National Gambling Board and the National Lotteries Board on Gambling Review Commission Report

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Trade and Industry

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

The Committee heard a report-back from its Gambling Working Group as well as submissions from the National Gambling Board, National Lotteries Board and Ms Phindi Kema.
 
The Committee’s Gambling Working Group reported on its visit to Gauteng and noted they had not managed to include fahfee, dice and card games into their visit.
They had met with the National Gambling Board the previous day and had been briefed on a draft norms and standards submission which sought to standardise gambling activities between provinces. It had also discussed possible quick fixes which would not need to wait for legislative amendments to occur. The Working Group however was concerned that two parallel processes should not be running at the same time. These issues and that of online gambling were discussed. It was felt that online gambling needed special attention with possibly its own legislation.

The National Gambling Board said the Gambling Review Commission Report highlighted new forms of gambling and the challenges they presented and that it had to act according to a national agenda with its limits guided by the National Gambling Act No 7 of 2004. There was a need for a national framework for all gambling to contribute to the alleviation of any negative social impact it might have. It said that South Africa was not over gambled and wanted the regulations to ensure a balanced growth in the industry which would negate the impact of excessive gambling.

Horseracing had to be brought under the national regulatory framework and there was a need to develop a blueprint of norms and standards for the industry. Online gambling would need a multi-disciplinary approach and include skills on the RICA Act (Regulation of Interception of Communications and Provision of Communication-Related Information Act), cybercrime, banks and the Independant Communications Authority of South Africa (ICASA), amongst others and that the regulatory framework would have to be able to take into account technological innovation. Provincial legislation had to be aligned such that it respected what was important for the country not the provinces. There was a need to introduce this regulatory framework to level the playing fields between all forms of gambling activities.

It made recommendations on:
▪ The regulation of interactive gambling vis- a- vis lotto activities
▪ The regulation of interactive gambling
▪ The role of the National Gambling Policy Council. It noted that it included the nine provincial MECs but needed to be reviewed as it was not effective and provinces were not bound by the NGB decisions.
▪ B-BBEE
▪ The alignment of legislations and gambling standards
▪ Gambling machines and software testing laboratories.

Members asked for an example of an over gambled country and for the NGB’s views on whether online gambling should have separate legislation. Had there been discussions between the NGB and the Department (dti) on industry contributions to responsible gambling. Was ICASA efficient enough to stop online gambling? Should the Act related to ICASA be strengthened or should there be new gambling legislation for online gambling? Why did the National Gambling Policy Council meetings never have a quorum? Members said that South Africa was not a federal state and could not have the provinces running amok. Were there any provinces with interactive gaming licences? It was important for the economic transformation of the country that the industry be transformed. Members wanted clarification on the Markinor survey figures.

The National Lotteries Board said that the NLB was both a regulator and distributor of funds and was not able to carry out its duties within the constraints of the legislation. The categories under which grants could be made needed to be revised and reviewed. The distribution of funds took up 80% of the time and resources of the body. It had put forward six recommendations.
▪ That things remain as they were and that those issues that need correction were corrected, for example the Act was silent on interim licensing arrangements, which was a big issue as when the Lottery could not operate, it had lost one billion rand.
▪ The enforcement of other lotteries. Provincial enforcement needed to be strengthened and there was a need to define lotteries, such as sms competitions and fahfee.
▪ The governance of distribution agencies. There was a lack of accountability and responsibility.
▪ Problem gambling and the National Responsible Gambling Program. The lottery was not the same as casino gambling. The Lottery had done its own research into problem gambling. Problem gambling of the lottery was regarded as insignificant. It funded NGOs, NICRO and the National Council on Problem Gambling. It had a seat on this council but the council had been superseded by the National Responsible Gambling Program.
▪ Separating the NLB from the NLDTF. It challenged the recommendation on capacity issues and said the problem was more about the type of funding model. The distribution of the lottery money would improve if the funding model became more of a funding policy.
▪ Combining the NGB and NLB into one regulatory body was undesirable. This view had been canvassed from stakeholders through workshops it had held in all the provinces attended by 18 000 people and through a national indaba attended by 1 500 people.

Members asked if the distribution agencies were held to account. Did the NLB have norms and standards that determined conflict of interest? How it could be justified that the Congress of South African Trade Unions (Cosatu) and the National Youth Development Agency (NYDA) be given funds when social bodies needed these funds? Was there not conflict of interest when the daughter of the Chairperson of the NLB worked at an organization which had been granted R41 million and what mechanisms were there to avoid such occurrences? The NLB should concentrate on decreasing the delays being experienced in distributing the funds. To what extent the NLB was accessible and available to the public. What were its outreach programs?
Was interactive gambling not still illegal? Why did it take so long for the NLB to publish its financial statements?

Ms Phindi Kema, a horse breeder and founder of Africa Racegroup, focused on the impact the lack of regulations on horseracing had on the industry. The National Horse Racing Authority had the only two race operators on its board. Thus the authority that granted licences to race course operators included the current operator, and they were able to reject new applicants without giving reasons. She thus questioned the independence and impartiality of this body.

She had been offered Arlington race course in the Eastern Cape for purchase. The industry had been corporatised and its assets had been taken over by companies and because of a lack of regulation the horse racing industry was not accountable. Thus race courses had become privately owned and it was difficult to
organise racing.

Members asked whether the racing side of the industry was hampering B-BBEE. Would a statutory body solve the problems she had outlined? How many blacks were involved in the horse racing industry? Give an estimate of the value of the assets which had left the corporatized organisations in sales to private companies?

The Chairperson said Ms Kema would be called back to continue her engagement with the Committee in the following week.


Meeting report

Briefing
Committee’s Gambling Working Group Report-back on Gauteng visit
Mr N Gcwabaza (ANC) reported back on the gambling sub-committee’s visit to Gauteng. He said they had not managed to include fahfee, dice and card games in their visit. They had met with the National Gambling Board the previous day and had been briefed on a draft norms and standards submission which sought to standardise gambling activities between provinces. It had also discussed possible quick fixes which would not need to wait for amendments to legislation to occur. The sub-committee however was concerned that two parallel processes should not be running at the same time. These issues and that of online gambling had been discussed. Online gambling needed special attention and possibly its own legislation.

National Gambling Board (NGB) submission
Prof Linda De Vries, Chairperson of the National Gambling Board, said the Gambling Review Commission Report highlighted the new forms of gambling and the challenges they presented and that the industry had to act according to a national agenda. The limits to be set for gambling would be guided by the National Gambling Act No. 7 of 2004. There was a need for a national framework for all gambling to contribute to the alleviation of any negative social impact it might have.

Ms Baby Tyawa, CEO of the National Gambling Board, said the NGB had realized that the data of the report was from secondary sources and had decided to do its own study of the gambling industry in the country. The first phase of the study covered the propensity for South Africans to gamble. It was clear from the results of this study that South Africa was not over gambled. It wanted the regulations to ensure a balanced growth in the industry which would negate the impact of excessive gambling. Another finding was that gambling occurred more in the metropolitan areas than the rural areas.

She said horseracing had to be brought under the national regulatory framework and there was a need to develop a blueprint of norms and standards for the industry. At the moment provinces did their own thing chasing revenue. She said online gambling would need a multi-disciplinary approach to include skills on RICA, cybercrime, banks and ICASA, amongst others, and that the regulatory framework would have to be able to take into account technological innovation. Provincial legislation had to be aligned such that it respected what was important for the country not the provinces. There was a need to introduce this regulatory framework to level the playing fields between all forms of gambling activities. The increase in access to the internet and social media especially by the youth illustrated the need for effective regulation.

It made recommendations on:
▪ The regulation of interactive gambling vis- a- vis lotto activities
▪ The regulation of interactive gambling
▪ The role of the National Gambling Policy Council. It noted that it included the nine provincial MECs but needed to be reviewed as it was not effective and provinces were not bound by the NGB decisions.
▪ B-BBEE
▪ The alignment of legislations and gambling standards
▪ Gambling machines and software testing laboratories.

Discussion
Mr G Mackintosh (COPE) asked for an example of an over gambled country.

Mr T Harris (DA) asked for the NGB’s views on whether online gambling should have separate legislation.

Mr Smalle (DA) asked if there had been discussions between the NGB and the Department on the industry’s contribution to responsible gambling. Was ICASA efficient enough to stop online gambling? Should that act (related to ICASA) be strengthened or should there be a new gambling legislation for online gambling?

Mr B Radebe (ANC) said that South Africa was not a federal state and could not have the provinces running amok. Were there any provinces with interactive gaming licences? The NGB regulated private gambling and the NLB regulated public funds, there was a clear distinction between the two. It was important for the economic transformation of the country that the industry be transformed.

The Chairperson asked why the National Gambling Policy Council meetings never had a quorum. She also wanted clarification on the Markinor survey figures.

Ms Tyawa replied that the Markinor survey was done through a weighted sample of 3 500 respondents. Other studies in the Gambling Review Commission Report had been done mainly in urban areas.

Prof De Vries said that online gambling had been prohibited in America. There were currently 15 illegal online gambling sites in South Africa. The Lotto had two seats on its Board and on the advisory council but that this had not been taken up.

She said Australia was an example of an over gambled country. It was having a problem trying to backtrack on the number of official gambling sites permitted. She said the National Gambling Act should provide a broad framework. If casinos for example were asked to give R100 000 towards socially responsible gambling initiatives then other forms of gambling also had to contribute in equal measure. She said provinces were able to give gambling rights because there were no national regulations governing it.

Adv Tlotliso Polaki, legal advisor to the NGB, said that the NGB was of the view that the Electronic Communications Act empowered the Department of Communications to assist them. Internet Service Providers should be held liable for facilitating and hosting transactions. It would take time for ICASA to develop full competency as currently that department was short staffed. The National Gambling Act needed stronger teeth. Interactive gambling should be looked at as a separate piece of legislation as it might take time to develop.

No province had issued licences. The Piggs Peak gambling site had been taken to court.

Ms Zodwa Ntuli, Deputy Director General: dti Corporate and Consumer Regulation, said the Gambling Council was chaired by the Minister and comprised the provincial MECs responsible for gambling, but was ineffective. Issues, such as norms and standards, had not been finalised because meetings for the past two years had not had a quorum. The Minister had sent letters to Council members as the lack of a quorum had obstructed decisions being taken.

The Chairperson said the Committee would send a letter to the Minister to clarify the issue.

National Lotteries Board
Professor Vevek Ram, CEO of the National Lotteries Board, said that the NLB was both a regulator and distributor of funds and was not able to carry out its duties within the constraints of the legislation. He said the categories under which grants could be made needed to be revised and reviewed. The RDP category, for example, was now defunct. The distribution of funds took up 80% of the time and resources of the body. It had put forward six recommendations:

▪ That things remain as they were and that those issues that need correction were corrected, for example the Act was silent on interim licensing arrangements, which was a big issue as when the Lottery could not operate, it had lost one billion rand.
▪ The enforcement of other lotteries. Provincial enforcement needed to be strengthened and there was a need to define lotteries, such as sms competitions and fahfee.
▪ The governance of distribution agencies. There was a lack of accountability and responsibility.
▪ Problem gambling and the National Responsible Gambling Program. The lottery was not the same as casino gambling. The Lottery had done its own research into problem gambling. Problem gambling of the lottery was regarded as insignificant. It funded NGOs, NICRO and the National Council on Problem Gambling. It had a seat on this council but the council had been superseded by the National Responsible Gambling Program.
▪ Separating the NLB from the NLDTF. It challenged the recommendation on capacity issues and said the problem was more about the type of funding model. The distribution of the lottery money would improve if the funding model became more of a funding policy.
▪ Combining the NGB and NLB into one regulatory body was undesirable. This view had been canvassed from stakeholders through workshops it had held in all the provinces attended by 18 000 people and through a national indaba attended by 1 500 people.
 
Discussion
Mr Smalle asked if the NLB regarded funds distributed as being gratuities to the applicant. Judge Campbell had said in a judgment that the distribution agencies were accountable to the NLB. Were they held to account? Did the NLB have norms and standards that determined conflict of interest?

Mr Harris (DA) asked how it could be justified that the Congress of South African Trade Unions (Cosatu) and the National Youth Development Agency (NYDA) be given funds when social bodies needed these funds. A judge had said that in 2009, R6 billion had been unspent. What was the total amount in the fund and what percentage had been distributed? The daughter of the chairperson of the NLB worked at an organization which had been granted R41 million. Was that not conflict of interest and what mechanisms were there to avoid such occurrences?

Ms Kotsi said the NLB should not look at other new matters but concentrate on decreasing the delays being experienced in distributing the funds.


Mr X Mabasa (ANC) asked to what extent the NLB was accessible and available to the public. What were its outreach programs?

Mr Radebe said that the Lotto was being played by sms and at Automated Teller Machines. Was interactive gambling not still illegal? Why did it take so long for the NLB to publish its financial statements?

Mr Mackintosh asked why there was discomfort with application based funding and was there an alternative to this?

Prof Ntshengedzeni Nevhutanda, Chairperson of the National Lotteries Board, replied that the outcome of the judgement was on the procedures applied by the distributing agencies. The judgement indicated that they were guidelines not the law. It would recommend that the distributing agencies work hand in hand with the NLB. There was a board / distributing agency meeting chaired by Ms Ntuli which sought to minimize tensions. If there was any conflict of interest because members of a distributing agency were involved with an application, then one of the other distributing agencies would process that application. He said that the impact of the roadshow was that it gave them feedback and it was done in proper consultative forums.

Prof Ram said it was not the job of the NLB to kick-start industries, but that the funding model was inflexible and therefore did not allow the NLB to assist independent sustainable rural area initiatives. There were generally 4000 applications but that after the roadshow, applications had shot up to 8000. The downside to the increased awareness was the creation of expectations which might not be met as the regulations stipulated that organisations had to have two years of audited financial statements. Changes needed to be made to allow for the funding of a natural person not only for the juristic person as was currently the case. The turnaround time would decrease if the notion of adjudication was redefined and allowed for full time assessment of applications and part time adjudication.

On the Cosutu / NYDA question, he said that the Act specified different categories to which the funds had to be allocated. There was a Miscellaneous allocation and an Arts and Culture category. As long as all the requirements had been met, the payments could be made to Cosatu.

On the question of the judgment, the judge said it was R6 million and the Minister said there was no money. The NLB has no money, it is the distributing agency that distributes the funds. In the audited financial statements, it had received R14 billion in income made up of R12 billion in revenue and the remainder in interest. Of this R11 billion had been allocated and the remainder still had to be paid in tranches. It had R1.5 billion this year and was distributing it.

On the appeal process, he said that there was no appeal process in the Act and only the distributing agency and not the NLB could issue a grant.

On the conflict of interest, he said the distributing agency was bound by rules to declare a conflict of interest while the NLB had its own ethics policy.

On the issue of the chairperson’s daughter, he said that it dealt with about 15 000 agencies. The matter had been declared and was transparent and that there was no problem of a conflict of interest.

He said he would provide a full report on problem gambling and its pathological nature. He said underage gambling was illegal. The vendor Gidani had 8 500 retailers and was bound by rules to stop dealing with retail operators who contravened regulations.

He said playing the lottery by sms was not interactive gambling as the sms was just the channel for payment.

Ms Phindi Kema submission
Ms Phindi Kema, a horse breeder and founder of Africa Racegroup, said she would like to focus on the impact the lack of regulations on horseracing had on the industry. The industry was involved in agriculture, sport and trade and industry. There were three bodies: the National Horse Racing Authority, the Thoroughbred Breeders Association and Racing South Africa. The National Horse Racing Authority had the only two race operators on its board. Thus the authority that granted a licence to a race course operator included the current operator and they were able to reject new applicants without giving reasons. She thus questioned the independence and impartiality of this body.

She said Racing South Africa was involved in racing and the buying and selling of horse tack.

 
Racing was split between two organisations, Phumelela which had racing rights for the Northern Cape, Gauteng and the Eastern Cape and Gold Circle which had racing rights for KwaZulu Natal and the Western Cape.

She had been offered Arlington race course in the Eastern Cape for purchase.

The industry had been corporatised and its assets had been taken over by companies.

Due to a lack of regulation the horse racing industry was not accountable.

Thus race courses had become privately owned and it was difficult to organise racing.

Discussion
Mr Smalle asked whether the racing side of the industry was hampering B-BBEE. Would a statutory body solve the problems she had outlined?

Ms Kotsi asked how many blacks were involved in the horse racing industry.

Mr Radebe wanted an estimate of the value of the assets which had left the corporatized organisations in sales to private companies.

Ms Kema said there was a lack of regulations and that an enquiry was needed to understand horseracing matters prior to the development of regulations. The Arlington racecourse had been offered to her at R50 million whereas it had been transferred from Phumelela to a private company for R7 million. She said Gauteng had had four race courses when it had been corporatised but now only had two that were operational. Members had handed over assets to be looked after by the industry, yet within a year it had been sold and dividends had been declared. Where did the money from the sale of the two race courses go?

The Chairperson said Ms Kema would be called back to continue her engagement with the Committee in the following week.

The meeting was adjourned.








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