ATC120307: Report Gambling Review Commission, dated 7 March 2012
Trade, Industry and Competition
Report of the Portfolio Committee on Trade and Industry on the Report of the Gambling Review Commission, dated 7 March 2012
The Portfolio Committee on Trade and Industry, having considered the Report of the Gambling Review Commission commissioned by the Department of Trade and Industry, reports as follows:
Introduction
During the Portfolio Committee on Trade and Industry’s consideration of the Interactive Gambling Regulations, it became aware of the potential challenges within the gambling industry due to technological advances. This led to it embarking on public hearings on the following:
the socio-economic impact of legalised gambling,
the impact of misleading advertising,
the regulation of cross-border gambling,
the current regulatory environment, and
interactive gambling.
The committee expressed a view that the socio-economic impacts of legalised gambling were inadequately represented and appeared to be biased in favour of the gambling industry. Therefore, it was critical for the Committee to have more detailed socio-economic information in this regard to make appropriate recommendations in regard of the future development of gambling legislation.
As a result of these hearings, the committee concluded that the proliferation of gambling should be halted until a thorough review of the national gambling legislation was conducted. At that stage, the Department of Trade and Industry (DTI) announced that it was establishing a Gambling Review Commission (GRC) to investigate the socio-economic impacts of legalised gambling as well as the status of the gambling industry and new forms of gambling.
Such a Commission was established and Ms Astrid Ludin was appointed as commissioner. The Portfolio Committee on Trade and Industry having received the Gambling Review Commission’s (GRC) Report established a subcommittee to consider the report and make recommendations to the Committee. The subcommittee tabled its report for the committee’s consideration on 7 March 2012. After deliberations, which took account of the report tabled by the subcommittee, the committee agreed to all recommendations as noted in this report.
The committee therefore wishes to make recommendations to the Minister of Trade and Industry for his consideration regarding amending the gambling and lotteries legislation. The report also communicates the committee’s official position on interactive gambling, which has led to a broader discussion on online gambling.
Members of the Subcommittee
In terms of NA Rule 141(2)(a) the committee appointed the following members from among its members to serve on the subcommittee:
Mr N Gcwabaza (chairperson)
Ms F Khumalo
Ms C M Kotsi
Mr J Smalle
However, due to party representation changes in the membership on the committee, Ms Kotsi and Mr Smalle were replaced by Mr G McIntosh and Mr G Hill-Lewis respectively.
.
Terms of Reference
In order to advise the committee on matters pertaining to its consideration of the conclusions and recommendations from the GRC’s Report in relation to the purpose of the principal legislation, the subcommittee’s core objectives were to:
Consider the conclusions and recommendations of the GRC’s Report.
Consider the outcomes of the submissions from the proposed public hearings.
Present or propose core issues for the Committee’s deliberations and consideration.
Propose conclusions and/or recommendations for the Committee’s deliberations and consideration.
Consider possible amendments to the relevant legislation.
Activities
The committee held extensive public hearings on the Report of the Gambling Review Commission. These hearings took place over four days. In addition, a workshop on online gambling was held with key governmental and private institutions.
The subcommittee held its first meeting on 18 August 2011 and has had several meetings since then. The meetings focused on identifying key issues in each gambling sector presented in the report, as well as engagements with the DTI, the National Lotteries Board (NLB), the National Gambling Board (NGB), the former Commissioner of the GRC and stakeholders from the industry.
On 20 and 21 October 2011, the subcommittee undertook a site visit to Gauteng to acquaint itself with the various forms of legal gambling in South Africa and identify some of the challenges the gambling industry was facing, particularly in terms of the existing legislation. During this visit, it also engaged the National Lotteries Board and the National Gambling Board for an overview of the sector. A more detailed report of the Subcommittee’s findings, conclusions and recommendations can be made available on request.
On 26 January 2012, the subcommittee undertook a site visit to the offices of the National Responsible Gambling Programme (NRGP) in Kenilworth and the clinical assessment and research component surrounding addictions (including gambling addictions) at the University of Cape Town’s Department of Psychiatry and Mental Health. The visit focused on the treatment and schools programmes, as well as the NRGP’s role in raising awareness regarding the dangers of gambling.
Subsequently, the subcommittee undertook a site visit to Kenilworth Race Course on 11 February 2012. The visit was focused on gaining a better understanding of the racing industry, as well as how the totalisator functioned and betting with bookmakers occurred in this regard.
Lotteries Regulatory Framework
Background
The National Lotteries Board (NLB) is established in terms of the National Lotteries Act (No. 57 of 1997) to regulate the National Lottery and all other lotteries in South Africa. The regulation of lotteries also covers Sports Pools, society and other lotteries, as well as making recommendations on promotional competitions. Its other functions include administering the National Lottery Distribution Trust Fund (NLDTF) and holding it in trust.
The National Lottery is operated on the basis of a revenue maximisation approach. It is state-owned but privately operated. The intention is for a portion of funds generated from the sale of Lottery tickets to be managed and distributed through the NLDTF for good causes. The distribution of funds to specific beneficiaries is determined by distributing agencies, as appointed by the Minister of Trade and Industry. However, there had been several challenges around the appointment of the national operator and the distribution of funds from the NLDTF.
National Lottery
Licensing of the National Lottery operator
At present, the Act has grey areas regarding the licensing of the national lottery operator and the extension period between the termination of the old licence and the awarding of the new licence, especially where there are unforeseen delays in the issuing of the new licence.
The committee was of the view that these grey areas should be clarified as a matter of urgency. Firstly, the definition of a political office bearer must be amended in relation to the licensing of the National Lottery operator. Secondly, the Minister should be allowed the discretion to provide for a reasonable extension period for the current operator between the termination of the old licence and the awarding of the new licence.
Location of lottery machines
Although the approach adopted for the National Lottery is revenue maximisation, the committee had some reservations regarding the location of lottery machines. Currently, the location of the lottery machines was determined by the NLB as part of the operator’s licence conditions. The current location of lottery machines appeared to provide relatively easy access to minors. The committee was of the opinion that access by minors to the National Lottery should be monitored by the NLB and the monitoring function funded operator as part of its licensing agreement. Furthermore, more stringent licensing criteria should be introduced.
Winnings
Given the tendency for large lottery winners to spend the winnings irresponsibly and being left in a worse financial situation than before, the committee is of the view that lottery winners of over R1 million should undergo mandatory financial management training and receive at least one consultation with a financial adviser before receiving their winnings. Thereafter, they may opt to have a financial adviser assist them with managing these winnings.
Distribution from the National Lotteries Distribution Trust Fund (NLDTF)
Accountability of the Distributing Agencies
Historically, there are no clear lines of accountability between the distributing agencies to either the NLB, as the trustee of the National Lottery Distribution Trust Fund (NLDTF), or the Minister and/or Department of Trade and Industry. This is due to the lack of clarity within the Act regarding the distributing agencies’ line of reporting. This discrepancy resulted in a lack of transparency and accountability in how funds have been distributed to beneficiaries.
The Gambling Review Commission confirmed that although the NLB is responsible for overseeing the NLDTF, it had no statutory powers to intervene in or influence the grant-making process, which was adjudicated by the distributing agencies. It therefore recommended that the entire distribution process should be removed from the control of the NLB, and run as a professional grant-making institution. This body could be directly accountable to the DTI or to the NLB, allowing the NLB to only focus on the regulatory aspect of its current mandate.
The Subcommittee acknowledged the success of the interim arrangement that the NLB had established to govern its relationship with the newly appointed distributing agencies. However, it agreed with the GRC’s sentiment that a professional grant-making institution would be more appropriate. This new institution should be accountable to the NLB and should maintain the existing limit for the costs of administering the NLDTF. The NLB should remain the trustees of the NLDTF.
Requirements for applications
The committee is of the view that the existing, onerous legal requirements for good causes, particularly in the rural, poor and vulnerable areas, could hamper more vulnerable good causes from accessing the NLDTF. This is particularly problematic where these organisations may be unable to meet and/or understand these requirements, due to financial and other capacity constraints. Therefore, larger and relatively well-off organisations may be perpetually benefitting, as they are able to meet these requirements and are also able to access other forms of donor funding.
The committee recommends that the financial and legal requirements for applications for the NLDTF should be streamlined in a similar fashion to the auditing requirements in the new Companies Act to have less onerous requirements for new organisations and those in poor and vulnerable areas that are applying for relatively small grants. Therefore, a system with either a ceiling or bands should be introduced, where there are differing but appropriate criteria for applicants based on the amount being applied for and the type of organisation applying.
In addition, small and vulnerable organisations where access to audited financial statements is not readily available should be assisted to provide monthly financial reporting to ensure accountability.
Processing of applications
The Gambling Review Commission highlighted that the distribution of monies from the NLDTF remained a serious problem for the NLB. This was due to the distributing agencies’ ad hoc approach to adjudicating applications and their inability to manage the huge volume of work that this involved.
Several factors had contributed to this inefficient process. These included the lack of transparency in terms of the adjudication process and the poor turnaround times during the adjudication and post-adjudication processes.
The NLB had implemented several measures to address these challenges. The main change had been the adoption of the Adjudication Procedure Manual, which sets out a framework for the newly appointed distributing agencies within which to assign scores per criterion on which to assess applications and introduces stronger procedures to mitigate where there is a potential conflict of interest. This manual has been implemented by the two newly appointed distributing agencies and has assisted in improving the transparency of the process and shortening the turnaround times for adjudication.
The committee supported the NLB’s efforts to develop a clear framework for the adjudication process. However, the lack of a pre-screening process negatively affects the turnaround time for adjudication and the sustainability of smaller organisations that may be primarily reliant on the NLDTF for funding.
The committee recommends that the manual developed by the NLB should be adopted by the proposed grant-making institution. Legislation should also be amended to allow this body to engage in follow-ups with applicants that have failed to meet the necessary requirements, to inform applicants of outstanding documentation and to empower unsuccessful applicants.
Allocation of funds
The committee is of the view that a portion of the NLDTF should be aligned with national priorities of government. In addition, this discretionary funding should also be available for disaster relief. The grant-making institution in collaboration with the relevant MECs should use this fund to assist the declared disaster. Such funds used during emergencies should be accounted for within three months of the grant being received.
Revised Funding Regulations were issued in July 2010, which prescribe a minimum allocation to rural areas and certain sub-sectors/priority areas. The committee stressed the importance of placing a greater weight on more equitable distributions made to poorer provinces and rural areas.
In response to the committee’s conclusion that multi-year grants should be made available to applicants, the NLB has reported that this will be introduced during the 2012/13 financial year. The committee recommends that these grants should be approved based on strict conditions regarding efficient and effective usage. Furthermore, appropriate formulas should be developed for different types of sectors to ensure that the approved grant actually benefits the declared project or the intended beneficiaries and that operational cost funded from the NLDTF are kept to a minimum.
Monitoring of beneficiaries
There appears to be no existing verification system in terms of the use of funds by beneficiaries of the NLDTF. The committee stressed that recipients of grants should be held accountable for how they spend their approved funds and beneficiaries/projects should be verified by the grant-making institution. In the final analysis, the project should improve the quality of life of the targeted group.
Sports pools
The NLB is responsible for licensing and regulating sports pools. However, there is considerable uncertainty as to which regulatory authority should have responsibility for sports betting, at least for sports betting on totalisator-based products.
In the context of illegal lottery activity, legal certainty must be created about the responsibility for sports pools in South Africa. In terms of the Constitution of the Republic of South Africa, Act 108 of 1996 and the Lotteries Act, Act 57 of 1997 the NLB has responsibility for Sports Pools. The sports betting offering of Phumelela, however, seems to be dangerously close to a Sports Pool as defined in the Lotteries Act, and could result further in the erosion of the credibility and effectiveness of the regulator. Legislative clarity must be created about the definition of Sports Pools and who has responsibility for them. A policy in this regard should be developed.
The committee agrees with this view and proposes that the policy on sports pools should be clarified.
Illegal lotteries
The NLB emphasised that existing legislation does not enable the NLB to enforce the provisions of the legislation. Therefore, it is unable to act against the operation of illegal lotteries. These illegal lotteries include illegal promotional competitions and SMS competitions.
It highlighted that certain forms of lotteries were proliferating, such as lotteries disguised as promotional competitions and even fafhee (see Section 6.3.). The following amendments to the legislation were proposed to empower the NLB to police illegal lotteries: (i) locus standi[1] and search and seizure powers should be included in an amendment; (ii) the concurrent existence of national and provincial sports pools because of “any other law” should be corrected in the National Lotteries Act and (iii) the definitions of lotteries should include SMS competitions.
The committee agreed that the NLB’s inability to enforce legislation may lead to the operation of a number of illegal lotteries and promotional competitions. This could leave the public unprotected and deprive the State of taxation revenue.
The committee recommends that:
Regulation and enforcement of promotional competitions, especially SMS competitions, should be strengthened to ensure that they are fair and do not increase the cost of the original product or service.
The NLB should be empowered to act against illegal lotteries.
Proposed legislative amendments
The Portfolio Committee on Trade and Industry had recommended that the DTI should initiate amendments to the Lotteries Act No. 57 of 1997 during the process of appointing the NLB’s board members in 2008. The committee is of the view that such amendments should include provisions to:
Enable the NLB to enforce the Act through court action.
Establish a professionalised grant-making institution.
Formalise the relationship between the NLB and the proposed grant-making institution.
Address bottlenecks in the Act regarding distribution of funds including the legal requirements for the adjudication process.
Empower the NLB to set norms and standards that govern promotional competitions.
Gambling Regulatory Framework
Regulation of gambling is a concurrent competence in South Africa. The regulatory framework consists of the National Gambling Policy Council (NGPC), the Department of Trade and Industry, the National Gambling Board (NGB), provincial departments responsible for gambling and the Provincial Gambling Regulatory Authorities (PGRAs).
The NGPC consists of the Minister of Trade and Industry and the Members of the Executive Councils (MECs) of provincial governments responsible for gambling, as well as the chairpersons of the national and provincial gambling boards who are non-voting members. This Council is responsible for settling disputes and agreeing on policy matters to ensure uniformity among national and provincial legislation.
The Department of Trade and Industry (DTI) provides secretariat support to the NGPC, which includes developing position papers for gambling and lottery policies. The provincial departments are responsible for providing their respective provincial positions on gambling activities.
The NGB and PGRAs are responsible for overseeing gambling activities in the country. The NGB is mandated to develop minimum national norms and standards to create uniformity among provinces. The PGRAs are mandated to issue licences for gambling operations and manufacturers/suppliers, and approve the introduction of new gambling machines and/or software.
National Gambling Policy Council
The GRC highlighted that the NGPC did not appear to be effective in its role of facilitating co-operative governance. This created a challenge in obtaining agreement on a national policy relating to gambling; thus undermining the fine balance between the conflicting objectives of revenue maximisation from the provincial perspective and limiting the proliferation and social impact from the national perspective. However, they noted that a mechanism to ensure co-ordination and consultation on policy matters is essential as long as concurrent jurisdiction exists. Therefore, the effectiveness of the NGPC should be resolved.
Furthermore, it recommended that the role and composition of the NGPC should be reviewed. The NGPC should not have a decision-making role, but should rather be a body where the Minister and MECs discuss policy matters with a view to achieving policy coherence, consistency and consensus, particularly with respect to provincially and nationally regulated modes of gambling, as well as overarching issues, such as a national strategy on responsible gambling.
The NGB highlighted that the governance of the roles of both the NGB and PGRAs resides in the NGPC. It suggested that the NGPC should be reviewed to ensure that it retained administrative powers to bind PGRAs and that decisions taken by Council are enforceable and legally binding on parties represented.
The committee is of the view that the legislation should be strengthened by allowing the Minister to make regulations regarding corporate governance principles for the meetings of the NGPC. The NGPC should also be given further functions and authority in terms of policy and monitoring of the implementation of policy to ensure accountability and alignment with national gambling policy and legislation and thus allowing for more than two meetings per annum. The legislation should include the provision for an MEC to nominate an alternate voting member with gambling industry experience. If the NGPC does not quorate for two consecutive meetings given proxy votes and written and oral submissions made by provinces, the Minister must make a decision at a national level.
National Gambling Board
The NGB was established after the existence of PGRAs. This has contributed to its inability to fulfil key areas of its mandate, as it is dependent on co-operation and support from PGRAs. The GRC was of the view that the approach adopted by the NGB in some respects had not been helpful to PGRAs and they tended to default to provincial legislation, which did not always align with national legislation, leading to the compromised uniformity.
According to the GRC, PGRAs had acknowledged the need for co-ordination and co-operation at a national level by an institution like the NGB. However, they did not support the NGB’s oversight function and another mechanism to achieve accountability of individual provinces must be found.
The NGB emphasised that it was critical to maintain a national regulatory, advisory and oversight body with oversight powers and authority to create harmonisation and uniform gambling norms and standards for the country with strategic direction from the Ministry. It considered that its role was to facilitate processes of aligning legislations notwithstanding that PGRAs should retain their provincial permutations. Such alignment should allow for flexibility for ease of amending legislations.
The committee recommends that there is a memorandum of understanding between the PGRAs and the NGB to regulate their relationship and to ensure that there is uniformity in implementing the national and provincial legislation.
Provincial Gambling Regulatory Authorities
The GRC found that the PGRAs were effective in monitoring compliance with licence conditions and with legislation. However, there appeared to be a lack of uniformity in the application of licensing criteria and a lack of compliance with the norms and standards set out in the National Gambling Act (Act No 7 of 2004).
In terms of enforcement of illegal gambling, some provinces are committed and effective in clamping down on illegal operations while others have no will and no capacity to address this. The GRC argued that resources are not necessarily targeted in the most efficient manner and that there may be excess capacity in regulatory institutions. It thus proposed that an in-depth review of the cost of regulation compared to other jurisdictions be conducted. Furthermore, it suggested that a more risk-based approach to regulation might distribute more resources towards the eradication of illegal gambling.
The Bingo Association of South Africa was opposed to the adoption of a risk-based approach. Other stakeholders stressed that provincial regulators must take decisive action against illegal and informal gambling operators to minimise problem gambling among the poor.
The NGB agreed that the curtailment of illegal gambling remains a challenge to regulators and a more concerted effort was needed from all law enforcement agencies and government departments to ensure effective enforcement mechanisms were in place. It raised a concern that gambling crimes reported by regulators were not prioritised by enforcement agencies due to a lack of collaboration with the cluster of ministers dealing with illicit crime.
The South African Police Service (SAPS) concurred that the lack of harmonisation between provincial and national legislation resulted in a lack of uniformity and consistency in applying the legal framework and thus on enforcement activities and police training. Therefore, it supported any initiatives to harmonise and standardise the gambling enforcement regime.
SAPS assured the Committee that there was existing capacity in terms of dealing with illegal gambling linked to organised crime through the Organised Crime Component of the Directorate for Priority Crime Investigation, as well as the will to do so. However, it indicated that there were other obstacles that hindered its investigations, such as the unwillingness of magistrates to authorise search and seizure warrants, but mechanisms were being implemented to overcome some of these challenges. It supported the recommendation that further training of law enforcement officers, magistrates and prosecutors was necessary to deal with gambling crimes more effectively.
The committee is of the view that a risk-based approach to regulation is appropriate. In addition, there should be a uniform approach across the provinces to clamping down on illegal gambling operations. A more concerted effort should be made to effectively clamp down on illegal gambling.
Concurrent jurisdiction of gambling
The GRC indicated that there needed to be more clarity around the roles of national and provincial government and better alignment between provinces’ implementation and interpretation of laws, as well as in the enforcement of illegal activities. It also emphasised that current mechanisms that were meant to ensure uniformity were ineffective and needed to be reconsidered.
It proposed that provincial licensing and regulatory functions should be maintained; however, there was a greater need for accountability and transparency on the implementation of gambling policy and national norms and standards. It further recommended that the oversight role of the NGB should be removed and that the auditors of provincial regulators could be required to audit provincial compliance with national norms and standards on an annual basis. This should be disclosed in their annual reports to be tabled in provincial legislatures and in the National Assembly and that PGRAs should be called to account. Further independent audits or reviews could be commissioned and tabled in Parliament with respect to the enforcement of illegal gambling, as well as the harmonisation of provincial and national legislation.
The NGB agreed that it was critical that the advisory and oversight role of the NGB and regulatory and licensing role of PGBs be clearly articulated to address conflicts on concurrent competency of both spheres of government.
Stakeholders raised concerns regarding the lack of uniformity and accountability among national and provincial gambling regulators. Aristocrat focused on specific aspects that created unnecessary barriers and costs for manufacturers and suppliers in the gambling industry. These included differing interpretations and applications between provinces of the same requirements written in their provincial gambling rules and regulations as the national legislation. This negatively impacted in areas such as the (i) application for approval to transport gambling machines and devices; (ii) application for approval for gambling equipment; and (iii) different gambling boards have different requirements and different turnaround times when it comes to the above.
It therefore recommended that where there were similar or the same requirements between the different provinces in their provincial gambling legislation, those requirements should be removed from their legislation and placed in national gambling legislation or in norms and standards. In the case of applications for gambling equipment approval and transportation approval, a single set of norms and standards, combined with having to lodge an application with just one gambling regulator as opposed to multiple ones, would definitely assist in the standard of business regulation.
The NGB endorsed the GRC recommendation that there was a need to have an alignment of legislations and such regulatory frameworks should be technology neutral. Regulatory frameworks and gambling standards should not be compromised by allowing operational flexibility and innovation outside national regulations. Technical standards should also anticipate pre-approval of new products or significant technological amendments within the gambling industry.
The committee stressed that the NGB’s oversight role should be retained. In addition, stronger mechanisms to ensure harmonisation and uniformity should be found.
National norms and standards
The GRC proposed that the DTI, together with the South African Bureau of Standards, should be responsible for developing national norms and standards. These norms and standards should be comprehensively tested and there should be adequate consultation with all gambling regulators about these norms and standards. Furthermore, detailed guidelines on particular issues, such as licensing, should be developed to guide provincial regulators and local authorities in licensing decisions. This recommendation would further reduce the mandate of the NGB.
The NGB asserted that government should implement legislated norms and standards and produce a guide that would ensure accountability, transparency and uniformity.
The committee supported the principle of developing and publishing the national norms and standards to set minimum standards for licensing conditions, limitations on forms of gambling activities and their associated ceilings, advertising principles and implementing problem gambling measures. Furthermore, the national norms and standards should include an appeal/adjudication process for the approval of gambling licences. It noted that the NGB had tabled a draft norms and standards document and that the NGB should complete its consultative process so that this document may be finalised and agreed to.
Advertising
The GRC considered that the current restrictions on advertising and their enforcement in South Africa were not very effective. This was based on inconsistencies in the application of the national norms and standards regarding advertising and the promotion of gambling in line with the overall regulatory model and objectives by provinces and gambling modes. The GRC suggested that greater efforts needed to be made to reach agreement on national norms and on ensuring that these are uniformly applied.
Stakeholders reported that there were disparities among provinces in terms of advertising guidelines for differing gambling industries. They recommended that different gambling industries should be afforded similar advertising opportunities across all provinces. Furthermore, advertising guidelines and restrictions and the enforcement mechanisms to be implemented should be clarified and it should be indicated how these would positively contribute to the gaming regulatory mandate.
Taxation structure
The NGB noted that there was a need to regulate and ensure that a national taxation structure is achieved. The overall tax burden imposed by regulators/government had a significant impact on the likely long term success of regulatory policies. The different, adopted taxation models and structures created disharmony and there was a need to ensure uniformity and synergies through appropriate national economic policies. It was critical for government, through the National Treasury, to ensure that a national taxing model and structure was achieved within the gambling industry as a whole.
The committee was of the view that corporate social responsibility as well as gambling tax revenue should be linked to the national priorities. Furthermore, taxation guidelines should be established for the different subsectors of the gambling industry.
Approval of gambling devices and equipment
The GRC observed that the National Gambling Act sets out the standard for compliance in respect of gambling equipment and devices, which required that such equipement should be tested by licensed testing agents for compliance. If the equipment was compliant, the testing agent referred the matter to the National Regulator for Compulsory Specifications (NRCS) who then issued a Letter of Certification. This should be sufficient to ensure compliance with the national legislation. Despite this certain provinces required further approval processes to be complied with, which was a duplication of cost and effort and caused delays.
Furthermore, the GRC noted a request related to obtaining the approval for gambling equipment and the proposal that provision be made in the national legislation for national gambling equipment approval to avoid the delays of lodging applications for approval with nine provinces. This should be explored further. The role of the South African Bureau of Standards (SABS) in such a process could be considered, as should the inclusion of a national gambling equipment approval certificate, which could be used in any province.
Aristocrat supported the GRC recommendation that the issuing of a Letter of Certification from the NRCS was all that should be needed to demonstrate compliance to national legislation for gambling equipment and specific provincial approval should not be required. It therefore recommended that a National Gambling Equipment approval should be introduced to serve as a single gambling board approval for a gambling device and for use in all provinces. Furthermore, it recommended that Section 25 of the National Gambling Act should be amended to allow for multiple certification agencies and not just one as was currently the case with the NRCS, as well as the inclusion of a provision for National Gambling Equipment approvals.
Aristocrat also raised a concern regarding the requirement for a certificate of suitability to be issued to a supplier of goods or services, lender or lessor to a licensee or any borrower or lessee of a licensee by each individual provincial gambling board. This requirement also extended to manufacturers that supplied peripheral equipment and services and the cost and administration for each provincial certificate of suitability was very prohibitive to these manufacturers. Therefore, they were limited in distributing their products directly to licensed operators except through national manufacturer licensed manufacturers. In this regard, Aristocrat recommended that the National Gambling Act and its Regulations should include a provision for National Certificates of Suitability.
The NGB noted that the GRC report did not refer to the need for skills development and technical knowledge for regulators. The lack of a government-owned laboratory for gaming machines opened regulators up to all forms of new products being tested with no ability to verify the test results independently. A further weakness of independent technical, gaming machines and software testing laboratories was that they could undermine the objective of developing skills in the industry. The possibility of a government-owned laboratory for testing gambling machines should be explored so that skills were sought from within and outside the country to contribute to skills development and to keep abreast of emerging technologies.
The committee emphasised that local manufacturing of gaming equipment should be encouraged. In addition, testing companies, manufacturers and importers of gaming software and equipment should be licensed nationally and should not also be subjected to provincial certificates of suitability and approvals. Furthermore, the South African Bureau of Standards should play a role in independently verifying test reports for gaming equipment, as a service to regulators. Finally, the retesting and recertification of older equipment should be made mandatory for operators within a set period of time to ensure compatibility and compliance with monitoring systems and the latest gaming standards.
Application of the Financial Intelligence Centre Act
The GRC discussed a submission received from a gambling machine manufacturer regarding the relevance of requiring compliance with the applicable provisions of the Financial Intelligence Centre Act (FICA), Act 28 of 2001, for nationally licensed manufacturers in Section 37(2)(b) of the National Gambling Act. However, FICA did not apply to manufacturing businesses. Therefore, it recommended that an exemption to FICA compliance for holders of a manufacturer, supplier or maintenance provider licence should be considered.
Aristocrat recommended that Section 37(2)(b) of the National Gambling Act should be amended to exempt manufacturers from the licensing requirements to comply with the FIC Act.
The committee is of the view that it is clear that the Financial Intelligence Centre Act is not applicable to manufacturers of gambling machines except for sections 29 and 30 unless these manufacturers are directly involved in offering “gambling activities”. It would be superfluous to exempt manufacturers from the remainder of the sections in FICA, as they are not applicable to manufacturers. The committee therefore recommends that there should not be a specific exemption stated in the legislation beyond what has already been stated for manufacturers.
Competitive advantages
The NGB emphasised that there was a need to introduce a regulatory framework intended to level the playing fields between all forms of gambling activities. It purported that no sector should be granted significant competitive advantages over other gambling sectors. The areas to be reviewed included requirements for infrastructure investment, prevention of underage gambling, taxation, responsible gambling requirements, Broad-based Black Economic Empowerment (BBBEE) requirements and location of operations in respect of limited payout machines, electronic bingo terminals and interactive gambling.
The committee recommends that licences issued should be more diversified to promote fair competition within gambling industries and that existing stakeholders are not displaying monopolistic behaviour. Provinces should consider competition matters when issuing licences. Furthermore, sports betting should be adequately regulated to address overlaps with other gambling industries.
Merging the National Lotteries Board and the National Gambling Board
The Gambling Review Commission recommended merging the NLB and the National Gambling Board (NGB) to create a single regulator given the proposed reductions in each of the regulator’s mandates. This is intended to reduce the administrative cost of regulation, while maximising the different types of skills and expertise that each houses.
The NLB has indicated that it is concerned about this proposal due to the two entities’ diverging philosophical approaches to gambling. Furthermore, it is of the opinion that this may water down the specialisations within the NLB.
The committee recommends that the two entities remain separate at present. This will allow the regulators the opportunity to address existing shortcomings in each regulatory regime. The concept of a single regulator may be revisited at a later stage once fundamental legal and philosophical issues have been addressed.
National Responsible Gambling Programme
The South African Responsible Gambling Foundation (SARGF) delivers the National Responsible Gambling Programme (NRGP). Historically, industry initiated the responsible gambling programme to address problem gambling and as a harm minimisation strategy. The SARGF board includes members from industry and regulators with an independent chairperson.[2] The National Responsible Gambling Programme (NRGP) conducts research, public education around awareness and prevention and industry-wide training related to problem gambling and offers a national treatment network, a toll-free problem gambling counselling line and crisis management services.
Problem gambling
Problem gambling is broadly defined as gamblers who spend more time and money than they are able to afford on gambling and more narrowly as pathological or compulsive gamblers. The GRC found that the levels of problem gambling had remained relatively constant in South Africa between 3% and 4.7%, despite the massive growth in the size of the gambling industry over the past decade. They recommended that attention must be given to regulating informal/illegal gambling to curb problem gambling, as well as around the introduction of new forms of gambling.
The South African Responsible Gambling Foundation confirmed that more than half of problem gamblers that they interviewed only engaged in illegal/informal types of gambling mainly in townships. It also noted that the problems of land-based illegal gambling appeared to be growing and to be exacerbating existing social problems.
Exclusion of problem gamblers
The GRC noticed that there were poor measures to enforce exclusion or self-exclusion at non-casino gambling venues especially for the national lottery. They recommended that more onerous requirements, such as mandatory identity checking, should be considered only if the industry could not find ways to implement current provisions effectively. These measures needed to be applied consistently across all modes of gambling.
In this regard, the national legislation provides for a national register of excluded persons, where problem gamblers may exclude themselves or their dependents may apply for their exclusion from gambling activities. However, the NLB highlighted that this national register had not been implemented as yet, as the Minister is required to publish and gazette regulations with a view of ensuring punter protection to bring section 14 of the National Gambling Act into effect.
The committee proposes that the regulations to enforce the national register for excluded persons should be developed and gazetted as a matter of urgency. Clarity on how the database must be developed and how the information must be furnished to the national database should be provided. Furthermore, the committee was of the view that electronic identification should be mandatory for access to gambling areas to assist in monitoring and enforcing the national register of excluded persons.
Co-ordination with Government
The GRC indicated the need for national and provincial governments to jointly develop a national strategy for responsible gambling with inputs from the industry, the NRGP and other civil society organisations involved in the education and treatment of problem gambling. The implementation of the strategy should be monitored through the National Gambling Policy Council. The NGB recommended that a co-ordinated research and communication strategy should be developed for the NRGP but should be driven by the NGB and the PGRAs.
NRGP’s accessibility
The GRC identified that the NRGP’s reach, accessibility to poorer communities and the funding provided to independent treatment organisations and researchers was limited. It was of the view that provision could be made through the NRGP to fund other independent organisations in a partnership model to enable other providers to receive funding and increase the reach of the NRGP.
The committee proposed that the NRGP must broaden its reach by encouraging other organisations to be involved in research, awareness and treatment. These organisations should receive funding from the same pool as the NRGP and issues of accountability should be considered in designing such a model.
Research
The GRC proposed that a separate fund should be established for independent research. If this fund is housed within the NRGP, a more independent evaluation panel to adjudicate applications should be established.
In addition, the National Prevalence Studies (NPS) should receive additional funding to allow them to focus on more than just the three provinces (KwaZulu-Natal, Gauteng and Western Cape) in which most gambling takes place, and to place greater attention on informal gambling outside the major urban centres.
In terms of the proposals the GRC made, there would be a need to increase industry funding for the NRGP. In this regard, the NRGP should be requested to provide an estimated budget and industry contribution or to combine the resources allocated to the NPS and the NGB studies.
Funding
The NRGP is funded by voluntary contributions from the gambling industry equal to 0.1% of gross gambling revenues.[3] All gambling companies in South Africa contribute to funding the National Responsible Gambling Programme (NRGP) except for the lottery. However, it was not clear whether bookmakers were contributing.
During engagement with the NLB, they had indicated a willingness to contribute to cases specific to lotteries but not to contribute a set percentage of the National Lottery’s funds to the NRGP.
The National Lottery currently hosts the Responsible Play Programme, which raises awareness regarding problem gambling. However, unlike the NRGP, this programme does not offer treatment services and is not as widely-known and accessible as the NRGP. The GRC was of the view that an assessment of the effectiveness of the National Lottery operator’s Responsible Play Programme should be conducted to assist in determining whether the operator should develop a comprehensive, viable and transparent programme to minimise harm caused by the National Lottery, or, alternatively, should join and contribute to the NRGP.
According to the NRGP and the NGB, lottery players have been accessing the NRGP for treatment as problem gamblers, as the Responsible Play Programme does not have a treatment programme. There is also a concern that the two separate programmes may lead to differences in the message of responsible gambling and duplicate administrative costs.
The committee was of the view that the contribution towards the NRGP should be made mandatory and should include the National Lottery operator and bookmakers. This additional funding would require that the board of the South African Responsible Gambling Foundation should be constituted by relevant stakeholders. The NRGP is also required to expand its operations and reach by including other organisations that offer treatment, research and awareness services granted that these activities are aligned to the national imperatives. The committee further stressed that the additional activities should particularly focus on vulnerable and rural communities.
Legal Gambling Activities
South Africa has legalised the following gambling activities in the National Gambling Act (No. 7 of 2004):
casinos,
limited payout machines,
bingo, and
horseracing and betting, including bookmakers.
Casinos
The GRC considered casinos to be well run and on par with international norms. It noted that the “destination style gambling” approach had worked well, benefitting tourist and entertainment sectors.
Limits on the casino industry
The GRC advocated for the maintenance of the current limit of 40 casinos in the country and that unissued licences should be maintained and reallocated to other provinces with greater viability or demand. However, there is a need to monitor the growth of slot machines and tables and set limits on the total numbers and types of slot machines.
The committee agreed that the number of casino licences should remain at 40 and that the destination-style approach for casinos should be maintained. In terms of the relocation of licences among provinces, the committee recommends that each province should maintain their allocation. In addition, the Minister should resolve the North West/Gauteng dispute regarding the reallocation of the gambling licence lost due to demarcation issues.
A province should be allowed to relocate licences that have not yet been issued within its province. However, it may consider relocating an existing casino only after conducting a socio-economic impact study for the existing community.
The Casino Association of South Africa objected to a specific limit on the number of slot machines and tables within a casino. It argued that PGRAs should be allowed to authorise increases on a case-by-case basis. This would allow casinos to cross-subsidise for other required facilities that may not be as economically viable as its casino activities and also meet all of its obligations to government. However, the NGB found that increases in slot machine and table numbers did not translate into more employment but may produce a minimal increase in revenue. Furthermore, it may create unhealthy competition among provinces and result in irresponsible regulation of the industry. It proposed that a proper socio-economic impact study would be required before such expansion could take place and that this should rather be regulated nationally.
The committee was of the view that the number of slot machines and tables within casinos should be limited by the PGRAs in consultation with the NGB. In cases where there has been an over-allocation of slot machines and tables, a transitional period should be allowed to phase out the additional machines/tables.
Review of casino licences
The GRC proposed that casinos should every five years have a comprehensive licence review to address their licence and regulatory conditions, the socio-economic impact of the casinos, their BBBEE compliance and the implementation of measures to protect the vulnerable and to minimise the harm of gambling. However, a casino’s licence would only be revoked if it consistently failed to comply with its licence and regulatory requirements.
The NGB argued that a review period after ten years was most appropriate given the investment required by casinos and the time needed for it to breakeven. It therefore advocated that such a review be conducted every ten years.
The committee recommends that casino licences should be reviewed every five years and be re-issued every ten years. This should be accompanied by regular compliance checks performed by PGRAs. However, compliance checks should include non-technical issues in terms of the National Gambling Act as well as the licence requirements. In addition, new or renewable licences should be reviewed regularly and contain conditions related to national objectives/priorities.
Limited Payout Machines
The Limited Payout Machines (LPMs) industry was introduced to facilitate ownership and control by previously disadvantaged individuals (PDI) by having low barriers to entry and to contribute to the sustainability of existing small and medium businesses by supplementing their income. There are three key players in the industry namely site operators, route operators and the operator of the central electronic monitoring system (CEMS). Site operators are licensed to keep up to five LPMs on their premises unless they are a juristic person, then the maximum number of LPMs are 40. Route operators that own, operate and maintain LPMs. The CEMS is a system which monitors all registered LPMs nationally and all relevant information for an LPM is captured on the system including calculations for taxes and payments to route operators as well as licence details. The system is linked to each LPM and downloads data from these on a daily basis. In addition, the CEMS will automatically disable LPMs that have been tampered with, have malfunctioned and/or have not transmitted their data in 72 hours.
Viability of LPM Industry
The current economic model requires a large number of LPM sites to be PDI owned and geographically spread outside urban centres. In addition, LPM sites must be located within primary businesses and thus the income generated from LPMs cannot exceed the income from the primary business. To date, this model has not yielded the expected results in terms of the roll-out of LPMs, the viability of the sites and the overall economic empowerment objectives. The initial roll-out target of 25 000 LPMs by March 2009 had not been reached yet and at the end of June 2010, only 5 381 LPMs had been rolled-out nationally.
The GRC attributed this poor performance to a number of factors. Firstly, the sector had relatively high barriers to entry, which limited the required PDI ownership and control, and undermined the sustainability of existing businesses. This was mainly due to inconsistencies, capacity and delays from provincial authorities, as well as in the design of the economic model, particularly the low maximum payouts. Secondly, the requirement for 60% of LPMs to be located in PDI areas had also not been economically viable or socially desirable and should be reconsidered, thus limiting the roll-out of LPMs in non-PDI areas.
The NGB concurred with the GRC that the current model has not yielded the expected results and is economically unviable. It has advocated that market forces should determine the most appropriate sites. It also highlighted key challenges in the roll-out of LPM licences in PDI areas. These included the requirements for the applicant to (i) be a registered tax payer; (ii) have financial records that prove that their primary business is viable; and (iii) have a liquor licence. In terms of the liquor licences, certain provinces prohibit the possession and operation of gambling machines where liquor is sold or within liquor areas. In other instances the municipality statutes prohibit the possession of gambling machines beyond a specific number based on zoning rights.
Another stakeholder also proposed that the requirement for the PDI allocation should be amended to allow for more LPMs in urban areas. Furthermore, that the percentage of PDI owned sites could be amended so that route operators had to meet more stringent BBBEE ownership criteria.
The GRC recommended that the weaknesses and inconsistencies of the PGRAs needed to be addressed to reduce the time and cost of rolling out LPMs. However, concerns about the site licensing processes of local authorities needed to be carefully evaluated to maintain the integrity of zoning processes and to provide for public input.
The committee recommends that the inconsistent legislation that has been hampering the roll-out of LPMs should be amended, including the Business Act and Liquor Act. However, it proposes that the roll-out of the licensing of further LPM sites should be suspended until there is a socio-economic impact study of LPMs.
Viability of the Central Electronic Monitoring System (CEMS)
The GRC reported that the slow roll-out of LPMs and the low revenue generated from LPMs threatened the viability of operating the CEMS, as the CEMS is currently funded based on 6% of the LPM industry’s gross gambling revenue. The NGB informed the committee that LPM site operators contributed about 4-5.2% of their gross gambling revenue towards the monitoring of their LPMs plus a relatively high wireless connection fee from cellphone providers. This additional cost increased their break-even point, which made the industry economically unsustainable. The NGB proposed that this model be revised for the new contract.
One of the written submissions highlighted that the subscription to the CEMS was non-competitive and used a software protocol that created a significant barrier to entry for LPM manufacturers. The stakeholder recommended that the LPM industry be allowed a choice of approved game play monitoring service providers to improve service levels, job creation and afforded market forces the opportunity to determine who benefitted from the provision of an LPM monitoring system.
The committee does not agree with the suggestion that the monitoring system should be opened to additional game play monitoring service providers. However, it supports the NGB’s proposal that the funding model for the CEMS should be revised for the new contract.
Stake and Payouts
The GRC is of the view that some flexibility in the rules governing LPMs is required. It proposed that LPMs located in convenience venues should retain the current maximum stake and payout limit and that LPMs located in dedicated gambling venues should be allowed machines with higher stakes and payouts.
The NGB has advised that the increase in stakes and payouts should be determined by proper empirical research. A stakeholder during the public hearings submitted that the stake and pay-out should have been increased to R30 and R3 000 to be aligned to inflation and to address the fiscal drag on the LPM industry’s profitability.
The committee was of the view that the stakes and payouts should be adjusted according to inflation. It proposed that the stakes and payouts in the LPM industry should be increased to a maximum of R30 and R3 000 respectively.
Number of LPMs per site
The GRC recommended that the maximum number of slots per gambling establishment should remain at the current number of 40 machines. There was a general agreement regarding the limit on the maximum number of LPM machines per site during the public hearings. However, there was a call by a stakeholder that these sites that had been intended for areas too remote for casino investment and that could become entertainment hubs or ‘mini-casinos’ should be considered and would improve the ability to roll-out LPMs. However, these types of sites should be adjudicated in a similar manner to that of casino licence applications. In addition, LPM route operators should be allowed to operate sites.
The committee agrees that the maximum number of LPMs site should be maintained. It further recommends that the recommendation of establishing entertainment hubs or ‘mini-casinos’ should be considered within the light of the socio-economic impact study. LPM route operators should not be allowed to operate sites unless they have invested in a primary business other than LPMs and the LPM part remains secondary.
Enforcement
Furthermore, the GRC emphasised that decisive action needs to be taken against all “illegal slot-casinos” within provinces and PGRAs should be held accountable for the lack of enforcement action. A specialised enforcement mechanism could be created to focus on the eradication of the illegal industry, starting with targeting the sources of the machines, as well as closing down sites and effectively dealing with the destruction of illegal machines.
The committee agrees with the GRC’s proposal.
Bingo
Bingo is played in bingo halls or casinos in its traditional paper-based form. To date, bingo licences are only operational in Gauteng. Recently, the Gauteng PGRA had licensed electronic bingo terminals (EBTs) (see Section 6.4. for more detail), which has increased the popularity of bingo.
The GRC reported that traditional bingo had performed poorly and there was a need to attract customers without stimulating new demand. It also emphasised that a policy on bingo should be developed as a matter of urgency, including limits on the number of bingo licences and seats per province.
The Bingo Association of South Africa was of the view that national regulation should focus on regulating the total number of bingo licences to be rolled out in each province, the provincial location of licences and the total number of seats or gaming positions per licence.
The committee supported the view that there should be a limit on the total number of licences and seats or gaming positions per licence. It also emphasised that bingo halls should have separate entrances from public places, such as shopping centres, and clear signage should be in place to indicate that this was a designated gambling site. Where bingo halls are located in shopping centres, their entrances should be relocated to outside the building.
Horseracing and betting
The National Gambling Act places horseracing under the control of gambling without bringing it into the regulatory framework. Currently the horseracing industry is self-regulating with no enabling provisions to cater for its regulation.
The value chain of the sport of horseracing and the breeding of thoroughbreds casts a wide net over many facets of our society; including farm workers; farriers; veterinarians; equine dentists; equine transport services; equine insurance agents; bloodstock agents; racehorse trainers; grooms as well as the many people employed by the race track operators and the National Horseracing Authority to operate and regulate racing and gambling. Furthermore, it entails the component of betting through the totalisator and bookmakers. However, betting through bookmakers is broader than betting on horses and includes other sports betting.
Economic viability of race tracks
The GRC was of the view that there were currently too many tracks, many of which were not economically viable. They recommended that economic considerations should be allowed to determine the number and location of tracks, as well as the number of races. They also suggested that the ownership of the tracks and the totalisator be separated and that the tracks could be funded through levies on the gambling tote, bookmakers and online betting operators, as well as commercial rights, such as broadcasting rights for races.
The Thoroughbred Breeders Association purported that the sector was constrained from making commercial decisions by its current licensing conditions. It emphasised that market forces should be allowed to dictate the number and location of tracks to ensure economic viability. In addition, several stakeholders were of the opinion that the ownership of the tracks and the totalisator should not be separated.
Phumelela agreed that tracks could be funded through levies on betting and broadcasting rights provided that all users paid on an equitable basis, including broadcasters for flighting and production.
The committee is of the view that track operators should be allowed to close and/or relocate tracks based on the track’s economic viability.
Modernisation of the industry
The GRC considered the horseracing industry to be well-established; however, the demand for betting on horseracing was declining. Therefore, it recommended that the industry should modernise itself to become more attractive to younger punters and embrace online technologies. The GRC also noted that the current ownership and funding arrangements do not provide sufficient impetus for modernisation and that the sector appeared to be constrained in its ability to make commercial decisions by its licensing conditions.
In addition, the GRC recommended that the horseracing industry should be allowed to integrate its operations with other forms of gaming, especially slots, which is a worldwide trend. This would link to the recommendation regarding the creation of a third category of licence specifically for stand-alone gambling venues.
The Thoroughbred Breeders Association reported that all of South Africa’s racecourses were currently underutilised and permission had to be given for these to become multipurpose gaming destinations. It was financially impossible for the sport and therefore the breeding industry to sustain itself, let alone grow in the current legislative environment. It agreed that horseracing must be modernised, develop new business models, and become more closely integrated with other forms of gambling. However, the current legislative environment did not allow horseracing to accomplish this. Furthermore, it supported the Commission’s view that horseracing should be enabled to integrate its operations with other forms of gambling. This would enable the tracks to become multi-purpose destinations.
The committee recommends that race tracks should be upgraded to attract a larger target market, which could include a licence for up to 40 medium-stake LPMs and/or other entertainment and social activities like restaurants.
Disparities between tax rates and levies paid to the industry
The GRC noted the disparities between the tax rates and levies paid to the industry from different betting formats and the competition faced by traditional bookmakers and lower cost virtual operators. In this regard, the GRC recommended that the current funding models for the industry should be reviewed to ensure that the tax rates and levies paid to the industry are standardised.
Several stakeholders from the horseracing industry raised a concern regarding bookmakers’ contribution to the industry. The National Horseracing Authority reported that the majority of the betting operators in South Africa offer betting on the sport of horseracing. It was estimated that betting on the sport of horseracing accounted for about 70% of the betting on offer. The National Horseracing Authority proposed that all betting operators, including bookmakers, should be required to contribute equitably toward the costs of the Regulation of the Sport.
The Thoroughbred Breeders Association reflected on the horseracing industry in Hong Kong and Singapore, where gambling on horseracing operated without bookmakers, and noted their ability to offer much higher prize money to competitors than South Africa was able to. The ability to offer higher prize money would thus attract stronger competitors and more investors into the local industry. It stressed that unless the direct beneficiaries of the gambling on horseracing contributed fairly to the cost of running and administrating the sport, it was questionable whether the sport would survive.
Although the South African Bookmakers Association acknowledged that the bulk of its betting turnover was in respect of betting on horseracing, it argued that the nature of its business was much more risky than that of the totalisator. This risk was primarily borne by one- or two-person operations. Therefore, it had a vested interest in the success of the horseracing industry; however, given the risk it faced as well as the threat of newer forms of betting that were not subject to a contribution to the horseracing industry, the industry was not in favour of an increase in its contribution, as this may not address demand issues.
The committee proposes that the revenue formula for bookmakers and the totalisator should stay the same in relation to their contributions to the horseracing industry. However, bookmakers should not be allowed to take open bets, namely bets based on the odds of the totalisator.
Regulation of the industry
The GRC suggested that the National Horseracing Authority should become a statutory regulator. However, a more complete review of the horseracing sector was required to determine an appropriate industry and regulatory structure.
There was broad consensus between the industry and the NGB that a review of the structure of the horseracing industry was necessary to ensure that it was financially sustainable in the future. This review should consider the full value chain of the horseracing industry as well as international best models that were flourishing.
The National Horseracing Authority also acknowledged the regulatory gap in the 2004 National Gambling Act in relation to racing, gambling and wagering. It indicated that a committee had been established in 2001 to propose legislation regarding the regulation of horseracing but was suspended in 2005 due to the process on interactive gambling. These proposals included that the National Horseracing Authority should be licensed by the National Gambling Board as the national regulator of the Sport of Horseracing in South Africa, thereby affording statutory recognition of the National Horseracing Authority's status as regulator. The National Horseracing Authority further proposed that its Rules of Racing should be adopted by government as was done with the Bookmaker Rules and Totalisator Rules.
The NGB was of the view that the horseracing industry should be regulated nationally including the National Horseracing Authority. Furthermore, work already done regarding the regulation of the industry should be revisited to address specific inherent limitations with regard to the number of totalisators and bookmakers, number and location of tracks and the number of races, separation of ownership of tracks from the totalisator, etc.
The committee agrees that the horseracing industry should be formally regulated through gambling legislation. It also proposes that a commission of inquiry into the horseracing and betting industry should be established to inform the restructuring and transformation of the industry.
Other matters
African Horse Sickness
Stakeholders from the horseracing industry raised a concern regarding the impact of African Horse Sickness on the export of thoroughbred horses, as restrictive export protocols have been placed on South Africa due to the incidence of the sickness. This limits the industry from entering the international market by raising the cost of exporting horses for races and for trade purposes. In addition, it limits South Africa’s ability to access global bloodstock.
The industry requested that government should assist in researching and developing vaccines for this illness. In addition, government should lobby for the implementation of less stringent export protocols, as other developed countries, such as Australia, with similar types of horse sicknesses do not have very restrictive export protocols placed on them.
The committee concurs with the requests made by the industry and supports existing government initiatives to address the trade issues.
Ring-fencing of losses
The Racing Association raised the ring-fencing of losses made by owners as a threat to the industry. It explained that a three out of five year rule existed, which should be relaxed or removed to assist especially smaller owners that were unable to offset these losses against other sport-related income.
The committee is of the view that there should be support for new previously disadvantaged entrants.
Support for the Industry
The Western Cape was considered one of the key breeding areas in the country. Specific government intervention and assistance was requested to rescue and revive racing in the Western Cape. There were also other requests for government intervention through the provision of financial assistance to the industry.
The committee notes the request but recommends that the matter should be addressed by the Western Cape government.
Legalising additional Gambling Activities
The NGB warned that the consideration of the legalisation of further gambling modes should be conducted within a comprehensive framework that assesses the socio-economic impact of gambling on society to protect the vulnerable against the proliferation of gambling activities. This framework should include appropriate enforcement structures. Furthermore, it should provide for the regulation of all acceptable and legalised modes of gambling and accommodate innovations and emerging trends without necessarily allowing for a penetration of illegal activities. It also requested that prior to the introduction of any new or emerging gambling activity, the NGB should, at a minimum, be consulted.
The GRC had considered a number of additional gambling activities that have been gaining popularity within South Africa, but have not been legalised. These include:
Greyhound racing
Bush racing
Fahfee
Poker, including online poker
Electronic bingo terminals
Betting exchanges
Virtual racing
Online gambling
Greyhound racing
The GRC was split in its view regarding the legalisation of greyhound racing. The majority view was that greyhound racing should not be legalised in South Africa. This view was based on (i) significant popular opposition to greyhound racing and legitimate concerns about animal welfare, (ii) the unlikelihood of the industry to generate significant revenues and (iii) the industry’s need to stimulate demand for a new gambling product to be successful.
The GRC’s minority view was that more research needs to be done before greyhound racing can be considered for legalisation in South Africa. This should focus on examining issues around the regulation of over-breeding, tracking of dogs during their lifetime and retirement/disposal.
Key arguments against legalising greyhound racing related to:
Animal welfare, particularly over-breeding of greyhounds for racing, inhumane and cruel practices inflicted on greyhounds and other animals during training and racing, and post-racing care
The morality of gambling.
In response to the animal welfare argument, the greyhound racing industry indicated a number of mechanisms that have been implemented to assist in ensuring the welfare of greyhounds and to address concerns raised in this regard. These included:
Implementing rules and regulations for greyhound racing and animal welfare. This included the use of mechanical lures during training and racing.
Changing surfaces and layouts of tracks to limit injuries to the dogs.
Micro-chipping of all racing dogs to assist in monitoring the dogs during their pre-, during and post-racing careers.
The use of independent veterinary surgeons at races.
Banning euthanasia of healthy racing dogs
A kennel inspection programme that will ensure compliance by owners and trainers and prevent non-compliant individuals from racing their dogs.
Effectively training prospective trainers.
Furthermore, the industry argues that the morality of gambling is no longer valid since the policy decision to regulate gambling has already been taken. However, advocates against gambling have argued that mostly poorer members of society would be exposed to betting on greyhound races and would thus have an adverse effect on vulnerable groups.
Key arguments for legalising greyhound racing include:
Ensuring the welfare of greyhounds, improving the breeding of greyhounds and eliminating over-breeding.
Sustainable employment opportunities that would contribute to the economy.
Provincial taxes.
Assistance from the legal industry in clamping down on illegal and unregulated operators.
The research report submitted to the Department of Trade and Industry was inconclusive regarding the actual demand for betting on greyhound racing. It suggested that greyhound racing could be introduced on a piece meal basis in the provinces such as Gauteng and the Free State where it was already active to determine the socio-economic impact of the sport/gambling activity. In addition, it outlined certain restrictions that should be enforced to address the animal welfare challenges from the birth to natural death of greyhounds bred for racing. Many of these restrictions appear to have already been implemented by the industry.
The committee proposes that the legalisation of greyhound racing is subject to holistic consultation and investigation on the animal welfare concerns, as well as the transformational potential of the industry. The committee further recommends that animal welfare organisations should be empowered through regulation to enforce animal welfare rights during racing activities.
Bush and harness racing
The GRC was in favour of legalising bush racing, with the focus being on formalising issues around licensing of events and limiting them both in number and location, while retaining its informal structure. Regulation should establish a system of occasional licences or notices issued by or to the local authorities. This system should issue notices to the local authority and the National Council of Society for the Prevention of Cruelty to Animals (NSPCA), so that a representative is present, there is a cost contribution to the NSPCA and that a registered veterinary surgeon attends the races. In addition, there is a need for a uniform national policy to be developed to deal with the protection of animals that are involved in racing activities.
During the public hearings, the committee became aware of the incidence of harness racing in South Africa. The Harness Racing Association informed the committee that harness racing had been introduced in South Africa in 2005 to aid in transforming the horse racing and stud-breeding industries. This form of racing was strongly aligned to telebhela (trotting), a widely practised form of traditional horse racing in rural South Africa, which was accessible to amateur and rural participation. Worldwide, harness racing is considered to be bigger than thoroughbred racing.
The Harness Racing Association considered the GRC’s view on bush racing to be distorted as telebhela was well-structured under the Harness Racing Association of South Africa and the KZN Department of Sport and Recreation and was widespread in KwaZulu-Natal, Mpumalanga, North West and the Eastern Cape. The industry was supported by equine welfare and veterinary oversight by the Coastal Horse-care Unit. The Association noted that there was currently no contribution by the totatilator, which was importing trotting signals and betting on trotting, for the development of the local industry.
Phumelela alleged that, as bush racing and harness racing use different species of horses, these should not be regulated or incorporated into the sport of thoroughbred horse racing.
The committee recommends that bush racing and harness racing should be formalised and integrated into the mainstream horseracing and betting industry.
Fahfee
The GRC was of the view that there was a proven demand for fahfee but that it appeared to be operated by unscrupulous operators, which contributed to problem gambling. Due to the lack of understanding of the game and its business model, the GRC recommended that further qualitative work should be undertaken on fahfee, taking into consideration the clear demand for these activities, but also keeping in mind the negative impact on poor communities.
The NGB explained that the game of fahfee was an ancient game that had mostly been played by domestic workers. The more recent frequency of this game or this form of gambling raised concerns around money laundering operated by cartels. Where these cartels had been arrested there had been minimal or no convictions. It advised that no additional research should be done but rather that these sites be raided and arrests made with bigger penalties. In addition, the issue of fahfee should be elevated as an illegal gambling issue to the forum of ministers dealing with illicit crimes.
The committee had concerns around the attraction of youth/minors to fahfee and illegal cards and dice games, the risk of problem gambling and the criminal aspects of these forms of gambling. It recommends that illegal cards and dice games remain illegal. Therefore, improved and visible enforcement and awareness raising campaigns are critical and attention should be given to educating the youth on the dangers of gambling. Fahfee remains illegal but should be investigated further and the Minister should pronounce on it.
Electronic bingo terminals
At the time of publishing the report, the GRC was of the opinion that electronic bingo terminals (EBTs) in their current form should not be allowed in the country, as they created a third category of gaming machine with no limit on the stake or payout. In addition, they argued that EBTs were not a form of bingo, based on the “look, feel and sound” of the terminals.
Furthermore, bingo operators were able to install up to 40 limited payout machines subject to the granting of a licence and compliance with those requirements. Therefore, the introduction of EBTs was considered unnecessary.
The GRC suggested that if EBTs were to be retained, the following recommendations should be considered:
A similar approach to that adopted in the United Kingdom with respect to video bingo terminals (VBTs) should be considered and the look, feel and sound of bingo should be retained. Hence, the spinning wheels, lights and sounds should be removed.
Clear limits on the number of EBTs should be provided.
The GRC cautioned that the trend set by the Gauteng province in introducing a new type of gaming machine in the absence of a national framework and legislation has created a dangerous precedent and undermines the spirit of co-operative governance and the policy of a managed rollout of gambling activities.
The Bingo Association of South Africa responded that EBTs were not new and had been operational for the last 6 years. They argued that EBTs were legal based on the national legislation’s definition of bingo, were only a technological advancement of the game and had not contributed to the proliferation of gambling. EBTs had been approved and registered by the Gauteng PGRA, as a device on which bingo was played wholly electronically and therefore the device could be licensed.
Furthermore, it purported that EBTS were vastly different from slot machines in terms of how they operated. The GRC’s recommendation was considered to be subjective, as was based on the look and feel of the machine rather than how it functioned or related to the game of bingo. The industry should be allowed to implement technological advances to the same degree which other gambling industries were permitted to. It therefore recommended that national legislative amendments should be effected to remove any ambiguity regarding the permissibility of the use of bingo played by wholly electronic means at national and provincial levels.
The South African Gaming Manufacturers Association (SAGMA) concurred with the Bingo Associations assertions that EBTs were machines on which the game of bingo could be made available to the public. It informed the committee that internationally, bingo was played in either non-electronic form, in electronic form, or in a combination of the two. National legislation included playing bingo wholly or partially using electronic means and thus EBTs met this requirement. Neither national nor provincial legislation regulated or restricted the “look, feel or sound” of machines on which bingo was made available. These factors were purely related to the entertainment value of the game rather than affecting the game.
On the other hand, the Casino Association of South Africa supported the GRC’s recommendation against the introduction of EBTs and that Gauteng’s provincial legislation should be aligned to the national gambling legislation.
The NGB proposed that electronic bingo should be regulated within the national regulatory framework. This framework should impose similar investment conditions on bingo, as with other gambling modes and must provide for limitations in terms of the number of bingo halls, seats and locations within which it can be offered. In addition, standards for electronic bingo must be developed.
The committee was of the view that the look, feel and sound of EBTs that were similar to slot machines should not be retained, as this may be misleading to punters and have a fundamentally different psychological dimension to traditional forms of bingo.
Poker
The GRC’s review revealed that there was a substantial existing demand for poker to be played outside of licensed casinos and online. However, only poker played at casinos is currently legal. The GRC was therefore of the view that the current framework appeared to be too restrictive, as the demand was manifesting in illegal games and tournaments and that poker was largely viewed as a game of skill.
The GRC recommended that the regulatory framework should be reviewed and a particular policy on poker should be developed to provide player protection against potentially unfair rules and rakes. This should include (i) the licensing of poker tournament operators that may host poker games at licensed gambling premises (existing licensees) or at places where occasional licences can be obtained through a local government office and (ii) the regulation of online poker through online gambling legislation subject to the same rules regarding land-based poker. However, stand-alone poker houses and clubs should not be permitted.
The Casino Association of South Africa was of the view that poker should only be played in existing licensed premises namely casinos. It purported that by allowing other operators to offer poker at unlicensed venues, the image of the licensed industry could be undermined and persons whose probity had not been established would be allowed to compete with casinos. Furthermore, it argued that a local government agency was eminently unqualified to approve gambling activities.
In terms of online poker, the Financial Intelligence Centre warned that any form of online gaming where a player directly played against another had an increased risk for money laundering due to the possibility of collusion.
The committee is of the view that poker should be allowed to continue in casinos and poker tournament operators should be licensed to host poker games at licensed gambling premises. It also agrees with the proposal to regulate online poker under strict regulation that prevents money-laundering.
In online poker, the regulations should provide for the establishment of a uniform rank of online poker players so that every player receives a rating which is openly displayed next to that players online profile. This way, novice players will know that they are playing against expert level players and can choose to stay in the game or leave.
Betting exchanges
A betting exchange is similar to a stock exchange, which facilitates the buying and selling of stocks, as it provides a platform to connect gamblers with opposing views on the outcome of a sporting event to bet against each other in a controlled market place. The betting exchange therefore carries no risk, as punters play against each other not “against” the house, and as such, has no incentive to manipulate the odds or the outcome.
The GRC reported that there was existing demand for betting exchanges, which was a technological innovation in online betting that was currently growing in popularity internationally and was likely to grow in South Africa as more punters shift to online betting and gambling. It recommended that betting exchanges should be brought into the regulatory framework in line with other online gambling activities with clear regulatory standards and limits.
The GRC asserted that betting exchanges were unlikely to stimulate much new demand. However, existing operators, such as the totalisator and bookmakers, have raised concerns that their markets would be put under pressure from competition by betting exchanges.
The GRC recommended that online regulation must make clear provisions for betting exchanges. The following areas should be considered to form part of regulations:
Betting exchanges would merely construct a controlled market; and were not a party to the bet.
They may not permit their customers to identify themselves to each other, either through personal contact or otherwise.
They must display and disseminate their betting rules.
They must consent to having their play and payment systems checked by someone authorised by the regulator.
They must at all times separate money belonging to punters and their own operating resources.
Betfair welcomed the recommendation to include betting exchanges in the South African regulatory framework and for this inclusion to be based on the requirements outlined by the UK Department of Culture Media and Sport (DCMS) in April 2003. It claimed that betting exchanges would not lead to the demise of the traditional bookmaking industry and would continue to contribute to financial support to the horseracing industry.
The South African Bookmakers Association raised a few concerns in relation to Person to Person (P2P) Betting Exchanges. These were that:
Unlike bookmaking, P2P betting exchanges merely provided a platform for matching two anonymous, unlicensed parties with directly opposing views regarding the result of an event on which the betting was to be struck. Therefore, in each and every case, one of the players would always be betting on the non-materialisation of the result. If, in each and every case, there were people betting on losing outcomes, this incentivised cheating and manipulation, which could threaten the integrity of the horseracing industry and the betting product.
The P2P model therefore transformed each and every member of the public into a bookmaker, but without any safeguard regarding the personal probity of any such person. In each transaction, at least one of these parties was playing the role of the bookmaker (the one betting against a win), who ordinarily would have been required to submit to probity investigations and licensing as a means of upholding the integrity and trustworthiness of the industry. This gave them a direct financial incentive to facilitate a losing outcome.
A licensed P2P betting exchange could monitor and report upon transactions, but it would not be able to prevent them from taking place. It could not proactively monitor suspicious transactions in the same manner as a traditional bookmaker can.
The Financial Intelligence Centre agreed with the GRC that if betting exchanges were allowed, punters and players should be prevented from identifying themselves to one another. However, this should also be applied to legalised online poker activities. Furthermore, the operators must be subject to all the regulatory measures against money laundering and terror financing.
The NGB noted that there were unresolved policy considerations in respect of betting exchanges, specifically in respect of the sustainability of the South African horseracing industry in the face of a perceived competitive threat.
The committee noted that this is a form of online gambling and recommends that it should be regulated in line with the GRC’s recommendations.
Virtual racing
The GRC deemed virtual racing to be an interactive gambling game and not a technological advancement on horseracing. Therefore, an interactive gambling licence would be necessary unless it was offered via a gaming machine, either in a casino or on a licensed LPM.
The committee agrees with the GRC’s recommendation.
Online gambling
Scope of online gambling activities to be enforced
The GRC noted that the current distinction in South African law between interactive gambling and other forms of online gambling, such as online use of bookmaking, the tote and the lottery, was artificial and did not provide punters with uniform protection. There was thus a need to regulate online or remote gambling holistically by covering all distribution mechanisms including mobile phones. The online gambling regulation should also provide for intermediaries, such as betting exchanges and include online betting through bookmakers and the totalisator via the Internet.
Therefore, all forms of online gambling activities should be subjected to the same testing, verification and probity that would occur for interactive gambling once implemented.
The Financial Intelligence Centre advised that the criteria for evaluating whether a form of gambling should be included in the legislative framework should include whether there was potential for criminals to abuse the gambling industry and how this could be curbed.
The GRC recognised that enforcing prohibitions on such an easily expanded area of gambling would be very resource intensive. The NGB agreed that interactive gambling by its nature was a global phenomenon which had a huge consumer demand. However, it was very difficult for democratic governments to restrict access to this activity.
The committee acknowledges that online gambling activities have different challenges than land-based gambling activities due to the nature of the Internet. It therefore emphasised that when the committee considers legalising online gambling, it must be clear on what types of activities should be allowed to be played online. The committee is of the view that online gambling should be regulated using the principles of non-proliferation and protection of consumers and minors.
The committee recommends that the following legal land-based activities be legalised as online gambling activities:
Slot machines and tables (including poker) as part of interactive gambling
Bingo
Sports betting
Betting against the totalisator
In addition, online gambling legislation should legalise betting exchanges as a new form of gambling and any other new forms of legalised land-based gambling can also be introduced into the online gambling regime. It should be noted that until there is implemented legislation on online gambling, all online gambling is banned.
Number of online gambling licences
The GRC suggested that a maximum number of licences should be determined for online gambling activities to allow for the controlled roll-out of online gambling. This would also allow for the monitoring of the socio-economic impact over time. However, there should be sufficient licences to cover licensed totes and bookmakers that were already in existence and offering online gambling.
The committee support the recommendation to finalise the interactive gambling regulations. It requests that the DTI and the NGB should ensure that sufficient capacity is developed to regulate online gambling. It suggested that the interactive gambling legislation should initially allow for not more than ten licences for interactive gambling. In a second phase, the DTI should draft legislation in terms of broader online gambling based on a review of international good practices and determine an appropriate number of licences given the demand for online gambling.
Location of the server
The GRC was of the view that the requirement for the server to be hosted in South Africa should be removed to align with the latest international best practice. However, the integrity of the system and its ability to be audited at any given point in time should be ensured.
The Financial Intelligence Centre disagreed that the server should be allowed to be hosted in another country. It argued that this would complicate the determination of jurisdiction and could impede access by supervisors and investigators to records held by the operator and to assess the operator’s state of compliance with its obligations under South African law. If the server was permitted to be located offshore then methods to ensure that transaction related information would be held in South Africa and be accessible to South African law enforcement agencies were required.
The committee suggested that a licensed online company may have their servers offshore, as long as it established a physical office and a customer centre within South Africa. The licence conditions should also require regular access by regulators to transaction and other necessary information.
Incentives for licensing
The GRC noted that there were few incentives for online operators to become licensed, as the tax implications were usually substantial and as it was already difficult to prevent their access to local punters. However, the regulation could allow licensed operators to advertise their services, granted that there was strict enforcement of illegal advertising by unlicensed operators.
The Financial Intelligence Centre advised that service providers should not be allowed to advertise online gambling in South Africa if they did not have a local footprint.
The committee agrees with the Financial Intelligence Centre’s view that advertising should only be allowed where a licensed online gambling operator has a local footprint.
Player protection
The GRC recommended the adoption of three mechanisms to ensure player protection. Firstly, there should be a requirement of mandatory self-limitations by players. Secondly, any upward changes to those limits should only be effected after 7 days. Thirdly, strict requirements regarding identity checks should be introduced.
The committee agreed with the GRC that there should be clear identity checks performed before a player’s account is opened and a ceiling on the daily stakes should be introduced.
There should be a voluntary opt out list where gamblers who are concerned that they are developing a gambling problem can add their names to prohibit them from playing online. Online operators should also have software to identify problem gamblers at the early signs of a problem developing. They should then be required to intervene.
Regulation of online gambling
The GRC proposed that a single national regulator should have responsibility for online regulation. In addition, a revenue-sharing formula could be developed to share revenue between provincial and national regulators. However, the regulation of online gambling should be separated from the oversight function over land-based gambling forms to avoid conflicts of interest arising.
The GRC further proposed that the regulation of online gambling and the regulation of the lottery and sports pools should be combined in one national regulator, as the regulation of the lottery operator is largely systems-based. A systems based approach was considered more appropriate for online gambling. However, the GRC noted the NGB’s view that due to the differences of revenue maximisation and non-proliferation between the two regulators, these two forms of regulation should not be combined into one regulator.
Nevertheless, the GRC argued that combining the different areas of regulation would promote efficiencies and also create consistency in the regulatory framework. It would also address the close synergies between online gambling and sports pools. It was therefore imperative that the different areas of regulation should be combined to prevent potential arbitrage and differences in approach.
Phumelela was of the view that the legalisation of online gambling should be subject to local FICA requirements to retain revenues and taxes in South Africa.
The South African Responsible Gambling Foundation was concerned that unless internet gambling could only be advertised by companies with land-based operations, which were licensed and therefore taxed and regulated in this country, online gambling at inadequately regulated offshore sites would continue to grow rapidly amongst South Africans both exacerbating problem gambling and losing tax revenues.
The Casino Association recommended that land-based casinos should be given priority to bid for online gambling licences. Furthermore, regulation should be within clearly defined governmental policy objectives and within the parameters of its overall gambling policy and the latest international realities. Betfair agreed that online gambling should be regulated consistently within legislation and should be as wide as possible including betting exchanges and asserted that inconsistencies between national and provincial legislation should be addressed.
It emphasised that the existing legislation should be reviewed in its entirety before further decisions were taken.
Betfair also supported technology–neutral regulation that encompassed specific interactive games, systems and methods.
The Financial Intelligence Centre recommended that the Minister should publish a list of countries for licensed online gambling operators to indicate from which countries was acceptable to receive deposits into player accounts. This list should consider whether these jurisdictions have a recognised anti-money laundering regime.
The NGB was of the view that efforts needed to be made to expedite and ensure effective regulation of interactive gambling, as the effectiveness of prohibition remained highly controversial as interactive gambling activities were likely to remain illegal and profit unlawful suppliers. It further proposed that interactive gambling should remain a regulated activity within the national sphere of government and regulation given its borderless nature.
The legislation for interactive gambling should adequately anticipate the operating needs of licensed operators, adapt a risk-based approach by setting minimum standards of amongst others, (i) technical standards and player protection, (ii) verification prior to play, (iii) a consideration of regulating all forms of remote gambling including cellphone, telephone betting, other recent advancements in innovations, and betting exchanges consistently with all other forms of internet gambling within the proposed framework and (iv) reviewal of payments system vis-à-vis verification of player account holders’ identities, (v) overall taxation burdens imposed, (vi) the degree to which operators are required to locate or relocate their gaming equipment locally, including ongoing operating requirements which determine its ability to operate and compete effectively, etc.
The NGB noted that it was critical that licensees should be able to compete effectively and in a viable manner on a level playing field with international operators to ensure long term policy success.
In addition, it was critical to review policies on interactive gambling legislation in due course. However, the licensing framework should (i) adhere to international norms and standards to encourage best practices and (ii) attract the most efficient and reputable providers to protect citizens who wish to engage in the activity.
The NGB was of the opinion that the synergies identified in regulating interactive gambling and the national lottery provided an opportunity for the NLB and lotteries service providers to understand the multi-disciplinary nature and broader knowledge involving movement of money; verification of players; the Registration of Interception of Communication Act and Consumer Protection Act and Cyber Policies to ensure monitoring and verifying of punters. However, the added regulatory function in respect of the national lottery brings with it a criminal enforcement element which was inconsistent with the NLB’s regulatory framework. This regulatory relationship was intended to subsist between the NGB, PGRAs and licensees in the context of the gambling industry.
The committee is of the opinion that legislation on online gambling should be drafted separately to land-based gambling legislation. Furthermore, online gambling licensing should be a national competence of NGB and provinces should be allocated revenue on a formula basis through the National Revenue Fund.
Enforcement aspects
The GRC was of the view that provision would need to be made for effective enforcement mechanisms, which should include a bigger role for banks.
The Payments Association of South Africa indicated that a responsible and proactive manner should be adopted to engage with the banking industry and any other party or person that may process or facilitate online gambling transactions to determine feasible enforcement mechanisms before publishing the regulations. However, the Banking Association of South Africa raised concerns regarding the challenges it faced in identifying and controlling financial transactions linked to illegal online gambling activities. The key reasons for this was (i) certain online gambling activities were permitted and/or licensed in other countries; (ii) licensed physical casino operations could expand into online facilities and were often integrated into a whole resort complex with a consolidated payments structure; and (iii) illegal service providers concealed the true nature of the transaction. Currently, where illegal operators were detected, their accounts were closed.
Furthermore, the Banking Association warned that restricted online licences would create a challenge for the consumer payments systems as banks would have to identify and differentiate between (i) the restricted number of legal operations and all other unlicensed/illegal operations; and (ii) the legitimate use of residents’ credit cards for legal internet gambling transactions while the residents were out-of-country.
The Financial Intelligence Centre recommended that all forms of online gambling must be required to monitor transactions for suspicious behaviour and methods to enforce compliance of licensed online casinos were required. Furthermore, the regulator should ensure that:
Strict probity checks are applied to ensure that criminals do not acquire a controlling interest in online casinos.
Rogue or unlicensed online casinos are prevented from making their services available in South Africa.
The flow of money to rogue or unlicensed online casinos is prevented.
Licensed operators’ operations are subject to the jurisdiction of South African law.
Operators establish a presence in South Africa which includes a locally based gateway to provide services to South African based gamblers.
Compliance with legal obligations is supervised.
There is sufficient capacity to supervise compliance and prevent unlicensed or rogue operators from offering online gambling facilities.
The SAPS also indicated that monitoring internet cafes was critical in combating illegal online gambling, as these were often linked to other organised crime.
The committee recommends that the enforcement, policing and prosecution illegal online gambling activities should be actively pursued in a coordinated and cooperative manner with the relevant government and private stakeholders. In addition, operators should carry liability when there are transgressions and/or non-compliance of legislation and their licensing conditions.
The committee emphasised that service providers such as banks and payment agencies should have a mandatory duty to monitor payments and receipts related to online gambling activities. The DTI should consider any international obligations that South Africa may have, e.g. under GATS, that may limit its ability to block foreign sites in terms of the enforcement of online gambling.
Furthermore, there should be a harmonised effort among various regulatory and enforcement agencies to address the risks associated with online gambling. The DTI should coordinate such an activity.
Other Matters
Underage gambling
The GRC noted that there was a troubling and possibly growing trend of underage gambling, including claims that some youth in impoverished areas gamble to buy basic necessities and pay for school fees. According to the South African Responsible Gambling Foundation, half of the population of South Africa is under the legal age for gambling but many of them already gamble informally and online and this problem will increase as ease of access to gambling via cell phone increases.
The committee was concerned regarding the anecdotal evidence of increasing youth gambling, particularly participation in illegal gambling activities, such as fafhee, dice and card games. These forms of gambling also often had a criminal link. The committee recommends that youth should be made aware of the dangers and risks associated of gambling particularly illegal gambling.
The committee recognises the difficulty in determining the prevalence of youth gambling, as alluded to by the NRGP. However, mechanisms should be found to monitor and enforce regulations regarding the access of minors to gambling activities, especially with the advent of online gambling. There should be more education and awareness campaigns regarding the consequences of gambling aimed towards the youth through the Life Skills curriculum at schools.
Transformational aspects
The GRC Report highlighted that there was a need for a clear and consistent policy on BBBEE in the gambling industry. This was emphasised particularly in terms of casinos.
The NGB also noted that a clearly articulated policy on BBBEE within the industry should be developed, with particular emphasis on casinos. This should include a consistent approach and guidelines to ensure that the set targets are reached. Other stakeholders, particularly in the horse racing industry reported on the various activities that had been undertaken to promote transformation. The South African Bookmakers Association highlighted the difficulties it faced in transforming its industry due to it mainly consisting of one-man businesses. However, it affirmed its members’ willingness to interact with the relevant national government structures to craft an appropriate model to promote transformation.
The committee was of the view that transformation should be an integral part of the gambling industry. This should include active participation in the operation and ownership of the industry, as well as the development of black suppliers. These aspects should be included in licence agreements and should be aligned to the magnitude of the industry.
Accessibility of gambling activities
The GRC noted that there appeared to be a relaxation of earlier requirements around the accessibility of gambling activities. This was particularly prevalent to bingo operations, which are located in major shopping centres, and to casinos that are adjacent to shopping centres. The GRC recommended that the difference between dedicated gambling venues and other public areas (like malls) must be preserved through the implementation of measures, such as separate entrances to dedicated gambling areas and other areas.
The committee supports this view. In addition, it advocates that entrances to designated gambling areas should be clearly marked. Furthermore, on its site visits, the committee raised a concern regarding the location of ATMs in relation to gambling areas. It recommends that the regulations regarding access to ATMs should be strictly adhered to in terms of distance and visibility from gambling areas and enforced by the PGRAs.
Consumer Protection to protect punters and maximise information
The philosophy behind consumer protection is that all consumers of all products should have full knowledge of what it is they are buying, how much it costs, what is in it, and what the associated risks are. Only then can consumers make a fully informed decision about whether they want to purchase that product or not. In this case, the product is gambling and the consumers are the punters.
Secondly, the idea of proper consumer protection places the onus on the seller of the product to provide the information necessary for the consumer to make an informed choice.
Comprehensive consumer protection in gambling would mitigate against the proliferation of gambling, and will go some way to preventing the spread of problem gambling among punters.
The committee recommends the following:
All slot machines, electronic bingo terminals, limited payout machines and virtual racing terminals should prominently display the actual odds of winning that game. The odds of winnings should be shown at eye level, and should be displayed via a simple sentence that does not confuse punters.
There should be warning notices displayed as a prominent part of all adverts for gambling activities, and on every single machine, warning against the risks of gambling.
These signs should also be visible at the entrance of the gambling areas and within the gambling areas.
Intellectual property rights
Several stakeholders, including SA Rugby, the Thoroughbred Breeders Association and Phumelela, raised concerns regarding the gambling legislation making provisions to recognise their sports codes’ intellectual property in relation to sports betting and broadcasting. This involved allowing sport’s intellectual property, including the broadcasting rights, to be recognised and leveraged on a commercial basis without unnecessary restrictions from national or provincial regulations.
The committee agrees that intellectual property should be recognised and leveraged by sporting codes.
Acknowledgements
The Committee would like to thank the chairperson, Mr N Gcwabaza, and members of the Subcommittee on Gambling for their outstanding work and report regarding the Gambling Review Commission’s Report. The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Mr A Hermans, the Content Advisor, Ms M Herling, and the Researcher, Mr Z Ngxishe, for their professional support and conscientious commitment to their work. The Chairperson thanks all Members of the Committee for their active participation during the process of engagement and deliberations and their constructive recommendations made in this report.
Recommendations
Informed by its deliberations, the Committee recommends that the House request that:
Lotteries Regulatory Framework
The Minister should consider:
An amendment to the definition of a political office bearer in the principal Act in relation to the licensing of the national lottery operator.
Amending the principal Act to allow for a reasonable extension period for the current operator between the termination of the old licence and the awarding of the new licence.
Establishing a professional grant-making body accountable to the National Lotteries Board (NLB) and maintaining the existing limit for the costs of administering the National Lottery Distribution Trust Fund (NLDTF).
Streamlining the financial and legal requirements for applications for funding from the NLDTF in a similar fashion to the auditing requirements in the new Companies Act to have less onerous requirements for new organisations and those in poor and vulnerable areas that are applying for relatively small grants. Therefore, a system with either a ceiling or bands should be introduced, with differing but appropriate criteria for applicants based on the amount being applied for and the type of organisation applying.
The development of a manual that prescribes processes for adjudication and processing of applications by the proposed grant-making institution. The legislation should also be amended to allow this body to inform applicants of outstanding documentation, to engage in follow-ups with applicants that have failed to meet the necessary requirements and to empower unsuccessful applicants.
Allowing the use of the discretionary fund for the national priorities of government, as well as assistance with disaster relief. This process should not follow the standard application route.
The approval of grants on a multi-year basis using strict conditions regarding efficient and effective usage of the grant. Furthermore, appropriate formulas should be developed for different types of sectors to ensure that the approved grant actually benefits the declared project or the intended beneficiaries and operational costs funded from the NLDTF are kept to a minimum.
Introducing measures to ensure accountability and verify the spending by grant recipients.
Clarifying the policy on sport pools in terms of sport betting on totalisator-based products.
Amending legislation to empower the NLB to act against illegal lotteries and to enforce the Act.
Empowering the NLB to set norms and standards that govern promotional competitions.
Gambling Regulatory Framework
The Minister should consider:
Reviewing the role and composition of the National Gambling Policy Council (NGPC) in that it should be a decision-making body where the Minister and the Members of the Executive Council (MECs) discuss policy matters with a view to achieving policy coherence, consistency and consensus.
Ensuring that through the exercise of a review the NGPC retains its administrative powers to bind provincial gambling regulatory authorities (PGRAs), and that decisions taken by the Council are enforced and legally binding on parties represented.
Strengthening legislation to allow for the drafting of regulations to apply corporate governance principles for the meetings of the NGPC. The NGPC should be given additional functions and authority in terms of the implementation and monitoring of policy to ensure accountability and alignment with the national gambling policy framework. The Minister should consider drafting legislation that the NGPC meet more that two times per annum. The legislation should include the provision for an MEC to nominate an alternate voting member with gambling industry experience. If the NGPC does not quorate for two consecutive meetings given proxy votes and written and oral submissions made by provinces, the Minister must make a decision at a national level.
Developing a memorandum of understanding between the PGRAs and the National Gambling Board (NGB) to regulate their relationship and to ensure that there is uniformity in implementing national and provincial legislation.
A risk-based approach to regulation in order to ensure effective resource allocation.
Developing and publishing the national norms and standards to set minimum standards for licensing conditions, limitations on forms of legalised gambling activities and their associated ceilings, advertising principles and implementing problem gambling measures. This should include an appeal/adjudication process for the approval of gambling licences.
Empowering the NGB to issue national licences as provided for in the National Gambling Act.
Enforcing the retesting and recertification of older equipment for operators within a set period of time to ensure compatibility and compliance with the monitoring systems and the latest gaming standards.
National Responsible Gambling Programme
The Minister should consider:
Developing and gazetting regulations that would ensure the national register for excluded persons is operable.
Making electronic identification mandatory for access to gambling areas to assist in monitoring and enforcing the national register of excluded persons.
Ensuring that the National Responsible Gambling Programme (NRGP) broadens its reach by encouraging other organisations to be involved in research, awareness and treatment. These organisations should receive funding from the same pool as the NRGP and issues of accountability should be considered in designing such a model. These activities should be aligned to the national gambling policy framework.
Legislating that the contribution towards the NRGP be made mandatory which should include contributions from the National Lottery operator and bookmakers.
Legal gambling activities
Casinos
The Minister should consider:
9.4.1.1 Determining a maximum number of slot machines and tables allowed within casinos.
9.4.1.2 Resolving the North West/Gauteng dispute regarding the reallocation of the gambling licence lost due to demarcation issues.
9.4.1.3 Reviewing regulations to ensure that casino licences are reviewed every five years and are re-issued every ten years and that licences should contain conditions related to national objectives/priorities.
Limited Payout Machines
The Minister should consider:
9.4.2.1 Amending inconsistent legislation that hampers the roll-out of limited payout machines (LPMs). This should include a review of the Business Act and Liquor Act.
9.4.2.2 Reviewing the central electronic monitoring system’s (CEMS) funding model when issuing the new contract for the CEMS.
Increasing the maximum stake and payout on the LPM industry to R30 and R3 000 respectively.
9.4.3.4 Commissioning a socio-economic impact study on the LPM industry that would inform the further roll-out of LPMs and how the existing model should be restructured.
Bingo
The Minister should consider:
9.4.3.1 Restricting the total number of licences and seats or gaming positions per bingo licence.
9.4.3.2 Enforcing legislation that requires gambling areas to have a separate entrance from public places, such as shopping centres and clear signage should be in place to indicate that the public was entering a designated gambling site.
Horseracing and betting
The Minister should consider:
9.4.4.1 Legislation that would allow track operators to close and/or relocate tracks based on the track’s economic viability.
Licensing up to 40 medium-stake LPMs and/or permit other entertainment and social activities, like restaurants, at race tracks to ensure their sustainability.
Maintaining the revenue formula for bookmakers and the totalisator in relation to their contributions to the horseracing industry. However, bookmakers should not be allowed to take open bets, namely bets based on the odds of the totalisator.
Amending gambling legislation that would ensure that the horseracing industry is formally regulated. The Minister should further consider establishing a commission of inquiry into the horseracing and betting industry to inform the restructuring and transformation of the industry.
New gambling activities
Greyhound racing
The Minister should consider:
9.5.1.1 Legalising greyhound racing subject to holistic consultation and investigation with respect to the animal welfare concerns, as well as the transformational potential of the industry.
Empowering, through regulations, the right of animal welfare organisations to enforce animal welfare rights during racing activities.
Bush and harness racing
The Minister should consider:
9.5.2.1 Formalising the bush racing and harness racing and integrating this into the mainstream horseracing and betting industry.
Fahfee
The Minister should consider:
9.5.3.1 Investigating fahfee but it should remain illegal subject to the Minister’s pronouncement on it.
Electronic bingo terminals
The Minister should consider:
Clarifying the definition of bingo within the principal Act and amending the legislation so that electronic bingo machines retained a look, feel and sound that did not directly compete with slot machines and did not digress from the psychological impact of traditional forms of bingo.
Online gambling
The Minister should consider:
Legalising the following legal land-based activities as online gambling activities:
Slot machines and tables (including poker) as part of interactive gambling
Bingo
Sports betting
Betting against the Totalisator
Legalising betting exchanges as a new form of gambling and may consider any other new forms of legalised land-based gambling to qualify as a form of online gambling. The Minister should further consider continuing the ban on all online gambling until the legislation on online gambling is implemented.
9.5.5.3 Initially not allowing more than 10 licences when legislating for interactive gambling, but should ensure sufficient capacity to regulate online gambling. The Minister should consider determining, when drafting broader online gambling legislation based on international best practice, an appropriate number of licences given the demand for online gambling in South Africa.
Permitting that a licensed online company may have their servers offshore, as long as it establishes a physical office and a customer centre within South Africa. The licence conditions should also require regular access by regulators to transaction and other necessary information.
The separation of online and land-based gambling when drafting legislation. Furthermore, the Minister should consider that online gambling licensing be a national competence of the NGB and that provinces should be allocated revenue on a formula basis through the National Revenue Fund.
Enforcing, policing and prosecuting illegal online gambling activities in a coordinated and cooperative manner with the relevant government and private stakeholders. In addition, operators should carry liability when there are transgressions and/or non-compliance of legislation or their licensing conditions.
Making it mandatory that service providers such as banks and payment agencies monitor payments and receipts related to online gambling activities.
Any international obligations that South Africa may have, e.g. under the General Agreement on Trade in Services at the World Trade Organisation, that may limit its ability to block foreign sites in terms of the enforcement of online gambling.
Putting the necessary mechanisms in place that would ensure a harmonised effort among various regulatory and enforcement agencies to address the risks associated with online gambling.
Betting exchanges
The Minister should consider:
9.5.6.1 Legalising betting exchanges as it is a form of online gambling which should be regulated in line with the Gambling Review Commission’s recommendations.
Poker
The Minister should consider:
9.5.7.1 Legislating that poker tournament operators may be licensed to host poker games at licensed gambling premises.
Regulating online poker, as an online gambling activity. if online poker is regulated as a person to person gambling activity, the regulations should provide for the establishment of a uniform rank of online poker players so that every player receives a rating which is openly displayed next to that player’s online profile to ensure player protection.
Virtual racing
The Minister should consider:
9.5.8.1 Legislating virtual racing as an interactive gambling game unless this is offered via a gaming machine, either in a casino or on a licensed LPM.
Other matters
Underage gambling
The Minister should consider:
Through legislation or regulation, that the youth is made aware of the dangers and risks associated of gambling, particularly illegal gambling. This should be through education and awareness campaigns with respect to the consequences of gambling.
Transformational aspects
The Minister should consider:
Including transformation as an integral part of the gambling industry. This should include active participation in the operation and ownership of the industry, as well as the development of black suppliers. These aspects should be included in licence agreements and should be aligned to the magnitude of the industry.
Accessibility of gambling activities
The Minister should consider:
Enforcing the clear demarcation of entrances to designated gambling areas.
The strict enforcement of regulations regarding access to ATMs in terms of distance and visibility from gambling areas.
Consumer protection
The Minister should consider:
Through legislation or regulation, that all slot machines, electronic bingo terminals, limited payout machines and virtual racing terminals prominently display the actual odds of winning. The odds of winning should be shown at eye level, and should be displayed via a simple sentence that does not confuse punters. There should also be warning notices displayed as a prominent part of all adverts for gambling activities, and on every single machine, warning against the risks of gambling. These signs should also be visible at the entrance of the gambling areas and within the gambling areas.
Intellectual Property Rights
The Minister should consider:
Amending legislation to ensure that intellectual property of sporting codes are recognised and leveraged in terms of betting activities.
Report to be considered.
Appendix A:
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TO: |
Mr. N Gcwabaza, MP Chairperson, Sub-committee on Gambling Portfolio Committee on Trade and Industry |
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COPY: |
Secretary to Parliament |
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FROM: |
Constitutional and Legal Services Office [Adv C van der Merwe – Parliamentary Legal Adviser] |
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DATE: |
5 March 2012 |
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REF NO: |
51 / 2012 |
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SUBJECT: |
Gambling and the concurrent competencies of the National and Provincial Legislatures |
INTRODUCTION
Our Office was requested to advise on the concurrent competencies of the National and Provincial Legislatures in respect of gambling, as well as on the application of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) (“FICA”) to manufacturers of gambling machines.
CONCURRENT COMPETENCIES
The Working Group on Gambling wishes to make several recommendations regarding the measures to ensure harmonisation and uniformity between national and provincial legislation and implementation thereof.
“Casinos, racing, gambling and wagering, excluding lotteries and sports pools” are Schedule 4 areas of concurrent national and provincial legislative competence. This means that both Parliament and provincial legislatures may legislate on these topics.
Where national and provincial legislation duplicate each other, without conflicting stipulations, the legislation simply operates on two spheres. It is possible that this may lead to duplication of obligations placed on persons to whom the legislation apply, but this could be resolved by intergovernmental cooperation measures or even memoranda of understanding between the national and provincial departments.
Section 146 of the Constitution specifically resolves a conflict that arises between national and provincial legislation falling within a functional area listed in schedule 4: In the event of a conflict:
National legislation will prevail if it applies uniformly all over the country as a whole and if one of the following applies:
The subject matter cannot effectively be regulated by provinces on an individual basis[4];
In order to effectively deal with the subject matter, uniformity across the nation is required and the national legislation establishes in this regard norms and standards, or frameworks, or national policies[5].
The national legislation is necessary for
the maintenance of national security or economic unity;
the protection of the common market in respect of the mobility of goods, services, capital and labour;
the promotion of economic activities across provincial boundaries;
the promotion of equal opportunity or equal access to government services; or
the protection of the environment[6].
National legislation will further prevail if it is aimed at preventing unreasonable action by a province that is prejudicial to the economic, health or security interests of another province or the country as a whole; or impedes the implementation of national economic policy[7].
In all other instances provincial legislation will prevail over national legislation.
Further to the above, it is advisable that in all recommendations, the mandate of Parliament versus the mandates of the provincial legislatures be maintained. This would for instance involve provincial legislatures having oversight over provincial entities and Parliament over national entities.
FICA
Manufacturers of gambling machines requested an amendment to the National Gambling Act, 2004 (Act No 7 of 2004) (“NGA”) to exclude them from the operation of FICA.
The NGA states in section 37(2)(b) that every licensee under a national licence must comply with every applicable provision of FICA. The relevant legislative provisions of FICA and the NGA are:
FICA is applicable to “accountable institutions”, “reporting institutions” and “supervisory bodies”, as set out in Schedules 1 to 3. The National Gambling Board is a supervisory body and any person who “carries on the business of making available a gambling activity as contemplated in section 3 of the NGA” is an accountable institution. The NGA section 3 states that gambling activities involve the placing or accepting of a bet, or totalisator bet or playing bingo, an amusement game or an interactive game (or making it available for play). The subparagraph dealing with interactive games is not yet operational.
Sections 29 and 30 of FICA are applicable to all owners, managers and employees of business (to report suspicious transactions) and persons conveying cash across the border. These sections are of general application in respect of specific situations.
LEGAL ADVICE
The Working Group’s recommendations are related to setting norms and standards that will apply to the country as a whole. Accordingly, not only does Parliament have concurrent competence, but in terms of section 146 of the Constitution, national legislation will prevail in the event that it is in conflict with provincial legislation. However, the recommendation in paragraph 3.4. of the Final Report, requiring a provincial auditor to report to the National Assembly, could be viewed as interference in the mandate of the provincial legislature.
In so far as manufacturers of gambling machines are concerned, it is clear that – save for sections 29 and 30 - FICA is not applicable to them, unless they are involved in “gambling activities”. It would not be recommended that any person be exempted from the specific instances contemplated in sections 29 and 30 FICA as the burden created by the duty imposed by these sections is negligible in comparison to the objects of these sections. It would be superfluous to exempt manufacturers from the remainder of the sections in FICA, as they are not applicable to manufacturers.
Adv C R van der Merwe
Parliamentary Legal Adviser
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