The New EU Members: Malta

"The New EU Members" is a 10-part series providing information on the regulations and legislation, mainly on legislation and interactivity, of the gambling industry in the 10 countries that joined the European Union on May 1, 2004. This second edition to the series covers Malta.

The 10 new members are: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia. In total, the European Union now consists of 25 countries. When two more countries (Bulgaria and Romania) join in 2007, the European Union will have a population of nearly half a billion.

This single market opened up its borders, allowing people, goods and services to move around freely within the European Union. If goods, services, people and money are to move around freely within the single market, there must be rules to ensure fair competition. These rules are laid down in the E.C. Treaty.

In this E.U. arena, legislation discussed and introduced covers areas such as the violation of freedom of establishment, free provision of services, the E-commerce Directive, fair trade, the harmonizing of national laws, cross-border commerce, privatizations, money laundering, trademarks, telecommunications and more. Above that is the European Court of Justice, which overrules all national courts of the member states.

So the European Union has many tangent planes with the gambling industry. Further, more than 300 million European citizens abolished their own national currency as of January 1, 2002 and started using the euro (€) as a normal part of daily life. Countries adopting the new currency include: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

Malta

The Republic of Malta, at the heart of the Mediterranean, is an archipelago with three inhabited islands, 93 km south of Sicily and 288 km north of Tunisia. This strategic position has allowed Malta, with its capital Valletta, to develop as an important trading post. The Malta Freeport is one of the Mediterranean's leading container ports. The European Union is Malta's major trading bloc, accounting for around 63 percent of imports and 42 percent of exports. Tourism and financial and legal services are the other pillars of the economy.

With nearly 400,000 inhabitants--about 1,160 inhabitants per square kilometer--Malta is one of the most densely populated countries in the world.

Telecommunications Infrastructure

Maltacom, the successor of the state-owned telecommunications company Telemalta, created an International Network including two fully digital gateways, two satellite standard B earth stations (one transmitting to the Atlantic Ocean region and the other to the Indian Ocean region) and an optic fire submarine cable linking Malta to Sicily (Italy) and terrestrially extended to Palermo which is the hub of international submarine cables passing through the Mediterranean. The submarine cable carries voice and international private leased circuits over SDH, as well as IP traffic and is backed with a microwave link between Malta and Sicily. Maltacom plc owns IRUs on international submarine cables; these include CANTAT 3, RIOJA, EMOS, ODIN, FRANCE-ITALY, TRAPANIKELIBIA, SEA-ME-WE3 and FLAG (Fibre Optic Link Around The Globe).

DataStream Limited is Malta's leading broadband and data networking company and acts as the data services arm of the Maltacom Group. Its business is focused on three major segments:

business organizations requiring data communications and solutions;
IP services to Internet Service Providers; and
ADSL Internet retailed through ISPs.

The company's offering of data communications services and solutions ranges from single point-to-point connections to complex multi-site connectivity. Various technologies are used for such service delivery, including ATM, Ethernet, IP and DSL, using various transport infrastructures, ranging from copper to optic fire to wireless.

This extensive range of data services is offered through two suites of services: BusinessConnect and BusinessPlus.

As Malta's broadband service provider, DataStream delivers a permanent, fast and affordable broadband connection to the Internet. Through DataStream's ADSL Fast Internet services, offered through all Internet service providers, any person or organization can have high-speed, flat-rate-charge access to the Internet. The latest addition to the broadband Internet portfolio is the Breeze Pay-per-Use ADSL, providing access to the Internet for a number of hours per month at Broadband speeds without any fixed monthly fees. This is ideal for users who use the Internet for around one hour per day, would like to pay only for the time spent online and would like to control their spending on Internet access.

Specifically for operators in the Internet field, DataStream offers dedicated and direct IP connectivity to the Internet backbone via state-of-the-art technologies and using dedicated submarine optic fire infrastructure. It also offers additional services, such as address classes and managed IP services. The international IP bandwidth service, which gives service providers direct connections to major Internet nodes around the world, has been expanded to offer 620Mbps of bandwidth available for immediate use.

The company also offers specific services for local and overseas application service providers (including e-gaming companies), businesses requiring a particular service or content providers, as well as consultancy services on telecommunications requirements and how these can be integrated into an overall IT environment.

The privatization of the cellular market took place in 2000 and has had consequences for Vodahone, which was 20 percent owned by Maltacom. The privatization of the fixed telephones and the liberalization of international gateway services was realized in 2003. Vodafone Malta was then granted an international gateway allowing it to lay a high-capacity fire optic submarine cable between Malta and Sicily.

Vodafone Malta announced in May 2004 that it had started work on what was effectively Malta's second international gateway--a 10 million-euro investment that involved laying a high-capacity fiber optic submarine cable between Malta and Sicily. It has been operational since September 2004.

"Vodafone Malta's submarine cable is connected to the land transmission system for onward connection to Milan, where international carriers route all voice, data and Internet traffic to anywhere around the world," explains Kurt Camilleri, Malta Vodafone's senior manager responsible for the bandwidth business. "This second international gateway, linking Malta to the rest of the world, greatly enhances the country's international telecommunications infrastructure, and is an important incentive to local and foreign investors - especially, but not only, those in information technology, e-gaming and software development. There is no doubt that the new Vodafone gateway gives Malta a safety factor which it did not benefit from before.

"Vodafone's new international gateway has an initial capacity of 2.5 Gbits/sec (or, 2,500 megabits/second), which is voice and IP data (Internet services) with 40 Mbits/sec for voice and 230 Mbits/sec for data. In addition, the cable has the potential to increase the capacity to over 1 Tbit/sec, making the system future proof in terms of capacity expansion. The submarine cable was installed for Vodafone by Alcatel and spans approximately 250 km between Malta and Catania, and at a maximum depth of 3,200 meters. Equipped with armored steel protection, the cable is designed to withstand the harshest sea environment."

The Legal system

Olga Finkel, a partner with Valletta-based Gatt Frendo Tufigno Advocates (GFT), provides the following synopsis in Internet Gambling Report:

The legal system in Malta in business-related matters is a synthesis of civil law foundations and UK-based commercial legislation. Malta's tax framework, which has been declared by OECD as not being a tax haven, is in line with major EU directives. The jurisdiction has high regulatory and anti-money laundering standards and a comprehensive framework for financial services, regulated by the Malta Financial Services Authority (MFSA). There are also strong professional secrecy and confidentially laws, imposing the obligation on confidentiality on lawyers, accountants, as well as on MFSA and the Gaming Authority.

Finkel, who heads GFT's gaming and betting practice, adds this historic overview:

Gaming in Malta has been subject to regulation as from 1932 when the Public Lotto Ordinance was promulgated. The Public Lotto Department had been solely responsible for regulation and operation of games until 1998.
The review and modernization of the gaming laws began in 1998 with the Gaming Act 1998. The general trend has been to streamline legislation in order to adapt it to the needs of the gaming industry and, at the same time, to secure credible and certain regulatory regime for responsible gaming. The Act provided for licensing of certain types of gaming operations and established a new regulatory body - the Gaming Board for Malta.
Moving ahead with the industry and responding to the new technological advances utilized by the industry, online gaming was addressed for the first time by the legislation in 2000: subsidiary legislation issued in February 2000 introduced regulation of the establishment and operation of betting offices. Thus, it became possible to obtain a license to operate an online betting office under a set of rules and regulations.
Completing the legislative restructuring process, the Lotteries and Other Games Act (LOGA) was approved by Parliament in 2001. It is an all-encompassing law, which provides for the regulation of all gaming operations, except land-based casinos, which remain regulated under the Gaming Act 1998. With LOGA coming fully into force numerous legislative instruments regulating at this time various aspects of gaming in Malta, will become repealed. The only exception is the Gaming Act, which shall continue to be in force.
Aiming at strengthening and consolidating the existing regime and responding to the realities of the industry, in October 2002 the Gaming Authority announced that the regulatory regime would be further developed. The new Remote Gaming Regulations have now been finalized and came Officially into force on the date of publishing on the April 20th, 2004.

The new regulations introduced new classes of licenses, in particular, for gaming (casino-type games), platforms and betting exchanges, while strengthening the regulatory regime to ensure protection of players and players' monies, thus further reinforcing Malta's reputation as a serious and credible European jurisdiction, attracting reputable operators to Malta.

As to the institutional framework for gaming, the LOGA established a new regulatory body, the Lotteries and Gaming Authority (LGA), as the gaming regulator for Malta. The LGA recently launched the Remote Gaming Council (www.mrgc.org.mt), which is fully operated by the operators, ISP providers, legal and financial advisers.

Further, there is the Malta Financial Services Authority (MFSA), which is involved in regulation and registration of companies, including gaming companies.

Corporate Vehicle for Remote Gaming

To establish an online gaming operation in Malta (i.e. one in which gaming transactions take place in Malta), a prospective licensee must set up a corporate vehicle for its operations. In cases in which more than one class of license is required, a corporate vehicle must be set up for each license.

Remote gaming/betting operations must be established through a limited liability company registered for this purpose in Malta. The company may or may not be constituted as to fall under the class of companies known as "international trading companies" (ITCs). Two basic requirements must be satisfied for a private company to qualify as an ITC:

Its beneficial owners must not be resident in Malta.
It must not offer its services in Malta.

(In practical terms, the second requirements means that a gaming/betting company may not offer its services to players in Malta. However, Maltese citizens can participate in authorized games, and it is the choice of the operator whether to offer such games to Maltese citizens. If the company does offer its services to Maltese citizens, its corporate tax is 35 percent on profits. If it does not, its corporate tax is effectively 4.17 percent.)

The advantage of incorporating a company as an ITC is that beneficial owners of an ITC can avail themselves of important fiscal advantages, drastically reducing the effective rate of tax when comparing to using a non-ITC setup. The disadvantage of having an ITC, which in most cases is perceived as non-material, is that the target markets for the ITC gaming operation should exclude the Maltese market.

Licenses

The Remote Gaming Regulations extended the licensing regime to cover general gaming, betting, betting exchanges and casino platforms. Four types of licenses are available:

Class 1 - Remote gaming license (covers casino and casino-type games).

Class 2 - Remote betting office license or an online betting exchange office license.

Class 3 - License to promote and/or abet remote gaming from Malta.

Class 4 - License to host and manage remote gaming operators, excluding the licensee himself. (The gaming platform license covers gaming platforms from which gaming operators can run.)

A license of any class is granted for a period of five years and may be renewed thereafter for periods of five years.

Licensing Procedure

The licensing procedure is essentially a two-phase process, upon successful completion of which a letter of intent (i.e. a provisional license) is issued by the Gaming Authority. This is followed by certification of the operation, which should normally be carried out within six months from the obtaining of the provisional license. Upon successful certification, the five-year license is issued.

During phase one, a prospective licensee submits an application form and provides detailed information about the proposed business and persons involved in the proposed operation. The information submitted forms the basis of the due diligence process carried out by the Gaming Authority, evaluating the suitability of the applicant for the grant of the license.

Information that an applicant must make available to the authority includes personal background of the promoters, financial information, participation in other commercial ventures, details of the proposed operation, business reputation, description of the system to be used for the gaming operation and other information. In determining whether to grant a license, the authority takes into considerations a number of factors, including the financial background and business reputation of the shareholders, directors and promoters, whether the applicant will be, in the opinion of the authority, in a position to maintain adequate financial reserves during the course of the business, the commitment of the applicant to maintain a physical presence in Malta, whether the applicant will be in a position to take steps to prevent money laundering and other illegal operations, and other factors, whether the applicant demonstrate business and technical ability to carry out the operation. Provided all necessary information is submitted, the first stage is normally completed within two to three weeks.

The ability to carry out operations and the gaming system are assessed during phase two. The system must be such as to ensure proper functioning of all games/betting procedures, system and application architecture, security and controls on the gaming operation, rules of the games, including accounting procedures, computer security of gaming transactions and general procedures and standards used for recording transactions. This stage normally takes about three or four weeks, and upon successful completion, the applicant is issued a provisional license. A very important consideration for the Gaming Authority when assessing a license application is player protection.

Certification of the Gaming System

The new regulations introduced the requirement of certification of the online gaming system. The licensee can choose whether to use the certification services provided by the Gaming Authority or by a third-party organization approved by the Gaming Authority. Certification does not involve source code testing, but focuses on checking procedures as provided under ISO17799 standard, which is used as the basis for certification. Certified RNGs need not be retested, provided that the certificate includes details of their acceptable level of randomness. Certification must be carried out within six months of the issuing of provisional license.

Certification is required for every licensee except a Class 1 licensee, who runs on a platform, which is licensed in Malta under a Class 4 license and already certified. Prior approval must be obtained for any material change to the gaming system after certification.

Gaming License Fees

The license fees are established by the new regulations as follows:

Application Fee - The Application fee for a new license of any class is Lm1,000 (around 2,300 euro) and is payable together with the submission of an application for the license. The fee for the license renewal is Lm500 (around 1,150 euro).

Annual Fee - The annual license fee, for any class of license, is Lm3,000 (around 6,900 euro).

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