Gambling Review Commission Report public hearings: Financial Intelligence Centre, Payments Association of South Africa, Casino Association of South Africa, Phumelela, and Thoroughbred Breeders Association

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Trade and Industry

08 November 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Thoroughbred Breeders Association submitted that the breeding of horses was labour intensive, made it a large employer in rural areas, and promoted the development of agricultural infrastructure. The  Association had assisted in the formation of ten breeding cooperatives in a transformation initiative. A further 20 was in the process of being formed. Breeders, however, were constrained by onerous export protocols which limited their ability to trade horses internationally and called on the Government to change the current export protocols.

Members asked whether the export issue was not a matter to be addressed by the Department of Agriculture, Forestry and Fisheries. How did the 60 day prohibition on exports cause difficulty? Were the delays in exports because of bilateral agreements or a problem within South Africa? How many people were employed by the industry? Who recognized thoroughbred horse racing as a sport and what was Government’s role in declining purses? Did delays in delivery need legislative solutions? What rural jobs could potentially be created?

Phumelela submitted that thoroughbred horse racing should be officially recognized as a sport, for Tote betting to be regulated on a national basis, for the levelling of the playing fields between Tote betting and other forms of betting, and for Government not to permit new entrants unless satisfied they would increase the market and retain their profits in South Africa, while ensuring that the number of people employed would not decrease. In addition, Phumelela submitted that the sport should be permitted to maximize its intellectual property rights like other sports.

Members said that they saw Government’s role as mitigating the social cost of gambling. Members wanted to know who received the benefits of levelling the playing field.


The Financial Intelligence Centre's focus was on one issue only, that of on-line gambling, in particular, the flow of money. The nature of on-line gambling was such that there was no scrutiny or human intervention in the process. There were two challenges: the need for strong collaboration at the point where the licensed operator needed to use financial institutions for transfers of money; and that operators had to be compelled to have a local footprint and a local bank account through which to operate. These were also important from an anti-money laundering perspective.

Members felt that the Government should regulate as much as possible. Members asked how the Financial Intelligence Centre was dealing with on-line gambling currently, whether the Financial Intelligence Centre had the ability to detect where and whether on-line gambling was occurring, and what capacity the Financial Intelligence Centre had to enforce regulations?

The Payments Association of South Africa said that there were instances where it was not possible to police compliance.  Banks had fulfilled their Financial Intelligence Centre requirements. All stake holders had to be involved in the process of developing legislation that was practical, and enforceable. What the Association could do was to implement and adhere to the Financial Intelligence Centre Act requirements.

Members asked if the cost of technology to do the transactions would be onerous, what impact the concurrent powers of provincial licences had, and who the appropriate prosecuting authority should be.

The Casino Association of South Africa submitted that the Gambling Review Commission's report was a realistic, balanced report where for the first time recognition was given that illegal and informal gambling  existed, but the Report fell short in recommending measures to combat it. The Association would not like to see further restrictions imposed on the gambling industry, which operated in a highly regulated environment. Extra regulations and the imposition of extra taxes could lead to job losses and affect gambling revenue. Transformation targets should not be seen as rigid inflexible targets by provincial gambling boards. The industry had an average Broad-Based Black Economic Empowerment rating of level 2. The Association outlined 13 points that still needed to be addressed. These were: the increase in the number of slot machines and tables proposed, Electronic Benefit Transfers, Limited Payout Machines – the proliferation of high stake slot machines, participation by gambling mode, advertising, the national Lottery and Lottery advertising, the number of casinos, the National Responsible Gambling Programme and research, poker, on-line gambling, casinos and Broad-Based Black Economic Empowerment, Provincial gambling regulatory Authorities, and improving uniformity and accountability in the regulatory framework.

Members asked what was regarded as a social cost. Was it realistic to put a cap on entrants in a growing country? Who had conducted the surveys on gamblers?

Meeting report

Thoroughbred Breeders Association of South Africa Submission
Mr Adrian Todd, Manager of the Industry Development Unit for the Thoroughbred Breeders Association , said that the breeding of horses was labour-intensive, which made it a large employer in rural areas and promoted the development of agricultural infrastructure. The Breeders Association had assisted in the formation of ten breeding cooperatives in a transformation initiative. A further twenty was in the process of being formed. Breeders, however, were constrained by onerous export protocols which, he said, were akin to sanctions. The Association called on the Government to change the current export protocols.

Discussion
Mr G Mackintosh (COPE) asked whether the export issue was not a matter to be addressed by the Department of Agriculture, Forestry and Fisheries.

Mr J Smalle (DA) asked how the 60 day prohibition on exports caused difficulty.

Ms S van der Merwe (ANC) asked whether the delays in exports were because of bilateral agreements or a problem within South Africa and she wanted to know how many people were employed by the industry.

Mr T Harris (DA) asked who recognized thoroughbred horse racing as a sport and what Government’s role in declining purses was?

Mr G Selau (ANC) asked whether delivery delays needed legislative solutions and what rural jobs could potentially be created? He wanted clarity on what playing fields exactly needed to be levelled.

Dr Benny van Der Merwe, president of the South African Equine Veterinary Association (SAEVA) said that political will was needed to drive and gain access to export markets. The medical status of South Africa was no different from other countries yet it was not possible to buy and sell horses worldwide.

Mr Todd replied that the playing fields referred to the fact that the Totalisator (Tote)  paid for everything concerned with horse racing while bookmakers, who put back nothing into the sport,  got a free ride at the the Tote’s expense. The Tote earned 1.5% on turnover while bookmakers made 10%. In the past five years the Totes income had grown by 0.7% while bookmakers' income had grown by 38%. The current arrangement was a result of a historical legacy and should be changed so that a portion of the bookmakers’ income could be used in the sport of horse racing.

16 000 people were directly employed and on a broader level approximately 100 000 were employed.

Phumelela the Sport of Horse Racing Presentation

Mr Rian du Plessis, Group Chief Executive Officer (CEO), Phumelela, said that Phumelela was asking for thoroughbred horse racing to be officially recognized as a sport, for Tote betting to be regulated on a national basis, for the leveling of the playing fields between Tote betting and other forms of betting, and for Government not to permit new entrants unless satisfied that they would increase the market and retain their profits in South Africa, while ensuring that the number of people employed would not decrease.

He emphasized that horse racing should be regulated like any other sport and that the sport should be permitted to maximize its intellectual property rights like other sports.


Discussion
Mr Harris said that he saw Government’s role as mitigating the social cost of gambling.


Mr Mackintosh said that Phumelela did not want new entrants so why should the gambling industry be expanded?


Mr Selau wanted to know who received the benefits of levelling the playing field.


Mr Du Plessis replied that Phumelela was as a result of Government insistence that the club structure of horse racing be replaced. Unlike other sports, horse racing funded the sport of horse racing. It had been announced recently that Mpumalanga province would grant a new Tote license. There was no obligation for that Tote to fund the sport. He added that Phumelela was precluded from selling its TV rights (to show the races) to Gauteng or the Eastern Cape. Provincial regulations determined the horse racing levy. He had no objections to greyhound racing’s entry and would offer to run the Tote for greyhound racing. The horse racing owners were not making money. There were 200 book makers in South Africa.

Financial Intelligence Centre Presentation on the Gambling Review Commission Report
Advocate Pieter Smit, Senior Manager: Legal and Policy, Financial Intelligence Centre (FIC), said that the focus of his report was on one issue only, that of on-line gambling, in particular, the flow of money. He said the nature of on-line gambling was such that there was no scrutiny or human intervention in the process. There were two challenges: the need for strong collaboration at the point where the licensed operator needed to use financial institutions for transfers of money; and that operators had to be compelled to have a local footprint and a local bank account through which to operate. These were also important from an anti-money laundering perspective. The Gambling Review Commissions Report did not note that on-line gambling could be used for the criminal movement of funds.


Discussion
Mr Harris felt that the Government should regulate as much as possible.

Mr Smalle asked how FIC was dealing with on-line gambling currently.

Ms Van der Merwe asked whether FIC had the ability to detect where and whether on-line gambling was occurring.

Mr B Radebe (ANC) asked how many on-line gamblers were South African.

The Chairperson asked what capacity FIC had to enforce regulations.

Adv Smit replied that enforcing regulations presupposed compliance. The possibility which existed for on-line gambling to be used criminally made the argument for regulations. On-line poker was an even higher risk, especially for the person-to-person type transactions. The gambling sites had no role to play in policing the problems, therefore, from a Financial Intelligence Centre Act (FICA) perspective, greater attention should be paid to on-line gambling to ensure that it was legitimate and that there was monitoring software and systems as well as human interventions in place to filter out suspicious activity. An automated system would never work and would be abused.  Part of the licence conditions should be that the on-line gambling company had a local footprint. The National Gambling Board had the prime responsibility to oversee gambling and casino owners were not gambling regulators.

Payments Association of South Africa Comments
Mr Pierre Coetzee, Head of Legal, Risk and Regulatory, Payments Association of South Africa (PASA),  said there were instances where it was not possible to police compliance.  Banks had fulfilled their FIC requirements. All stakeholders had to be involved in the process to develop legislation that was practical, and enforceable. What PASA could do was to implement and adhere to FICA requirements.

Discussion
Mr Harris asked if the cost of technology to do the transactions would be onerous.

Mr N Gcwabaza (ANC) asked what impact the concurrent powers of provincial licences had.

The Chairperson asked who the appropriate prosecuting authority should be.

Mr Coetzee replied that the costs would not be too onerous. He said that the National Gambling Board would be the appropriate authority to prosecute.

Casino Association of South Africa: the Casino Operators' Perspective
Mr Jabu Mabuza, Chairperson, Casino Association of South Africa (CASA) submitted that the Gambling Review Commission's report was a realistic, balanced report. For the first time recognition was given that illegal and informal gambling existed, but the Report fell short in providing measures to combat it. CASA would not like to see further restrictions imposed on the gambling industry which operated in a highly regulated environment. Extra regulations and the imposition of extra taxes could lead to job losses and affect gambling revenue. He then outlined 13 points in the report that CASA would like to address. These were:
The increase in the number of slot machines and tables that were proposed
Electronic Benefit Transfers (EBTs)
Limited Payout Machines (LPMs) –The proliferation of high stake slot machines
Participation by gambling mode
Advertising
The national Lottery and Lottery advertising
The number of casinos
the National Responsible Gambling Programme (NRGP) and research
Poker
Online Gambling
Casinos and Broad-Based Black Economic Empowerment (B-BBEE)
Provincial gambling regulatory Authorities (PGRA)s
Improving uniformity and accountability in the regulatory framework

The transformation targets should not be seen by provincial gambling boards as rigid inflexible targets. The industry had conducted an audit which had shown that the lowest B-BBEE rating was level 4 and that the average was a level 2.

Discussion
Mr Harris said that he could not see the purported references to junkets in the Gambling Commission's Review Report.

Mr Mackintosh asked what was regarded as a social cost. Was it realistic to put a cap on entrants in a growing country?

The Chairperson asked who conducted the surveys on gamblers.

Mr Mabuza replied that casinos did not organise junkets for transporting old people to the casinos. Gambling either had to be regulated or not regulated; there could be no middle path. The desire that no new licences be issued was based on the previous law of 2004 which stipulated a licence cap which had even demanded an investigation on the social cost of gambling. The living standards measurements used in the CASA report came from the National Gambling Board but CASA was busy doing its own research on how gambling affected the poor and who the poor were. CASA had no objections to bingo but objected to slot machines being called bingo machines and the North Gauteng Court had passed judgment to this effect.

The meeting was adjourned.


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