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Mafia and Gambling Investigation Calls for an Update of Malta's Gambling Laws

Mafia and Gambling Investigation Calls for an Update of Malta's Gambling Laws
  • Is Malta's gambling legislation good enough to keep the organized crime out of gambling?

  • If Malta is serious about keeping the gambling industry clean, it needs to act and set up stricter procedures.

As the Italian authorities continue to investigate the relationship between a number of gambling companies and organized crime, questions arise about the real effectiveness of the legislation in place in Malta, Europe's hottest spots for the online gaming industry.

Considered to be an ideal location for establishing an online gaming-related business in Europe, due to its attractive tax regime and an advanced gambling legislation, Malta has seen the number of companies active in the gaming industry soar during past years.

According to the report 2014: The Year of Transformation issued by the Malta Gaming Authority (MGA) on June 23, the island is now home to 283 companies authorized to offer remote gambling services. This number represents an 8-percent increase compared to 2010 when the number of licensed companies active in remote gaming was 262.

With the total of MGA-issued remote gaming licenses moving from 358 in 2010 to 419 in 2014, the industry gave a considerable contribution to the country's treasury, as the gaming tax alone generated revenue of €25.8 million in 2014, representing a 21.7-percent increase from the €21.2 million created in 2012.

Malta image is at stake now. The island needs to act and to correct what is not working, or this might impact the Maltese economy on a substantial scale.

While a part of the industry believes that this substantial growth should continue in the years to come, others ask the MGA to consider whether the Maltese system could sustain further expansion of the business without the risk of a lack of resources to ensure a thorough control over online gambling.

According to international gaming lawyer and founder of the Gaming Legal Group, Bas Jongmans, the system may have already reached maximum capacity, as the police operation that led to the arrest of 41 individuals and the closure of several gambling companies shows that the controls may not be as rigorous as the legislation demands.

"To open a gambling company in Malta you need to fill forms and disclose a lot of information including any political ties and the source of your income," Jongmans told PokerNews. "The problem is that many of the companies that handle these information do not follow up on what is given to them, oftentimes because they don't have the means to do so. They simply have too many clients."

In Jongmans' opinion, the limits of the Maltese system were unveiled by Italy's Anti-Mafia Police, and this now risks to damage the work that Malta's authority has done to attract foreign businesses to the island.

"Malta's image is at stake now," he said. "The island needs to act and to correct what is not working or this might impact the Maltese economy on a substantial scale. Especially if it will change the way gaming companies are being set up."

Mafia and Gambling Investigation Calls for an Update of Malta's Gambling Laws 101

"People feel that Malta has a tight legislation on gambling as there are a lot of procedures in place, but the truth is that things may not be as rigorous as they seem," Jongmans continued. "Online gaming in Malta grew so much that it's impossible for some companies to ask all the questions that need to be asked and to follow up on the answers. Legal professionals and trust companies who accept hundreds of clients do not have the means to do this, and let's face it, it would also not be convenient for them."

Although some Malta-based firms may not agree with Jongmans' statement, the issue of companies providing legal and fiduciary services not being able to appropriately follow up on their clients is real, as it is also what convinced Italy's authorities to include Malta's GVM Holdings and the country's former Prime Minister's son,David Gonzi in an investigation on mafia and gambling.

Gonzi, as a shareholder and director GVM Holdings, is responsible for the company that provided fiduciary services to the allegedly mafia-affiliated Uniq Group Limited.

"The role of [David] Gonzi, son of former Prime Minister Lawrence Gonzi, has to be strongly condemned, since this involvement occurred more than once, though it requires further investigation," the report prepared by the investigators says.

"David Gonzi would be located at the summit of the pyramid structure of the multinational companies of the area operating in the territory and with a Maltese license, acting as a cover for the criminal activities for which he went on trial. Pending further necessary investigation, it would be plausible to situate the subject right at the center of an international criminal business triangulation network."

David Gonzi [Photo:]
David Gonzi [Photo:]

Despite the accusations, Gonzi promptly denied is involvement in any illegal activity carried out by his clients, stating that "It would be expected that a statement [affirming] that I am involved 'at the center' of the network should have been backed up by some evidence of which obviously there is none. In all fairness, the report itself states that the conclusion 'requires further investigation' and is 'pending necessary further investigation.'"

In Gonzi's opinion, GVM Holdings performed all the checks required by the legislation on their clients, and the Uniq Group proved to be fully compliant with the law at the time it applied for a gambling license in Malta. Despite offering fiduciary services to the Uniq Group, however, Gonzi claimed that he nor GVM could be held responsible for any wrongdoing committed by the Uniq Group after the obtainment of the license.

To complicate Gonzi's position, however, there is also the particular relationship he had with Betsolutions4U Limited, one of the other companies involved in the investigation and which gambling license was suspended by the MGA on July 22.

Questioned about his ties with the firm, Gonzi admitted providing "legal services to Betsolution4u Ltd on a fixed arrangement" between 2014 and 2015 although, as he went on to explain, "GVM has terminated all contracts with the companies involved," Betsolution4u included.

"With a more modern and efficient legislation in place, Malta would still be a great place where to do business," Jongmans commented. "The tax rate is good, it's easy to set up a company, and there's a lot of knowledge in the island. We just need better rules, more transparency, and a stricter regulation on the way legal professional work."

To innovate the system, the gaming lawyer believes that Malta's authorities should not necessarily adopt stricter checks on the operators, but could consider changing the rules about the establishment of gambling companies on the island and the way legal professionals work.

"We have just a few large professional legal firms that accept all the clients they can get, even if it's obvious that this impacts their ability to conduct thorough checks on their clients," Jongmans said. "If we want to bring more transparency to the industry, we need to make harder to hide certain people behind complicated company structures and adopt a stricter regulation of legal professionals."

A more modern and transparent business environment could also act as a springboard for the industry and bring new companies and capitals to the industry. According to Jongmans, "A lot of trust companies I have spoken to are very hesitant to get into the gaming business because they are not sure if they can offer procedures that completely rule out the involvement of certain people."

Also according to Jongmans, a good way to avoid cases similar to the one that involved GVM and gambling companies like Uniq Group and Betsolutions4U Limited is to force online gambling companies to adopt a transparent structure.

"Over the years, I repeatedly proposed to get rid of the whole fiduciary system and of those the legal constructions that allow companies to hide their ultimate beneficial owners," he said. "There can be valid reasons to introduce a fiduciary in the process of establishing a company, but most of the times these services are used to protect the ultimate beneficial owners, exposing the whole industry to significant risks."

A European Approach to Gambling is the Only Way

A reform of the Maltese gambling legislation, however, might not be enough to keep the organized crime away from online gambling because, in the end, it could just push some individuals to seek for better, more convenient legislations to exploit.

"The solution is the harmonization of gambling legislation throughout Europe. Only this would create an efficient system on the Continent," Jongmans explained.

Europe's fragmentation is an obstacle to the development of the industry
Europe's fragmentation is an obstacle to the development of the industry

"The fact that we don't have a European system in place today is what invites some people to cherry pick those countries where the follow-up is known to be the weakest, exactly as it happened with the Uniq Group," he said. "Once the mafia had troubles dealing with Italy's anti-money laundering and anti-mafia rules, they just moved elsewhere — they went to a place where they knew someone would probably not pay enough attention to understand what was happening.

"The gambling industry is going to become a lot more complex in the future, with more white-label operators offering B2B services and more operators sharing their business with other companies, and that's why I believe it is an imperative that the legislators get ready to face the challenges and minimize the risk of criminal activities."

By keeping things as they are and by allowing all the different EU legislation on gambling to coexist under the same European roof, the legislator indirectly allows the existence of "weak spots" in Europe that could eventually be used for illegal purposes.

"Think about the drama of the migrants moving from Africa to Italy and Malta — they know what are Europe's weakest links and they try to exploit those ones to enter the Continent. Right now, organized crime is doing the same with online gambling — and that's why a common European legislation would be a great step forward," Jongmans said.

The MGA Admits: "100 Percent Watertight Controlled Environment Is Not Realistic"

Jongman's concerns about the accuracy of the Maltese gambling legislation have been indirectly addressed by the MGA in a note issued on July 25 to comment on Italy's Anti-Mafia investigation.

"Some gaming activities, or rather, business models, may have a higher risk profile than others as much as certain individuals involved in an operation could carry higher risks and tarnish an otherwise legitimate operation," the MGA stated.

Mafia and Gambling Investigation Calls for an Update of Malta's Gambling Laws 102

"As an experienced online gaming regulator, it is our duty to minimize those risks as much as possible and put in place a detailed risk management policy to manage risk in every facet of the MGA's activities. But as any regulator can vouch, it is unreasonable to expect that the legislation, mechanisms, protocols and control tools at hand provide for a 100 percent watertight controlled environment at any given time even though that remains our prime objective.

"Reputational risk is critical for the long term sustainability of the gaming sector in Malta, and while [we] consider these allegations as unique to these operators, the MGA will strongly enforce its rules and regulations to sustain its reputation and will aggressively bring in further measures to combat this type of license violation."

Also, in a message published to announce the 2014: The Year of Transformation report, the MGA assured that "the authority is facing its future challenges with optimism in order to lead in its core regulatory functions and become the jurisdiction of choice and the global center of excellence in the remote gaming industry."

Image courtesy of The Telegraph

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