Small island, big impact: Malta’s Bill 55 continues to worry regulators around the world

As Malta’s Bill 55 continues to impact the landscape of gambling regulations, concern is echoing across Europe, with Germany and Austria at the forefront of the discontent. This landmark legislation sparked significant debate over its potential implications for the broader regulatory framework governing online gambling. The frustration centers on fears that Malta’s approach could undermine the uniformity and effectiveness of cross-border enforcement within the European Union. With stringent consumer protection regulations and a commitment to maintaining high integrity in gambling operations, other EU nations worry that Malta’s reforms may be compromising consumer welfare and undermining the ability of member countries to regulate gambling effectively within their own borders across the EU. Moreover, the bill potentially disrupts EU-wide collaborative efforts, as members strive for a harmonized regulatory framework to ensure fair play and robust consumer safeguards across member states. Malta’s legislative changes, critics argue, could introduce inconsistencies, complicating the enforcement of shared standards and potentially impacting the cohesion of the EU’s regulatory environment.

As the global gambling industry watches closely, the debate over Bill 55 underscores the delicate balance between national regulatory autonomy and the need for cohesive international standards. The unfolding situation, with matters pending in multiple international forums, highlights the broader implications of Malta’s regulatory overhaul, raising critical questions about its impact on worldwide gaming regulations and cross-border legal compliance.

While Malta’s actions continue to garner attention in Europe, and as EU member states continue to raise concerns about Bill 55 and similar legislation aimed at protecting domestic operators in the context of the European Economic Area, other jurisdictions must also address the question as to the best way to handle violations of their laws and regulations by Malta-based operators, and what, if any, action they can take to incentivize compliance and control unregulated gambling within their borders.

Criminal Judgments

Within the United States, unlawful forms of gambling are recognized as a crime at both the state and federal level. A significant majority of states still criminalize online casino gaming (other than sports wagering), and as such no legalized, regulated market for such games exists across most of the country. The result has been an influx of offshore, black-market offerings appearing online and proliferating across the country. Given that these entities are generally not licensed within the jurisdiction(s) that they are operating in, and that frequently these entities have little to no presence in these jurisdictions either, bringing criminal cases can prove difficult for regulators and their law enforcement colleagues.

Foreign penal judgments are not generally given comity by U.S. states. Judgments based on laws that are determined to be penal, such as criminal laws, laws that recover to the state, and laws that recover to strangers, are considered by U.S. courts to be exceptions to the Full Faith and Credit requirements of the U.S. Constitution. Similarly, U .S. Courts decline t o enforce penal laws of other sovereign states, flowing from the presumption against extraterritoriality and the concern that crimes can only be prosecuted in the country in which they were committed.

However, criminal judgments can still prove to be effective deterrents in some instances, if certain hurdles can be overcome. First, an enforcement agency must ensure that the state can exert jurisdiction of the allegedly offending entity. To acquire jurisdiction over a nonresident that is not personally served within the forum state, it will be necessary to demonstrate that the entity has certain “minimum contacts” with the forum state so that the suit does not offend the notions of fair play and substantial justice.5 Courts have found that suing nonresidents for doing business on the internet where they have a real and continuous presence or where the nonresident has caused an injury comports to due process requirements. Specifically for determining the jurisdictional hook for nonresidents based on internet presence, courts look to the level of commercial activity associated with the website. Simply having an interactive website is not enough. To exercise jurisdiction courts have found that (1) a nonresident must purposefully direct activities or consummate a transaction with the forum or a forum resident; (2) the claim must arise out of or relate to forum-related activities; (3) the exercise of jurisdiction must not offend fair play and justice. Additionally, in criminal contexts, courts have also considered whether the conduct has some past, present, or anticipated locus or impact within the U.S, but the ultimate determination as to whether the exercise of jurisdiction is appropriate turns on whether the application of the statute to the criminal defendant would be arbitrary or fundamentally unfair.

After obtaining jurisdiction and, presumably, a conviction, states have multiple options for taking further action against the offending party. Recognizing the nature of the alleged crimes and the general lack of in-state assets, as part of the criminal enforcement process, state law enforcement agencies would likely have undertaken a forfeiture proceeding. Nearly every state has a mechanism to obtain property or assets used either to commit a crime or obtained through criminal means. Additionally, some states also have gambling-specific forfeiture provisions. Furthermore, at the federal level the U.S. Department of Justice, Office of International Affairs of the Criminal Division provides assistance to federal prosecutors seeking to forfeit property located in a foreign country pursuant to 28 U.S.C. §1355, and encourages prosecutors to give priority to pursuing forfeitable assets beyond the borders of the U.S. Finally, the federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act can be used against foreign entities acting in the United States when the alleged conduct falls within the scope of the Act. Given the nature of online gambling and the often untaxed or otherwise unregulated financial transactions associated with such conduct, many cases brought against black market gaming companies could likely include a colorable RICO claim.

Moreover, once a criminal conviction is obtained in state or federal court, U.S. regulators can begin to take additional action. Ultimately, the conviction will allow for the swift imposition of related administrative action by the regulatory body in the jurisdiction where the underlying conviction occurred. Most jurisdictions have mandatory penalties or disqualifications associated with both felony convictions and convictions related to gambling. Furthermore, actions taken by one regulatory body are often shared with all jurisdictions that have reciprocity in licensing and enforcement matters, thereby triggering a domino effect where the offending entity and its officers, directors, or other managing persons will put any legitimate license in jeopardy and risk being locked out of the regulated industry across the country. Also, these convictions and administrative actions could potentially form the basis for discipline in European markets where the overseas operators may hold lucrative licenses.

One item to be aware of is that in the United States, although the language is somewhat ambiguous in most gaming statutes, precedent appears to require underlying convictions used to justify further administrative action take place within the United States. This is consistent with the lack of comity for criminal judgments generally.

Civil Judgments

Unlike their criminal counterparts, civil judgments obtained within a U.S. jurisdiction are generally enforced by other jurisdictions across the U.S through the Full Faith and Credit clause. State law generally sets the procedure for filing, recording, and effectuating the foreign state’s judgment, and the are generally uniform and based on the Revised Uniform Enforcement of Foreign Judgments Act proposed by the National Conference of Commissioners on Uniform State Laws. As such, domesticating a civil judgment from state-to-state in order to levy against assets is a procedural matter rather than a judicial exercise.

Domesticating judgments by foreign nation states within American jurisdictions, however, presents additional hurdles. Depending on the type of court, similar but distinct principles will apply. When a federal court is applying federal law, they will use federal standards. Federal recognition of out-of-country judgments begins with the principle of comity, the common law rule supporting deference to these foreign judgments. Comity is not mandatory but is appropriate when there has been an opportunity for a full and fair trial before a court with proper jurisdiction over the matter, after proper service on or appearance of the defendant. Comity also requires an impartial administration of justice, a lack of fraud, and a lack of other reason why the judgment should not be given its full effect.

Courts tend to narrow the test to specific factors to determine whether the foreign court was competent and civilized, whether the judgment was fraudulent, and whether the judgment violates American public policy notions or concepts of justice and decency. Reviewing courts will also ensure that the foreign court had personal jurisdiction through the minimum contacts lens. Furthermore, courts will also ensure that the judgment is not based on a penal law in the international sense, such that recognition is inappropriate.

Courts applying state law invoke state-specific statutory provisions for recognizing foreign judgments. Most of these statutes function similarly to the factor tests present at the federal level, but the statutes are frequently divided into mandatory and permissive denials of recognition, with mandatory denial stemming from a lack of finality, jurisdictional concerns, and due process concerns relating to the foreign system itself, while the permissive reasons for denying recognition focus on public policy, consistency, reciprocity, and particular concerns over the manner in which the specific case was tried.

As such, it is possible to obtain or enforce both civil and criminal judgments against foreign operators without physical presence in the U.S., and such judgments may lead to additional sanctions from gaming regulatory bodies across the country. These tools can be effective against numerous black-market operators across the world. However, given the aggressive, protectionist nature of Bill 55, while courts can handle offshore gambling cases procedurally, can their holdings have any true effect if the activities originate in a jurisdiction offering protections to the operator?

Bill 55 – impact on enforcement

The pertinent provision of Bill 55 creates Article 56A in Malta’s Gaming Act, and reads as follows:

56A. Notwithstanding any provision of the Code of Organization and Civil Procedure or of any other law, as a principle of public policy:

• (a) no action shall lie against a licence holder and, or current and, or former officers and, or key persons of a licence holder for matters relating to the provision of a gaming service, or against a player for the receipt of such gaming service, if such action:
  • (i) conflicts with or undermines the legality of the provision of gaming services in or from Malta by virtue of a licence issued by the Authority, or the legality of any legal or natural obligation resulting from the provision of such gaming services; and
  • (ii) relates to an authorised activity which is lawful in terms of the Act and other applicable regulatory instruments; and
• (b) The Court shall refuse recognition and, or enforcement in Malta of any foreign judgment and, or decision given upon an action of the type mentioned in sub-article (a).

The effect of these provisions appears to create a situation where, if a licensee were sued for providing services legal in Malta in a country other than Malta, a judgement issued by the courts in the jurisdiction declaring such activity illegal would not be enforced in Malta.

Cross-border recognition of judgments, long-arm statutes, and civil forfeiture provisions presume that the interests of the states on both sides of the equation are aligned. However, when one state acts unilaterally to preserve its own interests, and those interests differ from the greater international community, the currently available remedies become inadequate. The USDOJ recognizes this issue within its guidance to prosecutors stating:

“Moreover, when it is known or can be ascertained in advance that a particular foreign government either cannot or will not recognize, enforce, or otherwise make beneficial use of a forfeiture order obtained in this country, it would clearly be a waste of U.S. prosecutorial and judicial resources to pursue the forfeiture action.”

Thus, when reciprocity and comity are no longer offered, the federal government sees further action as a waste of resources. Malta appears to have sought a method to make its licensees judgment proof so long as they are performing activities legal under Maltese law, regardless of the state of the law in the impacted location. If enforcement agencies across the world view pursuing these matters to be a waste of resources, similar to the USDOJ’s position, Malta may have succeeded.

Additionally, in the background of the interplay between civil and criminal judgments looms the international obligations of the greater nation. A matter from the early years of cross-border internet wagering demonstrates the difficulties in regulating online gaming. In 2003, the nation of Antigua and Barbuda (“Antigua”) took action against the U.S. before the World Trade Organization (“WTO”) in response to measures applied by central, regional and local authorities in the US which affect the cross-border supply of gambling and betting services, namely the federal Wire Act, Travel Act, and Illegal Gambling Business Act. Antigua claimed that the measures at issue may be inconsistent with the US obligations under the General Agreement on Trade in Services (“GATS”). The ultimate holding, after appeals, found in favor of Antigua that in some cases, the U.S. regulatory measures were arbitrary and unjustifiable discrimination. As a result, Antigua essentially won the right to US$21 million from the United States.27 Thus, it appears that even in instances where international governing bodies recognize that measures are designed to protect public morals and maintain public order within a jurisdiction, such measures can still be violative of certain treaty obligations and carry risk of economic harm.

Additionally, while some operators may be shielded by their domestic laws, third-party companies that do business with many customers across multiple jurisdictions may not have the same protections. For example, if a technology or other support company does business in the U.S., the company and its officers could potentially be charged with illegal gambling violations if it licenses its products to, or does business with, an entity involved in illegal gambling. Under 18 U.S.C. § 1955, it is a crime to conduct an illegal gambling business, defined as a business that violates state law, involves five or more persons, and has been in continuous operation for more than 30 days or has gross revenue of US$2,000 in a single day.

838A person or entity can be conducting an illegal gambling business if they perform any necessary function in the gambling operation, other than that of a mere bettor. Id. Furthermore, such companies could also face potential charges as an aider and abettor, which requires proof that the defendant willingly associated with a venture and participated in it as something they wished to bring about. Therefore, an associating entity could face significant legal risks and potential liability as a principal offender or an aider and abettor under federal law.

Potential action going forward

All things considered, overseas regulators face a difficult challenge if the provisions of Bill 55 remain in effect in Malta or proliferate among other nations. To overcome the wall raised to protect certain offshore operators, regulators must be willing to undertake and follow through on aggressive enforcement action, and will need the support of policymakers to do so.

One main avenue for levelling the playing field is for regulators to seek amendments to their enabling and enforcement statutes to provide effective remedies against protected operators. Germany’s federal gaming regulator, the GGL, began to implement IP blocking as a response to illegal online gaming in 2023. While this approach has yet to be approved affirmatively by German courts,29 with affirmative approval via legislative action in the U.S., court approval would be unnecessary. Presumably, such action would require regulators and their law enforcement partners to seek some sort of injunctive relief against the operators. Given the situation regulators are faced with and the prospective lack of other available equitable relief, obtaining an injunction against operators appears feasible. Notably, such policy determinations would likely have to be made by state and federal legislators acting in cooperation, as states are unlikely to wade into international commerce issues where the federal government generally reserves the right to speak for the nation, and ideally a uniform system would be developed for states that seek to opt into such protections, rather than state legislators slowly weaving a patchwork of 50-plus individual regulator regimes.

Additionally, at the international level, there are options for the U.S. to either seek amendments to treaty economic treaty provisions to clearly cover illegal gambling, which understandably would be a heavy lift in the global community, or to potentially sue in the International Court of Justice. However, the simplest approach, absent deregulation, may be a combination of a shift in enforcement mechanisms combined with the status quo. American jurisdictions could preclude internet wagering through IP banning but would likely be in violation of the same GATS provisions that underlie the Antigua matter. But, the U.S. response to the sanctions in that matter was to effectively ignore the payment obligation even though the overall annual amount is relatively small compared to other U.S. obligations. Effectively, the U.S. leveraged its economic and political power against a smaller country that it believes is supporting criminal enterprises. So long as the protectionist nation is of a similar size (which many off-shore gambling havens are) and without other conflicting treaty agreements, the U.S. may be able to effectively bully its way through Bill 55-style legislation if it puts forth a unified regulatory position.

Thus, it remains to be seen how non-EU countries that have not yet embraced online gambling will address the repercussions of Bill 55. Black-market gambling continues to pose significant challenges for regulators and law enforcement personnel. With growing public and industry support for effective measures against these illegal entities, and the ever-evolving tactics of black-market operators, regulators and policymakers cannot afford to appear ineffective. The specific actions they will take, or the consequences of failing to act, remain uncertain.