Gambling Review Report: Department of Trade and Industry Briefing

Meeting report

The Chairperson wanted the Committee to get an initial briefing on the Gambling Review Commission’s report in order to be pro-active. 

Department of Trade and Industry Gambling Review Report Briefing
Ms Zodwa Ntuli, Deputy Director-General: Corporate and Consumer Regulation, Department of Trade and Industry (DTI), said that the Minister had commissioned the report and it was therefore an independent report. 

The DTI would present the issues around the Gambling Report and would not touch on everything, but requested Committee’s guidance and input.

The purpose of the briefing was to apprise the Committee on the findings and recommendations of the Gambling Review Commission and to solicit input from the Committee on the proposed way forward. 

The objectives of appointing the Gambling Review Commission were to obtain a holistic review of the industry since 1996, to assess social and economic impact of the industry and the effectiveness of measures to mitigate negative effects of gambling, to assess the proliferation of the gambling in South Africa, to take in to account legal and illegal gambling activities, technological developments, viability of roll-outs of new activities, to determine whether regulatory bodies are effectively achieving legislative objectives, and to benchmark with other jurisdictions on best-policy approaches and recommend policy positions.

Initially, casinos were placed far from residential areas, but casinos were increasingly seen closer to these areas.  There were also automated teller machines (ATMs) in casinos.  Until the legislation was finalised, the provinces could not roll-out new activities, so the DTI was waiting for a decision. 

Mr Macdonald Netshitenzhe, Chief Director: Policy and Legislation, the DTI, said that the methodology of the Gambling Review Commission consisted of desktop research, public hearings, direct meetings with stakeholders, all gambling operators, national and provincial gambling boards and delegates from the Lotteries Board, and benchmarks with foreign jurisdictions like the United Kingdom, Italy, Alderney, Australia, Singapore, Hong Kong, and Macau.

Casinos offered unlimited bets and pay-outs on winnings.  Limited Pay-Out Machines (LPMs) operated as secondary businesses within taverns, offering limited bets and pay-outs on winnings.  There was also betting on horse-racing and traditional Bingo sectors, with the addition of sports betting and Electronic Bingo Terminals (EBTs) to supplement their revenues.  New forms of gambling had emerged, such as online gambling, the revival of dog racing, betting exchanges and virtual racing, all of which required policy interventions.  Illegal gambling operations included ‘fafi’, bush racing, poker tournaments, interactive gambling and dicing.

Mr Netshitenzhe defined a ‘problem gambler’ as a person with an uncontrollable urge to gamble and spent more time and money than he or she could afford.  Problem gambling had remained constant since 2005 but the South African problem gambling rates were higher compared to those in Europe. 

The National Responsible Gambling Programme (NRGP) provided counselling to problem gamblers.  The Commission recommended that there should be a fund generating scheme that would fund not only the NRGP but all institutions that provided counselling to problem gamblers as they were not funded.  The Lottery Operator should also contribute to the fund.

The developments of malls around casinos provided easy access to casinos which might lead to an increased culture of gambling in society.

EBTs were one new form of gambling.  There was opposition in that EBTs were relatively similar to casino slot machines and should not be allowed outside of casinos.  The Commission agreed that the two were similar, and proposed that, similarly to the United Kingdom, EBTs should be allowed if they maintained the appearance of traditional Bingo machines.  EBTs had to have the limits of machines and be used with similar conditions as LPMs.

Online gambling was another new form of gambling.  The Commission opined that the current prohibition of interactive gambling was undesirable as it failed to offer protection to South African punters.  It recommended the regulation of online gambling as opposed to interactive gambling.  Online gambling posed challenges of facilitating money laundering and terrorism financing if allowed; the Financial Intelligence Centre Act (FICA) No. 38 of 2001 regulations needed to be strictly adhered to.  There was an urgent need for new technology to deal with the monitoring of funds.  Banks argued that it would be difficult to distinguish between legal and illegal gambling transactions.

In terms of betting exchanges, punters were allowed to bet against each other in a controlled market place.  It was easy for regulators to identify corrupters and fraudsters.  The Commission recommended that betting exchanges were regulated under the regulatory framework of online gambling.  Strict adherence to FICA would also be needed to prevent money laundering incidents. 

With regards to greyhound racing, the Commission recommended the prohibition of greyhound racing, but if it was legalised, strict enforcement of animal welfare regulation was needed.  There needed to be consideration to regulate all forms of animal racing as opposed to regulating only one form. 

Mr Netshitenzhe went over the regulatory framework. The oversight role of the National Gambling Board was to be removed and replaced by auditors of provincial regulators given that the NGB would be regulating online gambling.  It could not regulate and perform oversight functions simultaneously.  Some of the proposals the NGB put forward were resisted by Provincial Regulators, resulting in the failure to implement.  Operators complained about the lack of regulatory uniformity across provinces.  Auditors would audit provincial regulators for compliance with the national norms and standards.  The DTI, along with the South African Bureau of Standards (SABS), would develop the national norms and standards which must be consulted on before implementation.

The National Gambling Policy Council (NGPC) was not adequately effective in its mandate due to a lack of quorum each time it was convened.  Its role needed to be limited to discussing policy matters with a view to achieve consensus. 

The National Lotteries Board (NLB)’s administrative support to the National Lotteries Distribution Trust Fund (NLDTF) was distracting them from their core regulatory functions.  The Commission recommended that a separate grant-making body be established to manage the funds, with the oversight of the NLB.  There needed to be legal certainty on who between the totalisator and the NLB was responsible for sports pools in South Africa.  With the NGB regulating online gambling and the NLB no longer administering the NLDTF, the regulation of online gambling, national lottery and sports pools might need to be combined.

Cooperative governance in terms of the Constitution Act No. 108 of 1996 was important.  Cooperative governance ensured that there was uniformity in the regulation of gambling.  In terms of recommendations, if problem gambling was to be combated, access to gambling venues needed to be harmonised.  Education, awareness and counselling of problem gamblers needed to be properly funded and coordinated.  A single regulator for online gambling needed to be established to regulate online gambling, betting exchanges, the national lottery and sports pools.  Interactive gambling needed to be regulated in order to protect South Africans cross-boundaries.

EBTs also were to be allowed only if they maintained the ‘look, feel and sound of traditional Bingo games’ and needed to have limits in the number of machines, maximum stakes and pay-outs. 

In the event that greyhound racing was regulated, animal welfare issues needed to be considered.  Online gambling needed to be regulated with strict adherence to the FICA.  The oversight functions of the NGB needed to be left to auditors for provincial regulators.

The report was compiled by the Gambling Review Commission, including Ms Astrid Ludin, Mr Clement Mannaya, Dr Stephen Louw, Prof Sphiwe Nzimande, and Ms Adheera Bodasing.  The members were appointed in December 2009 for a 12-month period.

Ms Ntuli said that on the issue of interactive gambling, when the National Gambling Act No. 7 of 2004 was adopted in 2004, there was also a provision that said legislation dealing with interactive gambling needed to be put into place.  That was done, so legislation that governed interactive gambling existed.  The regulation, however, needed to come back to Parliament.  There were discussions on how it would work in practice, and she said that the Committee needed to discuss this as well.  Did South Africa have the capacity to monitor it? How best were minors to be protected?

In regards to the National Gambling Council, it had been said that it was not entirely effective.  It had become very difficult to utilise, but there were improvements that could be done to make the structure work more successfully.  A different approach was needed to make it work.

EBTs looked more like slot machines rather than Bingo machines, which by nature needed to be in casinos.  There was a court case that decided that the EBTs that were being rolled-out in Gauteng should not be allowed because of their slot machine-like appearance. 

Another aspect that arose from the Gambling Review Report was conflicting objectives.  On the provincial level, there seemed to be a desire to roll-out further because of the revenue from gambling.

The issue of greyhound racing had raised a lot of concerns, especially from welfare organisations because of the worry that animal welfare would not be attended to.  It was important to look at these issues and at policies on animal racing.  There needed to be consistency in their approach; if horse-racing was acceptable, then why was it not for dogs?

She had compiled a few statistics on the size of the industry.  It was an R18 billion industry, thus not an insignificant part of the economy.  If it grew, it needed to be closely looked at.  It created 56 000 direct jobs, and there were 36 casinos operational with the overall limit of 40.  In 2005, 86% of adults gambled, and in 2008, only 48% did, so the country was not ‘over-gambling’.  She said that this was most likely due to consequences of the economic slowdown.  However, South Africa’s gambling levels were still higher than those of Western Europe.

Discussion
Mr B Mnguni (ANC – Free State) commented that when gambling machines were situated near poor areas, they contributed to social ills.  He said EBTs made it easy for people to gamble because it was so accessible.  He asked why EBTs were not just banned altogether.

Mr A Nyambi (ANC – Mpumalanga) asked what the status of the report was in the DTI.  He also mentioned that the socio-economic impact of gambling did not come through in the recommendations in the report.

He brought up the impact of misleading advertising when it came to legalised gambling; the Commission failed to engage with the poorer communities.

He said that the Committee could only get a better understanding of the status of the report after a detailed view from the DTI. 

Ms B Abrahams (DA – Gauteng) asked when the Members of the Commission were due for reappointment.

She was particularly concerned with online gambling and minors, and did not believe that they should be legalised or regulated.

Ms E van Lingen (DA – Eastern Cape) asked what the purpose of the presentation was.  Was it solely for informational purposes?

She added that she was not sure why the oversight function of the National Gambling Board was going to be removed and replaced by auditors of provincial regulators.

She asked if the Electronic Communications and Transactions Act needed to be amended, and how international online gambling was to be regulated. 

In terms of greyhound racing, she found it difficult to see the difference between the racing of horses and dogs. 

She wanted to know why there was a lack of regulatory uniformity across provinces.  She also asked why the National Lottery Boards could not cope. 

She inquired why it took 18 months for the report to get to the Committee.

Mr K Sinclair (COPE – Northern Cape) stated that there was no longer a Gambling Commission because the Members’ appointments expired after 12 months.

He said that on the issue of interactive gambling, the Committee needed to be realistic because of the international connections.  Measures needed to be found to deal with it.  They could not ‘live in isolation in South Africa and get away with it’.

He mentioned that out of the 40 new licences, only three were allocated to his province. 

He said that the Committee should not be naïve about the link between accessibility and revenue.

In terms of problem gambling, it was not realistic to compare South Africa with Europe or the United States because the difference between the haves and have-nots were not the same.  South Africa needed to be compared with other developing countries.

He said that both horses and dogs ran, and it was the State’s responsibility to regulate any animal’s racing.  He also inquired what the situation was on sports betting. 

Ms M Dikgale (ANC – Limpopo) said that gambling was a very serious problem.  If the machines were close to people in rural areas, that would exacerbate the problem.  She suggested that religious figures like pastors offered guidance and awareness regarding gambling.

Mr F Adams (ANC – Western Cape) asked how the DTI interacted with the provinces, since one province legalised online gambling but the rest did not.

The Chairperson raised the issue of the NGPC and asked why it was not an item on the agenda. 

He was not sure if the report followed the priorities of Government.  How was the industry going to be transformed? He was also sure that some legislation needed to be amended when dealing with these issues.
He said that corporate social investment was not explicitly mentioned in the report.  The industry only serviced the gamblers and not the community at large.

Mr Netshitenzhe stressed that the issue of gambling was a problem and it was ‘with the DTI’.  It needed to be regulated to mitigate the damage it could do.  He agreed that gambling was a form of entertainment that could bring revenue to communities, but again emphasised the need to regulate it.

In the poor communities, there needed to be education and awareness about the social impact of gambling. 

On why EBTs were not simply banned, he said that they had to be allowed within the parameters of the legislation.

In terms of dog racing, he said further research needed to be done.  The recommendations in the report did not address the issue in detail because there was not sufficient information to come to a conclusion.

He confirmed that the Gambling Commission Members’ appointments had expired after 12 months.

The Electronic Communication and Transaction Act 2002 regulated electronic commerce, but it was broad enough to incorporate gambling.  However, there was no capacity for cyber-police, so it needed to be amended.

He acknowledged that on the dog-racing versus horse-racing issue, there was the possibility of applying animal racing policies universally. 

He said that on the topic of oversight, the DTI wanted advice from the Committee. 

Ms Ntulu noted the concern about ‘fafi’.  She also said a major challenge was how to move people from illegal gambling to legal gambling.  Other countries with legalised online gambling had monitoring systems in place.  This was not without cost, though.

On the issue of online gambling, there was misleading advertising around it.  People thought that the websites were legal.  A campaign had been started to raise awareness on this. 

Two years ago, the DTI tried to put NGPC on the agenda, but there was no space.  It was not practicable.

The legislation provided guidance to provinces.  However, it was good to have minimum standards.  If there was no conformity, there was no uniformity.

All casino licenses had been allocated, but she asked if there was a need to add more licenses later on.

Problem gambling in South Africa could not be compared to rates in Europe, but the reality was that if South Africa’s levels were higher than those of Europe, which had fewer poor people, that itself was a concern.

Transformation, she stated, was a big issue.  There was absolutely no movement.  The casino industry had recently reached its Black Economic Empowerment (BEE) levels, but the overall industry remained highly untransformed.  The level of abuse and disregard for labour laws was appalling and needed to be addressed.

She noted the need to clearly distinguish online and interactive gambling.

The reason for the delay in the report's reaching the Committee was that it had to go through several hoops before it came to Parliament.

Mr Mnguni asked what the pay-out rate of slot machines was.  He believed that the pay-out was very limited.  He had a friend who slept at casinos and then went to work, and this was a problem.

Mr Nyambi asked if the Committee would receive the DTI’s view of the report.  He wanted elaboration about the process.

Mr Sinclair brought up the issue of concurrent functions.  He said the issues would not just go away.  He added that it was important to engage in the oversight role issue.

Mr Netshitenzhe explained the process.  He said that the DTI solicited the input of the Committee.  The DTI would then sit down and try to formulate a policy around the recommendation.  The policy would be tabled in Cabinet and Cabinet would take a decision, and then the Bill would be taken to the public.

He said that there was no limit on the winnings of slot machines.

On the topic of concurrent jurisdiction, he said the issues around this needed to be dealt with.

Ms Ntuli said that the issue of problem gambling was a serious one.  Many people slept at casinos.  The budget to combat problem gambling was not sufficient to do anything. 

The report stated that, in 2004, there was a Gambling Act, and this report indicated where South Africa was since gambling was legalised.  A general problem was that there was no budget for consumer protection in the provinces.  There needed to be a national approach to protect consumers with minimum standards.

The Chairperson thanked the DTI for its briefing and adjourned the meeting.