Gaming companies must not be allowed to avoid public scrutiny through the use of nominee shareholders, financial consultant Paul Bonello is warning.

“Unless the gaming industry is tightly regulated it could lend itself to being utilised as a ‘lawful’ means of integrating ill-gotten funds,” he said.

“The risk with this happening is that any ensuing damage might spill over and impact the entire financial services industry, not merely gaming companies.”

Mr Bonello, who is also managing director of diversified financial services company Finco Trust, expressed these views in the wake of allegations that six Maltese gaming companies were linked to the Mafia.

Their names surfaced in a money laundering probe by Italian authorities as part of a crackdown on the Calabrian Mafia, known as ’Ndrangheta.

Speaking to the Times of Malta, Mr Bonello disagreed with calls to ditch trust and fiduciary services legislation, or even the more limited measure of eliminating the nominee shareholder concept.

“That would be tantamount to the proverbial throwing away the baby with the bath water,” he said.

He argued that when used sparingly and sensibly, and for substantively legitimate reasons, the trust and nominee concept was a good financial product to retain in Malta’s financial services repertoire of products.

“On the other hand, to me it appears very dangerous for the authorities to have permitted gaming licensees to have shareholders shielded from public scrutiny by the use of nominee shareholders.

“Transparency should apply to any licensable activity operator [such as banking, insurance or investment services], but even more so in the gaming industry,” he said, describing the industry as “an inherently high-risk fringe activity”.

Concern was also raised that certain providers of fiduciary services might have a “very shallow” interpretation ofdue diligence.

Due diligence must not be a buzzword or formalistic exercise but an intuitive comprehensive exercise based on a proper substantive risk assessment

“It seems that this process is being treated as another tick-the-box exercise consisting of obtaining copies of identity documents, stereotyped declarations and conducting some database searches of whether the individuals behind an operator have ever been convicted or not,” Mr Bonello said.

“Due diligence must not be a buzzword or formalistic exercise but an intuitive comprehensive exercise based on a proper substantive risk assessment.”

Referring to comments by Malta Financial Services Authority chairman Joe Bannister about making alarmist statements, he said that failing to read the writing on the wall would also be wrong.

The explosion in growth of gaming companies in Malta has no doubt already irked many other EU states.

These, Mr Bonello said, would now be looking for any opportunity to clutch onto negative news to argue for EU-wide pressure to be put against gaming activities going “offshore” – in other words, operating from outside the country where the punters reside – leading to loss of tax revenue.

“Besides, we have to be careful that the gaming sector does not become too large a sector of Malta’s GNP, raising serious concerns about structural overdependence on the sector,” Mr Bonello added.

While admitting that his words of caution would no doubt be unpopular with many sectors benefitting from this industry, he said policymakers must not snub sensible and sustainable long-term economic planning.

Rather than expanding the industry for the sake of mere growth, regulatory authorities should steer the industry towards being highly selective and to concentrate on quality licensees.

How fiduciaries are governed

The legal framework governing fiduciary relationships is set out in the Trust and Trustees Act.

As ‘subject persons’, authorised fiduciaries must abide by the requirements of the Prevention of Money Laundering Act and the procedures issued by the Financial Intelligence Analysis Unit.

They are also required to carry out customer due diligence which shall include, among others:

• Identification and verification of applicant for business.

• Identification and verification of the beneficial owner (where applicable).

• Identification and verification when the applicant for business does not act as principal.

• Obtaining information on the purpose and intended nature of the business relationship.

• Conducting ongoing monitoring of the business relationship.

• Establishing the source of wealth and source of funds of the applicant for business.

• Setting up a customer acceptance policy.

• Ensuring the applicant for business meets the requirements set out in such a policy.

These checks should be carried out by the subject person both at client acceptance stage and on an ongoing basis thereafter.

Furthermore, these ‘subject persons’ must apply enhanced due diligence on an applicant and have in place a risk assessment procedure, which should at least include identification and assessment of customer risk, product/service risk, interface risk and geographic risk.

The MFSA expects that all decisions taken by authorised fiduciaries, including client acceptance, should be taken collectively by all the directors of the entity concerned.

Authorised fiduciaries are also responsible for vetting prospective and current clients. They also have duties to monitor their clients’ activities on an ongoing basis, especially in the cases where they sit as directors on the board of their clients.

The MFSA will not be aware of the identity of the beneficial owners of companies where authorised persons are acting as fiduciaries.

It only becomes aware of the identity of the clients of the regulated persons on a “need to know basis”, usually during onsite visits or where it requests such information in the light of any regulatory or supervisory issues.