Questionable Business Deals May Prove That Malta is Not All Sunshine and Rainbows

Until a few years ago, the Malta Gaming Authority (MGA) was one of the premier offshore licensing and regulatory agencies for global online gambling. Players from countries that did not have a national regulatory mechanism considered online casinos licensed by MGA as safe gambling sites. The exposures of the past three years have put huge question marks on the credibility of MGA to regulate online casinos. If MGA is able to put its house in order, then it could regain its former status, if not then the future of all offshore online gambling is at stake. What happened in Malta, could happen, or even be happening, in Gibraltar, Alderney and elsewhere.

We begin the saga with a brief account of the rise of MGA because knowledge of that foundation is essential to understand what happened later. We then move in more detail to the scandalous revelations and to their consequences.

The Rise of the Malta Gaming Authority

The creation of online gambling took place in the mid-1990s and at first the activity was too new and too insignificant for national legislators to take note. However, players were hesitant to enter in large numbers because of the fear that online casinos could be run by fly-by-night operators that would disappear with their deposits. Antigua, Curaçao, and other microstates instituted regulatory agencies that would vet online casinos and issue licenses to them. Licensed online casino were then considered as safe gambling havens.

Malta stepped into this scene in 2004. The government formed The Gaming Commission of Malta, later renamed to the Malta Gaming Authority, to offer licenses to online gaming operators. Its EU status provided confidence to customers and the agency started to flourish.

The United States was the first country to clamp down on online gambling sites seeing them as a potential source of illegal financial activities. Malta based operators responded by “miscoding” gambling transactions as purchase of jewellery or golf clubs on credit card statements and were quite successful. Then some European countries, the United Kingdom in particular, initiated the setting up of national regulatory agencies so that more control could be exercised over the activity.

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Any online gambling site that would service players within a country with national regulation would have to obtain a licence from the national regulator and pay taxes on gambling revenue. In this manner, some European countries began to evolve a mechanism of national regulation, while others stayed with offshore regulated sites. Regulated online gambling might still be something novel in America, but despite its somewhat inconsistent regulations and seemingly less stringent law enforcement, Europe has not banned this activity for several years. This has changed a bit recently in Sweden and Germany where the popular site, King Johnnie has been requested to stop taking players until they get a local license.

Despite what happened in America and Europe, Malta has flourished by offering 10-year licenses to operators with caps on fees. Players from countries like Australia, South Africa, Canada and Russia flock to MGA licensed casinos. Players from regulated countries also play there using VPNs. More than 300 companies offering online gambling services are situated in Malta and this has resulted in a luxurious life style for the employees and locals.

Scandal Strikes Malta

In 2017, a Maltese journalist Daphne Caruana Galizia was assassinated with a car bomb. She was investigating political corruption that involved the likes of Yorgen Fenech, the owner of half of Malta’s brick-and-mortar casinos, and Keith Schembri, the chief of staff to the then-prime minister. This resulted in immense pressure put by the United States and Europe on the Financial Action Task Force (FATF), which added Malta to its “grey list” of jurisdictions that do not have basic financial safeguards in place. To give you an idea of the severity of this move, some of the other countries on this list are Cambodia, Syria, and Zimbabwe. Then, the United Kingdom declared Malta as a “high-risk third country” for money laundering and terrorist financing, joining North Korea and Iran.

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Some of the ramifications of this could be:

  • Payment processors and correspondent banks might refuse to handle transactions originating in Malta
  • Online gambling companies in other countries might refuse to work in partnership with Malta licensed operators
  • In the worst case, sanctions may be imposed on Malta by the international community

Carl Brincat, just 30 years old, is in the unenviable position of CEO of MGA. He was head of legal affairs when he was catapulted unexpectedly to the top spot in October 2020. His predecessor, Heathcliff Farrugia, was charged with colluding with Fenech to keep allegations of money laundering at a casino owned by Fenech from going public. The rot was right from the top. Joseph Muscat, the prime minister at the time, was eventually forced to resign, along with several members of his cabinet and staff.

Brincat has averred that MGA is fulfilling its regulatory duties to perfection. He cites two examples.

  • The MGA has revoked the licenses of 13 operators last year, for delay in submission of change-of-ownership documentation and for failure to submit financial reports.
  • The agency has been taking affirmative steps to prevent money laundering that include periodic surprise audits.

Not everyone is buying these claims. MGA is grossly understaffed and depends on approved private companies to carry out many of its evaluations. These companies also offer strategic, financial, and compliance advice to the operators creating a potential conflict of interest. Mario Galea, a former CEO of MGA said, “The same person funds your company, gets your license, becomes your key official, carries out your audit, and sends the reports to the MGA.”

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The Way Forward

The MGA has done a lot of work to set things right. The agency has improved both its onboarding and ongoing monitoring procedures so that it can convince FATF that criminality is being kept out of the gambling business. However, there is only so much that the agency can do. Carl Brincat said that the Maltese Government has to put in the bulk of the effort.

  • First, they have to troubleshoot any negative ramifications of the grey-listing
  • Then they have to convince international regulators that they will restructure the financial system to required standards

Some work has been done like enhanced scrutiny of cross-border banking, more detailed examinations of charities that could be used as covers for terrorism financing, and banks to report suspicious transactions more quickly. However, Malta has a long way to go and there will be assessments all along the way.

If Malta does not get its house in order fast, there will be serious repercussions of a commercial nature as well. The competitors of MGA in jurisdictions like Alderney and Gibraltar are going all out to poach MGA licensed online gambling companies. They are already in a somewhat better position. Being self-governing British territories, they are perceived to have better regulatory mechanisms.

There is a bigger danger lurking in the background. The online gambling industry works on trust and if this is broken then it is near impossible to fix. Soon players will be asking if Malta was found not up to the mark, then can we trust the other offshore regulators? So, it makes sense for those involved to put their rivalries aside and collectively sort out issues before the industry reputation takes a hit.

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