Remote Gambling Bill [PMB3-2015]: submissions and responses by Department & Private Member

Meeting report

The Chairperson welcomed everyone to the meeting and the agenda for the meeting was adopted. She asked the Committee Secretary to contact some of the Alternate Members representing opposition parties to see if they could avail themselves to attend some of the Committee meetings dealing with critical matters. The Committee proceeded to finalise the draft Committee programme for the next term and the finalised draft programme was adopted.

Consideration and adoption of minutes

The Chairperson reminded Members that adoption of minutes meant that the minutes clearly reflected what happened in the meetings and not that Members agreed with everything. She asked that Members also take this up in their political parties.

Mr B Mkongi (ANC) asked why only some of the minutes had attached transcripts of the meetings.

The Chairperson replied that it was invariably done only for Bills, because of the cost of creating such transcripts. In the past it had been used for every meeting, but it proved to be a costly exercise.

The minutes dated 25 February 2015, 12 May 2015, 13 May 2015, 19 May 2015, 20 May 2015, 26 May 2015, 27 May 2015, 2 June 2015, 5 June 2015, 9 June 2015 were adopted without amendments.

The minutes dated 3 June 2015 should have an attached transcript of the meeting, but the minutes was adopted with the assurance that Members would be getting the transcript once it was ready.

The Chairperson asked that the minutes dated 10 June 2015 be amended to reflect the fact that the Committee called for an in-depth approach to the public hearings on the draft liquor policy and a consideration of a visit to at least one province. 

The minutes dated 17 June 2015 was adopted with amendments.

Response by Mr G Hill-Lewis to input made on Remote Gambling Bill

Mr G Hill-Lewis (DA) said he chose to respond by simple talking notes that would be expanded on. This would be the last meeting on the Bill for some time because the Committee would be discussing the draft gambling policy document and the Bill would be brought back at a later time. He stated that in the Fourth Parliament he had been a member of another Committee and had also submitted a Private Member’s Bill, but the Bill had been treated very dismissively by that Committee. The experience in this Committee had been very different and he thanked the Committee for the attention the Remote Gambling had been receiving and would continue to receive.

There had been a strong feeling that the Remote Gambling Bill required stronger and more explicit language around the requirement for local investment. This was fully supported, because the intention of the Bill was clear. All licensed operators should situate the entirety of their business operations, including all back office support systems, in South Africa. It should be a licence requirement and the regulator should enforce that requirement. One of the positive features of the Bill was that the Bill provided mechanisms to properly resource the regulator with the necessary resources to enforce that kind of licensing requirement. It was a real possibility that an operator could vacate the country just after being licensed, but the proposed cost recovery model of the Bill was clear on how the regulator could have up to R500 million per annum in revenue to vigorously enforce regulations.

Mr Hill-Lewis said there had been a lot of discussion on the division of responsibilities between the provinces and the Provincial Licensing Authorities (PLAs) and the national government. It was most probably the most important part of the Bill and it was precisely where previous attempts to solve this matter had failed. It was a difficult and tricky situation because it entailed constitutional interpretation and cooperative governance. There was a tradition in this country of giving provinces a great deal of authority when it came to gambling licensing and regulation. The political fact of the matter was that it was necessary to carry the support of the provinces along with one when trying to design national legislation around gambling. The Bill proposed a division of responsibility between provinces and national so that provinces shared some of the licensing responsibilities in terms of due diligence investigations and recommending whether licences would be approved or not. The National Gambling board (NGB) should issue the gambling licence, because it would be a “ludicrous” situation to have operators apply for nine separate licences to offer services to customers in all provinces. The debate could be reopened, but the suggestion that the NGB should have no licensing authority was not supported. It was not sensible and there was no reason why a company would not find it convenient and conducive to the smooth operation of business. Written comments had only been received from three PLAs and the Bill had the potential to carry the support of provinces and it should be explored and encouraged.

Gambling happened in a free society and the role of the state was to educate patrons on the risks and protect them from exploitation and harm. It was reasonable behaviour for someone to expect to be able to gamble online and it was not fair to outlaw activities the vast majority of society considered reasonable. There was confusion among the South African public in distinguishing between what was already legal and licensed and what was not. The case had been made that the distinction in law was arbitrary and the average gambler would not be able to distinguish between licensed and unlicensed online operators. The Bill sought to regulate reasonable behaviour and it did so in a manner that minimised harm and maximised the state’s ability to enforce strict licence conditions. The case had been made that prohibition was the status quo and it maximised public harm, because it criminalised reasonable behaviour and it offered no control over what happened in the online space. The Bill proposed regulation matched with resources to enable the state to exercise the control needed. Out of every 100 gamblers roughly four would become problem gamblers and this was not out of kilter with international norms. These numbers were very similar for online gambling and the difference was that only the biggest and wealthiest land-based casinos had the technology and infrastructure to spot and proactively take protective action against problem gamblers. It had been estimated that the state lost approximately R400 million per year in tax revenue and this excluded licence fees. The Bill proposed no limits on the number of licences and this would reduce licensing costs because the scarcity would be reduced. There would nonetheless be a licence fee and if it was added to the possible R400 million tax revenue per year, it would provide the resources to enforce world class gambling regulation.

Mr Hill-Lewis said National Treasury confirmed that stopping the foreign transfer of small amounts was very difficult, if not near impossible. The vast majority of online gamblers were not betting millions and it would be extremely difficult for the South African Reserve Bank (SARB) to enforce what the Department proposed. The Banking Association of South Africa (BASA) also confirmed that it would require a large investment of resources and it would still be very difficult. BASA stated that it could only be done on a reactive, not proactive basis and this piecemeal approach was not likely to stop much of the online gambling activity. The Department also relied on website blocking and the argument had been consistently made that it was a very short term method of enforcing. He shared a Turkish case study that showed that the Turkish government blocked a major online gambling website and the operator was down for 27 minutes before it was operating in Turkey again under a different domain name. Operators would never tire of reopening websites, because they were making huge amounts of money and it would never be in their best interest to give up. The casino industry was by and large not particularly supportive of the Bill and it was because of their entrenched interests and monopolies in the gambling industry. The industry was too dismissive of the point that most South Africans would prefer to gamble on the website of a known casino than on the website of a foreign operator. These casinos were profoundly better suited to capitalise on the on the proposed licensing regime than they thought and it offered diversification opportunities. The National Responsible Gambling Programme (NRGP) was the best qualified entity to speak on the harmful effects of gambling. The NRGP supported regulation over prohibition on the basis of South African and international evidence that online gambling was no more harmful than land-based gambling and no more harmful than online gambling elsewhere in the world.

Mr Hill-Lewis said throughout the three weeks the DTI had answered questions in vague and general terms and he said the following four questions had not been adequately addressed by the Department:

1. How will prohibition (status quo) minimise harm any more than strict regulation does?
2. What are the details of their enforcement plan given that the institution they will rely on say it will be extremely difficult?
3. How do they plan to recover the costs of the enormous investment in enforcement required?
4. What are the specific reasons for the policy reversal between 2008 and now?

For most of the last decade the DTI, the government, the Gambling Review Commission (GRC), Parliament and this Committee had supported regulation over prohibition. This was made clear in the GRC report, in this Committee’s report on the GRC and in the Legacy Report of this from the previous Parliament. He asked what the role and standing of a Committee’s Legacy Report was if it would simply be ignored. The Committee was entitled to change its mind, but it should do so on the basis of reasoned arguments.

The Chairperson asked that Mr Hill-Lewis clearly explained what he understood the Fourth Parliament Committee’s position was.

Mr Hill-Lewis replied that the Committee in the previous Parliament dealt with the GRC report and the Committee’s report on the GRC. Both reports supported regulation and it was reflected in the Committee’s Legacy Report. This Committee adopted the 2008 legislation and it was sent to the President for assent. The 2004 Bill mandated the Minister to come back to Parliament within two years to achieve regulation and the Bill was passed by this Committee. This Committee had a long history of support of regulation and no evidence had been presented to consider changing course now. Mr Hill-Lewis said his interest was in writing good law that was sensible, implementable and did not make a farce of the rule of law and the ability of the state to enforce laws. It would not be wise of Parliament and government to pass a law that had no reasonable prospect of enforcement and had no way of raising the revenue for enforcement. There was no doubt that the Department’s intention was genuinely to reduce harm, but the proposed mechanism to achieve that outcome would have the opposite result. Law should be sensible, reasonable, enforceable and evidence-based and the proposed policy failed and the Remote Gambling Bill achieved at least something toward those goals.

The Chairperson referred to the previous Parliament and said the concern of the Committee at that stage had been that no study had been done since gambling had first been legalised. The Department had then decided to do a study and it should be noted that the Committee only got the GRC report after about 18 months. The Chairperson referred to the GRC report and said another of the then Committee’s concern had been the need for policy and also stated that the report proposed a limit on the number of licences issued should online gambling be regulated to monitor the socio-economic impact over time. It acknowledged that too little was known at that stage on the impact of online gambling to be able to allow a free market. The report also made a legal distinction between interactive gambling and other forms of online gambling such as bookmaking, the tote and the lottery. The report stated there should be a more holistic view of online gambling. The Chairperson urged Members to have a look at the report and she said the previous Committee raised very real concerns given the impact of technological developments and the socio-economic impact over ten years or more.

Discussion

Mr Mkongi said he respected Mr Hill-Lewis’ view points and he said laws passed should pass the test of time in terms of human dignity, social justice and respect for the laws of the country. He said he campaigned against issues particularly affecting the youth such as consumerism, crass materialism, and naked wealth exhibition in the face of poverty, individualism and self-centredness. Some of the laws passed in the country perpetuated these activities in the name of democracy. Reducing the cost of licensing would result in a flood of online gambling operators and it would mean more resources needed by the state to control and manage the process. Some of the operators might not see the need to register and would continue to operate illegally. In terms of concurrency, he asked what responsibilities the Bill gave to provinces and to the national government in the context of national cohesion and national unity on decision making and implementation. Historically it had been shown that provinces had been doing as they wished without the spirit of national cohesion. The Western Cape had its own constitution and it essentially meant the province identified itself outside of the Constitution.  Many provinces had pieces of legislation that threatened the unity of the nation and when drafting laws South Africa had become selective in the constitutional values laws subscribed to.

Mr Hill-Lewis agreed and said Members should be guarded when passing laws that went against constitutional values. Gambling licences were only valuable in the land-based casino space, because they were limited to 40 licences throughout the country. There was nothing that intrinsically limit the supply of licences simply to increase the price in the online space. It would only result in the people already operating without licences continuing to do so. The Bill wanted to provide an incentive to become a licensed operator and to achieve that there should not be a massive barrier to entry in the form of licence pricing. He disagreed that it would result in a flood of operators because at some point the amount of competition would not make it profitable to enter the market. There was also a principled objection to give a private company a massively profitable legislated monopoly in a market. It was not reasonable to expect online operators to get nine different licences. It could be done, but it would be very cumbersome. The Bill proposed a national licence that should be issued by the NGB, but it also proposed a lot of responsibility to be given to provinces in terms of performing the due diligence on the licence, recommending to the NGB whether the licence should be issued or denied and enforcing the licence conditions. This Bill had to have the support of the PLAs for it to work.

Mr A Williams (ANC) asked if Mr Hill-Lewis had or still have relationships with any remote gambling operators and if so, if those relationships could be declared. He disagreed with Mr Hill-Lewis assertion that he “had made a case”, because a lot of people disagreed with the Bill based on contrary evidence and a lot of people agreed with the Bill and it came down to an opinion. Remote gambling would be harmful to an already impoverished South Africa and the argument that “if we cannot beat it we must legalise it” was not acceptable, because it could be applied to how the DA dealt with drugs in Western Cape. Just because it was not being controlled nobody was saying that it should be legalised.

Mr Hill-Lewis said he had no relationship with any online gambling operators whatsoever and it would be wildly inappropriate to have such relationships. It was not to say that he did not have regular contact with operators, because they contacted him regularly and he also spoke at the African Gambling Conference at Emperor’s Palace last year in October. He also stated that he interacted with regulators regularly to get their input on the Bill. He had met with the Nigerian Gambling Board and with some of the members that had served on the GRC, because the GRC produced a very credible report and the people who wrote it had serious expertise in this area. Mr Williams’ analogy was not correct because no rational person would argue that the use of illegal drugs should be legalised. Online gambling was a perfectly reasonable activity and if Mr Williams disagreed he should bring a Private Member’s Bill to ban all gambling. It was not the responsibility of the government to dictate to people what was moral or immoral. The most harmful thing for online gambling punters in South Africa was the status quo, because there was absolutely no protection offered to them. The minimal protection offered to them was being offered by the operators and not as a requirement of the government in its enforcement. The NRGP agreed and the potential for strict regulation that was properly funded through revenue raised by the industry itself to prevent harm was much greater than the potential of the state without any resources to enforce prohibition. He disagreed that his argument had ever been “if we cannot beat it we must legalise it”. The argument was that it was not reasonable for online gambling to be illegal. It was unreasonable for the state to make illegal those things that a huge majority of citizens considered perfectly reasonable. Gambling was considered a legal and reasonable activity and online gambling was just another form of gambling. The fact that it was difficult to enforce prohibition could not be ignored, because the responsibility of Members as legislators was to make good, reasonable and enforceable laws. Every time an unenforceable law was passed, the public’s respect for the rule of law, as raised by Mr Mkongi, was eroded. One of the fundamental problems of this country was a lack of respect for the rule of law, but it should not be fixed by making new laws that could not be enforced.

The Chairperson asked what motivated the Bill itself and what motivated the position for no limits on the issuing of licences. She also wanted to know how online gambling would be regulated in provinces.

Mr Hill-Lewis replied that the Bill was not motivated by an effort to raise revenue for the state. It might be profitable for the state, but the aim was that all the revenue raised by a regulated industry should be spent on regulating the industry. The Bill had a cost recovery model which was a good aspect of public policy. The Bill was more motivated by a desire to see good legislation and the concern that South Africa was pursuing a legislative path that was damaging in the long run. Regulating provinces would be addressed partly because there would be no limits on licences that could be issued so everyone who wanted to operate in South Africa would be encouraged to apply for licensing and it was presumed that most corporations preferred to operate legally. Provinces would have the resources with which to enforce licence conditions and this combination had the potential for a very effective regulatory regime.

Response from the Department of Trade and Industry on submissions received

Ms Zodwa Ntuli, Deputy Director-General: Consumer and Corporate Regulation Division, DTI, said the Department structured the presentation in such a way that it responded to the points raised by Mr Hill-Lewis, which he requested at a previous meeting. It was done to guide the Committee, but it was not required of the Department, because DTI did not submit a Bill to this Committee and it was not DTI’s responsibility to respond to blow by blow issues raised in respect of this Bill. DTI had engaged with Mr Hill-Lewis and submitted the view of the Department, which showed disagreement some of the principled and fundamental matters in the Bill. DTI made it clear in their submission that this Bill was not backed by any policy or a regulatory impact assessment. The Department disagreed with Mr Hill-Lewis that no research supported their position and there were many pieces of research in terms of jurisdictions and benchmark studies. The presentation would show the difference between what was considered good law and law appropriate to the circumstances. This distinction was very important because no law would be good if it did not reflect the situation for which it was legislated. Parliament could process law and when it became time for the law to be implemented it was found that things had changed drastically. Law, rules and regulations did not exist in isolation and although some issues could be debated it ended up to be academic when real issues on the ground were considered.

Mr MacDonald Netshitenzhe, Chief Director: Policy and Legislation, DTI, said DTI recently published a policy document that was informed by research. Further research that related to the Socio-Economic Impact Assessment System (SEIAS), i.e. the improved regulatory impact assessment application which commenced early June 2015 was currently under way. The Remote Gambling Bill had not been subjected to the SEIAS process and the fact that it was presented as a Private Member’s Bill did not mean the SEIAS process was dispensable. Even if SEIAS was conducted on the Remote Gambling Bill it would not have changed the factors considered in support of banning online gambling, like the poverty levels, over indebtedness, unemployment, inequalities and alcohol abuse. The readiness of the regulators to enforce the Bill if it was to pass had not been assessed and as a result it was recommended that the Bill be rejected. The definition of the word “regulation” has been sourced to explain that regulation was not only about permitting, it included prohibiting. Regulation was a legal norm intended to shape a thing or conduct by way of directing, prohibiting, declaring, mandating, interdicting, stipulating procedure, pronouncing, control, managing or setting.

The presentation continued to highlight points raised by Mr Hill-Lewis and the Department’s response with reference to the relevant research some of the responses were based on. There was no guarantee that age restrictions would be observed as minors might fraudulently gain access and illegal offshore operators would continue operating, because there were no measures in the Bill on how it would be dealt with. There was no information on how remote gambling would directly impact on the economy, but for the assumption that it would contribute to the Gross Domestic Product (GDP). The Bill created unfair competition and it introduced new modes of gambling and thus presented itself as a possible second regulatory framework for gambling. The Bill had not taken consideration of the principles of a regulated industry and assumed market forces should drive demand and supply, irrespective of the harm. A study by the NGB showed that problem gambling had been at 2.9% in November 2012, an increase of 0.6% from April 2011. The trend was the highest in the world and although below the threshold of 4%, the rate of problem gambling was growing uncontrollably fast. Employment opportunities would not be as significant as it was in the land-based gambling space and the National Development Plan (NDP) was premised on employment creation. Singapore and France were blocking websites and the technology to detect and stop internet operations was accessible. 

Mr Nkoatse Mashamaite, Director: Gambling Policy and Law, summarised the Department’s responses to the submissions received on the Bill. BASA supported the view that payments could be blocked and currently banks were proactively blocking payments of unlawful winnings and paid it over to the NGB. In response to the NRGP, the Department stated that the inability to stop offshore operators justified the need to keep the industry illegal. The regulatory framework of gambling was premised on limitations, which was supported in terms of Section 36 of the Constitution. Freedom of choice should be limited considering the harms and costs of dealing with problem gambling and the need to protect citizens against the harmful effects, which far outweighed the desire to permit online gambling. In response to the statement by Whitesman Attorneys that the Minister failed to comply with the principal Act, the Department disagreed and said the Department complied as the process to introduce the 2008 Amendment Act started way before that. In 2009 Parliament expressed reservations and the GRC process unfolded. The Department also disagreed with the statement that South Africa might not be complying with the tenets of the World Trade Organisation (WTO) by banning online gambling. The WTO gave discretion to countries to legislate for the good of its nationals and prohibiting against activities such as online gambling was within the country’s policy space and was not a technical barrier to trade. South Africa would have been in violation sine 1996 if this was true.

Ms Ntuli said the challenges South Africa was facing currently could not be ignored. There was no argument that could dispute that gambling gave rise to impoverishment, because people took their last money in the hope to win. This country already had a worrying growing gap between the rich and the poor and whatever was allowed should consider how the impact of such activities widened that gap. The World Bank report confirmed South Africa as the country with the highest rate of consumer indebtedness. One problem gambler was one too many and four problem gamblers out of 100 should not be trivialised. Mr Williams was correct in his analogy, because demand did not justify supply, because there was a demand for illegal drugs and it did not justify the supply or legalisation thereof. The NDP Vision 2030 in terms of eradicating poverty, inequality and unemployment would not be achieved if the country moved backwards. The statistics were clear that online gambling was more than likely to attract young people and it should also be considered that most of the unemployed were among young people. This Bill, compared to the 2008 Amendment Act, had deliberately thrown out the measures to safeguard gamblers and the limits to proliferation. The Bill also ignored the constitutional national and provincial competencies and integrated it in an impractical manner that would not work. It put provinces in the position where they should compete for operators to license with them and it gave rise to unworkable governance. Mr Hill-Lewis had indicated that provinces rejected the 2008 Bill and that was his reason for the responsibilities and opportunities for revenue generation in the Remote Gambling Bill awarded to provinces. It was not true that provinces rejected the Bill. The 2008 Bill had been processed in both Houses and it had been adopted with all the provinces in support except for Limpopo. The Committee needed to consider whose interest the Remote Gambling Bill would serve, because it certainly did not serve the interest of the ordinary citizen or the punter. The Department had the responsibility of balancing the interests of everybody involved and affected objectively. The Remote Gambling Bill was legislation for a first world economy that did not exist in South Africa. The fact that illegal operators kept finding ways to circumvent laws was not a reason to stop trying to enforce laws. It was not a secret and it was also indicated in the policy document that the NRGP was an ineffective programme. Interventions that had been implemented had proved to be ineffective. The Department did not dispute that a lot of work had been done and acknowledged that the NRGP had conducted some good studies. The Department had submitted enough evidence and the enforcement plan would be presented to the Committee. The Department did not consult with National Treasury on the Remote Gambling Bill, because there was no reason to, since the Department did not submit this Bill to Parliament. The circumstances right now were not conducive for this Bill and the Bill should not proceed.

Discussion

The Chairperson gave an opportunity for a few questions and said due to time constraints any other questions would be forwarded to the Department in writing.

Mr Hill-Lewis said the Bill did not serve the interests of online gambling operators, because they did not pay tax nor did they comply with any regulations currently. This Bill was trying to change that and to protect punters in the main. There was no guarantee in law that minors could not access online gambling, but the Bill made provision for it to be enforced by also providing the revenue and resources for such enforcement. The study done by the NGB confirmed that problem gambling in South Africa did not differ from international norms. He asked how much the NGB had received to date in unlawful winnings, because it would give an indication how effective that enforcement was. The NRGP article cited in the presentation correctly stated that technology alone could not identify a problem gambler, but the article was clearly in favour of regulation and using technology as a tool. As for the Department’s website blocking plans, he asked the Committee to Google ‘how to turn off Netsweeper’. It would show over 3 000 results including video tutorials on how to disable the technology.

Ms Ntuli replied that Netsweeper made a submission to this Committee and the Department’s enforcement plan entailed a combination of measures. The Department had consulted with a number of technological companies that indicated that blocking measures could be developed. There was a need to deal with what was already allowed and make sure that harm was being mitigated instead of allowing for more gambling opportunities.

The Chairperson the Committee should consider what kind of society was desired and how minors would be protected. She thanked everyone and the meeting was adjourned.