Gambling Act Amendment Bill: Department of Trade and Industry briefing

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
21 February 2007
GAMBLING ACT AMENDMENT BILL: DEPARTMENT OF TRADE AND INDUSTRY BRIEFING

Chairperson: Ms N Ntwanambi (ANC, Western Cape)

Documents handed out
Department of Trade and Industry presentation

Audio Recording of the Meeting

SUMMARY
The Department of Trade and Industry presented the proposed amendment to the Gambling Act that would regulate Interactive Gambling. Discussion centred on the creation of player accounts, fraudulent acts and scams as well as ensuring that average South Africans do not succumb to the novelty that Interactive Gambling presents and become addicted. The Department mentioned several times that their research showed that the current prohibition on Interactive Gambling was not working and that legalisation and regulation would be a much better practice for all stakeholders.

MINUTES
Briefing by Department on Gambling Act Amendment Bill
Mr Brian Muthwa, Director: Legislative Drafting, Department of Trade and Industry (DTI), briefed the Committee on “IG” or Interactive Gambling. He said that the number of South Africans gambling online is increasing even though there is a current prohibition on IG. The amendment to the current Act would seek to legalise and regulate IG in South Africa.

Significant consultation took place with respect to the amendment bill. The DTI studies showed that the cost of the IG prohibition was very high and with the increase of players, it would make more sense to regulate the industry. Furthermore, there were a number of illegal websites that are engaging in fraudulent acts. Regulation of IG would increase player protection from scams through the use of fake online gambling sites. Players currently have no form of redress if they are indeed scammed by illegal operators. There is also a loss of revenue for the government because the IG industry is not being taxed.

The National Gambling Act of 2004 established the National Gambling Board (NGB). The NGB produced a research report in October of 2005 and from this the National Gambling Council (NGC) was created to draft a framework policy to legalise and regulate IG. Cabinet approved this Draft Bill in December 2006. There was consensus that it should not be introduced as a separate piece of legislation, but rather as an amendment and that it would form part of a broad policy, which largely applies to IG.

Definitions of certain issues still need to be discussed; such as definitions on what constitutes equipment or hardware and software. Another issue would be to ensure FICA (Financial Intelligence Centre Act) compliancy. A feature of the Bill is that all IG players will have to create a player account, which among other uses, serves to more easily detect the trail of movement of funds between registered online accounts. This would work in co-operation with the Electronic Communication Transactions Act (ECTA).

The Bill makes provisions for which games will be authorised for legal use as well as operating systems and methods. Mr Muthwa stated that the Minister of Trade and Industry will have the final say on these authorisations and currently there is consensus that these game will not be made available for use on cellphones and obviously not to minors.

As mentioned earlier, a key feature of the Bill will be the creation of player accounts. Players will have to register online after answering a questionnaire and receive a PIN number that they will use to access their accounts. The creation of an account will work in accordance with FICA, so an individual will have to present a utility bill as proof of identification. Also, as part of player protection there will be a remittance to foreign players using South African IG gaming sites. The issue of dispute resolution will be handled by the NGB and for the first time ever will allow players and IG companies to discuss problems.

Just as with advertising for land-based casinos, it will be necessary for IG services to carry notices that state that gambling is addictive or compulsive. The Minister will prescribe the content which may be used on IG gaming websites. Another issue discussed was licensing. Licenses would be issued as national licenses and not provincial ones due to the borderless nature of IG.

Mr Muthwa said that the NGB would be responsible for ensuring compliance with the Act, as well as FICA. Thus the NGB has the power to revoke or suspend licenses if there is non-compliance. Furthermore, the NGB has the option to delegate its enforcement and compliance powers to Provincial Licensing Authorities.

Mr Muthwa said that one big concern with IG is problem gambling; however the player account as well as other initiatives will try to combat the problem. There is an option, just as in land-based casinos, that the player may opt for voluntary exclusion if he/she deems him/herself to be a problem gambler. There will also be notices on the website for how to get in contact with treatment facilities if the player so wishes. The regulation of the industry will allow for much better identification of problem gamblers through the electronic system for monitoring and reporting of registered players.

Mr Muthwa stated that a concern is money laundering and especially stricter international regulations due to terrorism. The registration and verification of players through electronic player accounts will be beneficial in addressing the problem as well as the verification of the player’s nominal accounts. The IG site itself will also be obligated under law to report any suspicious or illegal activity to the NGB.

The DTI made it clear that all IG companies will have to comply with BBBEE (Broad-Based Black Economic Empowerment) requirements as well as other socio-economic requirements.

In conclusion, Mr Muthwa said that the regulation of IG would provide certainty which would increase South Africa’s international competitiveness. In addition, there would be increased funds generated for the fiscus via taxation and the elimination of illegal operations and scams. There would be greater accountability and a reduction in the victimisation of players.

Discussion
Before Members asked questions, the Chair said it was just an initial briefing by the DTI and that there would be more opportunity for discussion in the future.

The Chair was pleased that there would be signage indicating the addictive nature of gambling on IG sites. Serious efforts have to be made to ensure that people do not end up wasting their savings on games with rewards that they may never see. The Chair asked about the effect of IG in the workplace and if it would decrease productivity.

Mr Muthwa replied that companies already have systems in place to block workers’ access to certain sites, such as those that contain pornography. Employers would have to reconfigure their systems to block the IG sites as well. The issue was of concern since most people tended to access computers and the internet while at work, but the fact is that the average person still prefers to go to a real casino. There were still people that were uncomfortable with being on the Internet and the idea of cyberspace is still very strange to them. In addition, the Internet is still a luxury that many cannot afford in South Africa.

The Chair also voiced concern about fraudulent and corrupt practices, especially committed by foreigners in South Africa, who, according to her, understand technology much better.

Mr Muthwa said that for the first time ever all the equipment and software will be tested and regulated to ensure that it cannot be used to manipulate players. The NGB would have the power to do surprise inspections at IG companies to monitor their compliance. Moreover, the Minister will prescribe the technological standards and software for IG use, along with the SABS (South African Bureau of Standards). The South African Reserve Bank will also play a part in combating fraud with their expertise and they will ensure compliance with exchange-rate controls.

Mr D Gamede (ANC, KwaZulu-Natal) asked what would happen to this Bill when it is placed before the National Assembly. He wanted to know what the level of readiness at provincial level was.

Mr Muthwa said that the DTI would be hosting provincial workshops to prepare for the new law and to ascertain the level of readiness. They have been engaging the provinces more than industry with regards to the Bill.

Mr Gamede asked about the issue of software and whether there will be specific software.

Mr Muthwa responded that the Minister would decide this in collaboration with the SABS.

Mr Gamede also wanted to know if there is a specific budget for all of this, since monitoring is only as effective as the budget allows.

Mr Muthwa said that the budget had not been discussed in depth, but it would be important to remember that the money generated from taxation of the IG industry has the potential to be very large and thus would help finance monitoring.

Mr Gamede asked if the player account that would be created is the same as one’s bank account.

Mr Muthwa said that it was not. The player account is separate from a player’s normal bank account. Players’ accounts would also ask the player to set a monthly limit on how much the player is prepared to lose. If the player exceeds that limit, then he or she would be automatically blocked from the site.

Mr Gamede asked if the profits or revenue gambling would be taxable in the proposed taxation scheme.

Mr Muthwa replied that not all of the details of taxation have been decided yet. There had been a public comment period, but that has come to a close. The taxation scheme would be created with South Africa’s competitiveness in mind and that the DTI wants South Africa to be a choice destination for new or foreign companies wanting to start IG services.

Mr Gamede commented that he was interested in the effect that this may have on South Africa’s interest rate since there may be an increased amount of money moving between South Africa and foreign players.

Mr D Mkono (ANC, Eastern Cape) felt it was a progressive piece of legislation. He wanted to know how it would affect his constituency.

Mr Muthwa could not say how it would affect the Member’s constituency but there was potential for the creation of jobs if IG companies chose to start operations in the Member’s province.

Mr Mkono asked if there was enough manpower to effectively monitor the new laws.

Mr Muthwa said that currently more government resources are being deployed in preventing the illegal operation of IG sites than it would take to monitor compliance with the new laws.

Mr Nkono also expressed concern about children being able to access IG sites at home and wanted to know what can or has been done about this.

Mr Muthwa replied that the mandatory creation of player accounts with the private PIN number is key to fighting this problem. The PIN number has to remain a secret and it is in the player’s interest since he would lose money from his account if his or her children were using the account.

Mr J Sibiya (ANC, Limpopo) wanted to know how much would be spent on educating players on the problems of online gambling.

Mr Muthwa responded that there was already a countrywide gambling education/awareness programme and that they intended to link up with this and use their expertise to inform and educate potential IG players about the problems they may face.

Ms Mpho Mosing, Deputy Director: Regulated Industries, asked the Chair for the opportunity to address some of the Members’ concerns about IG. They knew fraud and suspicious activity is taking place, but not the scale as the industry was not regulated. With regulation there would be much better protection of South African citizens’ rights from abuse by foreign scam artists. Increased regulation would equal higher tax revenue for the provinces as well.

Ms Mosing said that different games would have different technology requirements. She assured the Committee that all the gaming operating systems, as well as their software programmes would be rigorously tested before it is legalised. Currently they had no idea how some of the technology operated and were thus uncertain how players were being scammed or duped.

Ms Mosing clarified that any winnings would be deposited into the player’s IG player account and not their bank accounts. Dispute resolution via the NGB would become available if the Act is amended. This was important since there are people who do not have access or the resources to seek recourse in the event of wrongdoing.

A Member expressed concern about the impact of gambling on families. He spoke from experience having worked with families who have problems with gambling.

Mr Muthwa replied that their studies and research have shown that legalisation and regulation is the way forward. Their cost-benefit analysis showed that prohibition is too costly and uses too many government resources. This is an international trend and South Africa is part of a global world. People are using the Internet more and more and it is not easy to prevent that. Many South Africans are already using Pigg’s Peak Casino based in Swaziland and have no protection if there are problems. Increased regulation would decrease the likelihood of falling prey to a scam and also combat the problem of gambling addiction and compulsiveness. There could be people who were addicts already and who were playing IG right now, but without regulation they could never be identified and then assisted in overcoming their problems.

Ms P Hollander (ANC, Northern Cape) asked who would be responsible for formulating the questionnaire that will have to be answered before a player can create an account. She was concerned that it may reject people who might not have any signs of gambling problems.

Mr Muthwa answered that they have met with the National Responsible Gambling Programme and they will be assisting the DTI and the NGB in drafting the questionnaire. He added that IG sites will not be able to treat problem gamblers but the site and its warning system will let you know that a problem exists. The questionnaire would not be biased for cultural, racial or linguistic backgrounds.

The meeting was adjourned.