It's wild out here

Over the last few years, Malta has managed to make a good name for itself in the world of remote gaming. When the Maltese government set up the Gaming Authority it started practically from scratch. The Gaming Authority began to take part in international gaming exhibitions and conventions, at a time when most were sceptical about the lucrative potential of this area of business. It was a good move and a forward-thinking one. Back then, not even the many professionals who now join the Gaming Authority at these international gatherings imagined that remote gaming would turn out to be such a big thing for Malta. Because it doesn't get much media coverage, people outside the business don't even know what a huge growth area it is.

Today, law firms, accountants, financial intermediaries, data centres and even real estate agents are benefiting from what is a thriving industry - and, of course, it has a trickle-down effect in the economy of the country. Remote gaming brings in money without the deleterious effects of large-scale manufacturing. There is room for improvement, of course, but the general verdict is that this is a resounding success.

The same cannot be said for Malta's land-based gaming operations. The picture here is completely different. We don't have a good reputation, but a bad one. Chaos reigns, there is no social responsibility and tax evasion is rampant. While other areas of business are subjected to increasing amounts of regulation and control, gaming machines - one of the business areas most in need of strict regulation - remains uncontrolled. This is not just a bad thing because of the social effects on vulnerable people and underage players, but also because the government is losing millions of liri every year in tax revenue from earnings that slip past unnoticed. Based on my own extensive experience and research in this area, I estimate the government is losing over Lm10 million in direct gaming tax.

The government has sat on this one and is procrastinating about taking decisions. I am beginning to worry that pressure is being brought to bear by those who have a direct or indirect interest in keeping the situation the unregulated mess it is today. Hundreds are benefiting from the status quo, unethically, immorally and, in the case of tax evasion, even illegally. But if the situation is controlled and the industry is subjected to licensing and taxation, then the whole country will benefit. In looking the other way when faced with this escalating problem, the government is being fiscally and socially irresponsible.

The regulations for video lottery terminals (a form of controlled gaming machine) have been on the cards for so long now that they are probably covered in an inch of dust. When somebody finally does something about them, they will replace the antiquated amusement machine regulations (LN43/88) that now apply. Those regulations never made any sense to start with and they are not enforceable. No wonder Malta's land-based gaming, in direct contrast to remote gaming, is a Wild West of cowboy operators, home-made machines, exploitation and tax evasion. In December 2001, Parliament approved the Lotteries and Other Games Act (Chapter 438). Things were supposed to happen. Instead, they went into a deep sleep that has now lasted six and a half years.

Malta has a long history of being unable to handle and control this sector. This is odd, given that almost every other area of life here is tightly monitored and subject to stringent regulation. We live in a country where we are obliged by law to pay a licence for television sets for personal use in our private homes - but then operators don't have a licence for the gaming machines they operate. There have been gaming machines in Malta since the 1960s. They are not a recent phenomenon. What is recent is the growth explosion thriving on the fact that this is one area where you can go into business without having to become entangled in bureaucracy. Yet, it is one of the fields where bureaucracy really should come in.

Unbelievably, up to 1988 the area was completely unregulated. The first legal framework was put in place in 1988, some months after the Nationalist Party was elected to government. Legal Notice 43/88 was hopelessly inadequate and 20 years on it is even more so, but, at least, it was something. Yet, instead of building on it, subsequent governments have left us to cope with its sore inadequacy for almost two decades. These regulations allow up to three amusement machines to be operated on any premises that are licensed by the Commissioner of Police. Even this point is at issue: at that time, the Commissioner of Police was the source of all licences, but as Malta has evolved this is no longer the case. Over the years the technology has changed considerably. The innocuous amusement machines of the past have evolved into sophisticated equipment.

The Gaming Authority and the government have given us their word for change, but so far we are left with nothing. The government has even projected income from the licensing of this sector in several budgets since it approved the Bill for the new legislation. It projected the income before it enacted the legislation - a spectacular feat of roundabout thinking.

When the government does regulate, there will be at last much-needed control over all operations, operators and stakeholders in the sector. There will be absolute fiscal accountability, when at present there is none. Today, there are over 12,000 gaming machines in places accessible to the public. The vast majority of them are cobbled together from parts. The reason is that reputable international suppliers are refusing to sell to Malta, precisely because the area is grey. They operate in a tightly-controlled environment and are permitted to sell only to those who are licensed. I estimate that legislation will bring the number of machines down to a maximum of 2,000.

A regulated and controlled environment will curb abuse and illegal gambling, safeguard underage and vulnerable players, offer fair games to players, generate substantial tax revenue, promote proper control systems, reduce substantially the amount of gaming machines, establish a code of conduct and promote social responsibility.

Lack of regulation attracts undesirables, or those with money to launder. The mess is growing bigger. The absence of legislation is an injustice and an aggravation to serious operators - my own operation included - who have invested heavily in preparation for a legally-structured and regulated environment. We have been rendered ridiculous in the eyes of those who supply us. The government has repeatedly promised legislation, we have reported these promises to our suppliers, and then nothing happens - again.

We really need to know who is driving this project, or whether anyone is driving it forward at all. The Prime Minister and his Cabinet seem unaware of the repercussions of this failure to act: the haemorrhage of tax revenue, the socially negative effects, the fact that Malta, so admired for remote gaming, is a laughing stock when it comes to land-based gaming. Serious operators are being forced to work in an unregulated environment while planning and investing for the regulation that never comes. Why is the government sitting on this? It stands to net millions of liri in tax revenue by acting, and reputable operators will be a lot happier too.

Recommendations

The Tax Reform Commission, appointed by the government to review Malta's taxation system, reported its recommendations for change last June. The commission was headed by Tonio Fenech, Parliamentary Secretary in the Ministry of Finance. Its report includes a section on regulating existing amusement and gaming machines, which is quoted verbatim:

"The government is concerned with the social implications of the current situation where presently: (a) no regulations or systems are in place to ensure that locations where such machines are present can adequately ensure that underage persons are precluded from using gaming machines; (b) players who have gambling problems do not have recourse to self-barring and player protection measures that are applicable to licensed operations; (c) also, players who have gambling problems are discouraged from seeking assistance as present state of legislation would treat them as criminals rather than persons in need of help; (d) a number of locations today can be found in the vicinity of schools and other recreational facilities, hence attracting the interest of underage persons; (e) loopholes in legislation are not easily addressable due to technical ambiguities as to whether an amusement machine can also be used as a gaming machine, giving operators sufficient liberty to 'design' their own systems abusively.

"The government is proposing a number of measures to address the present state of being, and to address the social implications of this unregulated sector: (a) to increase the present gaming limit to 18 years from the present 16 years for all gaming activities; (b) to introduce a licensing regime for the machines, imposing conditions, control measures and limitations on the locations in which they will be placed; (c) introduce a centralised surveillance system that is installed in locations that have such machines to ensure that under-age individuals are not being allowed access to these machines; (d) to introduce and enforce responsible gaming procedures to protect vulnerable players and establish problem gambling programmes; (e) to establish new regulations that prohibit amusement and gaming machines from being installed in locations that are close to socially sensitive locations."

Mr Schembri is managing director of the Pinnacle Gaming Group.

jschembri@pinnaclegaming.com.mt, www.fairplay.com.mt