National Gambling Act: Regulations on Interactive Gambling: deliberations

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Trade and Industry

23 June 2009
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Meeting Summary

The Committee was briefed by the Department of Trade and Industry (DTI) on the proposed regulations relating to interactive gambling, which was included in the National Gambling Act by virtue of the National Gambling Amendment Act of 2008. The presentation focused on the National Gambling Board’s interactions with stakeholders, comments that had been submitted both internally and by international bodies, why the activities were sought to be regulated, with particular emphasis on the aim to protect minors, exclusion of people from gambling activities, the licensing process and monitoring.

Members were concerned about a number of issues. Many Members were not familiar with the National Gambling Act, nor the reasons for the introduction of the amendments to do with interactive gambling. Some expressed their views that such activities should not be allowed. They questioned how the age of players would be monitored, how identity would be proved, how frequently monitoring would occur and what measures could be taken to effectively handle illegal operations, how the proposed licensing procedures worked, what was allowed in terms of advertising, whether it was appropriate that the National Gambling Board would not be tasked with ensuring compliance and how the license applications would be judged.

Other questions, which the delegation had no time to answer, raised issues around what categories the Minister might deem expedient, the possible raising of the limit, why so much attention was being given to the matter, whether operators would misuse small enterprises and black economic empowerment ideals to expand the market, who would be responsible for costs of monitoring. The proposal was made by one Member that public hearings were necessary to investigate the effects of gambling, although another did not think there was any point in doing so, since it was already a well-established activity. Other questions related to advertising and endorsement and ways of controlling players.

The Chairperson expressed her concerns over both the regulations and the process. She asked why the regulations were being brought after the Act was passed, and pointed out that most Members had not been introduced to the rationale for the amendments relating to interactive gambling, yet were being put under some pressure to make a decision. The Parliamentary Legal Advisor began to explain the process, but the meeting had to be abruptly terminated. The Chairperson asked the Department to submit answers in writing, and noted that the Committee would not deal with the matter before the end of the month, but wished to have further time to give its full consideration to the issues raised.

Meeting report

National Gambling Act: Proposed regulations on interactive gambling: Department of Trade and Industry (dti) briefing
Ms Nomfundo Maseti, Chief Director: Policy and Legislation, Department of Trade and Industry, noted that the dti had drafted regulations dealing with interactive gambling, to be incorporated into the National Gambling Act (as amended). These proposals were tabled before the Committee for its comment and suggestions.

She noted that interactive gambling was internet-based gambling accessed through a computer or mobile phone.

Ms Maseti said that the regulations that already existed in relation to gambling aimed to protect the public against the adverse effects of gambling, to limit, control and monitor the proliferation of gambling activities, and enforce responsible operations by requiring operators to contribute towards social development initiatives.

Interactive gambling was illegal until the National Gambling Amendment Act of 2008 had authorised its operation. Stakeholders were consulted before regulations were introduced, including the National Gambling Board (NGB), the National Treasury (NT) and the National Responsible Gambling Programme (NRGP).

The proposed regulations for interactive gambling aimed to protect society against over-stimulation, provide registration and verification of players, protect minors and others from the negative effects of gambling and ensure compliance with the Financial Intelligence Centre Act (FICA).

The scheme of the regulations included the provision of interactive gambling games, player protection, licensing, addressing problem gambling and taxation. These issues were explored and presented in detail (see attached presentation)

Discussion
Mr S Marais (DA) asked what the stakeholders’ concerns were and how had these been addressed. He also asked whether the ten licenses had been issued yet.

Mr Themba Marasha, Chief Operations Officer: National Gambling Board, responded that no licenses had already been issued, so that the operators were operating illegally, but assured the Committee that measures were under way to address this problem. He said that this example showed precisely why there was a need for some sort of monitoring, which would be achieved if licenses were issued.

Mr A van der Westhuizen (DA) raised concerns about the strength of the regulations proposed for excluding people from gambling.

Mr Marasha said that if there was a system in place, it would work effectively. He pointed to the problems of third party exclusion, claiming that this was not very effective because issues related to gambling were given a lower priority than criminal issues, creating a large backlog. With a system in place, it would be easy for operators to check a server of excluded individuals and ensure that their accounts were barred. A special monitoring programme would also be set up to ensure this happened.

Ms C Kotsi (COPE) noted that the Act was already in place and asked if there was a summary available for the Committee Members to read through.

Ms Kotsi pointed to the problems of monitoring interactive gambling, saying that the risk of exposure for children was particularly high, as they had easy access to computers and cell phones.

The Chairperson acknowledged this point and stated that News24.com reported that more than 30% of children participated in interactive gambling, and many other countries had experienced this problem.

Mr E Gcwabaza (ANC) asked for clarity regarding the ten licenses that were to be distributed. He asked how many premises a license holder could have, and what was involved in the renewal of these licenses. This last question was also echoed by Mr S Njikelana.

The Chairperson asked what informed the decisions around where the ten licences would be placed.

Ms P Lebenya (IFP) thought that if only ten licenses were being distributed, there would be a high demand, and asked how corruption would be countered.

Mr Marasha said that when an applicant applied for a licence from the NGB, there would be a scoring system based on the priorities of the Board, such as geographical location, and more points would be given to those applicants in priority areas. The duration of the licenses would be five years, but this was subject to annual renewal, which would only be given if operators proved to be compliant in a number of ways.

Mr Marasha said he could not vouch for how individuals on the NGB would act, but said that there would be no recommendations made, because that was where the issue of corruption occurred. Instead, decisions would be made according to the set scoring procedure already decided upon. If a person was dissatisfied, he or she could appeal the decision and call for documentary evidence, which the NGB would be required to produce.

Mr S Njikelana (ANC) asked what the relationship between South Africa and other countries would be in the monitoring of illegal activities. He asked to what extent would Government have access to the data of operators, and how would this be monitored.

Mr Marasha stated that there was a direct link with the Financial Action Task Force on Money Laundering (FATF) and that South Africa had been evaluated by this body in terms of money-laundering. Countries that were not compliant with FATF would be barred, and operators would be monitored to ensure this. To ensure that prosecution of international players would be possible, cooperative agreements with other countries were being forged.

Mr Marasha then noted, in relation to the questions around monitoring, that this was a challenging issue for the NGB. Currently there was only a minor infrastructural difference between limited payout machines in casinos, and interactive gambling. This was the use of a computer, cell phone or laptop instead of a static machine, and the use of wireless as opposed to a dedicated line. He then stated that there was a structure in place for monitoring limited payout machines, and that regular inspections did happen, this being monitored through the provinces. Financial audits would also be conducted on a monthly basis if necessary, and IT technical and security audits would also be done. Monitoring of the games of licensed entities would be challenging, but even more so would be the monitoring of the illegal servers in other jurisdictions. NGB had already handed this latter issue over to the law enforcement agencies. The two outstanding issues were then the legislation itself, and the relationship between the NGB and the law enforcement agencies. How the agencies would handle cases was outside NGB’s power.  The monitoring of licensed entities would not pose as great a problem as illegal gambling.

Ms Lebenya asked for clarity regarding the reasons for the one year exclusion of players.

Mr Marasha noted that exclusion would be given for life, unless an individual went through approved rehabilitation processes and his or her application for removal from exclusion was accepted, in which case the exclusion would be in place for a minimum of one year. He added that all forms of gambling were monitored to ensure that they stayed within the quota outlined in the legislation, and so that they did not overly proliferate. He added that there was a need to do research on new forms of gambling that operators would raise with the NGB.

Prof B Turok (ANC) pointed out that the question of monitoring was essential. Since there was now a high proliferation of machines throughout the country, there was a tendency for gambling to increase. He stated that regardless of the proposed regulations, the dti should report quarterly on the scale of monitoring of interactive gambling. This was an area that was open to abuse.

Mr Marasha stated, in relation to gambling data, that there had already been a lot of information about gambling produced in South Africa already, but the NGB could not at the moment prescribe the type of information gathered. However, relationships could be formed to ensure that statistics would be available for the proposed quarterly reports. He said that the National Responsible Gambling Programme (NRGP) conducted research on responsible gambling and problem gambling, which was available on their website.

Prof Turok interrupted Mr Marasha, asking what exactly he meant by responsible gambling.

Mr Marasha described this as being done by ‘a person who gambles with the notion of receiving entertainment, and not gain’.

Prof Turok asked whether Mr Marasha was serious about this definition.

Mr Marasha was taken aback and said that he was quite serious. Attempts had previously been made to share with the Committee the findings of the research that had been conducted, especially regarding responsible gambling.

The Chairperson asked for further clarity on the presenters’ comments on minors.

Mr Marasha expanded upon the comments relating to minors. He said that international stakeholders had criticised the NGB for being too harsh because registration of players was required before a person could participate in interactive gambling. In order to register, a person must produce an ID and a certified copy, and it would then be the responsibility of the operator to validate this, in the agreed way, and upload the details on to the server. A further measure in place was that players were only permitted to use credit cards. A dispute could be lodged if, for example, a credit card was used by another person. In this case there would be verification that the operator took the necessary measures to ensure that the person’s age was confirmed, and, if not, the dispute would be resolved in favour of the complainant. When the license was due to be renewed, such an operator would be seen as non-compliant and would not get the renewal.

The Chairperson asked for clarity as to how interactive gambling would act as a catalyst for socio-economic development, and how this would be monitored.
 
Mr Marasha said that this would be outlined in the requests for application, which would give directives to the operators. These would need to be met, in order for their applications to be considered further. An example might be a requirement that 5% of spending occur within small, medium and micro enterprises (SMMEs). Compliance with such requirement would be monitored, and failure to do this would result in non-renewal of the license. He said that the NGB had the flexibility to add a number of other conditions, which would contribute to the social, economic and infrastructural development of the areas in which operators ran their businesses.

Ms Kotsi asked for clarity or an example of what ‘any other category or activity that the minister may deem expedient’ could mean.

Ms Fubbs, returning to the question of minors, asked for an explanation of the link with Department of Home Affairs (DHA) and an explanation of how age would be verified.

Mr Marasha stated that operators were required to use a system that corresponded with the algorithms that DHA used to verify age. This, he stated was already operating with the exclusion system.

Prof Turok asked which unit of DHA would do this work.

Mr Marasha explained that this was not done at DHA itself, but rather that a computer programme was installed on the NGB system, which had the same data as those of DHA. It was possible that a number given could coincidentally match up to an existing number.

Ms Fubbs was concerned that this method was not even utilised by other departments – such as the Department of Social Development, and pointed out that these required original ID documents. She noted that other departments had had to resort to this method because of the fraud that was rife. The question related not so much to the technical issues, but to the existing structural problems, which their Minister had acknowledged, within the Department of Home Affairs. The main issue was proving that an individual had not borrowed or acquired an ID book and used it to open a bank account.

Mr Marasha admitted that it was not possible to check the validity of a person’s age from the existence of their bank account. He said that the ID document had to be certified and verified. Certification would be the responsibility of the Commissioner of Oaths, and in addition, the individual would be required to give a statement under oath declaring that he or she was over 18. He said that the current system was being heavily relied upon, and there had been serious criticisms about its strictness from foreign jurisdictions. 

Ms Maseti felt that monitoring had not been sufficiently addressed. This was a challenging area, as it would require physical inspections to be done on a regular basis. She felt it fair to share with the Committee what had been done by the NGB in preparation for interactive gambling, and what had been done to keep up with the sophisticated technology necessary for interactive gambling. She therefore asked that the Committee briefly return to issues of personnel, technical capacity, fostering relations with the provinces and monitoring. She also would like Ms Mosing to address the questions relating to the stakeholders. 

Ms Mpho Mosing, Director: Regulated Industry, dti, stated that the real concerns of the stakeholders were the various requirements needed before a player was allowed to participate. The rationale was to prevent minors from participating. Stakeholders were also critical of the limit of R20 000, which was thought to be too low to attract applicants. This was originally put in place to prevent gamblers from losing too much money. As a compromise, the NGB proposed that this limit be raised to R50 000. The one year period of self exclusion already discussed was in place to ensure that problem gamblers had time to assess themselves properly before returning to gambling. Finally, the stakeholders had raised person to person gambling, which the regulations prohibited, but which was acceptable internationally in interactive gambling. There was currently no policy around this issue, and it was uncertain what this would lead to if it were to be allowed. A temporary measure was under way to address these issues, through the Minister appointing a Gambling Review Commission to assess the activities in the gambling industry as a whole. Feedback from this Commission would then be brought to the Committee for discussion.

Prof Turok referred to a definition of interactive games in the Act of 2004, and noted that nowhere in that definition were cell phones included.

Prof Turok raised concerns about the dependency on law enforcement agencies to ensure that highly technical regulations would be adhered to. Sometimes the law enforcement agencies were not strong.

Prof Turok asked why the dti was spending so much energy on such an anti-social activity.

Prof Turok felt that this Committee was responsible for morality.  It was a dangerous sign that operators were already functioning illegally. He strongly opposed the use of cell phones for interactive gambling, stating that these were too accessible to anyone in the world. He emphasised that quarterly reports would be conditional, but he held huge reservations about the entire exercise.

Mr N Gcwabaza (ANC) raised concerns about the possibility that operators used noble ideas, such as SMMEs and BEE, to expand the gambling market. He then commented that last year the South African public was in debt to the total of R1.4 trillion, and asked what the logic was behind allowing people to so easily lose money gambling. 

Mr Njikelana said again that access to data about interactive gambling was needed.

Mr Njikelana began raising concerns about person to person gambling, but the Chairperson ruled that this was not yet an issue.

Mr Njikelana asked who would be responsible for the costs of monitoring.

Mr Njikelana proposed that in this fourth term of Parliament at least two public hearings be held to investigate the impact of gambling on those doing it or affected by it, as well as the social economic benefits, particularly in relation to Black Economic Empowerment (BEE) of interactive gambling.

Mr Marais asked if this was really necessary, as there were so many gambling operators in South Africa already, and he did not think that this would add anything to economic development.

Mr Marais believed that on questions of advertising, there should be cooperation between the dti and other regulators. He made particular reference to Silver Sands, asking how they were allowed to advertise on television of it was illegal to do so.

Mr van der Westhuizen gave his reluctant support for the proposed regulations on the grounds that interactive gambling occurred on an international level, and so needed to be monitored.  He suggested, however, that consideration should be given to additional points. He listed these as including that operators must reside in South Africa, that no credit should be allowed, and that the status of exclusion should be easier to attain than it was at present. He also raised concerns about a few technical issues, such clarity on regulation numbers.

Mr van der Westhuizen referred to the draft regulations, and asked what the merit would be in having well-known personalities endorsing interactive gambling.

Mr van der Westhuizen asked what other ways existed of controlling players.

The Chairperson raised a concern that these illegal activities were already occurring, and so having regulations and issuing licenses seemed to be a move to accommodate the gambling rather than combatting it. She noted that the problem was that an Act was already passed. However, Acts could be repealed, although she was not suggesting that this should happen here. She noted that it was a fact that the Act was already in place, and asked how it was currently regulated. The Act did not state that it could not be in operation before the regulations in place. She stated that the process was too flawed, and the Committee was in a position of being asked to “rubber-stamp” although they were not yet familiar with the notion of interactive gambling.

The Chairperson said that another cause for concern was that the regulation might simply be a way for the State to make money from an existing leisure activity, but added that this was better than nothing as funds could be used for social improvement, and the worst side effects could be reduced.

Ms Fubbs noted that the Committee was unfamiliar with the people on the National Gaming Board, and so could not know whether any of them had anything to gain from these regulations being put in place.

She then noted that the Department was under severe time constraints. There was no reason why the Committee must be bound by those constraints, but she would to hear their views. She also asked the Parliamentary Legal Advisor for her input, as she was unhappy with the process. 

Adv Koleka Beja, Parliamentary Legal Advisor, said that the Act simply stated that regulations in relation to the matters covered by the Act needed to be tabled before Parliament before being published in the Gazette. Normally, in accordance with the Interpretation Act, regulations would be required before the Act came into operation, and the passing of those regulations would bring the Act into operation. However, in this instance the Act was already in operation and the Amendment Act had been signed by the President, and was also in operation. Almost every section of this Act required something to be prescribed by the Minister through regulations, and so it would be difficult for the Act to operate properly in the absence of regulations. She appreciated that the Committee found itself in a difficult situation and said the legislative process should not be rushed.

At this point the meeting was interrupted as the House Whip announced a concurrent meeting.

The Chairperson stated that an operational exigency had arisen in the House and that it required decorum.

She then said that no decision could be made on this matter before the end of the month. The dti delegation would need to meet again with the Committee. The Committee would need to consider how best to make an effective response, including possibly reviewing the legislation that had been passed. She asked that the delegation respond in writing to those questions not addressed. She reminded the Committee that its function was not to monitor the moral value of the proposal, but rather to ensure the strengthening of moral fibre in South Africa.

The meeting was adjourned.

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