Remote Gambling Bill [PMB3-2015] as introduced by Hon G Hill-Lewis (DA) briefing

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Trade and Industry

26 May 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Mr G Hill-Lewis (DA) presented on the Remote Gambling Bill which was tabled as a Private Member’s Bill. He noted that there was no political or ideological motivation for this Bill, but the idea of prohibiting a practice that was perfectly reasonable and acceptable in a free society, was a bad idea and the regulation of online gambling should be pursued. South Africans would far prefer to gamble on a legal, South African-licensed site, backed by a known company, regulated by the South African government, than an unknown foreign entity.

There was no empirical evidence that problem gambling in the online gambling environment was any worse than land based gambling. In fact, there were several studies that showed problem gambling could be better managed in the online environment because of the sophistication of the software available that could spot problem gamblers, problematic bets and play characteristics. In terms of job creation, the DTI’s argument was correct in the sense that online gambling was not as capital intensive (in the “construction” or “set up” phase) as land-based casinos, but online gambling operations had very significant back-office support requirements — call-centre, IT, player account management, legal and compliance, accounting, player monitoring. DTI already had a back-office incentive programme that recognised job creation of back office support and licensing could require this investment.  DTI’s position on tax was a matter of legal interpretation. Currently, online gambling took place en masse and revenue was lost to other jurisdictions. South Africa derived no benefit from this and it was a loss to the fiscus which could be used to fund enforcement. Prohibition required massive new resources to be devoted to enforcement with no cost recovery. Regulation was inherently self-funding. It was funded by the licence fees of the operators and the tax they paid to the South African fiscus, not foreign governments. The proposed Bill proposed a formula for the division of the tax revenue between national and provincial. The DTI’s assertion that too little was known about the potential harm or benefit to the country was disingenuous and he provided a timeline that showed that online gambling had been extensively discussed and researched.  Prohibition created opportunity for organised crime and it made the treatment of problems more difficult. It was far harder to admit you have a problem when such admission could incriminate you. He disagreed with DTI’s position that the regulation of online gambling would be a diversion from “destination gambling”, because telephone and other online services were already available. There were already a number of licensed operators in South Africa already and the destination gambling model was not valid anymore and had not been for some time.

He outlined the responsibilities and functions of the Provincial Licensing Authorities and the NGB under the Remote Gambling Bill, as well as the categories of licences and jurisdiction. He also outlined the authority that would be given to the NGB, the Minister and the Provincial Licensing Authorities under the Remote Gambling Bill. 

The Committee wanted to know what the effect on land-based casinos would be in terms of revenue if online gambling was to be regulated. Members also questioned the enforceability of back room offices as it related to job opportunities and the overall contribution to the economy. There was some discussion on how these back-room offices would be monitored to ensure that operators were not dishonest about employing people. The Committee expressed concern on online player protection, the protection of minors and wanted details on the software and technology that would be employed in the inspectorate aspect of online gambling.

Meeting report

Briefing on the Remote Gambling Bill [PMB-2015] – As introduced by Hon G Hill-Lewis

Mr G Hill-Lewis (DA) said that when he joined the Portfolio Committee on Trade and Industry in late 2011, gambling was almost all that the then Committee dealt with for the first six months when dealing with the Gambling Review Commission (GRC) report. Legislation should serve the interest of the public at large and this was a “fascinating” area of law. There was no political or ideological motivation for this Bill, but the idea of prohibiting a practice that was perfectly reasonable and acceptable in a free society, was a bad idea and the regulation of online gambling should be pursued.

The GRC report made the point that the current distinction in South Africa between interactive gambling and other forms of online gambling (such as bookmaking, tote bets, and the lottery) which offered their services online as well, was artificial and did not provide punters with uniform protection. The question was how online gaming envisaged in the Department of Trade and Industry’s (DTI’s) policy, was different from other gambling already licensed and available online. The one form was no less or more difficult to regulate than the other. In fact, online gambling was significantly easier to regulate than other forms (because of the possibilities of cutting-edge software) and far more difficult to prohibit than to regulate.  Regulated operators acted as policemen, because they did not want unlicensed competition invading their space. He showed pictures of both licensed and unlicensed operators and stated that it was impossible to distinguish between the two and such distinctions were arbitrary and led to confusion among the public. The GRC report suggested a logical matrix for deciding on new policy that dealt with demand, proliferation, player protection, geographic location, economic viability, socio-economic impact, competition, enforcement and revenue. It was always the case that entrenched interests would lobby against increased competition. DTI had illustrated increasingly paternalistic policy positions, because the potential for harm was not an adequate reason for the prohibition. South Africans would far prefer to gamble on a legal, South African-licensed site, backed by a known company, regulated by the South African government, than an unknown foreign entity. The DTI’s policy document advanced these six arguments for prohibition:

-Problem Gambling - DTI maintained that problem gambling was on the increase

-Job creation - few jobs compared to casinos

-Tax - not possible to levy higher taxes because of Constitutional challenges

-Too little was known about the potential harm or benefit to the country

-No adequate capacity to enforce the regulation of online gambling

-Diversion from “destination gambling” model

There was no empirical evidence that problem gambling in the online gambling environment was any worse than land based gambling. In fact, there were several studies that show problem gambling could be better managed in the online environment because of the sophistication of the software available that could spot problem gamblers, problematic bets and play characteristics. The National Responsible Gambling Programme (NRGP) ‘favoured the legalisation and regulation of remote gambling… precisely because it will make possible the imposition and enforcement of provisions for the avoidance of problem gambling’. Research suggested that problem gambling in South Africa was actually not any higher than international norms, at roughly 4%.

In terms of job creation, the DTI’s argument was correct in the sense that online gambling was not as capital intensive (in the “construction” or “set up” phase) as land based casinos, but online gambling operations had very significant back-office support requirements — call-centre, IT, player account management, legal and compliance, accounting, player monitoring. DTI already had a back-office incentive programme that recognised job creation of back office support and licensing could require this investment.  

DTI’s position on tax was a matter of legal interpretation. Currently, online gambling took place en masse and revenue was lost to other jurisdictions. South Africa derived no benefit from this and it was a loss to the fiscus which could be used to fund enforcement. Prohibition required massive new resources to be devoted to enforcement with no cost recovery. Regulation was inherently self-funding. It was funded by the licence fees of the operators and the tax they paid to the South African fiscus, not foreign governments. The proposed Bill proposed a formula for the division of the tax revenue between national and provincial.

Mr Hill-Lewis said the DTI’s assertion that too little was known about the potential harm or benefit to the country was disingenuous. In 2002/3 the Department started engagement with industry and provinces on online gambling and the National Gambling Act was passed in 2004 with a transitional provision which stipulated that “within two years, the Minister…must introduce legislation in Parliament to regulate interactive gambling within the Republic”. In 2005 a DTI study committee was established to advise the Minister on interactive gambling, which reports to the Minister in September. This committee studied the matter in depth, and recommended regulating interactive gambling. In 2006 the Department published the National Gambling Amendment Bill to regulate interactive gambling and in 2008 this legislation was passed and assented to, but a commencement date was never gazetted. Draft regulations under the Act were introduced in 2009 and the Committee had conducted public hearings on these regulations, but the regulations were never finalised. The GRC, established in 2010 tabled its report in Parliament in 2012 and the Committee conducted its own hearings on the GRC report. The Committee then tabled its report, which in the case of interactive gambling, endorsed the view of the GRC. After considering the GRC report, the National Council of Provinces (NCOP) issued its report with recommendations, which also endorsed the GRC with respect to interactive gambling. Throughout this time, the National Gambling Board (NGB) conducted several of its own studies and investigations as did the NRGP. Internationally, a number of other studies had also been published on the subject.

It is bad legislative practice to draft law which was unenforceable. It eroded the rule of law, and when citizens’ confidence or expectations in the enforceability of certain laws were eroded, adherence to other laws began to wane. Prohibition created opportunity for organised crime and it made the treatment of problems more difficult. It was far harder to admit you have a problem when such admission could incriminate you. Prohibition was phenomenally expensive and the NGB had only one inspector to service the whole country. The country did not have adequate capacity to prohibit - far easier and more feasible to regulate. He gave an overview of the global jurisdictions that had either already regulated online gambling or were in the process of regulating.

He disagreed with DTI’s position that the regulation of online gambling would be a diversion from “destination gambling”, because telephone and other online services were already available. There were already a number of licensed operators in South Africa already and the destination gambling model was not valid anymore and had not been for some time.

It was globally accepted that it was far easier to protect players using cutting-edge software available in the online space. The proposed Bill contained world-leading proposals in player protection picked up from best practices around the world. It was easier to identify a problem gambler from the online bets made and that gambler could be blocked and reported electronically and immediately. Payment blocking historically had not worked and it had been tried in many jurisdictions with negligible success.

Mr A Williams (ANC) asked where in the Bill was the requirement to have the backroom offices located in South Africa.

Mr Hill-Lewis replied that he would give the exact reference once he had time to go through the Bill, but the Bill stated that it required licensed operators to invest their office operations in South Africa and the licensing requirements would stipulate exactly what that meant. It would mean that back office support like the IT department, legal department and finance department should be located in South Africa.

Mr N Koornhof (ANC) asked what the effect on land-based institutions would be if online gambling was regulated.

Mr Hill-Lewis said there were a significant number of products already available online in South Africa like sports betting, the Lotto and tote. It did not have any notable impact on land-based casinos. There was an artificial distinction made between what was already available online and what would be available if the space was regulated. The addition of online casinos and online poker would not substantially change the business prospects of land-based casinos, because they already had competition from licensed online operators. Land-based casinos should be welcomed to enter that space and many would prefer to do so. Many South Africans would prefer to gamble on a South African brand site than on a foreign online site. It was a great opportunity for South African casinos to build their business and diversify their clientele.

The Remote Gambling Bill encompassed much more than just online gambling, because it dealt with all forms of technology that allowed punters to place bets remotely. It specifically included person-to-person, poker, sports betting and more. The Constitution gave provincial governments significant functional responsibility over gambling regulation and enforcement. But the Constitution was written in the earliest days of the internet, before online gambling even existed. It could not envisage the complexities created by having national and international gaming offerings operating in 9 separate licensing jurisdictions. A great deal of time in drafting the Bill was spent in finding a solution that would preserve the importance of the provincial regulators, but which would also provide for a sensible and easy to navigate the licensing regime.

He outlined the responsibilities and functions of the Provincial Licensing Authorities and the NGB under the Remote Gambling Bill. The categories of licences and jurisdiction would be the remote gambling operator licence, the remote gambling manufacturer, supplier or maintenance provider licence and the remote gambling employment licence. Bookmakers that predominantly conducted their activities online would be required to convert their existing bookmaking licences to remote gambling licences. The Bill introduced a model whereby all applications would be made at provincial level by applicants within the respective provinces with the prescription that the NGB had ultimate power to issue the licences, following the investigation and recommendations of the respective provincial authority. The most important aspect of the Bill was player protection. The Bill would require operators to institute robust measures to avoid allowing access to minors, with oversight by the NGB. Granting credit to gamblers was prohibited and gambling should not be advertised free of charge or at a discounted rate. All advertisements should contain a ‘health warning’ and the Minister would be empowered to introduce regulations regarding the control and restriction of advertising. The NGB should, within 6 months after the Act had come into effect, publish norms and standards for security, access and maintenance of the websites. The Bill would also include requirements for measures to deter, detect and prevent collusion and cheating, requirements regarding enticements to gamble, requirements of full disclosure of risk and information and strict standards for remote gambling websites and equipment. Players would be required to have a verified and FICA-compliant account and the players would also be required to set limits on deposits and/or wagering, and/or loss. The NGB would be directed to create standards in respect of player registration processes and offences in terms of the Act ranged from fines and up to 10 years imprisonment.

In conclusion, government had the opportunity to proactively set down the outcomes it desired in terms of player protection, licensing and more. New revenues would fund enforcement of licences and regulation and this was an opportunity to establish South Africa as a leader in the field.

Discussion

Mr Williams asked if the Bill contained a limitation to the number of licences that could be issued. He wanted to know why provinces should be involved at all, because online gambling was not restricted to a province or even a country. He wanted to know why a national competency would be allocated to provinces.  

Mr Hill-Lewis replied that the Bill contained no limits in terms of the number of licences that could be issued. The Minister could be empowered to limit the number, but a limit to the number of licences would have the same effect as prohibition, because if the market was big enough unlicensed operators would continue to offer services. There was no sense in protecting some operators and it seemed fairer to license all the operators and allow for competition within the bounds of the prescripts of the Bill. It would be easier to give the NGB sole responsibility for online gambling, but the Constitution was written at a time when online gambling was not a factor. The Constitution gave provinces a significant responsibility in terms of licensing and enforcement of gambling regulations. Most of the provinces rejected the earlier Bill in the late 2 000s outright. It was a source of real pride that at least two of the provincial boards had indicated that they would support this Bill and others had phoned to say that they liked the bill very much, but because it came from a DA member they were not sure that they could support it. The split in the responsibilities was to ensure that the Bill remained constitutionally compliant. Quite rightly, an operator in the Western Cape could transact with a customer in Limpopo and there needed to be a national licensing regime that made it easy and simple to understand, but also did not fall foul of the constitutional provisions in terms of Provincial Licensing Authorities.

Mr D Macpherson (DA) said he had been a Member of the Committee for a year and had extensive involvement in trade, business and the economy. This was a Bill that for the first time in a while spoke to a very real problem and it offered a very real solution. The Committee needed to recognise that. It was not a political issue, but rather trying to find a workable solution to an existing problem. In the 1920s the USA implemented a prohibition against alcohol and because of its weak enforcement; it created a black market that spawned underground criminal activities that the country was still dealing with today. The prohibition was only rescinded in 1933, because the federal state realised how much tax revenue was actually being lost. The casino industry suggested that in the 2014 financial year R450 million had been lost in tax revenue to the government. At some point the government needed to wake up to the fact that a massive amount of money was being lost. Prohibition in this case dealt with the internet and to suggest that use of the internet could be prohibited was “quite frankly bizarre”. North Korea had been the only country successful in doing so and it was not an example of democracy South Africa wanted to look up to. This industry should not be treated differently to the alcohol, fast food or tobacco industries and the only difference was that the state actually derived an income from those industries to counter the costs. The government currently derived no revenue to counteract the enforcement of banning online gambling. There was a full audit trail in online gambling and it eliminated money laundering. The opportunity for land-based casinos to go online would allow them to compete in the international space and competition in the market should be encouraged.

Mr Hill-Lewis agreed and said prohibition in the USA gave rise to massive organised crime and many criminals made their money in the illicit trade of alcohol. The loss of R450 million annually to the fiscus was a conservative estimate and R450 million could have helped the DTI to have a world class inspectorate and enforcement system and it could have revolutionised the NGB. There was essentially no difference between using a cellular phone to place a bet, using the internet to gamble online or driving to the casino to gamble.

The Chairperson referred to the protection of players and said she was not sure that anyone could be protected online these days and she mentioned the cost of such protection. She wanted clarification on the “cutting edge technology” that would be utilised to protect players online. She also wanted to know how minors would be monitored and protected. The presentation referred to people’s ability to open accounts anywhere, but that income had to be declared and she suggested that perhaps FICA would be able to shed light on the processes. There was also a lot of focus on the “electronic inspectorate” aspect and it was not clear how it would be done, because the most technologically advanced institutions had been struggling to implement electronic monitoring and inspection. She questioned whether the same kind of revenue would be generated that land-based casinos generated and she also raised the concern of how online gambling would impact land-based casinos.

Mr Hill-Lewis said every player would have to have a FICA account, in other words they would have to send a copy of their ID and proof of address to the licensed operator. That operator would give them a username and password and without that username and password and other security checks it would be impossible to gamble. That to a great extent prohibited minors from gambling. Even if an irresponsible parent left their username and password next to the computer and a minor logged on, the software would immediately pick up that this person was making irrational bets. The software would either exclude them from continuing or prompt for further security questions. In terms of foreign exchange, the South African Reserve Bank (SARB) allowed  for an annual allowance of R10 million and 99.9% of ordinary gamblers fell well within that R10 million limit and would be able to easily side step the Department’s efforts to block payments. The NGB or its service provider was able to monitor limited payout machines (LPMs) centrally and it showed what was possible with electronic monitoring. The potential for accurate monitoring and enforcement was far greater with centralised with electronic and digital monitoring than it was with physical monitoring of every gambling space in the country. Land-based casinos should in fact be first in line to get licensed, because many South Africans would far prefer to gamble on a website of a casino that they knew. It should be an opportunity for land-based casinos to diversify their income streams.

Mr Macpherson asked Mr Hill-Lewis to speak to the point in the legacy report of the Fourth Parliament that talked to the GRC report in respect of online gambling and whether the Bill would make provision for a similar licensing regime as the National Gambling Act.

Mr Hill-Lewis said he provided a timeline on how long this government had been busy with this issue and up until recently the unanimous view of government and Parliament had been that online gambling should be regulated. The only difficulty had been to come up with a model that would capture the provinces’ constitutional role for licensing, oversight and regulation. Only recently the Department had performed this remarkable about face and came out against regulation in favour of prohibition. This was not a good policy position and the view in favour of regulation was reflected in both the legacy report of this Committee in the Fourth Parliament, as well as in the GRC report. The issuing of licences was similar in the sense that there was a role for both national and provincial licensing boards in the issuing of licences. In this Bill the national body would have the final licensing responsibility and provinces only made recommendations in terms of their oversight.

Mr Williams asked if there was anything in the Bill that spoke to preventing licensees from having an office in Goodwood for example with three people in it, but having a massive international office.

Mr Hill-Lewis replied that the Bill contained specific requirements that operators should have their offices in the province of jurisdiction in Section 18, subsection 11 and in Section 11, subsection b. Licensees might be dishonest in the way described but it should be stipulated in the licensing conditions. In the Bill the NGB was given the authority to stipulate a huge range of conditions and if those conditions were not met, the person either lost their licence or failed to earn a renewed licence. The exact stipulations could not go into the Bill, because it would not allow latitude for the licensing authorities to be discreet.

Mr Williams said the mentioned sections in the Bill did not specify anything and the licensing conditions in provinces could be lax. He asked how job creation would be ensured.

Mt Hill-Lewis replied that it was entirely possible that a licensed operator could be dishonest, but the Bill provided for the NGB and the Minister to lay down regulations on what would be required in the licences. Those requirements and specifications were not included in the Bill, because the NGB could come up with additional requirements and it would allow for discretion for the NGB to stipulate requirements expected of operators.

The Chairperson said casinos were seen as vehicles that contributed to the development of the local economy. The idea that minors would gain access to online and gambling and in addition, the capacity to monitor online gambling remained concerning.

Mr Hill-Lewis replied that he tried to explain previously that it was far easier to protect players in the online space than it was in a casino. It was entirely possible with rigorous security requirements to prevent minors insofar it was humanly possible and reasonable from gaining access to an online site. It was never going to be possible to provide a 100% guarantee that minors could not gain access to anything “nasty” on websites and this was true of not only gambling, but also of other far less savoury online activities. This Bill took from international best practices and it went very far to ensure the protection and safety of minors.

The Chairperson thanked Mr Hill-Lewis for the presentation. 

Consideration and adoption of outstanding minutes

In terms of the Minutes dated 25 February 2015, Mr Macpherson referred to point 3.2 and said it did not seem clear enough.

The Chairperson asked the Committee Secretary to have the Minutes checked.

Minutes dated 3 March 2015 was adopted without amendments.

Minutes dated 4 March 2015 was adopted without amendments.

Minutes dated 10 March 2015 was adopted without amendments.

She asked the Committee Secretary to return to the Harvard system of compiling minutes, because the Committee preferred numbering instead of bulleted points.

In terms of Minutes dated 11 March 2015, the Chairperson wanted Hansard checked on whether the DA dissented to the oversight report.

Minutes dated 13 March 2015 was adopted without amendments.

Minutes dated 17 March 2015 was adopted without amendments.

Minutes dated 18 March 2015 was adopted without amendments.

In terms of the Minutes dated 24 March 2015, Mr Hill-Lewis asked that it be included that although the call centre performance indicator would be removed from the Annual Performance Plan (APP) of the Companies and Intellectual Property Commission (CIPC), the Committee wanted regular briefings on the performance of the call centre. The Minutes was adopted with amendments. 

Minutes dated 25 March 2015 was adopted without amendments.

Minutes dated 27 March 2015 was adopted without amendments.

Mr Macpherson noted that for the Minutes dated 14 April 2015, 15 April 2015 and 21 April 2015 his surname was spelled wrong. The Minutes of those meetings was adopted with the amendments.

Minutes dated 22 April 2015 was adopted without amendments.

Minutes dated 30 April 2015 was adopted without amendments.

The Chairperson thanked everyone and the meeting was adjourned. 

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