One swallow does not a summer make

The Sunday Times of Malta in its front page tells us how lawyers of accused Igaming companies are threatening to sue the gaming regulator for millions of euros after it irrevocably suspended their licence.

Quoting unnamed sources journalist Ariadne Massa states that “if the Italians who were extradited on a European arrest warrant are acquitted or there is not enough proof they could sue the regulator over its hasty termination of licences which resulted in a massive loss in business”.

On its part the gaming regulator, faced with suspicions of money laundering, states it had to shoot first and ask questions later, albeit any loss of Italian gaming business in Malta will sound like sweet music to competing IGaming jurisdictions which are alert to lure business to their shores.

Practitioners may ask – is this the start of an exodus of the business? Can one bad apple tarnish efforts by many who lobbied to attract gaming operators, starting at a time since 2000 when Malta did not even have bandwidth strength to match the speed and volume of high traffic that hit the airwaves – now with over 400 licences?

To start with, it is common knowledge that Big four audit firms refused to handle gaming clients although now they are eager, after the business started earning high heeled consultancy services. With hindsight one can attribute the success of the sector’s astronomical growth to the unstinting efforts of MGA’s officials, who in the past decade toured the world speaking at conferences and exhibitions to champion the cause of our unyielding regulatory structure.

Due to lucrative returns, it is no secret that many officials previously employed with the ex LGA are now private consultants to the industry pulling the right strings in an effort to attract blue chip companies. The law was promulgated in April 2004 and in a short period Malta attracted the attention of the crème de la crème of operators, pushing investors to add more bandwidth facilities.

Not a moment too soon, replies Alternativa Demokratika, who recently advocated that the provision of fiduciary services be rendered illegal in Malta. AD stated that “It seems that professional firms and the remote gaming authority did not carry out due diligence appropriately on ultimate beneficial owners of the companies they have registered and represented”.

Here one may disagree with its views since it is not fiduciaries who cover up for clients, knowing full well how disclosure is always demanded by banks, tax department, MFSA and of course Malta Gaming Authority(MGA) – the latter rigorously carries out third party checks on all applicants.

This is a slow process involving Interpol, which sometimes exasperates applicants who, acting through their local agent may take over a year to pass fit and proper tests, various probity checks, IT systems and compliance audits before they can start operating under one of the four licence categories.

These systems and compliance tests are commissioned by MGA and are run at the applicant’s expense through the service of independent auditors. During ten years of stellar growth there has been no similar incidence of a third country which extradited its nationals running licensed operations in Malta.

Still pontificating on the Italian saga Alternattiva deputy chairperson Carmel Cacopardo  called for an investigation by the Auditor General into the operations of MGA, to establish whether it was too lax when applying due diligence procedures as a result of which organised crime have allegedly (but not yet proven) established a foothold in our remote gaming industry.

Could this be termed a storm in a tea cup, given that the Italian authorities have not themselves terminated the licences of the suspect names in Italy, yet acting solely on its advice local authorities have swiftly frozen  bank accounts of six gaming companies, putting at risk hundreds of employees and unpaid suppliers.

Equally frozen are the millions of euro in player’s funds which are held in escrow. One suspects that partisan political bickering has run riot given that one of the legal advisors and a director to a suspect gambling company happens to be none other than the son of the influential ex-prime minister, Dr Lawrence Gonzi.

Upon reflection one contemplates how a tacit agreement was reached in the past 25 years among both parties to exclude unsavoury comments on matters involving the financial services industry. In times of adversity which may tarnish our reputation as a clean financial centre, one hopes that this agreement still holds – only united can we fight unfair comments.

Certainly having journeyed so far, we cannot afford to scare away the goose that lays the golden egg by shooting from the hip and not fighting those bent on tarnishing a solid reputation built so diligently over the past decades. Money laundering suspicions are serious stuff and if proved in a court of law then and only then may we hasten to freeze bank accounts and lay off workers after termination of operating licences.

In the past Malta had to resist strong comments from France which at that time was very jealous of its monopoly run by PMU on its citizens placing bets on horse racing. A classic example is that which occurred in 2005/6 when France’s PMU agency instituted a case:- PMU vs zeturf.com.

ZeTurf, a Maltese-licensed operator, lost its case and was ordered to shut down. It was ordered by a French court to cease taking bets on French horse racing by an interim order issued by the French tribunal in which ZeTurf Ltd was ordered “to cease on-line bet taking operations on horse races organised in France”.

On its initiative ZeTurf proceeded to sue the PMU in Malta and filed a complaint against both the PMU and France at the EU Commission. In the meantime the International Federation of Horseracing Authorities filed a complaint against what they call the totally inconsistent gambling policy of the Maltese government.

Not only did a French appeal court triple the daily fine against ZeTurf Ltd, but ZeTurf’s request to the French court to refer the matter to the European Court of Justice for a preliminary ruling was also turned down because the French court of appeal held that its law on the matter is not incompatible with European law.

Subsequently PMU sought to have the judgment recognised and enforced by the Maltese Courts, under the Council Regulation on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (EC 44/2001). It so happens that the First Hall of the Civil Court in Malta upheld PMU’s request and decreed that the French Appeals Court decision was to be enforced but later on the Court of Appeal ruled that the matter was of an administrative nature and therefore fell outside the remits of the EC regulation.

In the end the Maltese courts decided against the judgement by the French jurisdiction to suspend the licence of ZeTurf and force the payment of heavy fines, including that posted on the local Internet service provider. One may comment that the ZeTurf case is completely different from the European arrest warrants issued on alleged money laundering activities by six directors of Malta companies.

Yet one cannot omit to mention how in 2006 both the government and opposition showed solidarity with ZeTurf which was under attack. The morale of the story is that by its nature the online gaming industry is always labouring against primordial connotations of home grown taboos, yet to succeed it continues to accept legitimate bets across many EU countries and in the process this may meet with the chagrin of others since foreign punters are in turn reducing the gaming tax otherwise paid in their country.

There has been a number of fiscal issues of late particularly in UK which is claiming that tax has to be paid at point of consumption and not at the site where the operator is hosted and licensed. Equally changes in Vat tax have already taken place concerning electronic commerce, even so one expects a continuous vigil by countries to contest the legitimacy of our right to collect gaming and other taxes on bets originating here.

Some commentators may also try to bad mouth our nascent Igaming industry, which in less than a decade has broken all records and established itself as the queen of gambling in the Mediterranean. One hopes that this sad episode concerning the extradition of six Italians accused but not yet proven of money laundering and associated crimes will pass away and normality reigns again.

One swallow does not a summer make – the stellar gains achieved so far by smart regulation and the unrelenting solidarity of both political parties will augur well for a prosperous future. Our economic well being deserves no less.