National Gambling Amendment Bill: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
8 August 2007
NATIONAL GAMBLING AMENDMENT BILL: BRIEFING

Chairperson: Mr B Martins (ANC)

Documents handed out:
National Gambling Amendment Bill [B31-2007] as introduced on 31 July 2007
National Gambling Act (No 7 of 2004)
National Gambling Amendment Bill 2007 briefing
Committee Third Term Programme

Audio recording of meeting

SUMMARY

The Department of Trade and Industries made a presentation on the National Gambling Amendment Bill that aims to regulate interactive gambling. Interactive gambling refers to all forms of remote gambling taking place via the internet or other related forms of telecommunication. Internet gambling was a reality in South Africa, and this sector of the industry was not yet regulated. Players would be protected from dishonest and unfair practices. Money that was being spent outside of the country would remain in South Africa. Players would be registered, thus denying access to minors while enable the monitoring of problem gamblers. Attention would be given to implementing Black Economic Empowerment and socio-economic upliftment principles. Operators would have to comply with the provisions of the Finance Intelligence Centre Act. Advertising of service providers would be limited.

Members felt that the intentions of the Amendment Bill were skewed. Gambling was an immoral activity, and the government should not be planning on deriving income from this source. While they agreed that it was impossible to ban this practice, they agreed it should be regulated. The consultation process had not been comprehensive enough, and the Committee members agreed that public hearings should be held. People might still choose to gamble with foreign operators, but would have no protection under South African law.

MINUTES

The Chairperson welcomed the delegations from the Department of Trade and Industry (dti), the National Gambling Board (NGB) and the Gauteng and Western Cape Gambling Boards. He apologised for the absence of female members of the Committee, as they had been deployed to participate in Women’s Day celebrations.

Briefing by Department of Trade and Industry

Mr Fungai Sibanda (Acting Deputy Director-General, the dti) briefed the Committee on the National Gambling Act Amendment Bill. The draft version of the Bill had been published in December 2006 by the Department, and public comment had been received until February 2007. There had been further consultation thereafter.

He explained that interactive gambling such as internet gambling was a small part of the industry. He said that 3.5 million South Africans had access to the internet, but only a small percentage of that number was able to access internet gambling sites. One of the inhibiting factors was the high cost of telecommunications in this country. However, the dti recognised that this was happening. The A/B was designed to introduce measures to protect players and to keep revenue in the country. The international internet gambling industry was growing, and more people would access these sites.

Mr Sibanda said that the objectives of the Amendment Bill were to protect the players, to direct revenue derived to the national fiscus rather than see it go abroad, and to claim a share in the global internet gambling industry.

He explained that the Act had come into force in 2004. At the time, an obligation had been placed on the Minister to introduce measures to control internet gambling within two years. This was the reason for the Amendment Bill. There was a commitment to research, and some experience had been gained from overseas. A regulatory framework would be put in place. The National Gambling Policy Council had made recommendations, and the dti had recognised the results in a document.

Mr Sibanda said that approximately twenty submissions had been made on the draft Amendment Bill. These included concerns over licensing, money laundering, control over internet servers, protection of players and the control over problem gambling. This had led to revisions of the original draft in drafting the Amendment Bill. Stakeholders consulted included the NGB, provincial licensing authorities, National Treasury, the Reserve Bank, the South African Revenue Service and the gambling industry.

He said that major concerns were minors having access to internet gambling and players suffering from gambling addiction. They also wished to stimulate competition locally. The cost of regulation and monitoring had to be considered. The approach was to amend the Act rather than to promulgate a totally new Act. The National Gambling Act of 2004 had replaced legislation passed in 1996 that had taken cognisance of the recommendations of the Wiehahn Commission of Enquiry into gambling. This included the recommendation that South Africa should adopt the approach of regulating the industry.

Mr Sibanda outlined the structure of the Bill. It recognised that internet gambling was a growing form of entertainment. It was incumbent on government to regulate the industry in the public interest. There was a relationship with the Electronic Communication and Transactions Act. This described the authorisation system and methods of payment.

He added that the Bill proposed that all players should be registered with service providers. This would prevent minors and other prohibited people from taking part. Accounts would have to be kept for payment. Only service providers based in South Africa would be permitted. The method of payment would have to be clearly defined. There would be strict probity checks on service providers. No credit could be extended to players. A dispute resolution system had to be put in place. Licence conditions would have to be displayed on the web page. The provisions of the Act would apply regarding the advertising of service providers. A notice regarding addictive and compulsive gambling behaviour would have to be displayed. The Minister would prescribe the content of such notices.

Mr Sibanda said that internet gambling had a borderless nature. The Bill therefore proposed that licensing should occur on a national rather than a provincial basis. He admitted that the provinces held a different view on this matter. Regulation should include operator and employee licences. Hardware and software and their maintenance processes should be certified.

He said that strict conditions would be applied. The NGB was there to ensure compliance and it would control licences. It would also supervise compliance with the Finance Intelligence Centre Act (FICA). Servers would have to be based in South Africa. It is possible that the NGB might delegate some powers to provincial authorities.

Mr Sibanda said there might be negative effects of over-stimulation. These would be detected by electronic reporting systems. There should be a limit on the stakes that could be placed. Audits would be done on playing patterns and the behaviour of players. A self-diagnosis system would be established, and warnings about the possible consequences of gambling would be displayed prominently.

He said that the dti had held discussions with the Finance Intelligence Centre (FIC) about the question of money laundering. This was why players should be registered and their identities verified. Electronic payments would be traceable. Players from foreign countries would be allowed to participate in South African-based service providers provided that their home countries complied with the regulations of the Financial Action Task Force (FATF). Accounts would be verified. Payment would be by credit card. Service providers would be obliged to make suspicious transaction reports (STRs) to the FIC. A control system would be prescribed.

Mr Sibanda said that the dti would take its cue from the NGB. Other issues to be considered were Broad-Based Black Economic Empowerment (BBBEE) and socio-economic upliftment.

In conclusion, he said that the dti was asking the Committee to consider the Bill which would provide certainty over interactive gambling. The provisions of the Bill would help to retain revenue which was currently being lost overseas. It would ensure an accountable industry and would eliminate illegal operators. Players would be protected. Finally, it would ensure an effective and transparent process.

Discussion

Prof B Turok (ANC) said that he had some problems with the industry. The dti seemed to be confusing a number of issues. There were many problems which could have bad consequences. The legislation was not sufficiently critical of gambling activities. They should be seen as a relative evil, and it was up to Parliament to either prohibit or curb the practice. The legislation should not encourage gambling. He asked what the approach was with this amendment Bill; whether it was not intended to prohibit gambling but to prohibit money laundering. This was already catered for in other legislation. He asked if the regulations were designed to curb or encourage interactive gambling.

He asked if advertising should be allowed. He did not think so himself. Gamblers should find their own way to these services. This was a moral issue for the country. The fiscus already had surplus funds, and there was no need to use bad activities to raise money. He found this unacceptable. Gambling activities were often verging on crime. The linkage of interactive gambling service providers to social commitment was also unacceptable. This was a questionable industry, similar to prostitution. The churches and society in general had not been consulted. This was a moral issue, not one of fund raising. He asked what was meant by authorised games. If these were bad, then they should be banned.

He felt that the wrong approach was being taken. Internet gambling was being treated as an ordinary industry while it was in fact a social evil which might be allowed but should be closely regulated.

Mr S Rasmeni (ANC) welcomed the presentation, but he felt the need to voice an opinion on the Bill. Gambling was against the moral fibre of the nation. There was a need to regulate these activities, as they could not be detected and controlled if they were all practiced illegally. He asked if the regulations were a form of transit to a point where gambling could be phased out altogether. There was a need to acknowledge these activities. A commitment was needed from the dti towards doing away with gambling. The internet brought these activities too close to vulnerable communities. He asked what plans the dti had to achieve social economic upliftment. The service providers were solely white owned, and blacks should benefit. They were being robbed at present. He would not be quiet about this. Blacks must benefit during this phase. He asked how information would be forwarded to FIC about suspicious and illegal activities. He asked about the practicalities of allowing overseas persons to use South African servers. Internet gambling was borderless. This had led to national regulation, but he asked about those outside the borders.

Mr D Dlali (ANC) referred to the issue of genetically modified organisms, where it had been found that the cost of using warning labels had proved to be high. He asked how widely civil society had been consulted, and if bodies such as South African Non-Government Organisations Coalition (SANGOCO) and the Congress of Traditional Leaders of South Africa had been consulted. If not, the dti should explain why not. The effects of gambling on ordinary people should be noted. Vulnerable persons had to be protected. Legislation was sometimes contradictory. In some places a minor was defined as being younger than eighteen years of age; while in others twelve-year-olds had the right to do some things. He asked if the various pieces of legislation were compatible with each other, as there seemed to be various age limits. He noted that certain words were used to attract acceptance. Terms like BBBEE and socio-economic upliftment were often used to sell concepts. He asked how the dti planned to prevent unintended consequences. He felt that the Bill should not be accepted immediately, as a careful look was needed.

The Chairperson said that the cross reference to age limits set by other departments should be considered carefully. The case of the limit of twelve years was specifically in the context of the use of contraceptives. Members should rather be clear with what they said.

Mr D Olifant (ANC) had reservations on the moral issue. The National Gambling Act was already in place. Internet activities had to be regulated. Of the 3.5 million South Africans with internet access, some would have access to gambling services. Players would now have to register. The moral issue was that the government was trying to curb gambling, but could not stop it. Gambling destroyed lives. By registering, a player was becoming a permanent participant. Casual participation would not be possible. It was dangerous to compel players to become permanent members of gambling services if they wanted to play.

Mr L Labuschagne (DA) was astonished to find himself agreeing with ANC members, but cautioned them not to expect him to cross the floor. He said that the Bill sounded very nice, but the devil lay in the detail. He asked why it was needed, and if internet gambling should not just be prohibited. Casinos were already a fact, and offered more facilities than gambling. They were more than at arm’s length, with a result that players had to put in some effort to go to these places. Even though the dti said that it was a small percentage of the population that was involved, this could entail a few hundred thousand people. He felt that the warning labels as used on cigarette packets were meaningless.

He asked how the dti would achieve its promises, and how financial issues could be linked to gambling. He noted that persons from other countries would be able to access South African servers, and asked how this would be determined. He asked how socio-economic upliftment would be assessed. The consultation process was interesting, but he asked how much of it had been taken on board. This was a broad statement. The real answers would be found in public hearings. He asked how the internet service providers would be linked to casinos, and if there would be any limitation of the number of these facilities. Was not dti defeating the object, and would there be quotas on service providers? He asked if it would not be better for a separate Act to cover this aspect of the gambling industry. He thought that would bring more certainty. He was worried about excessive regulation, as it might bypass Parliament. Parliament would pass the Bill, but the administration would be out of its hands.

Dr P Rabie (DA) noted that a number of countries had prohibited online gambling. He asked if the dti could name any. He asked if there were any programmes to treat addiction.

The Chairperson said that it was clear that Members were passionate on the issue. He invited the dti delegation to respond.

Mr Sibanda said that Prof Turok had entered a challenging area. Quite frankly, the approach was not to encourage interactive gambling. However, they wished to regulate the industry in the public interest. Interactive gambling was happening already, and it was incumbent on government to regulate it. This was the same as in other undesirable sectors such as the liquor industry. The Bill was not intended to encourage internet gambling but rather to deal with the negative consequences. It would be costly to prohibit the activity. It might take dramatic things like dawn raids to prove who was engaging in prohibited gambling. If the players were registered then the regulating authority would know more about them. Relatively very few people had access to the internet, and only a small percentage of them to interactive gambling. The regulations would thus only target a small group, and their identities would be known.

He said that regulation of interactive gambling was being introduced not with the intention to raise money. This would only be a by-product of the process. This was in line with the Act. Internet gambling would be treated the same as the conventional gambling industry. This was needed for taxation issues, and there was nothing new in it. The same applied to socio-economic commitments. The dti was taking a line current with the existing legislative framework. This would be the duty of licensing authorities, which had certain imperatives.

Mr Sibanda said that the gambling industry might be seen as unfortunate. However, it was permitted by Parliament. The dti was now trying to regulate this aspect of it. There were still ongoing illegal operations. He agreed that there was a moral issue.

Mr Themba Marasha (Acting CEO, NGB) said that the NGB would look into the implications of implementing BBBEE. The criteria would be listed. The same would apply to social commitment issues. Benchmarks were to be set. There would be a bidding process for aspirant service providers. Applications would be vetted. A limited number of licences would be granted. A monitoring process would be applied, with penalties or even the revocation of a licence possible in the event of non-compliance with regulations. A step-by-step approach would be followed.

He said that each game would have to be authorised. Criteria would be set and standards applied, for example a return-to-player ratio of 85% was a probable requirement. The obligation to report suspicious activities was not a new thing. It was already happening with casinos. There were mechanisms to track illegal activities. Rules would be in place, and inspections would be carried out. This obligation would be one of the licence conditions, and was in line with FICA regulations. Even banks followed this procedure. People resident in countries which complied with the regulations of the FATF could use South African service providers. In addition, persons resident in countries where internet gambling was prohibited would not be permitted to do this. They would be identifiable by identity or social security numbers. The registration process would gather the information needed for the service provider to know the player. The Wiehahn Commission had recommended that a minimum age of eighteen be applied.

Mr Brian Muthwa (Director Legislative Drafting, the dti) said that easy internet access was encouraging people to gamble online. The dti wanted to ensure that players were of age, and that only registered and vetted players participated. It was not uncommon for legislation to make provision for regulations when it dealt with technical matters, and powers could then be delegated to lower levels of authority, for example in order to keep up with changes in technology. The Minister could delegate his powers on technical and administrative matters. This would enable quick reaction to changes within defined parameters.

He said that using an amendment Bill was a method of choice. Most of the general issues were already contained in the Act. To have a separate Bill would require a large number of cross-references, and a great deal of duplication. The State Law Advisor thought that a new Bill was not necessary. There was an elaborate cost of prohibition, and he thought that state resources could be better used for policies in areas where there was a greater need.

Regarding consultation, Mr Muthwa said it was perhaps never easy to know where to start or stop the process. The first stage had been to put out draft legislation for public comment. The dti could have thought of identifying stakeholders who did not respond. There was a danger in not knowing where to stop. He did concede that some stakeholders might have been left out.

Ms Evelyn Masotja (Director: Regulated Industries, the dti) said that the dti wanted to protect players. Many people were engaging in interactive gambling but were not accounted for. People were accessing foreign websites where there was no control and where minors could play. These were currently illegal activities, and yet she had seen an advertisement for online gambling in the magazine on the flight to Cape Town. It would be more responsible to regulate the industry rather than allow it to flourish illegally and uncontrolled. Notices about the problems associated with gambling would be a channel to control the industry and disseminate information.

She said that the dti had tried to reach out during the consultation process. Some stakeholders could not be reached. It was a process. The Department had been wary of opening up the process too much due to time constraints. The minimum age of eighteen was in line with other departments and the Children’s Act. They were now regarded as majors. The registration of players was crucial. Service providers had to know who they were dealing with. If there was no registration, then it would be unknown how many players were minors. The stricter the regulations were, the better the situation would be. If it was difficult to register, then this would be a disabler.

Ms Masotja said that problem gambling was a serious side-effect. They were trying to address this problem in many ways. Limits could be set, and players could be given the opportunity to conduct self-diagnosis of their habits. Different messages were being sent out. Audits would be carried out by service providers, and potential problem gamblers could be cautioned. Countries had prohibited online gambling, but the practice was borderless. It was difficult to prohibit the activity, and it was safer to control it. In the United States there had been a total prohibition, but this was now being reconsidered. She could not talk about other countries.

The Chairperson asked about the nature of the amendment Bill. He thought that the Committee would have to hold public hearings. A broader range of stakeholders could be reached. The Committee would have to see what could be factored into this process.

Mr Rasmeni said that the USA was the source of gambling. There had never been gambling in Africa, and maybe the practice was now going back to its roots. The Memorandum on the Objects of the Bill stated that “The Bill, however excludes interactive gambling activities taking place between two or more persons that are facilitated by a third party, as the implications of this form of interactive gambling are currently being investigated.” He asked what that meant, and why it was excluded. There was still some investigation needed yet the amendment Bill was already being presented. He felt that the dti was in a rush, and asked what was still being investigated. He asked why the Committee should accept the Bill now when there would be another amendment soon.

Mr Olifant said that the Act was in place, and the Bill would be an addition to it. He was more than disturbed and he felt it strange that South Africa was being compared to the USA. He asked what the dti meant when it said only a small percentage of the population would have access to interactive gambling. He was aware that people in South Africa who did not have internet access were still involved in international gambling. Applications were sent by operators in Australia and the USA in particular. No computers were involved. He asked if there was any mechanism to control or restrain this.

Prof Turok supported the call for public hearings. The religious community, trade unions and civil society should be invited. The Memorandum on the Objects of the Bill indicated no attempt to involve these people. Prohibition was costly, and might even be impossible. The overall intention should be reflected in the long title of the Bill, but was not there. It only listed the activities. He quoted what had happened when legislation was introduced regarding shebeens. The community which he represented had felt that regulation of shebeens had implied legitimising them. There had been many reservations on the National Gambling Act at the time it was legislated. He was very cautious, and wanted to know where it would all end. Prohibition of internet gambling was probably not possible, so regulation had to be implemented. But he asked what the actual cause for this Bill was as the first paragraph of the Memorandum on the Objects of the Bill dealt with revenue loss. This was used as a justification. He would vote against this. The principle was wrong. The intention should be to curb what was an undesirable activity.

Mr J Maake (ANC) said that the Committee might have to review the legislative framework. It would be helpful if the dti could provide evidence. The amount of revenue was spine-chilling. He understood the process of public hearings. It would take a lengthy process for the Bill to be finalised. The dti would have to supply well-documented evidence on socio-economic upliftment programs in other countries and of the loss of income to individuals. It would also have to show what net gain there would be for the disadvantaged, the poor, the wretched and the vulnerable. The second area where information was needed was on those countries where internet gambling was prohibited, and their reasons. It was not only in the USA. This information would be very helpful information. It was strange and disturbing to see that this Bill was being given a higher priority than other Bills such as Enterprise Development and Consumer Protection.

Mr Labuschagne accepted that it would be costly to prohibit, so regulation was needed. However, people were already gambling with foreign service providers. He asked how this practice could be stopped if the Bill came into force.

Mr Dlali said that internet access should be linked to an age limit. There was an obligation to consult in terms of the Constitution. They had known from the start that an amendment Bill would be introduced, and the dti should have planned the timeframe better. He also supported public hearings.

In response, Mr Sibanda said that he also welcomed public hearings. The dti’s consultations had been limited to written respondents. Others might not have known about the consultation process. He took the point about the long title of the Bill. Regulation was in the public interest, and economic regulation was just as important. There was an issue of extending the regulatory framework, and where it would end. They were looking at gambling as a whole. There were concerns about other forms of gambling which were surfacing. They must take stock of these developments. It was a very broad sector. A holistic view was needed. He was unsure if they would still need to extend the regulations, or if they had reached an optimum level. The latter was the current thought. Licensing would curb the increase in internet gambling, and registration would limit the number of players.

In reply to Mr Rasmeni, Mr Marasha explained that the intention was to exclude person-to-person games using a third party as a facilitator. However, a decision had still to be made on this issue. The Wiehahn Commission had also recommended other forms of gambling, such as greyhound racing, remain banned, but there were renewed calls for this. It was hard to stick with a policy when technology was advancing, and revisions were needed constantly.

The Chairperson berated the Members for conversing amongst themselves and not listening to the answers.

Mr Marasha continued that the numbers of people with access to the internet included a number of minors, and others who had no credit cards. These people could not register for internet gambling. There was a loss of revenue due to the fact that money was going offshore. The NGB had been inundated with complaints by players who had dealt with service providers who had not played by the rules. A local company would be registered and taxed; the returns to players would be specified and VAT would be paid, amongst other issues. Minors would be denied access, as players would have a registered user name and password. Minors would not be able to register as they would still need an identity number and certain documents would have to be submitted to the service provider to register. The reality was that some parents might allow minors access to their accounts.

Mr Muthwa said it was prohibited for South African citizens to play on foreign sites. The motivation was that players had no protection from unscrupulous operators, and secondly, this was a way of preventing funds leaving the country. The Bill would provide a framework for legal gambling on line. However, he acknowledged that certain players might still prefer to play on foreign sites. If they did so, they would not be entitled to any protection under South African law. Most people with access to the internet were relatively sophisticated in the use of computers and integrated technology. Gambling could be a disease, and could become compulsive. Players needed protection from themselves often. They should therefore accept the need for enforcement of regulations. Benefits would outweigh the costs of regulation, and problem gamblers were a small portion of the fraternity. There was no way that statistics could be produced. It was estimated that 270 thousand people were accessing internet gambling sites on a regular basis. The number might be reduced when the Bill was passed.

Ms Masotja acknowledged the need for consultations. Information could be gathered about the situation in other countries.

Mr Sibanda said that consultation should be taken seriously. They were beginning to do this at a policy stage. Before the Bill was accepted by Cabinet, there had been informal consultations. This process had been a minimum of six weeks, but had been extended by two weeks. In certain instances a consultative process could last up to six months. This particular process had been limited to the respondents. He welcomed the proposal of gathering more information.

Mr Marasha said that he was not aware of international gambling activities which were not internet based, apart from some bogus lotteries.

Mr Labuschagne said that there was a lot of interactive gambling. The Bill would lead to a few operators being licensed. He asked how the dti proposed to stop current players from participating on the channels where they were currently active. He wanted to see a schedule of consultation dates in the documentation.

Mr Rasmeni said that the dti had identified internet gambling being conducted by two or more persons. He had never heard of such a thing before. This was one aspect of the research which had not been done. There were costs in passing legislation, and the dti had to work on this. He asked if there was still research being done on new legislation.

Mr Marasha replied that players would be offered protection in South Africa. The risk was up to the players. South African operators could compete with their foreign opposition by better service and better payout ratios. It was the choice of the players where they wanted to go. The amendment Bill still outlawed person-to-person gambling. This was another form. They would have to deal with the issue of greyhound racing at some time. Informed research was needed.

The Chairperson said that it might seem that there had been no progress, but that would be the wrong impression. Members of Parliament had a duty to ensure that legislation passed was the best possible. The dti had an equal responsibility to facilitate the process. There was a responsibility for critical and constructive debate. The Committee had to find the best way forward under the circumstances. There was a need to facilitate a meeting with the different stakeholders, as well as those that had originally been left out. All inputs were needed, and the Committee would seek to draft the best possible legislation. It would not be cast in stone, as there were still unknown possibilities. Inputs would be received from time to time. The process was dynamic. The best interests of citizens had to be considered. The dti would be informed of the date set for public hearings.

Mr Sibanda thanked the Committee members for their input, and recognised the challenges ahead. They recognised the importance of awareness campaigns, as was currently happening in the Northern Cape regarding alcohol abuse.

The meeting was adjourned.