National Gambling Amendment Bill: DTI response to submissions

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Trade and Industry

30 October 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry briefed the Portfolio Committee on its responses to the written and oral public submissions on the National Gambling Amendment Bill. The Department outlined the context of amending the National Gambling Act (NGA) and the context of South Africa and gambling, expressing particular concern that provinces saw only the money-making aspect of gambling. The Department dealt with the specific issues that the stakeholders had been requested to consider in their submissions.

The first issue was the re-structuring of the National Gambling Board to the National Gambling Regulator. Stakeholders were generally not in favour of a regulator, largely expressing concern about powers vested in a single individual. The Department’s policy position was that the National Gambling Regulator should become a public entity as part of the rationalisation process that supported the removal of boards in favour of regulators. 

Industry operators stated that the Provincial Licensing Authorities had access to all monitoring systems in the industry and felt strongly that there was no need for the proposed national electronic monitoring system which would be very expensive and would stifle competition so that the provider would not need to keep the system at its best all the time. The Department was equally adamant that credible and readily available information was central to the gambling industry as it provided information regarding the payment of gambling levies and taxes. A monitoring system would also protect the punters. It not intended to link to each gambling machine, but would interface with the current monitoring systems used in each sector and by each operator.

The issue of a quorum in the National Gambling Policy Council was not really resolved. Stakeholders were against decisions being made at a second meeting regardless of whether there was a quorum and suggested that a round robin or proxy be initiated. Some stakeholders recommended that the National Gambling Policy Council be disbanded. The Department noted that gambling was a concurrent process which required consensus between the national government and provincial governments. There had to be uniformity between national and provincial policies and the council was a useful vehicle.

Unlawful winnings were discussed in respect of underage gamblers and online gambling but the issue was not in the ambit of the current Bill. The merger of the National Gambling Regulator and the National Lottery Commission had been suggested by Ithuba and other but that was a policy issue and the Department had not yet had an opportunity to apply its mind to the matter.

The Administrator of the National Gambling Board made a presentation on the current status of the industry. She asked that the Committee look at the statistics in the light of punter protection. Very little attention had been paid to the negative effects of gambling, as opposed to the revenue gained by the provinces. The Administrator noted that the gross gambling revenue continued to rise. The casino sector dominated other gambling modes or sectors in terms of monies wagered, generating R18.4 billion in the 2018 financial year. Overall, the gambling revenue increased by 6.7% to R28.7 billion. Gauteng had 41.9% of the gambling industry compared to KwaZulu-Natal at 18.0% and the Western Cape at 15.7%.

Turnover concerned the National Gambling Board. In the 2018 financial year, the turnover was R389 billion. Taxes and levies paid to the provincial Licensing authorities amounted to R2.9 billion. The Financial Intelligence Centre had indicated that the provincial authorities gave poor, late and unacceptable information to the Centre. The Board believed that technology, in the form of an electronic monitoring system, would address those concerns and allow the Board to keep a check on the behaviour of the large organisations that tended to bully smaller operators.

Members offered varying opinions on the matter. Some Members were particularly concerned about the money involved in the industry and who received the money. Why did the monitoring system cost the operators 6% of their turnover and how had the 6% been determined? How was the Gambling Board, or Regulator, going to confiscate unlawful winnings of online gambling when in the previous year it had only confiscated R1 million out of R1 billion? Another Member believed that the forfeited unlawful winnings should go to the provinces and not to National Treasury because the provinces were short of funds. Were there fines for non-compliance? Members further asked if the Bill would be a Section 76 Bill. Would the Bill have to go to the National Council of Provinces (NCOP) and, if so, would the Bill have the support of the provinces?

Meeting report

Opening remarks
The Chairperson welcomed Dr Evelyn Masotja, DDG for the Consumer and Corporate Regulation Division at the Department of Trade and Industry (DTI), and her team. She also welcomed the Ms Caroline Kongwa, Administrator at the National Gambling Board, and her colleagues.

The Chairperson indicated that Mr Mbalula Ruda from the Constitutional and Legal Services Office would be arriving later, as would the State Law advisor, Adv Veounia Grootboom.

Report back on National Gambling Amendment Act Submissions – DTI
Dr Masotja presented the DTI response to the written and oral public submissions on the National Gambling Amendment Bill. She began by outlining the context of amending the National Gambling Act (NGA) and the context of South Africa and gambling. She expressed particular concern that provinces saw only the money-making aspect of gambling. Not only could it be a social problem, but animal welfare was a concern, especially in the field of dog racing.

Dr Masotja dealt with specific issues that the stakeholders had been requested to consider in their submissions.

The re-structuring of the National Gambling Board (NGB) to the National Gambling Regulator (NGR)
The stakeholders were generally not in favour of a regulator, largely expressing concern about power vested in a single individual and that a single individual would be interrogating the decisions of collective authorities in the provinces. If ad hoc committees were appointed, they might be untested.

The DTI’s policy position was for the NGR to be a public entity as part of the rationalisation process that supported the removal of boards in favour of regulators.  Boards were problematic and added significant costs to the fiscus while impacting negatively on service delivery. Public entities had to comply with the Public Finance Management Act and were accountable to the Auditor-General and Parliament. The DTI had several similar governance structures that functioned effectively and efficiently under a regulator. In addition, the Administrator of the NGB had been particularly effective in managing the NGB without a board and had attained a clean audit for the past three years.

(NLC on slide 8 to be deleted as the National Lottery Commission does not have a regulator.)

Section 27 - Extension of National Central Electronic Monitoring System (NCEMS) to All Modes
The operators stated that the Provincial Licensing Authorities had access to all monitoring systems in the industry. Operators felt strongly that there was no need for the NCEMS. The system was expensive, uncompetitive and prevented variety.

DTI’s response was that credible and readily available information was central to the gambling industry as it provided information regarding the payment of gambling levies and taxes. A monitoring system would also protect the punters. Currently, it was an ongoing challenge to get information from the operators, and then it was not always timeous or accurate. The current system being used to monitor the limited pay out machines, had been highly effective in providing accurate financial data and could be extended. It was intended to be national legislation and not duplicate what operators were doing. It was not intended to link to each gambling machine, but would interface with the current monitoring systems used in each sector and by each operator.

Section 63A - Quorum in the National Gambling Policy Council
Stakeholders were against decisions being made at a second meeting even if there was no quorum and suggested that a round robin or proxy be initiated. Some stakeholders recommended that the National Gambling Policy Council be disbanded.

DTI noted that gambling was a concurrent process which required consensus between the national government and provincial governments. There had to be uniformity between national and provincial policies. Since 2013, only two meetings have been quorated. Ten round robins had been held for consultation between 2013 and 2018. DTI explained that it embarked on a substantial process to ensure a quorum, even before setting the date for the meetings. DTI would check the availability of the MECs before the meetings dates were set and MECs were given the dates two months prior to a meeting. DTI could state that round robins had not worked for the Policy Council.

Section 21A - Unlawful Winnings
Stakeholders recommended that minors could not claim winnings, even after the minor had reached majority.

DTI supported the proposal. Unlawful winnings would be confiscated and paid to the NGR.

Merging of the NGR and the National Lottery Commission (NLC) and Cooperative Governance
The merger of the NGR and NLC had been suggested by Ithuba and other stakeholders. It had also been suggested that unlawful gambling also apply to the National Lottery.

It was a policy issue and DTI had not yet had an opportunity to apply its mind to the matter.

Functions of the NGR
Stakeholders did not support a separate broad-based public education programme. Stakeholders did not believe that the NGR had a role to play in provinces as gambling was a provincial issue and it would create a duplicate regulatory oversight. There was concern about the interference of the NGR in provincial decisions.

DTI saw public awareness as different from the National Gambling Recovery Programme. The need for education about and support for gambling was huge and it could not harm the situation to have a second programme, dedicated to education. The gambling regulatory mandate required that an oversight role be performed at national level.

Technical Legal issues
A number of technical legal issues had been raised by stakeholders, some of which DTI supported, and each issue would be dealt with individually.

DTI did not agree with legalising interactive gaming and online gambling at that time. DTI supported the notion of appointing a single Deputy CEO to deputise the NGR.

Gross Gambling Revenue (GGR) – Outlook of the Gambling Industry
Ms Kongwa asked that the Committee look at the statistics in the light of punter protection. Very little attention had been paid to the negative effects of gambling, as opposed to the revenue gained by the provinces.

Ms Kongwa noted that the gross gambling revenue continued to rise. The casino sector dominated other gambling modes or sectors in terms of monies wagered. The casinos had generated R18.4 billion in the 2018 financial year. Overall, the gambling revenue increased by 6.7% to R28.7 billion. Gauteng had 41.9% of the gambling industry compared to KwaZulu-Natal at 18.0% and the Western Cape at 15.7%.

Turnover concerned the NGB. In the 2018 financial year, the turnover was R389 billion. Taxes and levies paid to the provincial Licensing authorities amounted to R2.9 billion. The Financial Intelligence Centre (FIC) had indicated that the provincial authorities gave poor, late and unacceptable information to the FIC. The NGB believed that technology, in the form of an electronic monitoring system, would address that concern. It would also allow the NGB to keep a check on the behaviour of the large organisations that bullied smaller operators.

The NGB stated that the creation of the NGR would improve efficiency and any additional revenue derived by the NGB would ensure that it was self-sustainable and would reduce the burden on the fiscus. The fears of stakeholders would be allayed by consultation prior to the implementation. Ms Kongwa stated that the effect on society had to be placed above commercial benefits as that was at the moral centre of government.

Committee business
The Chairperson informed the Committee that she and the whip would be attending a European Union meeting that afternoon.

The Committee Secretary informed the Committee that according to Rule 159 of the National Assembly the Committee had to elect an Acting Chairperson for the period that the Chairperson was away. 
Mr D Mahlobo (ANC) was duly elected Acting Chairperson for the next meeting when the Chairperson is away.

Discussion
The Chairperson invited the Committee to engage with the presentations.

Mr S Mbuyane (ANC) was concerned about the fact that the Legal Advisor from Parliament was not in attendance.

The Chairperson informed him that Mr Ruda and Adv Grootboom had arrived late because of other commitments.

Mr Mbuyane referred to the input of the stakeholders the previous week as well as the input by DTI and the NGB that morning. He was concerned about the National Lottery maximising model and the fact that the provincial authorities were doing fake stuff. Could DTI provide clarity as to whether they had a mandate to do those things that were supposed to be done by the National Lottery? The legislation needed to close the gap which allowed provincial authorities to do what should be done by the National Lottery.

Mr D Macpherson (DA) commented that it was hard to know where to start. He had really hoped that the gambling legislation would be handled in a progressive manner that looked at the real issues and not the cack-handed manner in which it was being dealt with. DTI was dealing with gambling in a piecemeal manner instead of revising the entire gambling scenario. The Department was dealing with the small things instead of taking the opportunity to bring South Africa into line with global trends.

Mr Macpherson did not understand how the DTI wanted to protect punters but would not protect online gamblers and online gambling was taking place every single day and from which punters had zero protection. DTI wanted to confiscate the illegal winnings of underage gamblers but had no ability to deal with unlawful winnings via online gambling. He noted that DTI wanted NCEMS, firstly, to regulate the industry and, secondly, to monitor punter movements. Tracking punters should not be at the cost of operators. That was something that the NGB should be doing as a primary function and not as a subsidiary of regulation. The two should not be intertwined. Why 6% and how did DTI get to 6% as the total cost of running the monitoring system?

He added that the Gambling Board Administrator had said that 90% of gambling revenue was not accounted for. How did the Administrator get to that statement? She had also said that NCEMS, as it currently existed, accounted for 99% of activity. Was she saying that the NGB could only account for 99% of the 10%? He did not understand what she was saying.

Ms P Mantashe (ANC) had a problem with the forfeiture of unlawful winnings going to Treasury instead of leaving the money with provinces because the provinces were running short of funds. The funds should be kept in provinces. South Africans lived in provinces, not in Treasury.

Mr Mahlobo commended the institutions and the public for the written and oral inputs. Those stakeholders took their work very seriously and provided a lot of insight and the Committee recognised that. He told DTI that in its responses, the Department did not always respond to the actual concerns raised. For example, if a stakeholder raised a point such as ‘it was expensive’, it meant that DTI had to address financial concerns. The Committee had the submissions and the DTI responses. On the basis of input received, the Committee had to formulate the best mechanism in terms of law to assist the sector which had a huge economic impact but which also had a negative impact in terms of social impact.

Mr Mahlobo agreed that constitutionally there was nothing wrong in creating a Regulator. He approved the idea of a regulator as long as there was supporting legislation.  Mr Macpherson was correct. The Bill was really a technical Amendment Bill. It did not deal with substantive issues. The issues of the CEO that had been raised and the mechanism meant that all power lay in one person. It was a valid concern and there had to be a recourse mechanism to balance the NGR and ensure that there was no abuse. A recourse mechanism would make it more balanced, more rational.

Mr Mahlobo was wary of putting the finer details of structures and organograms in law. One did not do that because details depended on the strategic imperatives and the CEO would have to look at the structure and other resources annually. He suggested that, structurally, the Bill should not go below Deputy CEO and did not need to include details of monitoring systems, job descriptions and so on as it would be too easy to default on one’s own law. The Regulator would have the authority to determine the IT systems. When it came to the quorum, attendance could not be regulated. The quorum was a governance matter. It was a matter of good relationships and management.

The Chairperson asked Mr Macpherson to complete his questions.

Mr Macpherson noted that the reason given for NCEMS was because the PLAs were not getting or giving information. The DTI remedy for bad behaviour was to drive up the cost of gambling and create a new monolithic structure. It did not seem a logical approach. DTI needed to deal with the problems of getting information and not just bypass the problem.

Mr Macpherson noted that the DTI had bemoaned the intrusion of bookmakers into lotteries and there was a problem with the Intellectual Property rights, but the legislation did not address that concern. The legislation seemed to be addressing the wrong concerns. Stakeholders pointed out that Section 27(1)(c ) made no sense and, he thought quite rightly, but the response of DTI was simply to say that it had been noted, and DTI simply kept on going. He personally believed that the best way to deal with the gambling legislation was to deal with it holistically. Doing it piecemeal would end in disaster and was not good for anyone. His appeal was that DTI would think about it long and hard and that perhaps the best way was to shelve the current Bill and to look at all aspects of gambling in its entirety, including the reform of the entity.

The Chairperson asked the DDG to respond. She also asked for an explanation of the “to manage the conduct of …” someone that impacted negatively on punters. Who was that someone that impacted negatively on the punters?

DTI Responses
Dr Masotja noted that Mr Mbuyane had asked if the bookmakers had a mandate to do what they were doing. The National Lottery was an exclusive competency of the NLC. The operator conducted the lottery. The current activity of bookmakers exploited the results of the Lottery because there was a gap in the legislation. It was a popular and lucrative activity. Some provinces had licenced the practice but in the view of DTI, it was an exclusive competence of the NLC. However, PLAs were making them legal by licencing the bookmakers to conduct that gambling. It was raised at the public hearing because of the loophole.

Dr Masotja noted that Mr Macpherson had pointed out the piecemeal approach but it was not the discussion on the table at the moment. There were two major issues on the table: the NGR and the quorum. Online gambling was taking place but opening it up might lead to other unintended consequences. Punters were not protected in online gambling but that was not the focus of the Bill. Only the Portfolio Committee could decide to include online gambling in the Bill, not the DTI. He was right that the punters were unprotected. It was a very big reality, but the focus at that time was on the two issues.

Dr Masotja agreed that NCEMS should not be to the cost of the Department. The NGR should be responsible for the monitoring and should be given the resources and capacity to do so. She added that perhaps she had not understood Mr Macpherson’s context properly.

Dr Masotja informed Mr Mahlobo that DTI was mindful of the financial implications of NCEMS. There would be financial implications but the NGR should have oversight and it would be an investment. The investment would not come at the expense of the provinces.

In response to Ms Mantashe, Dr Masotja explained that previously the unlawful winnings were forfeited to National Treasury but now those winnings would support the NGR. According to the NGB slides, the provinces were making sufficient revenue out of gambling and the national government should be resourced to perform its oversight function. The winnings should go to the NGR to strengthen the inspectorate. The winnings would not go to National Treasury. However, if Ms Mantashe was suggesting that the funds should go to the provinces, DTI did not agree. She noted that some provinces had asked for that money.

Dr Masotja noted Mr Macpherson’s concern about DTI bringing up challenges for which there were no solutions, such as the bookmakers and the lottery. She explained that the matter had been raised in the public hearings and it was a big issue so it needed to be given a platform. There was no intention to address the matter in the current Bill.  Regarding slide 12, when inputs were made, the DTI checked against policy and those issues adhering to policy would not be changed. It was not a dismissal of the inputs. DTI supported those inputs that should be addressed. Regarding the holistic approach, DTI was guided by the proceedings of the Portfolio Committee. Resourcing the NGR and giving it capacity, DTI might put the NGR in a position to combat some of the illegal activities. NCEMS had been proposed because there was a need for national oversight. Provinces did have challenges but, nevertheless, national had to have oversight, whether provinces were competent or not. NGR would be empowered by receiving independent information.


NGB Response
Ms Kongwa clarified for Mr Macpherson what she had meant about 90% of revenue not being accounted for.
The point was that the NCEMS monitored only limited pay out machines which was 10% of the industry and that 10% was accurately and competently accounted for. If the system were extended the NGB or NGR would be assured that it had accurate data. Figures were received for the other aspects but that did not mean it was as accurate as the data from the NCEMS.

Ms Kongwa understood Mr Macpherson to say that the cost of NCEMS should not be for the operator. She pointed out that the six percent was contained in the 2004 Regulations but she would have to go back to check how the figure had been determined. It had been arrived at via negotiations in 2001 and had therefore not been an issue. If NCEMS were decentralised there would be an even greater cost of monitoring.  From a regulator’s point of view, there could not be an under-reporting of revenue. Decentralising would increase the costs and leaving monitoring to operators would create a conflict of interests.

Mr Macpherson was informed by Ms Kongwa that, currently, the NGB could only deal with enforcement when invited to do by the provinces. The NGB could therefore not fulfil the expectations one would have of a national organisation. That was why the NGB was before the Committee requesting enforcement powers.

In terms of confiscating winnings, Ms Kongwa informed the Committee that it was very costly. The amount to be forfeited was sometimes only R500, but it cost R40 000 a day for counsel to appear in the high court. Hence, the NGB was saying that unlawful winnings should be retained by the NGB or NGR to continue its work against unlawful winnings.

Responding to the Chairperson’s question about punters, Ms Kongwa stated that she had been making reference to reforms in the financial services industry. The NGB could set standards and, although it had the authority to manage the conduct of licensees, it could not do so because it had to be invited by provinces. The NGB would have the authority to set the financial standards but not manage conduct and yet the expectation was that the NGB should deal with illegal gambling.

Further discussion
Mr Macpherson stated that the real unintended consequences of not regulating online gaming was lost revenue, lost jobs and no protection for the consumer. Those were the consequences of the unlawful online gambling, regardless of whether more people got involved in online gambling. He asked if the Bill would have to be a Section 76 Bill which would have to go to the National Council of Provinces (NCOP). He asked if the Bill had support from the provinces and whether the Bill would be supported in the NCOP.

Mr Macpherson asked the NGB Administrator how much revenue would be generated by the 6% for NGB. He suspected that it was a serious amount of money. The previous year, DTI had proudly announced that R1 million had been confiscated from online gambling, but the industry ran into billions of Rand. How was the NGB/NGR going to confiscate unlawful winnings of online gambling when the previous year it had only confiscated R1 million out R1 billion?

Ms Mantashe was glad that online gambling was prohibited and therefore the Committee should not discuss it. She understood that the NGR had to oversee compliance in the industry. Were there fines for non-compliance? Could those funds not go to the NGR so that it did not need to sponge off the provinces? She did not believe that it was the correct route to go.

Mr Mbuyane had a follow-up question to the DDG who had said that provinces could licence the bookmakers. Why could the Portfolio Committee not call NLC to brief the Committee on the bookmaker issue and challenges of a similar nature?

DTI Response
Dr Masotja heard what Mr Macpherson had said about costs of retaining the status regarding online gambling and the unknown number of online gamblers.  She took that as a comment that did not require a response. Regarding the challenges for the provinces with the Bill, Dr Masotja agreed that it was a possibility that provinces would have different views but it was difficult to pre-empt the decision of NCOP. However, DTI would be going to provinces and engaging with them on the intentions of the Bill. The limited scope was in the ambit of the Committee, and not DTI.

Regarding the forfeiture of unlawful winnings and the fines, Dr Masotja explained that a policy decision had been taken in that regard. Broadly speaking there was a need to empower the Regulator. There were challenges and the NGR needed to have adequate resources to combat the ills in society as people were dying.

Dr Masotja told Mr Mbuyane that the NLC was an entity of the Department. The issue of the bookmakers had been raised by a stakeholder and not the Department. The gambling legislation was under the wings of the NGB. DTI worked with the NLC and would be discussing the issue further with the NLC However, the current focus areas of the Bill did not speak to the NLC.

NGB Response
Ms Kongwa stated that the 6% of the gross revenue equalled R1.7 billion and was not NGB‘s money.[Ms Kongwa incorrectly stated R1.7 trillion.] The money was surrendered to the fiscus. As far as the unlawful funds were concerned, the R1 million related to three matters. The NGB had confiscated R5 million but she acknowledged there was much more that the NGB had not confiscated such as underage gambling, etc. The NGB was bound by law to pursue unlawful winnings.

Ms Kongwa had had discussions with the Internet Service Providers’ Association (ISPA) which had agreed that it would shut down the website on which there was illegal gambling but often websites were dotcom websites that did not fall under SA registries, which reported to the Department of Communications. The NGB was currently looking at blocking or filtering those website but the country required the necessary legislation to do so. She was talking to the Minister and the Department of Communications. It boiled down to a safety and security issue and the Republic would have to make a decision about how to deal with it. The NGB would have to filter the information coming into the country but it would require various government departments to assist in blocking websites.

She added that the current fine was R10 million or 10 years imprisonment.

Mr Bryan Arumugam, Senior Manager: Corporate Governance, NGB, responded to the concern about an entity being led by a single regulator, stating that power was an inherent risk in any organisation and controls had to be put in place to mitigate that risk. The NGB reported to the DTI and had a shareholder contract that it signed with the Minister every year and the head or Administrator was accountable in terms of that contract. The NGB accounted to Parliament and there was an oversight Committee. NGB could go into the space of illegal gambling only by invitation of a PLA and had to be accompanied by the PLA on such a site. From a practical point of view, the public had an incorrect assumption that the national level could escalate and deal with problems, and challenges. The NGB could do nothing about a PLA that did not conduct proper investigation. The NGB operated from the perspective that online gambling was illegal and it was enforced in that way. However, what happened was that the media provided a concise version of things that did not reflect the full story. The NGB did not want the public to get the perception that online gambling was legal.

Further discussion
Mr Mahlobo felt that the NGB was bashing the PLAs. The NGB should be careful about the relationship with provinces. There was a law and that had to be respected but it was also a matter of corporate governance. The more the NGB bashed them, the more the PLAs would respond negatively. The NGB had to be cautious. It should concentrate on the regulation. Gambling was an industry and there was an inherent interest in making a profit. Therefore, the vulnerable had to be protected.

The Chairperson asked Mr Ruda to address the Committee at a future meeting on the issue of concurrency and the roles of national and provincial, norms and standards, constitutional democracy and cooperative governance. Secondly, she asked Mr Ruda to explain how concurrent governance could work more effectively and how the issues that national should be addressing could be refined.

The Chairperson stated that it was very sensitive legislation and most Members knew what it felt like to be in a province and to be told by those at national level that certain things could not be done. She added that it was a problem when an institute relied on fines as it could become an inverse incentive.

Minutes
The following sets of minutes were tabled and adopted by the Committee without amendment: 7 June 2018, 22 August 2018, 16 October 2018, 23 October 2018, 24 October 2018.

Closing Remarks
The Chairperson thanked DTI, NGB and the legal advisors. She requested the Committee Secretaries to provide the attendance records for SARS compliance.


The meeting was adjourned.



 

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