Memorandum

Subject
New Regulations under the Law on Organizing Lotteries, Games of Chance
and Other Prize Games (hereinafter referred as - “Gambling Law”)

According to the legislative changes made on 02th of July, 2020 by Parliament of Georgia there are new regulations
concerning to the gambling industry. Some articles from the regulations already entered into force. however, some of
them will enter into force gradually from 01th January, 2021, 01th March, 2021 and 01th September, 2021. This period
of time (vacatio legis) is deliberately introduced for competent authorities, operators, providers, license holders and
any other addressees or beneficiaries of the regulations to prepare their systems, processes, procedures, documentation,
etc. for compliance with the new rules.

Present legal Memorandum concludes main issues from the N239 order of the Ministry of Finance of Georgia, N243
Order of the Ministry of Finance of Georgia, N605 Ordinance of the Government of Georgia and N455 Ordinance of
the Government of Georgia.

Memorandum

1. Introduction

According to the legislation changes, in order to provide the games of chance and/or other prize games on the territory
of Georgia, Provider of games of chance and other prize games shall obtain a respective permit. To receive permit
provider is obliged to submit certain documents to the Revenue Service, including certificate of Authorization issued
by the Selected Person1 (hereinafter - Random Systems Georgia or RSG).

2. The Process of Authorization

Authorization consists from 3 (three) main stages:

1. Initial survey of the system;
2. Integration with the system, which means:
2.1. Placement of equipment for integration with the electronic control system (this clause refers to the
operators, as well as, to the providers);
2.2. Arranging a POS terminal2;
2.3. Placement of an equipment for monitoring gaming machine.
3. Issuance of an authorization certificate.

1
Selected Person - A person selected by the LEPL Revenue Service (the “RS) to implement the electronic control system of gambling
business in Georgia. According to the letter issued by Revenue Service Random System Georgia is considered as selected person.
2
POS Terminal - a special electronic device that meets the requirements set by the Minister of Finance of Georgia and provides a
reflection of each betting ticket (except for winning games in a systemic electronic form) in the control electronic system;

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Initial survey/authorization of the gaming system and/or essential products/services is carried out separately,
depending on the following activities:
1. Gambling and/or winning games organized in a systemic electronic form (hereinafter - “online-games”);
2. Slot clubs, betting (totalizators);
3. Essential Product/Service.

The procedure for Authorization:

1. Applicant must submit an application electronically on the website: www.portal.rsi.ge.
2. An application must contain the following information:
2.1. Company name, company identification number, name and personal number of the official
representative, address and contact information of company;
2.2. Activity from to the list mentioned above (online games, slot clubs/betting or essential
products/services). Applicant must choose one of them and request authorization.
2.3. In case of gaming machines, the number of machines, which are subject to authorization.

After submitting application RSG must examine submitted application and documentation not later 5 days after
submission. RSG is authorized to demand to specify some information defining reasonable time for performance. In
case, the application meets requirements set by the legislation, RSG and applicant conclude a service agreement. Service
agreement defines rights and obligations of the parties, amount of service fee and payment terms.

2.1. Initial Survey of the System (stage 1)

RSG is obliged to start initial survey not later than 20 calendar days after service fee for initial survey is paid the
applicant. RSG must notify applicant about the starting and ending dates of the procedure.

The period for survey must be defined as follows:

1. For online-games – no more than 45 days;
2. For gaming machines– no more than 30 days;
3. For betting – no more than 15 days;
4. For essential products/services – no more than 15 days;

RSG is entitled to extend this time for the same period taking into account technical or other main circumstances.

No later than 7 days after the completion of the initial survey, the results will be sent to the applicant stating if the
application is in compliance with the legislation. If the result is positive, applicant starts the integration procedure
(stage 2). However, if the result is negative, selected person must determine reasonable time for applicant to correct
the deficiency. If applicant fails to correct the deficiency within the specified time, he/she will be rejected
automatically.

*Applicant will be automatically rejected by the selected person if during the initial survey appears that the gambling
games, as well as, essential products/services are not in correspondence with the established standards and this
inconsequence can’t be remedied during the current authorization process.

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 2.2. Integration with the system (Stage 2)
The process of integration will start upon the payment of service fee by the applicant.

The Period of integration must be defined as follows:

1. For online-games – no more than 30 days
2. For gaming machines– no more than 90 days;
3. For betting – no more than 10 days;
4. For essential products/services – no more than 45 days;

RSG is entitled to extend the period by no more than 30 days.

2.3. Issuance of an Authorization Certificate (Stage 3)

After integration with the system is finalized RSG is obliged to issue authorization certificate in 2 calendar days.
Authorization Certificate is Permanent.

3. The Service provided by RSG and Fees defined by the Legislation

RSG provides applicants with the following services:

1. Issuance of an authorization certificate - no more than 35 000 GEL for each activity (online games, gaming club
and essential product/service).
2. Placement of equipment for integration with the electronic control system (this clause refers to operators, as
well as, to the providers) - no more than 100 000 GEL for each applicant/permit holder.
3. Operating fee – no more than 5% of GGR3 monthly for providers of online-games, no more than 0.5% of GGR
monthly for operators of online-games, no more than 3.5 GEL per machine daily for slot-clubs.
4. For slot-club permit holders’ placement of a game monitoring device including installation- no more than 500
GEL per gaming machine.
5. Activation of GSM Card4 - no more than 10 GEL per gaming machine.
6. Arranging a POS terminal - no more than 2500 GEL.

Therefore, online-game provider must pay the following fees:

1. Initial Survey/Technical Audit and issuance of certificate – no more than 35 000 GEL;
2. Integration with Electronic Control System - no more than 100 000 GEL;

Land-Based game providers must pay the following fees:

1. Initial Survey/Technical Audit and issuance of certificate – no more than 35 000 GEL;
2. For slot-club permit holders’ placement of a game monitoring device including installation- no more than 500
GEL per gaming machine – as we discussed during the call, this fee may be paid by the operator.

3
GGR - Difference between bets received from players and winnings issued to players (IN-OUT); In case of providers, GGR means
difference between received bets and the winnings issued to the players for the games delivered by the provider.
4
GSM Card Activation - Activation of the communication device required to transmit the mobile signal.

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 3. Activation of GSM Card - no more than 10 GEL per gaming machine.

Fees and term of payment must be determined by the service agreement concluded between selected person and
applicant. These fees must be paid in advance before providing service by the RSG.

If a permit holder makes substantial changes in games or in products/services, he shall submit a certificate of
authorization and information about changes to the Revenue Service in order to obtain approval, as well as, inform
RSG about these changes and start re-authorization process.5 In case of disapproval of such change by the Revenue
Service, provider is not entitled to make changes in the provided games and/or essential changes in the essential
products/services.

The essential changes provided above involve a variety of changes, including changes that may have effect:

a) on a bet placed by the player;

b) on the amount of winning;
c) on the architecture of Game;
d) on the combination lines of Game;
e) on the RNG (Random Number Generator);
f) on the jackpot distributing system.

3. Requirements/Standards for providers of winning games in systemic electronic form

All the providers of winning games in systemic electronic form are obliged to:

1. Establish and implement internal control mechanisms that include all aspects of game-operation. Particular
attention should be paid to the system security, operation and reporting;
2. Provide internal control mechanisms in case of request by Revenue Service or RSG;
3. Have authorized persons in the key positions, at least in the direction of IT and change management.

In the direction of information technology, the game provider through the authorized person(s)should:
1. Ensure safe and secure operation of the remote gaming server;
2. Provide with safe and secure operation of the main and ancillary devices;
3. Provide with safe and secure communication to the operator’s system, including:
3.1. The recipient and issuer of all communications must be known;
3.2. There must be used the method of data encryption and/or secure communications protocol to protect
system integrity and confidentiality of communications.

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Re-authorization Process – means exactly the same procedure as for the authorization process, except the fact that applicant must
request re-authorization instead of authorization in the application form.

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 3.3. Conduct evaluation of system integrity and security annually (From 01th March, 2021) (no later than
March 1 of each subsequent year) and submit a copy of the evaluation report to the RSG.

In case, there are any changes in essential products/services, provider is obliged:

1. Provide operators only with the products/services which are authorized by the RSG;
2. Carry out constant monitoring and, if necessary, immediately notify the operator and/or RSG about the action,
which compromises the remote gaming server security and integrity.

Provider is also obliged to save and secure information about any change, including, change in content delivery
network or in game/system reporting.

4. Technical Requirements and Standards for Gaming Machines

The Gaming machine must have at least the following capabilities:

1. Use the built-in random number generator to determine the pay-out;
2. Have at least one mechanism through which a choice can be made;
3. Have at least one mechanism through which the data can be exchanged;
4. Have an opportunity for player to place a bet and get the winning;
5. Secure crucial components of the outcome and preservation of the funds.

The Gaming machine must:

1. Be created through materials that make it reasonably impossible to access internal data/devices;
2. Use the key to access internal data/devices;
3. Contain a separate security cabinet where the logic board6 is located. There must be used a separate key for this
cabinet;
4. Contain an operating system and game software security system, which ensures that these programs are
accessible only by opening a logic board cabinet;
5. Contain a mechanism for receiving banknotes, preventing any contact with the internal data/devices.
6. Contain special switches on the following doors: the main door, the door of the banknote receiving mechanism,
the door of the logic board cabinet. These switches must send a signal to the electronic control system when
the door will open;
7. Make a loud noise when the main door is opened;
8. Meet the CE or equivalent electrical safety standard;
9. Contain at least one free serial SAS7 port through which SAS v6.02 communication is possible;

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Logic Board - A computer device consisting from a central processing unit (CPU), Random access memory (RAM), Graphics Processing
Unit (GPU) and data storage (EPROM, hard disk, SD Card and etc.).
7
SAS – Gaming machine reporting system - serial communication protocol, which is used by gaming machines to provide information
about meters and events in the central system.

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 10. Contain GAT8 port.

The software of the gaming machine must:

1. Be stored on an authorized device, such as EPROMs, SD cards, hard disk or removable disk; Contain a clearly
printed and attached serial number of the manufacturer.
2. Contain SAS v6.02 communication protocol support;
3. Contain GAT software authentication protocol support;
4. Have a theoretical ability to win at least 80% of the bet.;
5. Not reduce the minimum theoretical issuance percentage by the actual issuance percentage;
6. Decide the outcome of the game using a random number generator (RNG);
7. When a player places a bet, there must be a chance of getting all the possible results of the game;
8. Notify the player about the terms of the game in Georgian or English, including the following information:
8.1. Amount of possible bet;
8.2. Amount of possible winning in a specific game;
8.3. Amount of game lines (in case of existence);
8.4. Betting limit for the specific game (in case of existence);
8.5. Result of the game;
8.6. Amount of money won;
8.7. Amount of money available for player, in GEL or in a special credit;
8.8. Any other information, which may be required by a player to understand the game.

9. Have a defense mechanism through which the rules of the game or the theoretical issuance percentage will not
change after the game has started. If a change in the rules of the game constitutes a normal gambling operation,
then player must be clearly notified about these changes;
10. Have the ability, in the event of a power breakdown, device shutdown or any other event that forces the device
to artificially or automatically restart, to return to the same state in which it was before the event;
11. Generate and store game data for the last 50 games, including the total number of bets placed and the total
amount of credit meter. These 50 games should not include bonus games or free spins.

6. Minimal Technical Requirements for linked/connected Gaming Machines

Gaming Machines connected via an indoor or outdoor jackpot platform9 must meet the following minimum technical
requirements:

1. Connected machines must have identical betting requirements and identical probability to issue jackpot.
Different betting requirements are allowed if the probability of winning the jackpot varies according to the
bets;

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GAT – Game Authentication Terminal (GAT) protocol developed by the International Gaming Standards Association. GAT
authenticates the gaming device to the GAT port (connection source) via a connected computer.
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Jackpot Platform – External device, which is connected to on or more slop-machines and places general jackpot on them.

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 2. The pay-out to stakes ratio on a slot machine shall be equal to no less than 80%.

7. Peripheral Equipment

Peripheral equipment can be any product, which is a part of the gaming machine, but can’t affect the result of the
game.

Peripheral equipment can be:

1. Equipment, which connects the gaming machine with command and control/monitoring systems.
2. Equipment, which is essential for receiving money and/or ticket;
3. Electronic card reader;
4. Cash-out ticket printing machine;
5. Equipment for receiving coins;
6. Equipment for issuing coins;

7.1. Minimal technical requirements for peripheral devices

Peripheral equipment must meet the following technical requirements:

1. Mechanism for receiving banknotes:

1.1.must meet CE or equivalent electrical safety standard;
1.2. must demonstrate that it can’t affect the outcome of the game;
1.3. must receive only Georgian GEL;
1.4. must notice and don’t accept fake banknotes.

2. Printers:
2.1. must meet CE or equivalent electrical safety standard;
2.2. must demonstrate that it can’t affect the outcome of the game;

3. Communication and player’s activity boards:

3.1. must meet CE or equivalent electrical safety standard;
3.2. must demonstrate that it can’t affect the outcome of the game.

8. The Procedure of obtaining permit

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After applicant receives authorization certificate there are some other steps to follow for obtaining permit.
The Revenue Service in entitled to issue and revoke permit for providing gambling and/or winning games.
Permit shall be issues for a period of 5 (five) years.

According to the Law of Georgia on Licenses and Permits and Article 241 of Gambling Law, to obtain a
permit, a permit applicant shall submit a written application to the permit issuer (Revenue Service). An
application shall meet the requirements of Article 78 of the General Administrative Code of Georgia. It shall
also specify the type of permit requested by the permit applicant and a list of attached documents.

According to the Article 78 of the General Administrative Code of Georgia an application must be in writing
and include:

a) the name of an administrative body to which the applicant has applied;

b) the identity and the address of the applicant;

c) the request;

d) the date of submitting the application and signature of the applicant;

e) the list of documents attached to the application, if any.

Moreover, all the documents that an applicant is obliged by law to submit, must be attached to the application
and an applicant also may submit all other documents that may serve as a basis for issuing the individual
administrative act requested by the applicant.

Legal entities under private law and individual entrepreneurs shall attach to the application extracts from
the state register. The document evidencing payment of a permit fee shall also be attached to the application.

Furthermore, there are other documents, which must be submitted by applicant to obtain a permit:

a) List and detailed description of the games and/or essential products/services to be provided;

b) Certificate of Authorization certifying the compliance of the applied/applicable essential products/services

with the standards/requirements introduced/established by the Minister of Finance of Georgia;

c) A certificate of conviction of an authorized manager and representative, and/or a founder and/or partner
(if any) of the permit applicant. The certificate of conviction must be issued by the relevant competent
authority of the country where an authorized manager and representative, and/or a founder and/or partner
(if any) of the permit applicant holds a citizenship.

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d) Proof of the origin of fund required to pay the permit fee. The Permit applicant is responsible for the
accuracy of the documents.

e) All other documents that may serve as a basis for issuing the permit requested by the applicant.

A license issuer shall decide to issue a license within 30 days after filing of an application. If the decision on
issuing or refusing to issue the license is not made within this period, the license shall be deemed issued. A
permit shall not be issued in the presence of a recognized tax debt.

Significant Information:

A permit to provide gambling and/or winning games may not be issued to a person whose authorized manager
or representative, and/or founder and/or partner (if any) is convicted of or charged with a deliberate crime
in the field of economy and finance, or with serious and particularly serious deliberate crimes, and whose
conviction has not been not expunged or cancelled in accordance with the procedures established by the
legislation of Georgia.

The person authorized to manage and represent, and/or the founder or partner (if any) of the holder of a
permit to organize a casino, may not be convicted of or charged with a deliberate crime in the field of
economy and finance, or with serious and particularly serious deliberate crimes, where the conviction has
not been expunged or cancelled in accordance with the procedures established by the legislation of Georgia.

9. Permit fee

Permit fee is a mandatory payment to the state budget of Georgia or to the budget of a respective local self-
governing unit (if a local self-government body issues the permit) that a permit applicant makes in an amount
defined by law or by a local self-government representative body in order to be authorized to carry out the
actions requiring a permit laid down by law. The permit fee covers administrative costs for issuing a permit.

Permit fee for providing gambling and/or winning games is defined by 100 000 GEL annually, which will
enter into force from 01th January, 2021. Permit fee for the first year must be paid in advance, before issuing
the relevant permit and not later than every 12 months from the first date of issuing permit.

10. Liability

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If a permit holder fails to perform the permit conditions set by law, it shall be penalized as provided by
legislation. The penalty amount shall be defined by law.

If a permit holder, despite having a liability imposed, fails to fulfil the permit conditions within the set time
(except when holders of a permit for setting up a slot club, casino, betting house, lotto, and bingo violate the
time for permit fee payment), the imposed penalty shall be tripled. When imposing a penalty, the time and
conditions shall be set for the permit holder to meet the permit conditions.

If a permit holder fails to meet the permit conditions after the period set for imposing a triple penalty expires,
the imposed penalty shall be tripled again.

If a permit holder fails to meet the permit conditions despite having the penalties defined above the permit
issuer shall decide to repeal the permit.

The non-fulfilment of permit conditions by a permit holder shall be subject to a fine in the amount of:

1. GEL 2,000 with regard to holders of a permit to provide gambling and/or winning games;
2. GEL 10,000 with regard to holders of a permit to provide gambling and/or winning games for violation of
a deadline to pay tax duties.

The permit holder is obliged to pay fine within 30 calendar days after the submission of the individual
administrative-legal act.

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