Interior Ministry asks police to look into legality of Internet cent auction operation

UPDATE: Operations taken offshore, out of reach of Finnish authorities

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The Ministry of the Interior has requested that the police examine whether the online company Fiksuhuuto.fi is breaking the law with its cent auction operation on the Internet.
      In the view of Legislative Councellor Jouni Laiho, from the ministry's lottery and firearms management section, Fiksuhuuto is running an illegal lottery operation.
      Fiksuhuuto’s managing director Tuomo Siurua, in turn, says the request for investigation is groundless.
      The ministry is also looking into the legality of other similar auction operations.
     
The so-called Internet one-cent auctions have gained enormous popularity in the space of a couple of months.
      In the wake of Fiksuhuuto.fi, which commenced its operations in January, at least seven other Finnish-language cent auction sites have since been launched.
      One of the entrepreneurs has already terminated his operation because of the interest shown by the authorities.
     
According to Jouni Laiho, the cent auctions fill the criteria for a lottery. Laiho points out that according to law, lotteries can only be organised if the profits go towards the public good.
      “In this case the operation is run by a private company that would under no circumstances be awarded such a permit”, Laiho says in justifying the request for investigation.
      The Ministry of the Interior has received hundreds of enquiries and the Finnish Consumer Agency around fifty queries, through which people have questioned the legitimacy of the operation.
      The first queries with regard to the business idea’s legality were received by the Ministry as much as a year ago. According to Laiho, at that time the Ministry’s response caused entrepreneurs to lose their interest in the concept.
     
The request for investigation does not scare managing director Siurua.
      “In fact, it’s a good thing. Always, when someone comes up with something new, it is looked into by the authorities”, Siurua says.
      According to Siurua, with the help of lawyers the company has been assured of the legality of its operation.
      The company is already expanding abroad. In Sweden, a similar website opened at the end of February.
     
Judging by the prices of the auctioned products, it is easy to deduce that Fiksuhuuto.fi is a profitable business.
      At the beginning of the week, the combined price of the 20 latest auctioned products was EUR 7,472. The products received 20,010 bids. If all the bids were worth the usual EUR 1.90, the bidders received collectively goods worth around 20 cents towards every euro spent.
      The returns for the Fiksuhuuto bids are not huge, when compared to, say, the Finnish National Lottery. Every euro spent on the lottery yields winnings of 39 cents, on average.
     
Should a court find that the one-cent auctions are indeed an illegal form of lottery, those having placed winning bids may yet have to square things with the taxman.
      “Such a gain has to be declared as earned income, for which income tax has to be paid accordingly”, says senior inspector Matti Merisalo of the Finnish Tax Administration.
     
The basic principle of the auctions is that every SMS message bid received pushes up the auction price of an item by EUR 0.01, and the item is won if nobody else makes a later bid during a set time-period, which can be from one to five minutes.
      Goods remain "cheap" for a long time, and in effect the auction-house is not making money on the sale of goods so much as on the bids, which cost EUR 1.90.
      For example the Kawasaki motorcycle shown on the front page of the website is being offered for not much more than EUR 140. This figure is of course rather different from the sum of bids - at nearly EUR 2 apiece - required to push the asking price up to this level.
     
     
UPDATED, Wednesday 13:10: In the latest development in this story from Wednesday morning, it transpires that Fiksuhuuto.fi, suspected of running an illegal lottery operation through its one-cent auctions, is moving its operations offshore. The one-cent online auctions will continue under the name of the English company Bidleaders.
      Fiksuhuuto managing director Tuomo Siurua says that the auctions have been run from abroad for the past two weeks. He reports that the company's headquarters are in England and that the commercial operations are run from Malta.
      In practice, this change would mean that the website is beyond the reach of the Finnish authorities.
      Malta is a safe haven for gaming companies, since the country's legislation is vaguer in this respect than in many other places.


Links:
  Fiksuhuuto.fi (website in Finnish)

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