations). The good reputation criterion also refers to former commercial activities on the Swiss market. However, the international business partners do not need to seek establishment in Switzerland. This requirement only applies to skill gaming operators who can apply for an independent online licence.

vi Ancillary matters

While game operators (lotteries, casinos, skill game operators, poker tournament organisers and minor games organisers) need some form of licence or authorisation, platform or game providers do not need to, and nor are they able to, apply for licences. The regulator considers the domestic operator as the licensee. However, if the domestic casino wishes to see a partnership with an international B2C or B2B approved, it will have to make sure that the international partner meets various regulatory requirements.

While there is no personal licensing for key individuals in land-based casinos, they nevertheless need to be approved by the regulator as the law requires them, for instance, to enjoy a good reputation. The latter criterion also applies to international B2Cs and B2Bs when they are considered as main business partners.

There are also various technical requirements, such as that casinos may only purchase online games from suppliers that use an IT security management certified in accordance with the ISO/IEC 27001 standard or ensure comparable security by other means.

vii Financial payment mechanisms

Generally speaking, Swiss gaming law itself does not per se exclude certain payment mechanisms such as e-wallets or cryptocurrencies. Naturally, any payment mechanism must be compliant with anti-money-laundering requirements. Furthermore, the Gaming Ordinance requires that winnings and balances in a player account can only be transferred to a 'payment account' that is held in the name of the holder of the player account. The initial practice of the ESBK of limiting 'payment accounts' to Swiss bank accounts was criticised in the casino sector and scholarly literature.3 The ESBK has subsequently broadened the range of accepted payment accounts.

The licensing process

i Application and renewal

Casino games

Since online casinos games can only be legally operated by domestic casinos, there are no specific application windows or licence durations for online casino games. By contrast, land-based casino licences normally run for a duration of 20 years. In special circumstances, the federal government may provide for a shorter or longer licensing duration. The government will subsequently open a new application window during which existing casinos and new applicants can apply for a limited number of land-based licences. After a vetting process by the Federal Gaming Board, the federal government grants the licences to the successful applicants. Upon application, any land-based casino can have its bricks-and-mortar licence extended to online casino games if its online partnership meets all the legal requirements. The land-based casino and its business partners must provide the documents to the licensing authority that notably relate to the following licensing requirements.

A casino licence can be granted if:

a the applicant:
• is a public limited company under Swiss law and its share capital is divided into registered shares;
• presents a security concept and social concept;
• submits economic viability calculations that credibly show that the casino is economically viable;
• sets out the measures to be taken to create the conditions for the proper assessment of the casino duties; and
• presents the economic benefits of the casino for the region in a report;
b the applicant and its main business partners, as well as their beneficial owners and the holders of shares and their beneficial owners have a good reputation and provide a guarantee of proper business conduct and independent management;
c the applicant and the holders of shares and the beneficial owners of the shares and, at the request of the Federal Gaming Board (ESBK), the most important business partners have sufficient funds of their own and can prove the lawful origin of the available funds;
d the bylaws, the organisational structure and the contractual obligations guarantee the proper and independent conduct of the casino business; and
e the canton and municipality in which the location is located support the operation of a casino.4

While the time allocated to the various licensing procedures has varied, it has taken roughly half a year to get the first online partnerships approved. Subsequent to the general licensing approval, the games have to be approved, too, but this process can, in principle, be started in parallel.

Licensing costs are not defined by law. They will ultimately depend on the time and effort spent by the regulator to assess the application (Article 102 Gaming Ordinance).

Lottery, sports betting and skill gaming

'Major games' such as online lotteries, online sports betting and online skill games require a licence, more precisely, an inter-cantonal authorisation, and are subject to supervision by the inter-cantonal authority Gespa. By contrast, 'minor games' that are of little relevance for international stakeholders require only a cantonal authorisation.

The cantons have granted exclusive rights to the two public lotteries in the area of lottery and sports betting. Accordingly, Gespa cannot grant further licences in these areas. The licensing requirements in relation to major games are therefore primarily of interest to international online skill game operators.

An online skill game authorisation can be granted if the operator:

a is a legal entity under Swiss law;
b enjoys a good reputation;
c outlines its economic situation;
d discloses any financial or other form of participation in other companies;
e proves the lawful origin of the available funds;
f guarantees impeccable management and its independence vis-à-vis third parties;
g has sufficient funds and guarantees that the winnings are paid out to the players; and
h has a security concept and a social concept.5

The future practice will show how long it will take Gespa to process licensing applications for online skill gaming authorisations. Similar to the casino sector, first an operator licence is needed, followed by the approval of the games.

Licensing costs are not defined by the Gaming Act since Gespa is an inter-cantonal authority. Gespa can collect fees to cover its activities, which will depend on the time and effort spent by the regulator to assess the application.

In the skill gaming sector, international operators do not need to cooperate with incumbent domestic operators and can apply independently for a skill gaming licence. According to Article 29(1) Gaming Act, the licence for the organiser and the game authorisations can be limited in time and renewed. Therefore, there is no specific licence term, but long licence periods can be expected.

ii Sanctions for non-compliance

The Gaming Act stipulates different sanctions for different offences. The most severe penalties apply in relation to illegally operating casino or major games and illegally assisting such operations by providing the technical means (felonies). Such actions are punishable with a custodial sentence of up to three years or a fine. It can be up to five years' imprisonment or a fine of not less than 180 daily rates if clearly committed with a commercial interest or as an organised form of crime (Article 130 Gaming Act). As noted earlier, there is uncertainty to what extent these criminal law provisions would be applicable to foreign operations.

Less severe penalties apply to other offences (Article 131 Gaming Act). They constitute mere misdemeanours and are subject to a maximum fine of 500,000 Swiss francs. Other criminal offences such as advertising only qualify as misdemeanours too. Accordingly, advertising for unlicensed gaming offers is treated as such an offence. The specific legal norms in relation to media in Article 28 and 322 bis Criminal Code may further apply, too.

Players who make use of unlicensed games are not punishable. However, in particular players who use illegal land-based offers run a certain risk that their stakes and winnings will be confiscated in criminal proceedings against the operator.

Wrongdoing

Generally speaking, commonly known anti-money-laundering, anti-fraud and anti-match-fixing rules apply to Swiss licensees. Operators have to take steps against such wrongdoings. However, legal thresholds in relation to enhanced customer due diligence (CDD) and know-your-customer obligations (KYC) may be substantially higher for Swiss operations compared to their peers in the EU. This can be illustrated in regard to online games. Casinos must apply enhanced CDD measures (identification and registration) if the player reaches a threshold of 4,000 Swiss francs within 24 hours. In relation to major games, the threshold for enhanced CDD measures is 15,000 Swiss francs for pay-ins to the player account. Casinos and operators of major games further may not accept or issue bearer cheques. Finally, casinos are not permitted to issue written confirmations of winnings to the players.

Taxation

i Lottery and sports betting

All net proceeds from the two public lotteries should in principle be allocated to good causes, notably sports and culture. However, cantonal practices in allocating the proceeds may vary significantly and there is little oversight with regard to the use of the net proceeds. Costs stemming from B2Bs that provide services to lotteries are in principle deductible.

ii Casinos

A progressive gaming tax applies in the area of casino games, with a higher tax applying to land-based operations than to online operations. The tax rate for land-based casino operations is between 40 and 80 per cent of the gross gaming revenues (GGR). The base rate of 40 per cent applies to GGR up to 10 million Swiss francs. For every additional 1 million Swiss francs, the marginal tax rate increases by 0.5 per cent (Article 114 Gaming Ordinance). The tax rate for online casino operations is between 20 and 80 per cent of the GGR. The rate can be reduced to half the amount in the first four years of operation. The base rate of 20 per cent applies to GGR up to 3 million Swiss francs. After that threshold, the marginal tax rate increases in a series of varying rates.

iii Skill gaming

There is no federal gaming tax in regard to skill gaming operations. The normal tax competition between cantons and municipalities applies in this field. Accordingly, the usual local corporate tax rates apply to these operations, which can be higly attractive in comparison to other European jurisdictions.

iv Players

In most constellations, players do not pay taxes when playing with licensed domestic operators. The exception to this general rule is winnings exceeding 1 million Swiss francs from game activities of domestic lotteries and online operations of domestic casinos. Where players gamble with unlicensed foreign operators, their winnings are subject to income tax.

Advertising and marketing

Advertising for domestic licensed gambling offers is permitted. By contrast, advertising for unlicensed foreign and domestic gambling and gaming offers constitutes a misdemeanour and is punishable and subject to a maximum fine of 500,000 Swiss francs (Article 131 Gaming Act).

The same applies to indirect advertisement, for example, advertising free gaming applications if the operator's main game portfolio consist of real money games (Article 76 Gaming Ordinance). Further specific legal norms in relation to media include Articles 28 and 322 bis Criminal Code. Subject to the same maximum fine are advertisements directed at minors or (self-)excluded persons even if relating to licensed domestic offers.

Advertising restrictions apply to licensed domestic operators. However, compared to a trend in several European jurisdictions, these advertisement rules have not been tightened in Switzerland and involve few limitations. Notably, operators shall not advertise in obtrusive or misleading ways. However, breaches of these limitations do not trigger criminal law sanctions but are subject to normal administrative oversight by the regulator.

According to the Gaming Ordinance:

Advertising messages are considered misleading in particular if they give distorting information about the chances of winning or possible winnings, or convey the impression that:
a knowledge, ability, skill or other characteristics of the player influence the chances of winning, without this being the case due to the nature of the game;
b the chances of winning are increased by longer or more frequent play;
c money games are an appropriate means of solving financial or personal problems;
d participation in gambling is an alternative to a working life; or
e increased participation in gambling is an appropriate means to compensate losses already incurred.6

The Gaming Ordinance further describes obtrusive advertisement by giving the following examples in particular:

a telephone sales activities;
b sales activities in residential premises or their immediate vicinity, on public transport and at marketing events related to excursions or similar events;
c personally addressed advertising via electronic channels without the possibility of opting out or unsubscribing; and
d advertising by means of push messages based on the electronic localisation of a mobile device of the player or other forms of personally addressed advertising via electronic channels based on such localisation.7

The year in review

The experiences with the new Gaming Act in practice are still very recent. The law entered into effect on 1 January 2019, and the enforcement provisions on 1 July 2019. The regulators started to publish their first blacklists on 3 September 2019 in the form of general decrees.

An ISP appealed against this initial general decree published by the ESBK. The Federal Administrative Court rejected the appeal and thereby upheld the validity of the general decree.8

In the course of the first two years of the Gaming Act being in place, the cantons have adopted revised cantonal gaming laws in order to implement the federal framework. These cantonal laws have significant relevance, for instance, to categories of minor games and small poker tournaments.

Poker offers have gone live in 2020. Towards the end of 2020, the first regulated online poker offer went live. Similarly, the first land-based poker tournament, outside casino premises, took place on 25 September 2020. Ten years ago, organisers of poker tournaments had to close their poker clubs after a controversial judgment by the Federal (Supreme) Court that overturned decisions taken by the Federal Administrative Court and the ESBK.

In September 2020, the federal parliament adopted a new data protection Act (the Federal Law on Data Protection). It is unlikely to enter into effect prior to 2022. First, the data protection Ordinances also need to be revised.

Outlook

It is safe to say that the regulated casino, poker and skill gaming markets are far from being saturated. At the time of writing, eight casinos had gone live with their online offers. Given the high commercial value of the Swiss gaming market and the interest so far evidenced by international B2Bs and B2Cs, requests by applicants for additional as well as enlarged casino gaming offers are very likely.

Similarly, the market potential can accommodate additional online poker offers, notably since the regulation allows for shared liquidity, and it has been reported that applications are pending with the regulator.

Finally, Gespa has published first guidelines for applicants of skill gaming licences and signalled willingness to deal with these applications in a timely manner.

Footnotes

1 Simon Planzer is a partner at PLANZER LAW AG.

2 https://www.gespa.ch/de/aktuelles (accessed on 13 March 2021).

3 S Planzer and D Hablützel (2020). Das 'Zahlungskonto' im Schweizer und im EU-Recht. jusletter, issue of 3 August 2020.

4 Article 8 Gaming Act, author's translation.

5 Article 22 Gaming Act, author's translation.

6 Article 77(1) Gaming Ordinance, author's translation.

7 Article 77(1) Gaming Ordinance, author's translation.

8 A AG v. ESBK, decision of 5 January 2021 in case No. B-86/2020.

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