Online Gambling; hearings

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Trade and Industry

17 January 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met with representatives of the University of Johannesburg’s Academy of Computer Science and Software Engineering as well as Betfair as part of its public hearings on online gambling. The University of Johannesburg representative said that access to online sites should not be prohibited and that licensing for online entertainment providers would allow for such providers to apply for licensing in South Africa if they conformed to the set conditions. These conditions were regulation and compliance enforcement (under the proposed name of the ReCe model). Regulations should look at covering information security governance, financial governance, digital forensics governance, under-age control, cooperation, money laundering and pornography. Compliance enforcement needed to ensure that there was compliance with the regulations through compliance checking or auditing. There was also an urgent need for compliance inspectors.

The benefits of the proposed model for operators included their business being legal and them being allowed to advertise their products and services in South Africa.

The benefits for South Africa and the regulating authority included income through licensing fees, tax incomes, greater control, greater protection of citizens as well as National Critical Information Infrastructure Protection.

For players, benefits included peace of mind, lower risk of fraud, identity theft and cyber crime as well as the knowledge that they had some form of recourse through a National Customer Complaint Centre.

In relation to the issue of expertise, knowledge and education, cyber inspectors could be outsourced and/or trained locally. The University of Johannesburg had initiated the creation of a certificate in Cyber Security which was set to commence as of the 2012 academic year.

The implementation plan of this model would involve being advised by the Committee, consultation with other experts, both locally and internationally as well as the training of cyber inspectors.
Members asked whether bigger service providers and search engines, such as Google, could be made to adhere to regulations set locally and how the training of compliance inspectors would be funded. The Chairperson asked how the issue of under-age online gambling could be more effectively addressed.

In the Betfair presentation, the representative pointed out that online gambling in South Africa could, if correctly regulated, generate R6 billion and that this form of gambling had not cannibalised the offline market. Internationally, countries such as the United Kingdom, Denmark and Spain had seen successful online gambling industries as a result of having a gross profits tax and the regulation of all products (the UK), access to the national ID and problem gamblers databases (Denmark) and no limit on the number of licensees (Spain) while unsuccessful models came from those of France (with its turnover tax), Greece (retrospective taxation) and the USA (which had a prohibition on online gambling).

In order for there to be effective regulation, all products needed to be regulated and high standards in player protection, anti-money laundering, fraud and sporting integrity needed to be ensured. A gross profits tax also needed to be used. Added, the recommendations of the Gambling Review Commission needed to be used.  Products should not be limited and a turnover tax was not to be used. Operators should also not be forced to locate their servers in South Africa.

Members asked whether there were figures which shed light on the ratio of licensed vs unlicensed operators internationally, whether service providers could be held liable for lack of player protection, whether there were limits placed on the number of licenses issued in other countries,  whether it would it be opposed to the incentive which allowed for operators to only advertise their products locally if their operations here were land-based.

The Committee’s Draft Programme for the First Quarter of 2012 and Committee Minutes could not be approved as there was no quorum. 

Meeting report

Presentation by University of Johannesburg’s Academy of Computer Science and Software Engineering
Mr Basie Von Solms, Research Professor, Academy of Computer Science and Software Engineering, University of Johannesburg, said that access to online sites should not be prohibited as this was largely impossible and therefore could not work. The different definitions (online gambling, interactive gambling, online betting etc) should be consolidated into one, i.e. ‘online entertainment’. Online entertainment should be legalised, though under strict conditions. Licensing for online entertainment providers would allow for such providers (both nationally and internationally) to apply for licensing in South Africa if they conformed to the set conditions. These conditions should be based on internation the best practices. Regulations should look at covering information security governance, financial governance, digital forensics governance, under-age control, cooperation, money laundering and pornography. Information security governance should look at ensuring confidentiality, data integrity, identification and authentication, access control, logging and auditing, the prevention of identity theft, malicious software control, credit card protection and transmission security. Financial governance needed to ensure that winnings were paid into the same account, there was a ‘push’ if exceptions occurred and there was regular information on South African users / players. Added, credit card protection standards needed to be in place. Digital forensics governance needed to ensure that there was adequate information available with which to investigate incidents of cyber crime as well as user complaints.

In relation to compliance enforcement, it needed to be ensured that there was compliance with the regulations through compliance checking or auditing. There was also an urgent need for compliance inspectors.

For online entertainment providers, the benefits hereof were that their business would be legal and they would be allowed to advertise their products and services in South Africa.

The benefits for South Africa and the regulating authority included income through licensing fees, tax incomes, greater control, greater protection of citizens as well as National Critical Information Infrastructure Protection.

For players, benefits included peace of mind, lower risk of fraud, identity theft and cyber crime as well as the knowledge that they had some form of recourse through a National Customer Complaint Centre.

In relation to the issue of expertise, knowledge and education, cyber inspectors could be outsourced and/or trained locally. The University of Johannesburg had initiated the creation of a certificate in Cyber Security which was set to commence as of the 2012 academic year.

In relation to a possible implementation plan, the first step would be for the Committee to provide advice around the matter. Depending on the Committee’s feeling towards the proposed ReCe model, it could then be evaluated by other experts for comments, changes, suggestions and/or additions. An expert team would then be established to create a provisional set of regulations as well as the compliance enforcement processes, after which comments from international online entertainment providers would be sought. The model would then be refined and the legalisation process would commence. After this, cyber inspectors / auditors would be trained and processes, procedures and infrastructures would be created. National Critical Information Infrastructure (NCII) was of strategic importance in that it would go towards ensuring South Africa’s economic future as well as its social future (through reducing acts of cyber crime, terrorism and warfare).

Discussion
Mr J Smalle (DA) asked whether bigger service providers and search engines, such as Google, could be made to adhere to regulations set locally.

Mr Von Solms answered that as information security was not a direct science, certain things could not be guaranteed. Service providers such as Google were not within the ambit of having control over. There were however many service providers who would be willing to adhere to the regulations set locally.  

Ms S van der Merwe (ANC) said that the financial intelligence centres should be used as a basis from which cyber-policing unit could be developed. It was important that compliance monitoring took into consideration the constantly evolving nature of cyber crime. Where did the Academy receive funding from and how would the training of compliance inspectors be funded?

Mr Von Solms answered that there was at the moment no final cyber security policy in South Africa, only a draft policy. It was hoped that when this policy was released it would include the need for a concentrated national cyber policing environment. Although the University would commence with this training, support was being sought from Government as well as the corporate sector.

The Chairperson said that the financial side of the model should, at some point, be expanded on. What was the Act referred to? How could the issue of under-age online gambling be addressed effectively?

Mr Von Solms replied that the Act he referred to was the Electronics Communications and Transactions Act which was formally passed in 2002. This issue was not easily solved, but could, if approached shrewdly, be more effectively controlled.

Presentation by Betfair
Mr Tom Tuxworth, Public Affairs Manager, Betfair, said that, given the increased internet and mobile penetration in South Africa, online gambling could, if correctly regulated, generate R6 billion. Online gambling had not cannibalised the offline market. Internationally, countries such as the United Kingdom, Denmark and Spain had seen successful online gambling industries as a result of having a gross profits tax and the regulation of all products (the UK), access to the national ID and problem gamblers databases (Denmark) and no limit on the number of licensees (Spain).
Unsuccessful models came from those of France (with its turnover tax), Greece (retrospective taxation) and the USA (which had a prohibition on online gambling).

In order for there to be effective regulation, all products needed to be regulated and high standards in player protection, anti-money laundering, fraud and sporting integrity needed to be ensured. A gross profits tax also needed to be used. Added, the recommendations of the Gambling Review Commission needed to be used.  Products should not be limited and a turnover tax was not to be used. Operators should also not be forced to locate their servers in South Africa.

Online gambling was set to grow quickly over the next five to 10 years. Online-specific regulation was therefore required to protect customers as well as to enable effective taxation. Onerous regulation, limited product offerings and high taxes forced customers to offshore and unregulated markets. Realistic regulation would limit losses to offshore operators and also protect players.

Discussion
Mr Smalle asked whether there were figures which shed light on the ratio of licensed vs unlicensed operators internationally. Could service providers be held liable for lack of player protection? Was there a limit on the number of licenses provided in other countries?

Mr Tuxworth answered that it had been proven that in countries where there were higher numbers of licensed operators, the number of unlicensed operators used by players was at a minimal.  The take-up number of licensed operators in South Africa would depend largely on the type of licensing requirements.  There were many measures in place currently which went towards ensuring player protection. Limiting the number of licenses issued merely opened the way for unlicensed operators to draw players and would, in turn, lead to less effective player protection.

Mr T Harris (DA) asked whether it had considered bringing its sports betting operations to South Africa. Would it be opposed to the incentive which allowed for operators to only advertise their products locally if their operations here were land-based? Did it face other special taxes in other countries? What was the degree of competition internationally and how could competition be promoted locally?

Mr Tuxworth replied that there was currently an application for a sport betting license locally. As most operations were centralised, it was not commercially viable for operators to separate systems for individual countries as the costs for doing this would be too high. There were different ways in which different countries taxed the industry, though these were found to be largely ineffective. There was a healthy competitive culture within the industry.

Ms van der Merwe asked the University of Johannesburg representative what his thoughts were on the proposal to not force operators to locate their servers in South Africa.

Mr Von Solms answered that it was technically impossible to demand this. Demanding this would downgrade the security of the system.

The Chairperson said that this matter should be taken forward by the sub-Committee on Gambling

 
Consideration of Draft Programme and Committee Minutes
The Chairperson said that, as there was no quorum, the Draft Programme and Committee Minutes could not be approved.

The meeting was adjourned.

 

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