Malta: Gambling heaven or economical nightmare

At the dawn of the 21st century, not many thought about or, for that matter, even knew about online gambling. But a little island nation in the center of the Mediterranean Sea recognized the promise of what that industry could bring, and even what complications it might face. In 2004 Malta was welcomed as the newest member of the EU, and that same year it laid out a comprehensive set of regulations on remote gambling and established the Lotteries and Gaming Authority (later renamed to Malta Gaming Authority). Which was the first organization in Europe to provide vetting and licensing to online casinos, allowing them to operate across the whole European Economic Area? It has since become the most respectable and trusted gambling authority, guaranteeing fairness and transparency to both casinos and players. To further boost its appeal for foreign businesses, the corporate tax rates on Malta are extremely low compared to its neighbors.

This proved to be an incredibly lucrative strategy. Today, almost 12% of the Maltese economy is derived from online gambling. Away from the restrictions of their native countries, hundreds of foreign companies have set up their servers and headquarters in this gambling paradise.

Trouble in paradise

Let’s start at the top. That is, the very top of the Maltese government. The prime minister of Malta Joseph Muscat had never made it a secret that the growth of the country’s economic welfare was his top priority: “Globalization is like a treadmill—you can’t say you are tired, because the second you stop, you will fall off,” – he once said during a press conference. In 2014, after active lobbying from Muscat and his Labor Party, a program of selling Maltese passports was put into effect. Promising to greatly enrich the country, it gave any individual with enough money (a minimum of 880,000 Euros + ownership of real-estate on Malta) a possibility of becoming a citizen practically overnight. The initiative had faced harsh criticism by the political opposition, and other members of the EU. They voiced concern that such a program would open the gates for all kinds of shady and downright criminal individuals to become full-fledged EU citizens, and travel unabated, without a visa, throughout the Schengen Area. But it was nothing compared to what followed next.

In 2016 investigative journalist Daphne Caruana Galizia uncovered that two of Muscat’s closest aides had established shell companies in Panama to launder money from kickbacks they allegedly received for helping to arrange the sales of passports to Russian nationals. Caruana Galizia became a prominent local figure, digging deep into the Maltese dirty laundry. The list of her enemies was large and growing, and at one point she faced 47 lawsuits from those she accused, Muscat included, who claimed that she was spreading “the biggest lie in Malta’s political history.”

In October 2017, as Caruana Galizia was driving from her house, she was killed by a car bomb. Police later arrested three low-level criminals for planting the bomb. But whoever ordered the assassination remains unsolved to this day. This horrible incident was a turning point when the notion that corruption might have overtaken Malta’s economy has started spreading far beyond its shores.

Malta Nostra

In January 2018 the Court of Palermo issued 26 arrest warrants in an operation “Game Over”. The long investigation revealed extensive ties between Italian Mafia and Malta’s gaming industry. Among those arrested was Benedetto Bacchi, known in the Italian press as the “king of gambling.”. With the support of gambling brokers, who were linked to Ndrangheta, the infamous Calabrian mafia family, he was able to utilize Maltese gaming licenses to get profits of up to €16 million a month.

This operation was thought to have serious consequences on Malta. The MGA (Malta Gaming Authority) immediately suspended the operating licenses of the main operators named in the investigation and started its own investigation. A month later three other operators voluntarily gave up their licenses rather than face further investigation. Another company mentioned in the Italian investigation, LB Group, had its licenses canceled. Court records imply that LB Group was managed by an even more powerful Cosa Nostra branch from Mazara del Vallo, a city controlled by Matteo Messina Denaro – the boss of all Cosa Nostra bosses, that has been in hiding since 1993.

Multiple gaming companies had confronted the MGA, threatening to leave the island unless it cleaned up the industry.

“Good” Neighbour

With all these events in mind, it is no wonder that the attention of many EU officials had been aimed at Malta. And not in a good way. “Malta has been put on a screen … having an address there now looks more dodgy,” said Sven Giegold, a member of the Economic and Monetary Affairs Committee. A French and German digital tax initiative had bee pushed, to make online giants like Apple, Amazon, Google – and by proxy best Malta online casinos – pay the taxes they are long overdue. If it would come into effect, those low tax rates Malta was attracting business with would be off the table.

While it is hard to dispute how much realMalta has done to build up the gambling sector on the international level and infuse it with structure and legislation. And what incredible benefits the county have reaped from it. It is equally hard to overlook all the severe complications that such a fast, money-flowing industry brings with itself if a lack of oversight leaves even the tiniest gap for foul play. We will watch with bated breath, how well Malta will manage to continue this delicate balancing act between sustained economic growth and lawless chaos.