Malta’s iGaming industry comes under scrutiny in Forbes piece

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Malta’s iGaming industry made it to the prestigious Forbes website for all the wrong reasons on Monday as the subject of an article which decried the industry’s ties to the Daphne Caruana Galizia murder and to organised crime in Italy.

The piece, written by Forbes contributor Will Nicoll, speaks about how Malta transformed itself from a “sleepy tourist spot to international gambling mecca”, becoming the first EU state to regulate online betting and being able to generate billions in tax revenue and offering companies tax breaks at the same time.

Now, however, the piece notes, Malta’s gaming industry is a cause for concern.

“Against the backdrop of the public inquiry into the assassination of journalist Daphne Caruana Galizia, Malta has been rocked by a series of scandals this month, which saw the Malta Gaming Regulator’s former anti-corruption tsar charged with corruption. Meanwhile, anti-mafia prosecutors in Italy allege that the Malta Gaming Authority-licensed site RaiseBet24.com laundered $74.2 million for the Cosa Nostra”, the piece reads.

“Malta’s gambling problem did not fully surface until 2017, when a series of devastating accusations against the island’s institutions and politicians emerged. In May 2017, whistle-blower Valery Atanasov, who had been dismissed from the MGA, showed Reuters email exchanges that demonstrated that the regulator had broken its own rules between 2012 and 2014. Atanasov told the news agency that Malta’s lax supervision of betting companies “creates conditions that allow suspicious financial operations, money laundering and other criminal practices’”, it continues.

The same month, 150,000 documents about Maltese companies and institutions were leaked. The independent Brussels-based NGO JournalismFund.eu called “The Malta Files” a roadmap to “how the smallest EU country became a haven for global tax avoidance.”

The piece continues by saying that by 2018, Bloomberg reported that the European Union was furious with Malta – which the outlet termed “a cryptocurrency and online gambling hub plagued by allegations of corruption and money laundering.”

“An EU delegation dispatched to investigate reported an atmosphere of fear on the island, where organized crime was said to operate with impunity”, it reads.

It cites a Times of Malta report from last week which stated that former MGA CEO Heathcliff Farrugia was to be charged with corruption for providing commercially sensitive information to Yorgen Fenech as an example.

The article continues by delving into allegations that the Italian mafia had laundered millions through Maltese betting companies.

The Italian Anti-Mafia Directorate’s “Operation Double Game” saw law enforcement bodies in the Italian region of Catania authorize the investigation of 336 individuals, resulting in 23 arrests across four regions of the country. Assets worth $95.8 million were frozen in three countries. This was the second such operation to show millions of dollars in laundered money passing through Maltese betting companies from Italy alone, the piece reads.

“Italian prosecutors state that RaiseBet24.com operated as a simple laundromat for one of the most feared families in the Cosa Nostra, who created a veneer of credibility and access to financial institutions by gaining a gaming license from the MGA”, it continues.

Prosecutors allege that the Cosa Nostra eschewed credit card payments and insisted on informal cash bets taken from gamblers to lay bets by gambling premises instead. The practice of receiving sports bets in cash is illegal but relatively common in Italy, and tolerated by some land-based operators in other parts of Europe.

This system would have allowed the Cosa Nostra to create a payment collection system, where gambling funds were collected directly from the owners of gambling premises as foldable currency to the mob, it adds.

The article also cites investigations published by the Black Sea and MaltaToday into billionaire Oleg V. Boyko where it was reported that Boyko used Maltese companies to pay extremely low tax rates on $69 million in profits during 2011-12, amounting to just $2.7 million.

Boyko paid the correct tax calculated in Malta and is not alleged to have broken any law.

“Malta can now choose to subsist via the offshore and gambling sectors – while angering its fellow EU members – or it can choose reform and diversification, which after a 17-year addiction to gambling revenue would leave an enormous hole in the country’s budget”, the Forbes piece reads.

“The outcome may hinge on which new revelations emerge during the inquiry into Daphne Caruana Galizia’s murder”, it concludes.

In a statement sent to The Malta Independent following the publication of the article, the MGA objected to the Forbes article, saying that it contains “a number of factual inaccuracies and presents a misleading portrayal of the MGA.” Their reaction is reproduced in full below:

The article makes reference to ‘Operation Double Game’, carried out by the Italian Anti-Mafia Directorate (Guardia di Finanza), where it is being alleged that ‘the Malta Gaming Authority-licensed site RaiseBet24.com laundered $74.2 million for the Cosa Nostra’. The press release issued by the Guardia di Finanza mentions the involvement of a Maltese company; however, we can confirm that the URL raisebet24.com does not belong to a company that holds a licence issued by the MGA. 

The article then goes on to make reference to unfounded allegations made by an ex-employee of the MGA (Valery Atanasov). Mr. Atanasov held the role of IT Administrator within the MGA and in his role he had limited knowledge and oversight about the Authority’s regulatory procedures. Mr. Atanasov’s allegations centred around an outdated process called ‘sealing’, a legacy and internal (non-critical) procedure which has since been discontinued in light of technological developments and innovations e.g. cloud solutions. On the other hand, the process of tagging (of equipment) was retained for inventory control purposes. 

The Authority employs various other procedures which include third party technical audits and spot checks, data extractions, 24/7 CCTV monitoring at data centres, and verification of replication procedures for data not hosted in Malta. This provides the Authority with sufficient assurances and capability to conduct its supervisory functions effectively including any potential tampering with equipment. 

The Authority also audits its licensees information security procedures and processes against an internal manual largely adopted from international technical standards such as ISO 27001. This provides far more comprehensive protection than any physical sealing. It is pertinent to point out that servers can also be located overseas in line with the freedoms established under the EU treaty and hence the shift in ensuring that such servers are located in ISO certified data centre facilities having world class standards including ongoing surveillance and 24/7 CCTV monitoring. 

Amongst the other inaccurate assertions being made by the article there is also the claim that: ‘The Malta Gaming Authority issued licenses that delivered tax receipts of more than $1.4 billion in 2019 – a sum equivalent to 12% of the nation’s entire GDP.’ As published by the Malta Gaming Authority in its Annual Report for the year 2019 (which can be found here), the MGA collected €81.7 million in compliance contribution, licence fees, levies, and consumption tax which is a far cry from what is being asserted in the article.

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