Culture & Entertainment and iGaming Law |  Dec 22, 2011

The Reinforcement of Malta’s Role as a Regulatory Hub for Remote Gaming – Part 2

The challenging of enforcement measures adopted by a Member State intended to restrict accessibility to the websites of Malta-based gaming operators- The Italian ISP Blocking Measures

Legal procedures are not the only route that may be considered by sovereign states in seeking to enforce their laws and public policies within their territories or political borders. Indeed, the new world order of the internet requires new approaches to enforcement. With this approach in mind, Italy, for example, adopted a creative approach towards enforcing its prohibition of allowing non-Italian gaming operators from offering their services in Italy. In February 2006 the Amministrazione autonoma dei monopoli dei Stato (AAMS) – which falls within the responsibility of the Italian Ministry of the Economy and Finance – ordered Internet Service Providers (ISPs) based in Italy to block over 650 internet gaming sites which were not licensed in Italy and considered to be illegal, to protect Italian gamers from “phishing” – the fraudulent acquisition of passwords and credit card details. All operators based and licensed in Malta were included in this list. The ISPs faced a fine of € 180,000 for each default in blocking the listed sites in breach of the order. Maltabased operators and the LGA were obviously outraged by the situation and took collective action to counter the effects of the order without delay. As a temporary solution, the websites of Malta-based operators were linked to the LGA’s website and disguised using a web anonymiser to hide the IP addresses. As a result, the only visible IP address for Maltese gambling websites would be the address of the Maltese gaming authority. The response by the Italian authorities has been to include the IP address of the Maltese Gaming Authority in the list of blocked websites.

The Maltese government and a number of Malta-based operators separately lodged formal complaints with the European Commission about the measures introduced by AAMS with a view to having infringement proceedings instituted against Italy. However, in the course of the prior formal exchanges between the
Commission and Italy in this regard, Italy appears to have knuckled under the pressure and proceeded to open its market to those operators obtaining an Italian gaming license.

Although Italy’s enforcement measures were generally effective in blocking out Malta-based operators from Italian ISPs, this incident served to demonstrate the LGA’s role in exercising its lobbying and political influence to champion the assertion of the right of Malta-licensed operators to avail themselves of the freedom to provide services within the EU, as enshrined in the Treaty of Rome.

Intervention intended to protect players’ interests and the stability of gaming systems- The Boss Media Case

Another case which emphasised the LGA’s role as the protector of players and its licensed operators alike is the Boss Media case (Trillion Limited vs Boss Media AB et) filed in the First Hall of the Civil Court on the 29th April 2008. The application, filed by Trillion Limited as operators of the poker affiliate website“Pokertrillion”, sought to recover damages from Boss Media as a result of an allegedly illegal termination of its affiliate agreement by Boss Media. The dispute was purely private and pecuniary in nature and did not involve any regulatory issues, and it is only as a consequence of events that this case became relevant for the LGA.

Contemporaneously with the filing of its claim for damages, Trillion requested the Maltese courts to order the issuance of a precautionary warrant of seizure against Boss Media for the purpose of seizing the defendant’s assets, with a view to having any potential final judgment for such damages ordered against Boss Media enforced against the assets so seized. This warrant was intended specifically to seize the servers operated by Boss Media in a co-location centre in Malta, which servers were made available to its licensees to conduct their Malta-based operations from. Initially, this warrant did not pose any threat to Boss Media’s continued ability to operate its business from the servers, which remained within the co-location facility under the custody of a custodian or “consignatary”.

Eventually, however, Trillion obtained a court order for the removal or shutting down of the servers, on the basis of the court’s acceptance of Trillion’s argument that the continued operation of the servers could lead to a diminution in their market value- and it is at this point that the servers were exposed to vulnerability.
Boss Media successfully extended the enforcement period by two months, that is until the 18th September 2008, allowing it a more reasonable time to organize the migration of any business affected by the removal of such servers. Clearly, the defendant depended on these very servers for the continuity of its business and
had every interest to ensure that any private dispute would not have the effect of causing an effective economic sabotage to its Malta-based business.

The LGA followed these developments closely to ensure that no interruption in the business of Boss Media licensees was experienced as a result of this private dispute between Trillion and Boss Media. As the 18th September deadline drew closer it became increasingly clearer that this deadline would not be sufficient for
a full migration of that business to an alternative co-location site. Consequently, on the 10th September 2008 the Authority took the bull by the horns and filed an application in court in its capacity as the regulator of remote gaming business in Malta to ensure that the appropriate time-frames and procedures were followed in the course of applying the court’s order for the removal or shutting down of the servers. The LGA argued that the enforcement of the warrant would materially impinge on the smooth operation of the industry, posing a great risk to operators using the defendant’s servers and to players registered with such licensees. It requested the Court to order: (i) the notification of all interested third parties of the removal or shutting down of the servers, (ii) the appointment of qualified experts to oversee the removal or shutting down of the servers, and (iii) the extension of the 18th September deadline for a further period of 6 weeks.

On the 12th September the court decreed that the LGA, as a regulatory authority constituted by law, had sufficient locus standi or legitimate interest to intervene in the dispute on the basis of the fact that such intervention was aimed at enabling the Authority to exercise its role as regulator of the industry by
safeguarding the interests of Malta-based and licensed operators. The LGA’s requests were acceded to in their entirety and the Authority continued to exercise an active monitoring role to ensure full and proper compliance with the court’s order within the set parameters. The enforcement order was, however, never implemented since Trillion withdrew all proceedings in the following weeks.

From a Maltese legal and regulatory standpoint this case provides a significant milestone in establishing the LGA’s locus standi to intervene in any private disputes where circumstances threaten to cause an interruption in the stability of the industry or to the continuity of remote gaming business from Malta. This recognition goes some way to complementing the LGA’s role and enabling to exercise this role in a more complete and effective manner. The Authority has proved itself a dynamic and effective regulator, placing the interests of its licensees and their players at the forefront of its day-to-day regulatory function.

Besides, we understand that the LGA has also spear-headed an extensive exercise to review Malta’s law of procedure to ensure that the assertion or enforcement of creditors’ rights do not cause disproportionate prejudice to third parties, as could have been the case if the servers were removed or shut down prematurely in terms of the first court order obtained by Trillion.

The benefits of experience paving the way forward

Malta’s legal, regulatory, diplomatic and political systems have experienced substantial pressure from all sides as a result of its becoming the jurisdiction of choice for most operators seeking to market their services within the EU, and the three incidents analysed in this article serve to demonstrate the LGA’s versatility in addressing industry-related issues, be they legal, regulatory, diplomatic or political and regardless of the materiality or complexity of the issues involved. This versatility is further complemented by the Maltese Government’s commitment to providing an environment of sound and reliable regulation, with the ambition that this general approach to regulation may well become the benchmark within the European Union.
With increasing pressure building up within the EU’s institutions to put together a coherent approach to regulating gaming, Malta’s vision of being a centre for the effective regulation of remote gaming, coupled with the LGA’s on-going support, may well prove to have been ahead of its time. Indeed, Malta is likely to tap into the further opportunities created by legal and political developments brought about by the European Union’s institutions, besides the fleshing out of legal precedent relating to remote gaming
issued by the European Courts of Justice on the basis of the principle of free movement of services.
The author would like to thank Ms Natalie Renou, In-House Counsel at Tain for her assistance with some of the research for this article.

The Reinforcement of Malta’s Role as a Regulatory Hub for Remote Gaming – Part 1

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