Q & A: Michael Frendo, Gatt Frendo Tufigno, Advocates

The Malta Lotteries and Gaming Authority last month made public its intentions to formulate a new licensing regime for online gambling in Malta. If all goes as planned the first I-gaming licenses will be granted in the first quarter of 2003.

The country has had land-based gaming for decades and began hosting regulated online sports books in 2000. In December 2001, parliament passed an all-encompassing law superceding laws previously applied to online gambling. It also mandated the creation of the Lotteries and Gaming Authority.

IGN discussed Malta's new direction with Maltese lawyer and parliamentarian Dr. Michael Frendo at the European I-Gaming Congress & Expo.

IGN:Can you offer a brief review of where things stand in Malta right now?

Dr. Michael Frendo: The gaming authority has now been set up. It's at the state where it has advertised for a CEO, so for the first time, we have a one-stop center of this sort. The gaming authority works with the multi-financial services operant. The multi-financial services authority up until now has given its services to the gaming authority by being the due-diligence entity. Basically, all the betting is done by the multi-financial services authority, and once you get the go-ahead then you can carry on with your procedures for licensing.

This year, the new Lottery and Other Games Act, which gave rise to the Lottery and Gaming Authority, has started to become operational. This basically covers all sorts of games, which can be licensed. There is still a prohibition for Maltese residents to take part in online gaming, so most of this concept is to operate from Malta, but not in Malta. In any case Malta is 100,000 people.

IGN: Is there a casual betting clause as well?

MF: Yes, there is a law which says you can't play. You can play only in the licensed areas in Malta. You can play in a land-based casino, you can play in a licensed bingo hall now because bingo halls are being licensed formally, you can play the lottery, but you can't play online yet. So, that's the situation at the moment.

Malta went in a natural progression towards gaming. It went from sports betting (fixed odds) to pool betting, betting on financial markets (accept on the Malta stock exchange) and now it's basically saying we're also going to (allow) all sorts of interactive gaming--with online casinos, casino-style games, betting exchanges and the whole gambit of games which you can have.

IGN: So at the moment the only gambling online in Malta is sports betting?

MF: Yes, at the moment we have sports book operations, which are operative in Malta, some of which have grown into really strong companies, most of which are with specific markets using Malta as a base, using the telecommunications, using the rental facilities and the mobile office facilities and also the employment pool, which you have in Malta because you have a high level of education, including people who are trained and graduates in IT.

IGN: Have formal I-gaming regulations been brought to the table or are they still under development?

MF: There's a commitment now by the Lotteries and Gaming Authority, and it's a public commitment made in a public statement on the 14th of October, that by the end of this year they will have the rules in place and that by the beginning of next year they will start issuing licenses for online gaming.

The rules can be formulated because the law which was passed in parliament last year (and became operant this year) is a framework law. So it enables the minister to issue legal notices, and in those legal notices you have the rules and regulations.

IGN: We'd been hearing for several months that Malta was going to move forward with online gambling. Were there delays?

MF: Malta wanted to progress towards this, but it wanted to do it with a certain level of caution. There's a learning curve. And one should not underestimate that Malta is a financial services center offering onshore financial services to companies and to individuals. And, therefore, it's important that whatever happens in the gaming area dovetails with the financial services sector. That's the product: gaming, financial services, telecommunications. There's a concept of a product here; it's not just gaming on its own.

IGN: Does this approach give Malta an advantages over competing small jurisdictions?

MF: One of the advantages, I think, is that Malta is an independent nation state, which practically differs from most of the smaller jurisdictions, although some of them have that sort of status as well. It's a nation state that's becoming a member of the EU, so it's a European jurisdiction, it's a sovereign state and it's a place where you can base your business and where the people working in the business have got a very active social life, where there is an active social and cultural life... It's a jurisdiction which receives 1.2 million tourists. It's one hour away from Rome, two hours away from Frankfurt.

So it's not just the legislation. It's the legislation, it's the tax incentives and I think it's the general atmosphere of doing business. It's a very western-type of business ethic, which you get in the middle of the Mediterranean. It's an English-speaking country, with English being one of the official languages. All of this adds up into a product. Whether this is better than other jurisdictions depends on who is making the investment.

IGN: Will the proposed 0.5 percent I-gaming tax apply to all types of betting or will there be variation?

MF: Up until now it's across the board for all types of betting, but I think the commitment which we saw in the press announcement shows there's going to be a revision of all the framework. We should be seeing how this is going to develop in the future. It started as 0.5 percent; I think this is very attractive for companies setting up and it was better off at the time when it was started than the situation in the U.K. then. But then the U.K., changed its position, of course.

I think one has to see what the regime is going to be. For example, for person-to-person wagers... you can't apply that. You can't apply that for casino-style games.

IGN: This appears to be the first license available specifically for person-to-person betting exchanges. How is this being approached?

MF: It is something that they're looking at, and I think there will be specific regulations. What's developed in person-to-person is... it was not even possible for this to be part of the betting sector, legally at least. But, people are waking up to the fact that it's part of the betting sector.

IGN: Will there be a blanket license for multiple types of gambling or will there be individual licenses for each type of gambling allowed?

MF: At the moment it's for each type. Let's imagine I have a sports book license and I want to develop into pool betting. What happens is that you send a letter to ask for the license to be extended to that sort of activity. There is no fee; it's extended by letter and by acceptance.

IGN: Is Malta going to target the big-brand operators?

MF: I don't think so. I don't think that this is something which is a conscious policy decision. The Isle of Man made very specific decisions, I think Alderney as well wants the big players. I think Malta is a jurisdiction that wants serious players, whether big, small or medium. I think what's important is that it retains its reputation as a credible jurisdiction. That's extremely important, more so than the size of the operator.

IGN: Will there be any limits on the number of I-gaming licenses granted in Malta?

MF: Not as yet. We have no indication they will have limits on the number of licensees. The people setting limits on the number of licensees, as you know, keep on extending those numbers when they need them, so I don't think it has much credibility saying that you've set a limit.

IGN: The government has made it clear that players in Malta will be off limits to operators located there. Will players from any additional jurisdictions be off limits as well?

MF: The operators and licenses are asked not to offer their services to U.S. residents. That's as far as it goes. Obviously, we know the issues which exist in the U.S., so the people who are licensed by Malta cannot offer their services to the Maltese and also to the U.S. This has been going on for sports betting. I would expect that it will be also for all other types of gaming.

IGN: Regarding the regulations yet to be written, is there as a model policymakers are looking to follow?

MF: I am informed that it will most probably be a European model. The most important thing, though, is there will be a limit to the bureaucracy. It will be easy for the operator to function and it will have the necessary regulations to ensure it's a serious jurisdiction, to make sure that everything is in order and that the consumer is protected.

IGN: The Minister of Finance will have clearance to create money laundering policies specifically geared for I-gaming businesses. Do you think there will be a need to do so?

MF: I think the general (money laundering) regulation is quite strong in any case, so I can't see the minister necessarily making use of those powers. Those are residual powers. The general money laundering provisions are very clear. Malta has been very strong in this. It is an OECD-approved jurisdiction. Malta's been quite active in the OECD on these issues. It's also protective on harmful tax issues. I think the residual powers of the minister will remain there, but I see no particular need for him to use them.

IGN: Is the purpose of these powers to act quickly if necessary?

MF: That's the usefulness of a small jurisdiction. The government can act quickly, the framework law is in place, the minister has the powers to do that.