Review of the National Gambling Legislation: Public hearings

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Trade and Industry

10 November 2009
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met with various stakeholders in the gambling industry in order to review the National Gambling legislation. Presentations were made by Thuo Slots, AG Consulting, Phumelela Gaming and Leisure, Aristocrat Technologies Africa and the South African National Responsible Gambling Foundation.

The Thuo Slots representative said that the Limited Payout Machine (LPM) sector had contributed towards employment creation, as well as employment equity in the industry. In addition to contributing towards skills development and training, it assisted community social development projects. It also contributed a portion of its gross income to the National Responsible Gambling Programme. It faced challenges, however, around the inconsistent implementation of regulations across the nine provinces. Stake and prize monies were also not in line with the consumer price index. In order to address these issues, Thuo Slots recommended that amendments be made to the National Gambling Act. Members asked whether the company was aware of reports that there were more LPMs in the market than reported, how the operators in this sector were organised and about inconsistency implementation of regulations in the different provinces.

AG Consulting mentioning that the gambling industry had in general contributed towards revenue, infrastructure investment and job-creation. Problem gambling in South Africa had also declined. The Bingo sector had been fragmented since the introduction of Electronic Bingo Terminals (EBTs) and there was an ongoing legal dispute around this. Challenges faced by the industry included the uneven implementation of legislation across the provinces. To address this, amendments could be made to the existing legislation. As prohibition would only serve to exacerbate problems around illegal gambling, the industry should be regulated effectively. Members raised questions around what the effect was of policing unregulated gambling in townships, and what had caused the delay in the uptake of operator licences. The Chairperson asked whether the industry had a positive impact on the unemployment rate.

Phumelela Gaming and Leisure mentioned that despite the sector making up less than 10% of the gambling industry, it employed tens of thousands of people. It had also achieved a Level A Empowerdex Broad Based Black Economic Empowerment rating. Challenges included an imbalanced legislative approach which also needed to take commercial considerations into account, inconsistent implementation of legislation across the different provinces, and further proposals around interactive gambling, as well as the delay around licensing and regulation. Members asked what the socio-economic effects of this sector were and what it had done towards bridging the gap between the rich and the poor.

Aristocrat Technologies Africa mentioned that some of the challenges faced by this sector included the fact that the Financial Intelligence Centre Act (FICA) had not been designed with companies of this nature in mind, the issue of certification and approval of equipment and the movement of gambling machines and devices. In order to address these challenges it suggested amendments to the relevant legislation. Members asked whether there was not a conflict between the recommendation of testing and certification being conducted by one agent, and the fact of the spread of these manufactures and testing agents across the country.

The South African National Responsible Gambling Foundation said that its research showed that the number of problem gamblers had not increased since 2001. In addition, very little problem gambling was attributable to casinos. The easily accessible nature of the lottery, as well as comparatively lower stakes, had seen higher figures here. Problem areas were the prevalence of illegal gambling in townships and the prospective boom in interactive gambling, which would see the number of young people partaking in illegal gambling activities increase greatly. Members raised questions around whether the current awareness campaigns were effective, whether there was any manipulation of gambling machines and how other countries controlled internet gambling. The Chairperson asked what criteria had been used in identifying problem gamblers.

Meeting report

Review of the National Gambling legislation: Public hearings
Thuo Slots submission
Ms L Parton, Corporate Affairs Manager, Thuo Slots, said that Thuo Gaming South Africa was the holding company for Thuo Gaming Western Cape as well as Thuo Gaming KwaZulu-Natal, both of which operated 1 000 Limited Payout Machines (LPMs). Although the industry had only started rolling out recently, its legislative framework was mooted by the provinces in 1995. She set out the key elements of this legislative framework. There had to be an established primary business (operating in bona fide pubs, clubs, sports bars and betting outlets), the owner or licensee had to have a clean track record (criminal, credit, tax and business history), only five LPMs were allowed per site, although a maximum of 40 were allowed subject to justification, and there must be a limited stake of R5 with a limited prize of R500. Two new elements were added to this legislative framework. Firstly, there was a three-phase rollout, whereby each province may roll out 50% of its LPM cap in Phase One. This was currently the position. In Phase 2, the cap would be a further 35% and it would be the last 15% in Phase 3. Before a province reached its next phase, socio-economic studies had to be conducted and it also had to make representations to the National Gambling Board (NGB) . Secondly, criteria set by the National Gambling Board had to be met in order for sites to be allowed to operate LPMs. The LPM industry operated in six provinces nationally, being Mpumalanga, Eastern and Western Cape, KwaZulu-Natal, Limpopo and Gauteng.

She noted that the industry had contributed towards employment creation, and employment equity. Through ownership and management participation as well as its wide geographic footprint it had contributed towards Broad Based Black Economic Empowerment (BBBEE). It also contributed towards training and skills development, as well as small and medium enterprise development. Through its Community Social Investment (CSI) contribution of between 2% and 5% of pre-tax profits, it had assisted Community Social Development Projects. It was also a new source of provincial and national tax revenue. It had contributed 0.1% of its gross gaming revenue to the National Responsible Gambling Programme (NRGP) and also canvassed the services of the NRGP at all LPM operator sites.
 
Thuo slots had found that there were some problems with the regulatory process within which the industry had to operate. It felt that the legislative framework for the industry needed a review, given that key elements had remained constant since 1995. Stake and prize limits had also not kept pace with the consumer price index (CPI). The single monitoring system presented the industry with operating problems. Illegal gambling also served to undermine the investments made by legitimate operators. There was also the inconsistent interpretation of laws by regulators.

In order to address these challenges, it suggested that the stake and prize limits by increased to a R10 stake and a R1 000 prize. This would bring it in line with the CPI. The National Gambling Act should also be amended so as to allow for the use of more than one monitoring system. In order to reduce illegal internet gambling, the National Gambling Act No 10 of 2008 should be amended. There should also be an inter-provincial initiative by Provincial Regulators with the aim of achieving consistency in the implementation of the National Gambling Act.

Discussion
Mr S Radebe (ANC) asked who conducted the socio-economic studies.

Ms Parton answered that these studies had to be conducted by the provincial regulators, as members of the gambling industry were not allowed to make representations to the National Gambling Board in order to go on to the second and third phases of their LPM rollouts.
 
Mr B Turok (ANC) asked whether Thuo Slots was aware that there were more LPMs rolled out than the numbers  mentioned. He also asked if Ms Parton viewed gambling as an undesirable activity.

Ms Parton answered that the increased numbers were most likely illegal machines that were making their way into the market. If machines were not linked to the monitoring system, it meant they were not licensed by the relevant Provincial Gambling Board. Machines which did not have certification or registration numbers on them were also not certified or approved. The vast majority of people found gambling to be a pleasurable activity. This was, however, a matter of opinion.

Mr A Van Der Westhuizen (DA) asked how the operators were organized, and what they were doing towards curbing illegal gambling.

Ms Parton answered that there was a Limited Payout Machine Association, which was a Section 21 company. The industry would report incidences of illegal operators and/or machines to the relevant authorities and would, if required to do so, work together with the National Gambling Board in order to bring non-compliant operators to book and get illegal machines out of the system.
 
Mr S Marais (DA) asked what the industry's target market was, and how it would ensure that LPMs were not used for money laundering activities.

Ms Parton answered that it targeted higher-income areas, as it was not economically viable to target economically depressed areas. In addition to the industry being required to comply with the Financial Intelligence Centre Act (FICA), employees who monitored these machines at site level were required to report any suspicious activities. However, as payouts within the industry were limited, the amounts of money laundering incidences were found to be negligible.

The Chairperson asked for more specific details around the inconsistent implementation of gambling regulations across the provinces.

Ms Parton answered that the industry was not allowed to have LPMs in close proximity to churches, places of worship and educational institutions. Different provinces, however, had different radius requirements, and this made it difficult to operate consistently on a national level.

AG Consulting Presentation
Ms Alicia Gibson, Industry and Legal Consultant to AG Consulting, noted that AG Consulting was a close corporation and that it was appearing in front of the Committee as an independent entity. The casino sector had been responsible for infrastructural investment, job creation and revenue generation. It was a major funder of the NRGP, which had made significant contributions in staving off the sector's negative socio-economic effects. Research had shown that problem gambling statistics in South Africa had declined, despite the increase in gambling opportunities. This was largely as result of public education initiatives embarked upon by the NRGP, which made provision for treatment, counselling and public education. The sector was being regulated closely by the various provincial Gambling Boards. In addition, for any device to be exposed for play, it had to meet national gambling standards. As the regulatory network within which the industry functioned existed across the whole world, the chances of selective compliance were limited. One challenge the industry faced was the lack of regulatory uniformity across the various provincial Gambling Boards. There was also no set national standard governing the advertising and promotion of gambling.

The LPM industry made significant contributions to SMME development. In addition, it also brought businesses that were previously non-compliant with tax laws into the tax-compliant net. It also had an extensive regulatory reach. The National Gambling Act prohibited the granting of gambling licenses if the premises were not appropriately zoned for the intended purposes. This presented the industry with a challenge as there existed, particularly in traditionally black areas, problems around appropriate zoning. In order to address these challenges there should be a nationalised standardisation of certain basic procedures.

The introduction of Electronic Bingo Terminals (EBTs) had resulted in the fragmentation of the Bingo industry. This was a result of many viewing EBTs as slot machines in disguise. A legal dispute around this issue was still ongoing.

The bookmaking industry faced pressures which were largely due to the structure of the industry. As operations were run by one or two people, and the profit margins for the industry were low and therefore non-comparable to those of regular companies, it was harder to classify these operations for purposes of codes of good practice (in terms of B-BBEE).

Interactive gambling operators from neighbouring jurisdictions, most notably, Swaziland, were licensed operators who advertised extensively to the South African market despite regulation against it. A legal dispute had arise over a result between an operator and the Gauteng Gambling Board, with the operator holding that, as the server was based in Swaziland, the operation was not illegal. This challenge could be addressed through the insertion of a provision to the National Gambling Act deeming interactive gambling to take place where the player was located.

Schedule Four of the Constitution, which placed the National Lottery in a different category, had been misinterpreted to mean that play on the Lottery was not a form of gambling. This had resulted in differing standards in respect of the Lottery. At the moment, there were, for example, a large number of outlets across the country which were easily accessible to underage persons, there were extensive unregulated advertising campaigns promoting gambling and the operator of the National Lottery was not required to contribute to the NRGP).

Although it was hard to police internet gambling, licensed internet gambling options were considered preferable to prohibition. Problem gambling would also not be reduced through prohibition. Under-age gambling and money laundering activities, too, would flourish if prohibition was opted for. Prohibition would also cancel out the gambling industry's contribution to revenue and employment creation.

Discussion
Mr Turok asked what the effect was of policing unregulated gambling, especially in relation to that taking place in informal settlements.

Ms Gibson answered that there were tremendous difficulties inherent in policing prohibition. As there was no research conducted into the prevalence and extent of community-based gambling, a definite assertion around this issue could not be made.

Mr Van Der Westhuizen asked whether commercial considerations or the regulatory framework had caused the delay in the uptake of operator licences and thereby the growth of the industry.

Ms Gibson answered that in addition to the different criteria held by the different Provincial Gambling Boards for the issue of licenses, approval was also needed from other authorities such as Liquor Licensing Boards and Local Authorities.

Mr X Mabaso (ANC) asked whether AG Consulting viewed gambling as a destructive activity.

Ms Gibson answered that, although this was a matter of opinion, a survey which had been conduced around this issue had found that the acceptance of gambling as a legitimate entertainment activity stood at 80%.

The Chairperson asked whether the industry had a positive impact on the unemployment rate. She asked, in particular what the industry had found in relation to the increasing number of smaller shops being forced to shut down and the increase in the number of pawn shops around major gambling areas.

Ms Gibson answered that the casino sector had impacted positively to the unemployment rate. She could not shed any light on the proliferation of pawn shops.

Phumelela Gaming and Leisure Presentation
Mr Mpho Ramafalo, Director: Business Development and Compliance, Phumelela Gaming said that Phumelela Gaming was licensed to operate in seven provinces. Between it and Golden Circle, which operated in the remaining two provinces of Western Cape and KwaZulu-Natal, there were approximately 250 race meetings staged annually. In addition to its betting website, Phumelela Gaming also had 230 betting shops and two call centres across the seven provinces in which it operated. It co-mingled its horseracing and sports totalisator pools with Golden Circle. The two had an interest in fixed odds (bookmaking) through their shareholding in Betting World (Pty) Ltd and also employed tens of thousands of people, both directly and indirectly. They also jointly owned Tellytrack, a DSTV channel. Phumelela also continued to expand its international presence through capitalising on its simulcast products and coverage. Through its partnership with Golden Circle, it owned a majority share in Phumelela Gold International, a company incorporated in The Isle of Man. It also owned the exclusive worldwide broadcasting rights to 30 of the UK racehorses as well as operating a television studio that broadcast live horseracing audio, visual and data from South Africa to subscribers worldwide.
 
Horseracing punters were predominantly black and male. In terms of the industry's popularity locally, figures were far below that of other countries globally.
 
In terms of industry's socio-economic impact, although it made up less than 10% of the gambling industry, it was responsible for employing tens of thousands of people. With its 50.23% Black ownership, it had attained a Level A Empowerdex BBBEE rating. The sector also contributed significantly to the fiscus. The industry was also highly regulated and placed a strong emphasis on player protection. It also contributed a percentage of its gross income to the NRGP.

In terms of advertising, it was obligated to ensure that all of its advertising was done in accordance with national and provincial regulations.

Phumelela suggested that although the gambling industry in South Africa was a highly regulated one, there should be a review of its legislation in order to ensure a more balanced approach that also took commercial considerations into account. The efficacy of the regulatory framework was hindered by the fact that, in addition to the National Gambling Board, there were also nine Provincial Gambling Boards, each with varying standards and little inter-provincial cooperation. Overbearing legislation had also resulted in lost opportunities and unfair competition. The delay in licensing and regulation of interactive gambling had led to South African operators losing significant ground in this regard. Some of the proposed regulations around interactive gambling, such as an onerous player registration process, may render South African websites unattractive.
 
Discussion
Mr Radebe asked what the socio-economic effects of horse-racing were, and why there was such a big disparity between the number of punters and the number of people employed in this sector.

Mr Ramafalo answered that Phumelelo supported the South African Mounted Police Unit in area in which their racecourse was located, in Turffontein. It had also, together with Supersport United, established a youth soccer academy. He could, if the Committee requested, provide more details around this in writing. The figures around punters were for the entire year.
 
Mr Mabaso asked what role the sector played in bridging the gap between the rich and the poor.

Mr Ramafalo answered that Phumelela was 50.23% Black-owned and was, as such, a BBBEE success story. Plans were also in place to increase its Empowerdex BBBEE rating. The prices of the thoroughbred horses were, however, out of the reach of most South Africans.

Aristocrat Technologies Africa Presentation 
Mr P Munbodh, Compliance Director, Aristocrat Technologies Africa, said that Aristocrat Technologies Africa was a licensed distributor and maintenance provider of electronic gambling machines and casino monitoring and control systems products. It was subject to regulation by both national and provincial gambling Acts, rules and regulations. In the testing of its gambling products, it dealt with accredited testing laboratories. The company had been pleased with the changes made to the national gambling legislation in 2004, with regards to national licences for manufacturers and key employees, as this had resulted in a saving of both time and money in the issuing of licences. Another positive development with regard to these changes was in providing manufacturers with a choice of independent licensed testing agents.

One of the sector's current challenges was the fact that the Financial Intelligence Centre Act was not designed for companies such as Aristocrat. The likelihood of the business encountering suspicious or terrorist- financing transactions was highly unlikely. Its recommendation in this regard was an amendment to Section 37(2)(b) so as to reflect an exemption from compliance to FICA by nationally licensed manufacturers. This would result in the National Gambling Act offering better clarification on compliance to license holders. Another challenge was around certification and approval of gambling machines and devices. Currently, there was only one certification authority for risk assessment of gambling devices or products. This was in addition to the requirement to apply to the nine different Provincial Gambling Boards for approval of the same device or product. A recommendation in this regard would be to allow for multiple certification agencies, as long as these agencies were accredited to the ISO/IEC 17020 standard. In addition, Clause 24 could be amended so as to allow ISO/IEC 17020-accredited testing agents to be certification agencies as well. Also, the introduction of National Gambling Equipment Approval for equipment used across the country could exist parallel to provincial approval requirements. A further challenge was around the movement of gambling machines and devices. Current legislation required such gambling machines and devices to be registered on a national register, in addition to having to apply to different Provincial Gambling Boards for transportation approvals in order to move these devices and pieces of equipment. Its recommendation in this regard would be to amend some clauses of the National Gambling Act so as to allow gambling machines and devices to be registered, and through which distribution of approvals, or distribution notifications, by manufacturers would be done via the same process. This would serve to avoid duplication at both national and provincial levels and also allow for the smoother entry of the product into the market.

Discussion
Mr Mabaso asked whether there was not a clash with regards to the recommendation that testing and certification be done by one agent.

Mr Munbodh answered that questions around the compliance state of equipment were brought to the certification authority which, in turn, referred their questions to the Gambling Boards. The Gambling Boards, however, went directly to the testing laboratories in search of answers on risk assessment and reasons for equipment failure. The recommendation was made as a result of this situation. It also took into consideration what was happening internationally in relation to this issue. Final approval would be in the hands of the Provincial Gambling Boards.
Mr Van Der Westhuizen asked how many manufacturers of these machines and testing stations there were in South Africa.

Mr Munbodh answered that there were currently 10 manufacturers who held national manufacturers licences, and eight who held provincial manufacturers licences. There were two testing laboratories.

South African National Responsible Gambling Foundation Presentation
 Prof Peter Collins, Executive Director, National Responsible Gambling Foundation, said that the NRGF was neutral on all ethical issues related to gambling. There were those who held the view that gambling was an immoral activity. Another view held was that gambling was a valid form of entertainment. The most commonly held view was that it should be more strictly regulated than other forms of entertainment.

In terms of its research findings, a surprising finding was that problem gambling in South Africa as well as the rest of the world had not increased since 2001. When it came to the environments in which people gambled, NRGF’s research had found that very little addictive gambling took place within casinos. This could be attributed to the fact that casino gambling was more expensive than other forms of gambling. The lottery was found to be much safer than other forms of gambling as it was only participated in once weekly and was also comparatively cheap. However, the number of people who played the lottery in South Africa was 17 times higher than the United Kingdom. This was attributable to the fact that it was more accessible - both financially and geographically - to poor people. Little was known about the effects of the horseracing sector and other sports betting as there were, firstly, not as many of these types of betting systems, and, secondly, enough was not known of the players' profiles. It would, however, become a major form internet-based gambling. There was also little reason to believe that LPMs contributed to an increase in problem gambling as there was little data around this. Internet- and cellphone-based gambling was likely to grow internationally, and South Africa was therefore not exempt from this trend. This would also increase the number of young people gambling. A major concern was illegal gambling which was taking place in townships (usually tied in with problem drinking and unemployment). The suspension of the lottery could have increased the amount of illegal gambling taking place in townships.

Discussion
Mr Van Der Westhuizen asked whether the current awareness campaign around problem gambling was hard-hitting enough.

Prof Collins answered that there was no evidence to show whether these advertisements were effective or not. It was, however, preferable for the gambling industry, rather than the State, to pay for these campaigns.

Mr N Gcwabaza (ANC) asked whether there was any manipulation of gambling machines. He also enquired what were the effects of gambling on the inflation rate.

Prof Collins answered that no legal gambling machine was manipulated. This was, however, more prevalent in internet gambling.

Mr Radebe asked how other countries controlled internet gambling.
Prof Collins answered that their research had shown that online gamblers were not necessarily more inclined to problem gambling than gamblers undertaking other forms of gambling. What had been found, however, was that students were more at risk here. Records of people's actual play could be tracked so as to identify possible problem gamblers.

Mr Marais asked whether there was any correlation between advertisements for interactive gambling and people using this form of gambling.

Prof Collins answered that, unless the internet became a popular medium of advertising for businesses in general, there would be no great effect of advertising in this medium on the number of users of interactive gambling.

The Chairperson asked what criteria were used to identify problem gambling.

Prof Collins answered that the NRGF used the Gamblers Anonymous scoring system whereby, if the person screened scored a minimum of seven out of 20 points, he or she was identified as a problem gambler.

The meeting was adjourned.

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