Remote Gambling Bill [PMB3-2015]: hearings

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Trade, Industry and Competition

03 June 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee conducted hearings on the Remote Gambling Bill and heard from various stakholders and interested persons.

The Banking Association of South Africa (BASA) was essentially agnostic on whether online gambling should be regulated or not and it was a decision for government to make. In 2011 there were views coming from government that the banking sector should regulate and enforce online gambling and BASA’s response had been that it would be impossible for the organisation to do so. Banks would act to stop online gambling transactions if authorities tracked, monitor and identified illegal operators.

Members wanted to know whether banks would be able detect similar illegal transactions through technology if made aware by a state entity of an illegal transactions. The question was whether banks would be able to block transactions if they were provided with a list of companies with the instructions that no transactions should be processed through the payment systems with companies on that list. It was also noted that the enforcement capacity of the banks relied heavily on the investigative capacity of state entities to identify illegal operations.

The National Responsible Gambling Programme said most South Africans did not know that online gambling was illegal. International consensus was that about 1% of adults in populations were full-blown gambling addicts; 4% gambled excessively to the point where they did significant damage to themselves. Research conducted here suggested that South African numbers were broadly in line with these international norms. Internet gambling was the form of gambling which made it easiest to require operators to put in place safety measures likely to discourage people from gambling excessively. The NRGP favoured the legalisation and regulation of remote gambling because it would make the imposition and enforcement of provisions for the avoidance of problem gambling possible.

The Committee discussed the freedom of choice citizens should be afforded as well as the role of the government in protecting citizens form potential harmful activities. The discussion also highlighted the protection of minors, whether it was possible to effectively ban activities in the online space and the need for more comparative data, research and education.

The Casino Association of South Africa (CASA) was neither for nor against the legalisation of remote/online gambling and stated that this decision should be made by the South African government. Illegal online gambling was currently a threat to the industry. Should it be legalised, it was important to ensure that legislation would provide for a practical and effective legislative and regulatory dispensation. It should avoid the potential hazards of regulation of this sector, particularly in relation to participation in remote gambling by offshore players and minors. Appropriate compensatory measures should be put in place to ensure that the laws of other countries were respected and the regulatory legislation should preserve the image of South Africa as a responsible global citizen. CASA was of the opinion that the proposed Remote Gambling Bill failed to achieve these objectives in a number of significant respects.

Mr Hill-Lewis disagreed with CASA’s assessment that the Bill failed to achieve its objective. He noted that some of the technical aspects highlighted could be implemented and defended the Bill’s position on division of powers between the NGB and the PLAs and issuing of norms and standards by the NGB. He also debated the Bill’s proposed licensing regime and whether the NGB was the appropriate regulatory authority to oversee this process. The Committee sought clarity on issues of concurrency, norms and standards, regulations and whether a Minister could delegate the responsibility to set secondary legislation. Members also welcomed the discussion on concurrent powers and the implications it had for the enforcement of legislation.

Phumelela Gaming and Leisure Limited did not support the legalisation of online gambling, because it was a threat to existing jobs in the gambling industry with no capital and infrastructure investment. The organisation was not against online gambling in perpetuity, but unemployment and the impact online gambling would have on the casino industry were concerning factors. South Africa with its socio-economic challenges should not be legalising online gambling ahead of countries such as the USA, France and Holland.

Mr D Macpherson (DA) rejected Phumelela’s arguments and said the Gambling Review Commission (GRC) found nothing on the “threat to jobs” and the Remote Gambling Bill ensured that back office operations of online operators would be based in South Africa and Phumelela’s argument on job losses was null and void. Members discussed the implications for employment opportunities and the importance of empirical evidence in this regard.

Mr Wayne Lurie, Director at Lurie Inc Attorneys favoured the regulation of online gambling and questioned the validity of the DTI’s policy position. The current law displayed rudimentary enforcement against players with SARB fines and possible sanctions of up to 10 years or a R10 million fine. It was bad policy and it allowed vendors to display and sell wares with impunity but punishing the purchaser. It had been reported worldwide that online gambling had not impacted overall addiction percentages. The pathologically addicted, remained the pathologically addicted regardless of the mode. Regulation of the gambling industry would self-fund the enforcement of the regulation and a lincensed entity would always trump and unlicensed one in terms of player choice.

Mr Garron Whitesman from Whitesmans Attorneys favoured regulation over prohibition. There was no evidence that more harm would result by regulation as DTI would have it or that the number of players who currently played online was going to materially increase. South Africa needed to look how similar societies with similar mores and similar democracies have dealt with the issue. DTI believed there was a material and defeasible distinction in law between current land-based casino and poker activities and e.g. virtual racing and equivalent online activities. It was an arbitrary and capricious distinction and impossible to justify.

The Committee discussed South Africa’s World Trade Organisation (WTO) obligations and how the decision to regulate or not would impact those obligations. Members asked for clarification on the Piggs Peak case and what implications that court ruling had for online gambling in South Africa.

Meeting report

The Chairperson welcomed everyone to the meeting and the agenda for the meeting was adopted.

Input by the Banking Association of South Africa (BASA)

Mr Cas Coovadia, Managing Director, BASA, said these were initial comments with the understanding that BASA would, at the appropriate time engage with the Bill. BASA made detailed submissions to the Committee on this matter in 2011 and the organisation’s position since then had remained consistent. BASA was essentially agnostic on whether online gambling should be regulated or not and it was a decision for government to make. BASA appreciated the problems of unregulated gambling, but urged that if any consideration was given to the regulation of the online gambling sector, authorities should ensure that there was capacity to monitor and enforce such regulations. In 2011 there were views coming from government that the banking sector should regulate and enforce online gambling and BASA’s response had been that it would be impossible for the organisation to do so.

The National Payment System was standardised to cope with large volumes of transactions and could not identify reasons for transacting. Online gambling originating in countries where it was legal was processed in real time and the system would not be able to identify the transaction as an online illegal gambling transaction. Online gambling was often consolidated into total gambling operations and thus “hidden” in business operations and service providers often used legitimate fronts. Banks would act to stop online gambling transactions if authorities tracked, monitor and identified illegal operators. The South African banking sector was the fifth most stable in the world according to the 2014/15 Global Competitive Report. Banks raised deposits, held these in trusts and leveraged funds to extend credit responsibly. The Committee should try to avoid imposing further regulatory burdens, particularly those not related to the direct business of banks, because this increased the cost of banking services. The South African Reserve Bank (SARB) Excon Surveillance Department monitored credit card payments, including for internet gambling and cross border outflows. They monitored these transactions and contacted the relevant banks for action in the case of “major players”. The Portfolio Committee and the Department of Trade and Industry (DTI) were encouraged to constructively engage with BASA in terms of what was possible at an industry level, irrespective of what the national policy, legislative and regulatory trajectory might be, so that banks could continue to do business sustainability and play a meaningful role in the economy.

Discussion

The Chairperson asked if a bank was made aware by an organ of the state of an illegal bank transaction, whether it would be possible to detect similar transactions with technologies banks used.

Mr Coovadia clarified that banks were not able to proactively monitor such transactions. If a person spent their money illegally, the money would go through the system. When an entity or government department contacted the bank to block a transaction and all further transactions with a specific company or individual from going through, the banks would be able to do so. SARB Excom identified such suspicious transactions and informed the payment systems to actively block future transactions. Currently the payment systems were not able to actively monitor and identify illegal transactions.

The Chairperson sought clarity on whether banks would be able to block transactions if they were provided with a list of companies with the instructions that no transactions should be processed through the payment systems with companies on that list.

Mr Coovadia confirmed that banks would be able to stop transactions if provided with a list by a regulatory authority.

The Chairperson noted that banks also flagged transactions if such transactions exceeded a certain amount.

Mr G Hill-Lewis (DA) said the enforcement capacity of the banks relied on the investigative capacity of state entities to identify “so-called” illegal operations. The Department of Trade and Industry’s (DTI’s) argument up to now had been that it was possible to block activities at a very large scale at source. If it was not possible to proactively block transactions and if it was only possible reactively based on investigations by the enforcement body, it presented a significant problem. He asked what happened to the money if a South African citizen transferred funds to an offshore bank after it had gone through the banking payment system and the SARB system.

Mr Coovadia replied that once money landed in the foreign banking account it was out of the jurisdiction of the South African banking system. There were however certain thresholds where the transfers of significant amounts of money would be flagged by either the banks or by SARB to be investigated. Banks could proactively block transactions if the regulatory authority had identified suspect individuals or entities.

The Chairperson asked that BASA made itself available during the policy process as well. 

Input by the National Responsible Gambling Programme (NRGP)

Dr Adele Pretorius, Treatment Director, NRGP, said most South Africans did not know that online gambling was illegal. Illegal online gambling was almost impossible to enforce and many other jurisdictions had faced the same dilemma. Gambling became more risky and stimulated problem gambling when it offered opportunities for continuous, “rapid action” play, high stakes, high and frequent prizes and convenience gambling.

Remote gambling via the internet or other technologies, especially when unregulated, was maximally risky from the point of view of encouraging problem gambling. Even so, there was no reason to believe that the majority of remote gamblers, like land-based gamblers, would not do so in a sensible and responsible way. International consensus was that about 1% of adults in populations were full-blown gambling addicts and that 4% gambled excessively to the point where they did significant damage to themselves. Research conducted here suggested that South African numbers were broadly in line with these international norms. Internet gambling was the form of gambling which made it easiest to require operators to put in place safety measures likely to discourage people from gambling excessively. These measures could include prominent links to websites where players could self-test for gambling problems, receive education about how to gamble safely and be put in touch with internet counselling facilities. Operators could offer players a facility for setting limits to losses over a given time period after which they were automatically prevented from playing further and software could detect patterns of play characteristic of problem gamblers and alert players accordingly. Regulation was most unlikely to eliminate remote gambling at offshore sites since there were many ways around the banking and ISP restrictions. In general, the consequence of prohibition was to ensure that the prohibited goods and services were provided illegally, often by organised crime. Prohibition was normally favoured on moral/religious grounds or by land-based casinos hoping to protect their businesses. Alternative to prohibition was a free market and the only large jurisdiction in the developed world so far to have legalised and devised regulations for remote gambling was the United Kingdom (UK).

If Parliament rejected both prohibition and a free market, then the principles which governed the legalisation and regulation of land-based gambling should apply to remote gambling. Governments should ensure that the potential negative social impacts were minimised. Government should also protect minors, ensure that consumer choices were adequately informed and require industry to do all that it reasonably could do to minimise the incidence of, and harm caused by excessive gambling. The government should insist in a free society individuals should be free to decide for themselves and ensure that laws were enforceable.

The NRGP was gambling-neutral and believed it was a matter which should be left to the individual unless there were very compelling reasons for using the law to restrict people’s freedom of choice. Remote gambling was not yet a serious source of gambling problems in SA, but it might well become more serious. This was more likely to happen if internet gambling remained prohibited than if it was well regulated with operators who were required to put in place the safety measures described. The NRGP favoured the legalisation and regulation of remote gambling because it would make the imposition and enforcement of provisions for the avoidance of problem gambling possible. Current research on internet gambling was not conclusive and the NRGP proposed further research on the prevalence and/or impact of internet gambling.

Discussion

Mr B Mkongi (ANC) welcomed the presentation and said care should be taken not to infringe on people’s freedom of choice while recognising the position government needed to take to ensure people were protected from harm. He referred to his recent trip to Japan to attend a conference where, access to internet, and freedom of choice and how it perpetuated violence in relation to young people were extensively discussed. He mentioned the story of the young girl who was recently stopped on an airplane from joining ISIS and the role the internet played in the incident. The role of the state to prevent potential dangers should be explored in the discussions on this Bill.

Dr Pretorius replied that she was not qualified to speak on the access to internet matter, but should online gambling be legalised, appropriate measures should be put in place to prevent underage gambling similar to what casinos had. These restrictions should ensure that nobody under the age of 18 was allowed to gamble. She clarified that 50% of the South African population did not engage in any form of gambling and of the 50% engaging in gambling activities, 95% managed to do so in a responsible manner. If online gambling was legalised there should also be restrictions on who was allowed to gamble online, how many accounts a gambler was entitled to have and also on amounts wagered. 

Mr Hill-Lewis said someone responsibly and completely legitimately spending a few minutes a day gambling at home could hardly be compared to someone joining an international terror organisation. He referred to slide 6 and said the first point should read “prohibition (and not regulation) was most unlikely to eliminate remote gambling at offshore sites since there are many ways around the banking and ISP restrictions”.

Mr M Kalako (ANC) also referred to slide 6 and disagreed with Mr Hill-Lewis and said the point read correctly as “regulation was most unlikely to eliminate remote gambling at offshore sites since there are many ways around the banking and ISP restrictions”. He asked for clarity on whether Dr Pretorius favoured the regulation of online gambling despite all the problems and concerns raised around it.

Dr Pretorius referred to slide 6 and said the point meant to relate that even with regulation it would most probably not be able to prevent operators from foreign countries operating in South Africa based on the proven ways people could circumvent ISP restrictions. Hopefully people could be motivated to rather make use of South African legal sites that had proper safety measures in place.

Mr Hill-Lewis said it was true that it would be impossible to stop illegal offshore sites offering services in South Africa, but if nothing stopped them from getting a licence, the hope was that they would apply and operate in a licensed and regulated environment.

Mr Mkongi said he understood the proponents of freedom of choice and it did not override government’s responsibilities. He asked how free was a free market in terms of affording people choices when it essentially allowed people to increase their profits without affording protection to those receiving the information.

Adv A Alberts (FF+) said more research was needed, because this choice between regulation and prohibition also included the unstable nature of the internet. In addition, he asked what could be done in terms of education and more research. The world seemed a little behind the fact that so many people were already gambling online.

Dr Pretorius replied that it was difficult to assess how big the problem really was and a prevalence study was needed to understand the focus in terms of education.

Mr N Koornhof (ANC) asked whether it was possible to ban online gambling seeing that it was done in the online/internet space.

Dr Pretorius replied that the NRGP was a non-profit organisation and it was also gambling neutral. The concern was focused on the illegal activities that were taking place and the majority of online gamblers who contacted NRGP were those people who had been caught out by SARB when they won and not when they wagered their money. Regulating online gambling would not be easy, but it was preferable to prohibition.

The Chairperson noted that Dr Pretorius’ remarks that gambling became more risky and stimulated problem gambling when it offered opportunities for “continuous, rapid action play”. Online gambling offered that opportunity, especially for young people who spent a lot of time online and problem gamblers. Dr Pretorius further highlighted “high and frequent prizes” as risky and said it would be near impossible to get someone to stop gambling if they were rewarded. The Chairperson clarified that Mr Mkongi’s point related to the access to dangerous internet sites and information. She asked for information comparative studies done by other countries and also asked how government was supposed to protect minors in light of some of the proposals in the presentation.

Dr Pretorius replied that unfortunately not every single citizen could be protected from everything.  There should be protective measures in place in terms of the youth where it related to activities such as gambling and drinking alcohol. The NRGP had a schools programme that talked to risks in general and it was designed as part of the Life Orientation curriculum. 

Ms P Mantashe (ANC) asked whether the government did not have the responsibility of protecting citizens from exploitation and addiction, because addiction led to the disintegration of families.

Dr Pretorius replied that online gambling was already happening and if it was not regulated to protect people it would go underground and the harm would be much bigger if the services were provided by criminal and illegal operators.

The Chairperson said the Committee might invite Dr Pretorius again when the policy would be unpacked, because the work done by NRGP was invaluable and any research endeavours were welcomed by the Committee. She added that the NRGP claimed to be a gambling neutral organisation, but yet asked for the protection of minors. It was not a neutral stance. If something was not harmful, no protection would be needed. 

Input by the Casino Association of South Africa (CASA)

Adv Alicia Gibson, Legal Adviser, CASA, said the organisation was neither for or against the legalisation of remote/online gambling and this decision should be made by the South African government. Illegal online gambling was currently a threat to the industry. The government could maintain the status quo with respect to online gambling being illegal but should take stern action against it or legalise online gambling subject to strict and proper regulation. Should it be legalised, it was important to ensure that legislation would provide for a practical and effective legislative and regulatory dispensation. It should avoid the potential hazards of regulation of this sector, particularly in relation to participation in remote gambling by offshore players and minors. Appropriate compensatory measures should be put in place to ensure that the laws of other countries were respected and the regulatory legislation should preserve the image of South Africa as a responsible global citizen. CASA was of the opinion that the proposed Remote Gambling Bill failed to achieve these objectives in a number of significant respects.

The demand for remote gambling was growing with increased technological advancements and there were increasing levels of regulation globally. This Bill showed lack of compliance with international standards and illustrated absence of proper/meaningful controls to prevent prohibited persons from engaging in remote gambling with South African operators. Clause 16(3) gave no assurances that a player was participating legally prior to registration and it was reckless to rely on contentions made by the player regarding his/her “primary residence” and the laws of his/her country. The onus should be on the operator to verify the identity and age of the patron. Operators should also verify that the patron was a citizen of a “permitted foreign jurisdiction”, that the patron was acting as a principal and not restricted in his/her legal capacity and that the provisions of all legislation pertaining to financial intelligence have been complied with. Clause 45(3)(b) required a licence holder to “request any person suspected of being a minor to produce identification and proof of age”.  This should be verified as a matter of course prior to the registration of players. Clause 16(3) of the Bill specifically contemplated that persons located outside of the Republic may register as players with licensed South African operators, while Clause 44(b)(iv) required South African operators merely to refrain from making a payout to a registered foreign player unless that operator had obtained and recorded a statement from [the] player confirming that the law of the country within which the player primarily resides, does not prohibit the player from playing or engaging in remote gambling activities”.

Adv Gibson highlighted several inconsistent clauses and noted the Bill required the National Gambling Board (NGB) to develop a swathe of norms and standards for the industry in general, player accounts, websites and technical specifications/equipment. It was essentially an abdication of legislative power and the NGB had basically no regulatory experience. Development of technical norms was a highly specialised task and the existing approach regarding national standards, testing and certification should apply. There was no mention of internal control standards and there should be a blueprint for operational practices submitted by licence holders to ensure compliance with all applicable legislative and regulatory requirements, and approved by a regulator.

Adv Gibson highlighted the roles of the NGB and those of Provincial Licensing Authorities (PLAs) as proposed by the Bill and said the regulatory framework was not cohesive and it came down to a duplication of efforts. In commenting on the policy issues, CASA noted in terms of harm that the nature of the market and the product offering should be considered (i.e. patrons’ level of access to internet, designated banking accounts, no retail footprint). Proliferation was only really a meaningful consideration in the context of land-based operations.

Despite the borderless nature of the internet, most remote gambling legislation now used a point-of-consumption approach.  Potential client bases were generally effectively restricted to the jurisdiction within which the operator was licensed. Capital investment was significantly less than land-based operations and was borne by licence holders.  There was no evidence to suggest that operations would not be viable and online gambling could mean an additional income for the fiscus. Problem gamblers would typically engage in remote gambling with offshore operators even if it was prohibited.  The licensing and regulation of remote gambling would however provide for effective mitigation measures and the opportunity to seek help in the South African context. Minimal enforcement problems were expected if the industry was effectively regulated and far greater enforcement issues arose where remote gambling was prohibited. Revenue from remote gambling operations would remain in the country, as opposed to being diverted offshore.

Discussion

Mr Hill-Lewis said for someone who said that they were neither for nor against the legalisation of online gambling the presentation argued pretty much against online gambling. There were some valid criticisms around the technical aspects of the Bill, many of which could be entertained while in disagreement with others. The Bill was before the Committee in a draft format so where the criticisms made sense, it could be applied to improve the Bill. In spite of all the criticism, he disagreed that the Bill failed to achieve its objective. The Bill required that all players be FICA certified so the concerns regarding the identity, age verifications and home addresses of patrons would all be dealt with by FICA. Four sections toward the end of the Bill dealt with player protection and the Bill was strongest in terms of the requirements for licensed operators to protect players and minors. Norms and standards were not an avocation of legislative powers and it was precisely because the development of technical norms and standards was a highly specialised task that it could not be done in the legislation itself. Norms and standards changed with changing technologies and it was necessary that it should be done through regulations, because regulations had the potential to change on an almost annual basis. He agreed with the statement that the NGB had no regulatory experience, but the NGB was the most specialised and capable body in South Africa to be able to issue those norms and standards and they should ensure that their regulatory function was properly fulfilled. The Committee already had extensive discussions on the division of responsibilities between the NGB and the PLAs. The Constitution gave the PLAs significant concurrent powers in terms of regulating gambling. Online operators should not have to apply for nine separate licences in one geographic jurisdiction and a constitutionally valid solution was needed. It was agreed that it was a “clumsier” solution than if it could have been drafted from a blank slate and the solution needed constitutional muster with the support from the PLAs. The Bill had to go to the National Council of Provinces (NCOP) as well and the Bill had to make both legal and political sense. The Bill had been gazetted in December 2013 and at the time CASA had not been one of the organisations that submitted comments on the Bill. It would have been useful if some of these suggestions could have been voiced during the drafting process.

Adv Gibson replied that in the context of legislative powers one had to be careful not to give too much away. The comments made related to either primary or secondary legislation and the suggestion was that the key features of the regulatory dispensation needed to be in either primary or secondary legislation. Anybody who had any experience within the regulatory environment understood how quickly technology changed. The specialised task referred to technical standards that were developed by experts together with the South African National Bureau of Standards (SANBS). It was standards against which gambling equipment and systems and software were tested, certified and made available for use. The suggestion was not that everything should be handed over to the NGB; however, it was still a tremendous problem to have this division of efforts between the PLAs and the NGB. There was no reason the Bill could not pass constitutional muster, because a national Bill or Act that dealt in broad terms with the issue of online gambling could state that PLAs licensed and regulated those activities but set forth the parameters in which to do so. It was not CASA’s position to advocate these standpoints, but rather to submit the observations made. CASA submitted quite significant and numerous comments on the Bill in April of 2014.

Mr Hill-Lewis said if this logic around point of consumption legislation was followed it would mean that provinces would have to issue nine different licences to operators.

Adv Gibson disagreed and said “online gambling was online gambling”. As an example she stated that a bookmaking license in the Western Cape entitled an operator to an online presence and it would not be necessary to apply for additional licences to operate in South Africa because there were no geographical issues to consider in the online space.

Mr Hill-Lewis said it was not sensible and a national licensing regime was necessary for a national product.

Mr Mkongi referred to slide 7 and asked for a more detailed explanation on the roles of the NGB and the PLAs. It had become an issue in legislation where more powers were given to provincial structures than national structures and enforcement became a problem. He asked for clarification on the statement that unregulated online gambling was a threat to the country.

Mr Kalako asked CASA to be explicit in its position, based on all the points raised, on the best possible route the country should take.

Adv Themba Ngobese, CEO, CASA, replied that CASA recently launched a campaign against illegal online gambling that started in December 2014 and ran until the end of last month. It was up to the government to make a decision taking everything into consideration. If the government persisted with the illegality of online gambling it should be noted that the enforcement efforts by the government had been very disappointing and discouraging so far. At this point it was not easy to believe that it was enforceable because it had not been happening. It had been four years since the Piggs Peak case in which the enforcement of illegal online gambling should have happened. If government could not stop it, it should be legalised and properly regulated. CASA had been giving a lot of information to facilitate a decision.

The Chairperson asked for input from the Parliamentary Legal Unit but specifically on concurrency matters, norms and standards, regulations and whether a Minister could delegate the responsibility to set secondary legislation.

Adv Charmaine van der Merwe, Senior Parliamentary Legal Adviser, said the Constitution provided that provinces had legislative capacity in relation to gambling. Provinces were allowed to make legislation to that effect. Should legislation be made on a national level that conflicted with provincial legislation, the Constitution also explained when either national or provincial would prevail. The issue of providing for provinces in this Bill was more of a practical implication, because it was not required in terms of the Constitution that national legislation in relation to Schedule 4 matters should make provision for provinces to play a role in the legislation. Delegated powers given to the Minister could not be delegated further unless it was made clear in the Act that the Minister could do so. From a legal point of view, it would not be recommended, because Parliament was already struggling to regain control over secondary legislation and a committee had been established to scrutinise delegated legislation. Secondary legislation was lawful and enforceable whilst norms and standards were very much on par with a policy put forward by a department. Norms and standards would be enforced by a department and sometimes policy could not be enforced without legislation. There were however a number of policies that could be enforced without legislation depending on the content. The Committee should decide whether norms and standards should be delegated legislation taking into consideration issues such as enforcement and ease of amending.

Mr Mkongi asked how the Bill was tagged.

Adv van der Merwe replied that the Bill had already been classified as a Section 76 Bill.

The Chairperson asked for clarification that this was not a draft Bill and that it could be amended by the Committee.

Adv van der Merwe agreed.

Mr D Macpherson (DA) said this Bill was to the advantage of the industry because it would allow land-based casinos to reach more clients outside of the province they were located in.

Adv Gibson replied that she was not mandated to comment.

The Chairperson commended CASA for their detailed presentation and the specific clauses had been isolated. It had been very helpful to the Committee.

Input by Phumelela Leisure

Mr Mpho Ramafalo, Executive Director: Group Business Development, Phumelela, said Phumelela Gaming and Leisure Limited was a company listed on the Johannesburg Stock Exchange. It was listed and licensed as a horseracing and totalisator operator in seven of the nine provinces in South Africa. Phumelela was also a major employment creator in the gambling industry. Phumelela did not support the legalisation of online gambling, because it was a threat to existing jobs in the gambling industry with no capital and infrastructure investment. It would exacerbate problem gambling because of the extensive access to the product and provinces would have to carry the socio-economic burdens and cost.

Mr Rian du Plessis, Group CEO, Phumelela, said the organisation was not against online gambling in perpetuity, but unemployment and the impact online gambling would have on the casino industry were concerning factors. Illegal online gambling could be effectively policed and examples could be provided. It should be noted that the greater concept of gambling encompassed the National Lottery as well as betting. Betting was legal and it was allowed by all provinces in the country. Phumelela and pretty much every bookmaker had online sites that allowed for internet and telephone betting. The proposed bill dealt with the more addictive forms of gambling that could be found in casinos such as slot machines, roulette, poker and bingo. Some 35 years ago betting on horseracing had 100% market share because all other forms of gambling were still illegal. As the other forms of betting had been introduced and because it was more addictive forms of gambling, the market share of horse racing had eroded to 5% and it was the most labour intensive section of the gambling sector. It was concerning for the industry because the proposed online gambling was more available and more addictive and the timing of this Bill should be questioned in the absence of scientific evidence on what the impact would be. In most other parts of the world, notably the USA with the exception of Nevada, online gambling was illegal. There was no other country with an unemployment rate as high as South Africa that allowed online gambling.

Mr Hill-Lewis was correct and post the Piggs Peak case online licensing across provinces was not allowed and Phumelela had presented recommendations to the NGB as well as all the CEO forums that the European principle should be followed that moved away from point-of-consumption licensing to national licensing to ensure provinces got the taxes due to them.  FICA was used differently abroad because a licensed UK operator did not have to FICA certified customers as long as money was deposited from a legitimate bank account.

In terms of policing illegal online gambling, Phumelela recently came across Bet365 and BetVictor offering bets to South African citizens and wrote to them asking them to cease and desist. There was no response and Phumelela then contacted their regulators, the Gauteng Gambling Board and SARB. These operators had since stopped taking bets from South Africans and the most effective way to stop illegal gambling was to contact the regulators of illegally operating operators. There were very few online operators that operated without being licensed somewhere in the world and SARB would be able to notify banks that money should not flow to these websites. South Africa with its socio-economic challenges should not be legalising online gambling ahead of countries such as the USA, France and Holland.

 Discussion

Mr Hill-Lewis said operators operating in the online environment were already taking away businesses from organisations such as Phumelela without any inhibition. The back office support operations of these online operators were not located in South Africa and they were not paying any tax in South Africa. The Bill sought to put together a regulatory regime which would allow for fair competition, because all those operators would then be required to have offices and invest in South Africa. If there was a gambling operation that was more capital and job intensive it should be incentivised to tax policy. Phumelela’s product was available online right now for 24 hours a day and seven days a week completely legitimately. For the ordinary citizen it would be almost impossible to see the difference between those illegal online operators and a legitimate product and the legal distinction between the two was arbitrary. South Africans would prefer to gamble on a website of a company they were familiar with than some unknown foreign website.

Mr du Plessis reiterated that Phumelela was not against online gambling in perpetuity, but it was premature and the impact on existing legitimate operators and employment was not understood and had not been proven. Illegal online gambling should be attended to, but the impact needed to be explored and understood. There was a gambling policy that required casinos to spend large amounts on infrastructure and employment in order to be licensed. An online operator would have no such obligations and would still pay the same amount of tax and it was not sustainable. People might choose Phumelela because it was a known brand, but that “winning” would be at the expense of jobs.

Mr Mkongi echoed the importance of studies that needed to be done because the potential of online gambling being a threat to the employment opportunities in the gambling sector as a whole should be fully explored. He asked, apart from unemployment, what the other economic threats was to the “wholesale” legalisation of online gambling.

Mr Macpherson said he could not remember a time when a group in an industry came and gave a presentation and spoke on another industry’s behalf as Phumelela spoke on behalf of casinos. It was about excluding competition, but what should be clear was that they were unfairly competing in an unregulated market. The Gambling Review Commission (GRC) found nothing on the “threat to jobs” and there had never been a study that had differed from the GRC’s findings. The Bill ensured that back office operations of online operators would be based in South Africa and Phumelela’s argument on job losses was null and void. People would have the same kind of access to online gambling they were currently having to Phumelela’s products and government was already carrying the socio-economic burden through ‘sin tax’ which was used to offset the costs of the ‘sin industry’. 

Mr du Plessis replied that the horseracing and betting industries competed with the casino industry and whatever impacted the casino industry would impact all gambling industries across the spectrum. The horseracing industry employed a lot of people and the minimum bet offered was about R1.60 and the average bet was R20. People would not take a taxi or spend money on fuel that would probably cost more than their wager if they had an option to stay at home and gamble and that would lead to job losses. The vast majority of punters did not have internet connectivity at the moment and although they had telephones it was still “third generation telephones”. Horseracing took place at set times after 10 pm there were very few sporting events that could be betted on. Online gambling on the other hand happened 24 hours a day and it had been empirically shown that online gambling was much more addictive. Phumelela authorised a vast array of websites to web stream the picture of horseracing to punters in their countries and those countries were able to geo-block with a 99% accuracy the country from which they operated. It was a technological requirement because that picture could not be streamed to any other unauthorised country.

Mr Koornhof disagreed said it was within Phumelela’s right to comment on other industries, because when the casino industry was legalised in South Africa, the horseracing industry were the “biggest losers”.  He asked if Phumelela had done any study on the impact of illegal gambling on the industry.

Mr du Plessis at this point the complete impact and size of the illegal online industry was not known, but if there was willingness by the regulators to work with the industry, the gambling boards, SARB and external gambling boards, illegal online gambling could be stopped.

Ms Mantashe questioned the notion that because illegal online gambling existed it should be legalised then the principle might as well be applied to a criminal activity such as burglary. South Africa had a very high unemployment rate and online gambling would have a negative impact on unemployment opportunities.

Mr Hill-Lewis said care should be taken by distinguishing with legitimate commercial activities that took place within a responsibly regulatory context in an open society and things that were illegal, violent and outside the social context.

The Chairperson reminded Mr Macpherson that online gambling was illegal at the moment and that was the reason for the Remote Gambling Bill.

Mr Mkongi said if something was illegal it was criminal. He asked what guarantee was the back office operations of these operators would be based in South Africa. South Africa had already a type of crisis where many operations merely had satellite offices in the country while money flowed from the country to offshore operations.

Input by Lurie Incorporated Attorneys

Mr Wayne Lurie, Director at Lurie Inc Attorneys disagreed with the proposals that more research was needed on the potential impact of online gambling as well as the DTI’s statement that there were certain technological devices that would aid with the enforcement of illegal gambling. He highlighted what he termed the “failure” of the USA to successfully enforce illegal online gambling. The current law displayed rudimentary enforcement against players with SARB fines and possible sanctions of up to 10 years or a R10 million fine. It was bad policy and it allowed vendors to display and sell wares with impunity but punishing the purchaser.

There were higher ‘barriers to entry’ for remote gambling than any other gambling activity e.g. a player could  walk straight onto a casino slots floor, because it required a personal computer or Smartphone and a valid banking account. Online gambling also had sophisticated age verification and ‘exclusion’ technologies. It had been reported worldwide that online gambling had not impacted overall addiction percentages. The pathologically addicted, remain the pathologically addicted regardless of the mode. He favoured regulation and said regulation of the gambling industry would self-fund the enforcement of the regulation and a lincensed entity would always trump and unlicensed one in terms of player choice.

Input by by Whitesmans Attorneys

Mr Garron Whitesman from Whitesmans Attorneys favoured regulation over prohibition. Bona fide operators (e.g. those already regulated) were accustomed to regulated markets and were comfortable with being regulated. There was no evidence that more harm would result by regulation as DTI would have it or that the number of players who currently played online was going to materially increase. It was also questionable whether the demographic of persons currently playing online was the same as those viewed as “vulnerable” and needing protection against proliferation.

Regulated online gambling would without doubt raise further funds for the fiscus even if it only redirected a currently untaxed activity to be taxed. Most European Union countries have regulated or were quickly heading towards regulation. South Africa needed to look at how similar societies with similar mores and similar democracies have dealt with the issue. The substantial question of law was whether the desired prohibition was legally sustainable from both a local and international law perspective and it had been previously raised. The DTI believed there was a material and defeasible distinction in law between current land-based casino and poker activities and e.g. virtual racing and equivalent online activities. It was an arbitrary and capricious distinction and impossible to justify. Apart from this, most countries that have had some semblance of a local industry and banned other forms of gambling have been legally unable to sustain the prohibition on the basis of public health grounds.

Discussion

Mr Hill-Lewis asked for more detail on the Piggs Peak case and what the implications were for online gambling. The 2004 Act required the Minister to come before Parliament within two years with a Bill to regulate online gambling. He obviously did not do that despite his efforts in 2008 and he asked whether the Minister was in contravention of the 2004 Act and what did it mean for the policy document the DTI had presented. The policy document was obviously contrary to the Act.

Mr Lurie replied that Piggs Peak was a licensed Swazi casino and was displaying billboards on the major highway in Johannesburg and they also advertised on the radio. The Gauteng Gambling Board approached them and said that it was illegal. Piggs Peak’s response was that they were licensed in Swaziland and the gambling took place in Swaziland. At an impasse, Piggs Peak approached the High Court for a declaration. It took so long, because the declaratory process became a trail within a trial, but the High Court found that Piggs Peak was in contravention of Section 11 of the National Gambling Act. The case went all the way to the Supreme Court of Appeal (SCA) which eventually confirmed the finding that it was illegal in terms of Section 11. In his personal opinion, Mr Lurie believed that DTI and the Ministry was in contravention of the Act. The Act, under the transitional provisions of Section 5 stated that the Minister should bring draft legislation to Parliament within two years. Some would argue that there was some compliance in terms of the 2008 amendments but nothing had been done since. Others would also argue that regulation encompassed prohibition, but he did not agree.

Adv Alberts referred to the international law and asked what the implications would be if online gambling was regulated or not in terms of the country’s World Trade Organisation (WTO) obligations, especially when “policing the internet”.

Mr Whitesman replied that it was an important issue to take into account. He explained that the USA had arrested the CEO of Betonsports.com, Mr David Carruthers and the Chairman of Sportingbet.com, Mr Peter Dicks in 2006 and it had serious implications for the USA in terms of their WTO obligations. South Africa needed to take note of these implications. 

Mr Koornhof asked why this issue would be of interest to the legal industry.

Mr Whitesman replied that there was money to be made in the industry, but it should also be noted that this process had been dragging for 10 years without anything happening and a position should be taken.

The Chairperson referred to Mr Lurie’s statement that the government “allowed vendors to display and sell wares with impunity but punished the purchaser” and said just because illegal things happened did not mean the government allowed it. She asked Mr Garron, since he had the opportunity to have a look at other jurisdictions and democracies, how he would classify South Africa.

Mr Lurie replied that he felt quite strongly that through a policy of complete remiss prohibition online gambling was being allowed. The natural sense of justice as a lawyer would like to see fair application of the law and the law was not being fairly applied. The punters were the ones being punished when they did not even know that online gambling was illegal.

Mr Whitemans replied that as far as how the machinations of governments worked, South Africa was probably most similar to the UK.

The Chairperson thanked everyone for their input. The Committee would engage on the policy first and then pick up on the Remote Gambling Bill. Submissions could still be made on the Bill and she also urged those interested to make submissions on the policy to the DTI.

The meeting was adjourned.

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