“Gambling is a principle inherent in human nature”, wrote 18th-century politician and philosopher Edmund Burke. Three centuries later it is also readily available, 24 hours a day, at the touch of a button, creating opportunities and challenges in equal measure.
Predicting how the chips would fall, in 2004 Malta became the first EU state to enact comprehensive online gaming legislation, and is now regarded as one of the foremost tried and tested jurisdictions in the world.
Malta’s gaming sector has become a core driver of the economy – contributing an estimated 10% to GDP and employing over 6,400 people within the sector.
The gaming industry in Malta represents a shade over 10 percent of the country’s GDP, according to Heathcliff Farrugia, Chief Executive Officer of the Malta Gaming Authority (MGA). While directly and indirectly employing around 10,000 people in a workforce of just over 200,000. It is already big business, and the smart money is on it getting much, much bigger.
But with expansion comes responsibility and that is where the MGA comes in. With its vast experience, other EU members are looking to Malta as they seek to enact legislation themselves in an industry – as yet – not harmonised with inclusive European policy – something Mr. Farrugia sees as the next logical step.
How can the creation of a common EU rulebook protect European citizens further?
“Nowadays, international operators have a number of licenses from different EU jurisdictions, Why? Because they want to operate across Europe. Whilst a number of states are regulating on a national level, many are those who acknowledge that the industry per se is cross-border in nature. For the time being, such discussions are ongoing, but I believe that in the meantime – and this is very important – we shouldn’t stop from exploring best ways for collaboration. I would say that over 80 percent of what we do as regulators is very similar; we all want to protect vulnerable players, we all want to make sure that gaming is free from crime, and we all want to make sure that gaming is fair and transparent for those playing.”
Sweden enacted regulatory legislation at the turn of the year and in March signed a memorandum of understanding with Malta. A month later, the Swedish Gambling Authority had issued 69 gaming and betting licences – the majority to MGA licensees.
Malta’s position in the sector is already generating interest from UK companies who are eyeing the Brexit-shaped elephant at the digital poker table, while waiting to see what hand the British government is dealt by the EU.
William Hill has publicly announced the acquisition of Malta based operator Mr. Green, while British gambling operators in Gibraltar – which include industry giants Betfair, Ladbrokes and Bet365 – will not be leaving their regulatory status to the caprice of a dice-roll. Bet365 has recently confirmed its plans to relocate their employees from Gibraltar to Malta, all the while industry analysts have speculated on an unfavourable Brexit outcome which could spark a large-scale exodus of gaming companies based in the UK territory. Malta’s personal and corporate tax benefit schemes, coupled with incentives for companies to relocate, give a move across the Mediterranean a broad-based appeal.
Blockchain: the final frontier?
Last year, Malta became the first country to regulate DLT products and services – with Prime Minister Muscat referring to the country as the world’s “Blockchain Island”. The MGA subsequently issued guidelines for the development of a test environment by licensed gaming operators throughout 2019 – know as a sandbox- for the acceptance of Virtual Financial Assets and DLT.
Staying ahead of the game is as much a part of the MGA’s remit as ensuring a transparent and level playing field, something Mr. Farrugia is almost uniquely qualified to ensure. As well as spearheading Malta’s Gaming Act and streamlining the previous multi-licence system into a dual system for B2B and B2C services, the MGA is also at the forefront of tackling, perhaps, the industry’s final frontier: cryptocurrencies and what seems an inexorable shift towards blockchain technology.
As such, the MGA has rolled out a two-phase Sandbox Framework to provide a heavily monitored testing ground for the introduction of virtual financial assets and virtual tokens, as well as the use of Innovative Technology Arrangements (ITAs) within the gaming sector.
Diana Rotaru, COO of Blockchip, predicts virtual currency will become a game-changer in every sense with a potential annual impact on the industry just shy of the $50bn-mark, while also providing “security that simply cannot be rivalled by traditional technologies”.
Mr. Farrugia agrees: “It has the potential to revolutionise the industry. When we issued our sandbox guidelines we were approached and got feedback: 70 unique operators, either to blockchain or to gaming, were helping us, shaping and drafting the guidelines. It has generated huge interest. I have met people who believe ‘OK, blockchain will be the new gaming industry.’ But a new industry doesn’t happen overnight. I always tell them: ‘Guys, this industry took fifteen years, now it’s maturing.’ So we need to be cautious. We need to do it, but we need to do it properly to future-proof this industry. We could have rushed into this new technology – potentially a new industry – by cutting corners, by coming up with quick solutions; we did not do that.”
The Gaming Act, which passed into law in June 2018, is the first national legislation covering games of chance and skill, with the MGA applying a list of criteria to differentiate games that potentially pose a risk to players from others played for no stakes. Licences are assigned by the MGA accordingly, based on this dual criterion, offering another layer of security for gamers and licensees.
Anti-money laundering and “mystery shopping”
“If we want to protect players, we need to make sure that there is a new level of how players should be protected.” Mr. Farrugia – CEO of Malta Gaming Authority
Malta made headlines in 2018 following the arrest of Benedetto Bacchi, a reputed organised crime associate dubbed the “king of betting”. Media in Italy reported that a company run by Bacchi, Phoenix International Ltd, had run illegal operations on Malta-issued gambling licences. For Mr. Farrugia, the alleged scam served only to shine a light on the considerable efforts of the MGA to shut down such activity at source.
“For us, 2018 was a huge success story from that aspect. Why? Because all the companies or individuals mentioned in the Italian investigations were related; either to companies that were already suspended or had their licences cancelled by the MGA a year or two earlier, or as individuals who were already taken out of the gaming ecosystem by the MGA”, Mr. Farrugia says, adding that this no-nonsense approach does not extend only to cases that generate media interest: “Last year alone we cancelled eight licences and we’ve blocked over 70 individuals, from either entering the gaming industry, or else through ongoing monitoring.”
At around the same time as the Bacchi story broke, Malta enacted a fourth Anti-Money Laundering (AML) Directive, giving the MGA broad-ranging powers to check the veracity of the online identities of companies and individuals. “We interview the MLRO [Money Laundering Reporting Officer], we get a database extraction, and we look at the numbers of the customers. We make sure that they are checking what we call the source of worth and the source of funds, to ensure that that player actually has the money to play”, says Mr. Farrugia, adding that the MGA has already conducted 34 such inspections in 2018, and has 40 in the pipeline for 2019. His AML investigation unit, which is expected to grow in size this year, will also carry out “mystery shopper” checks: accessing the websites of operators and licensees without their knowledge.
If in an age of increased public concern about online privacy these measures seem draconian, the reality is that they are necessary to counter the threat posed by those who see the gaming industry – and particularly iGaming – as an open house for illicit activity. The MGA is simply performing a task that was once the remit of spotters on the floors and in the camera rooms of physical casinos, and that will eventually be best served, in Mr. Farrugia’s view, by EU-wide compliance. “If we want to protect players, we need to make sure that there is a new level of how players should be protected. If we all believe that European players need to be protected, then let’s agree on what we need to do to make sure that they are.”
