January 19, 2023
- Dr. Kyle Scerri, Manager: Gaming and Fintech, CSB Group
Impact of grey listing on Malta-based gaming companies
It lasted only a year but had a profound impact on the reputation and operations of gambling companies licensed in Malta. Dr Kyle Scerri and colleagues explore the legacy of FATF grey listing
On June 23, 2021, the world of gaming was rocked by the news that Malta where many industry players hold licenses, was being placed onto the list of countries requiring increased monitoring by the Financial Action Task Force, the global money laundering and terrorist financing watchdog of the G7 group of nations. Malta became the first EU member state to be placed on the so-called grey list. While no mention was made of gaming, the move sparked concerns that the industry would find itself cut adrift from international partners and international banking. After a year of action and lobbying, Malta was taken off the grey list, but lessons are still being learned about what led up to the change of status, how the country and the industry reacted and how such challenges can be avoided or mitigated elsewhere.
Background and Context
The Financial Action Task Force (the ‘FATF’) is the global money laundering and terrorist financing watchdog. The FATF issues ‘Recommendations’ and several jurisdictions commit to implementing them into their regimes.
As part of the FATF’s monitoring process to ensure compliance with its international standards, the FATF issued the following:
- Jurisdictions under Increased Monitoring (Grey List), here the FATF identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with the FATF to address those deficiencies; and
- High-Risk Jurisdictions Subject to a Call for Action (Black List), here the FATF identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the jurisdictions forming part of the Black List.
On the 23rd of June 2021, the FATF placed Malta under increased monitoring as part of a process to ensure that it addressed specific remaining deficiencies in its anti-money laundering and countering the financing of terrorism (AML/CFT) regime. This process is often referred to as having been grey listed.
Jurisdictions which are grey listed by the FATF are considered to be non-reputable. A non-reputable jurisdiction is defined under Article 2(1) of the PMLFTR (Prevention of Money Laundering and Funding of Terrorism – Subsidiary Legislation 373.01), as follows:
any jurisdiction having deficiencies in its national anti-money laundering and counter funding of terrorism regime or having inappropriate and ineffective measures for the prevention of money laundering and the funding of terrorism, taking into account any accreditation, declaration, public statement or report issued by an international organisation which lays down internationally accepted standards for the prevention of money laundering and for combating the funding of terrorism or which monitors adherence thereto, or is a jurisdiction identified by the European Commission in accordance with Article 9 of Directive(EU) 2015/849.1
The three recommended actions which the FATF felt were not being addressed by Malta relate to the following matters:
- The accuracy of available beneficial ownership information on Maltese Companies;
- The sanctioning of companies and company gatekeepers for failings related to the obtaining of beneficial ownership information; and
- The generation and use of financial intelligence in investigating and prosecuting tax evasion and related money laundering.
To be removed from the list of jurisdictions under increased monitoring Malta had to address the identified deficiencies and essentially implement the FATF’s Action Plan. The Action Plan involved a number of reforms and improvements.
In line with the aforementioned action plan, Malta made the following reforms:
- continuing to demonstrate that beneficial ownership information is accurate and that, where appropriate, effective, proportionate, and dissuasive sanctions, commensurate with the ML/TF risks, are applied to legal persons if information provided is found to be inaccurate; and ensuring that effective, proportionate, and dissuasive sanctions are applied to gatekeepers when they do not comply with their obligations to obtain accurate and up-to-date beneficial ownership information;
- enhancing the use of the Financial Intelligence Analysis Unit’s (Maltese government agency responsible for the collection, collation, processing, analysis and dissemination of information to combat money laundering and the funding of terrorism abbreviated to the ‘FIAU’) financial intelligence to support authorities pursuing criminal tax and related money laundering cases, including by clarifying the roles and responsibilities of the Commissioner for Revenue and the FIAU; and
- increasing the focus of the FIAU’s analysis on these types of offences, to produce intelligence that helps Maltese law enforcement detect and investigate cases in line with Malta’s identified ML risks related to tax evasion.
Exactly one year later, in June 2022, after a significant process to address the said deficiencies which were identified by the FATF, Malta was successfully removed from the grey list.
Effects of the grey-listing on the iGaming industry in Malta
Malta’s regulation of gaming was not specifically targeted and nothing actually changed regarding the strength of the regulated environment that Malta offers. However, despite the iGaming industry not being specifically targeted by the grey-listing, it certainly came as an unwelcome surprise to the iGaming industry with a number of undesirable ripple effects. Many viewed the negative consequences suffered by the iGaming industry as severely unjust and unfair as it is very clear that misdemeanours on the part of the iGaming Industry did not lead to the inclusion of Malta on the FATF’s grey list.
In 2004, Malta became the first EU Member State to enact comprehensive legislation on remote gaming, and Malta is considered as one of the foremost tried and tested jurisdictions in the world. With such a well-established, comprehensive regime, the iGaming industry in Malta has blazed a trail by continuously improving compliance standards and setting the standard on a global platform, especially within the past five years. The industry and the Malta Gaming Authority have worked tirelessly together to continuously raise the bar. Therefore, such negative consequences were seen as unjustified – many would go as far to say that the iGaming industry was the victim in all of this.
Operational Impacts – Complications with Foreign Banks
The iGaming industry experienced immediate operational consequences as soon as the grey-listing was announced. Banks and financial institutions across Europe responded to the grey-listing immediately. The grey-listing increased the risk profile of the gambling industry but it has always been considered a high-risk industry for banks and financial institutions. During the grey-listing period for Malta, there was the compounding impact of a high-risk industry located in a jurisdiction that is seen as high risk.
Banks and financial institutions based in other jurisdictions began requesting more documentation with stringent deadlines and applied enhanced due diligence measures towards Malta-based companies before approving most transactions in and out of Malta. In addition, many Malta-based companies found it increasingly difficult and cumbersome to open bank accounts in foreign jurisdictions as they were met with unrealistic requests or simply refused outright. Such reactions led to many operational difficulties for the iGaming industry with major delays from an operational perspective and additional costs which were not anticipated, putting pressure on cash flows for both small and larger businesses.
Grey-listing is a complex process and the few items that Malta failed on were very specific and technical. However, whilst only relatively few individuals fully understood the specific details of such a process, everyone saw the news and lurid headlines and this created a negative effect by association which undoubtedly led to complications when it came to attracting new business partners, new businesses relocating to Malta, recruiting new staff members and attractive foreign investment.
Gaming is here to stay
Malta as a jurisdiction has worked tirelessly to build a strong and resilient gaming hub. Gaming companies that are based in Malta have very deep roots within the jurisdiction, and it certainly would not have made financial sense for them to change that. As expected, we did not see companies leaving in a mass exodus from Malta as a result of the grey-listing.
Actions from the MGA
The MGA viewed the grey-listing as a major reputational issue. The MGA’s overriding objective is to provide players with a playing environment which is safe, fair and free from crime. Malta offers a strong regulatory framework and the MGA never wants businesses to be in a position where being regulated in Malta makes it difficult for them to carry on. If that does happen, then players are pushed towards a more risky environment which would be completely at odds with what the MGA has set out to achieve. The MGA’s aim throughout all of this was to strike a balance: getting Malta off the grey list whilst supporting those regulated businesses and easing any problems they were facing.
Reaching a balance was difficult as the MGA wanted to ensure that markets remain open and consumers have a wide choice, while at the same time regulating those freedoms in a way that is safe and fair. To assist with the practical issues faced by regulated businesses in terms of banking and monetary institutions, the MGA had a large part to play. The MGA set up a division dedicated to outreach and they were speaking to the international partners of local licensees as part of a process which started before the grey-listing. The MGA shared best practices and explained Malta’s regulatory processes, the monitoring program over licensees, the compliance and licensing process, due diligence and the MGA’s AML overview. These efforts meant the MGA was able to help ease the effects of grey-listing on local and international banks and international partners.
Malta was officially removed from the grey-list in June 2022 after implementing a long list of changes to the way it combats tax evasion, collects information on ultimate beneficial ownership, and the way it shares information with local and international authorities. These issues were at the heart of a FATF action plan which Malta had to implement before being given a clean bill of health by the global anti-money laundering body. Moving forward, Malta is tasked with continually proving that it is committed to keeping up the current pace of reforms.
We do not consider that there has been any significant long-term damage suffered by gaming companies with a connection to Malta as a jurisdiction during the grey-listing period. We believe that this is mainly due to the fact that it is clear that the iGaming Industry was not specifically targeted by the grey-listing and did not cause the grey-listing. This is due to the high standards of safeguards in place within the industry over the years in conjunction with the FIAU and MGA’s rules and guidance – a clear testament to the continued commitment which the iGaming Industry in Malta has to making gambling safer and ensuring a high standard of compliance.
Since Malta was been removed from the grey list in June 2022, we have seen a dramatic improvement with regards to iGaming company’s relationships with banks and attracting new business. Whilst banks continue to ask for appropriate due diligence documentation, it is apparent that the pressure being applied has eased with less burdensome compliance processes and improved lines of communication. Furthermore, we have noticed that the grey-listing topic is now considered to be ‘old news’ when it comes to conversations to attract new business. It is no longer the prominent topic that it was during these conversations and seems to be viewed by many as a challenging time which the iGaming Industry in Malta endured and overcame.
We see that Malta continues to be a jurisdiction of choice for the iGaming Industry and rightly so. Malta has positioned itself as one of the few platinum-standard licence regimes. Having been in the iGaming industry for over 20 years, Malta has seen the market dip, revitalise itself and evolve. Consequently, as a regulator, the MGA is vested with a great depth of knowledge and knowhow when it comes to dealing with operators and the business reality of remote gambling. This is reflected not only in its understanding of the ever-evolving iGaming industry but also within Malta’s gaming legislative framework.