George M. Mangion | Wednesday, 03 September 2008

Poker feud - no holds barred

Last month, during a press conference announcing the signing of the USA double-taxation treaty Finance Minister Tonio Fenech pointed out the success achieved of late by Malta’s ability to attract investment from abroad. He mentioned, among others, projects such as Smart City and numerous other international organisations in the financial, manufacturing sectors. In my opinion, little emphasis was placed on the titanic achievement in attracting over 200 active gaming companies (mostly foreign owned) since the passing of the Remote Gaming law in 2004. Legal Notice 176 of 2004 of the Lotteries and other Games Act. This legislation paved the way for the floodgates of internet based poker, sports books, casino and software vendors who set up under strict license rules in competition to other financial centers. In this context, PKF were on the amongst the first to promote Malta together with other pioneers. Suffice to mention that PKF hosted and funded the first international ‘Small gaming jurisdiction’ conference in Barcelona as a precursor to the now famous EIG annual three day event in 2002, which promoted the arrival of remote gaming licences in Malta ahead of their promulgation two years later. Each year PKF continued (without getting government sponsorship) to promote the island as a serious gaming jurisdiction by hosting and funding regular international conferences in Rome, Como, London, Dublin, Munich and Cape Town. Equally so, the Lotteries and Gaming Board (LGA) has regularly sponsored and attended overseas conferences to showcase Malta ‘s legislation and circulate classy colour inserts in overseas professional magazines. The promotion has worked and one can comment positively thanks to a host of e-commerce laws, player protection and strict anti-money laundering regulations. Ironically, top legal and accounting firms, which initially shied away from the sector, have now embraced this market in view of the magnitude of business as evidenced by the list of accredited IT auditors issued by LGA. Beyond doubt, Malta has progressed solidly to become a European hub. Surreptitiously, it draws the envy of others, noting that other EU members such as Italy, France, Belgium and Spain have changed tack and are cautiously starting to suppress their monopolistic restrictions. It is not a surprise that they are busy changing laws to go the Malta way. Now it seems that the penny has dropped and, typically, the Italians are set to continue liberalising their internal market. Yes competition is on our doorstep and we must continue to be vigilant in our eternal struggle to maintain quality regulation and monitor the harvest for any bad apples. Our legislation is robust but problems do crop up. We have recently made the international news when a local lawsuit was filed under a barrage of contradictions by Poker Trillion. The dispute involves Boss Media A.B. and Trillion Ltd. Regrettably it has escalated and attracted international attention as a duel gone sour. Boss Media had its class 4 licensee issued on 20 March 2008 whereas Poker Trillion Limited is not licensed but is an intermediary to another operator licensed in Malta. Poker Trillion is a former customer of Boss Media who was terminated because of rake back violations. As can be expected Boss Media allege that they have since then repeatedly tried to disrupt their operation. PokerTrillion initially was reported as having filed a €45 million lawsuit against Boss Media for “fraudulent and potential criminal activities.” In a recent statement the debtor has labelled Poker Trillion’s comments as a reckless attempt to support legal action that is without merit and initiated as retribution for dismissal. Such judicial proceedings may be common in larger financial centres but tend to rattle the nerves when tiny Malta is concerned. In a terse statement by Boss Media they assured everybody that if they lose their license in Malta they can back–up their services (presumably on servers via another third country’s license) to ensure continued service to all their commercial poker licensees and numerous players. It is no surprise to remark that Boss Media’s International Poker Network (IPN) is the seventh-largest global online poker network. The site’s data shows that IPN ranks fifth among networks and sites that don’t accept U.S. players due to the classification of online poker by the UIGEA act as unlawful. Last month, the LGA informed the public in a press release that the dispute between Poker Trillion Limited and Boss Media AB is solely of a commercial nature between the two parties and therefore the Authority is not involved directly in this dispute. LGA tried to calm waters concerning the rights of millions of Euros due to player funds. It advised that funds on the poker network are held by separate legal entities which are not party to this case and therefore protected. Furthermore, the network has issued a bank guarantee in favour of the LGA for the purpose of securing all players’ funds and liquidity. On 18 August 2008 at the First Hall Civil Court, Judge Gino Camilleri issued a judgement authorising Trillion Ltd to enforce seizure of the Boss Media Malta Limited and Boss Media AB servers, and that these servers will be switched off as from 18th September 2008. This in turn means that there is now effectively a €20million freezing order on the debtor’s assets consequent with the appointment of Dr Andrew Zammit as consignee of all servers confiscated from the datacentre handling Boss Media‘s operations. The judge further ordered that Dr Zammit who is now responsible for the equipment is also to provide full accounts of the revenues generated from this equipment. The finality of the judgement is such that Boss Media is not being allowed to appeal the court’s decision any further. Accordingly any partner still on the International Poker Network at this stage will see their service close down too. International commentators were glad to hear that all players’ funds are separately guaranteed by Malta Lotteries and Gaming Authority and cannot be seized by any court. This is certainly a crucial moment when considering the high reputation of the debtor and the fallout associated with the sudden termination of business suffered by various software licensees using the IPN service. Yes it looks like the dispute between two poker titans has placed Malta squarely on the international gaming map. We are back on the radar screen. It will be a prime topic under discussion in the coming international conferences planned to take place this winter. To conclude, there is a silver lining that although the lawsuit is not a ‘royal flush’ for the debtor, at least they can rest assured of fair treatment by the regulator.

George Mangion
Partner at PKF – an audit and business advisory firm
[email protected]