SUBMISSION BY PROFESSOR JOE KELLY BEFORE THE TRADE AND INDUSTRY PARLIAMENTARY PORTFOLIO COMMITTEE HEARING ON AMENDMENTS TO THE NATIONAL GAMBLING ACT 2004
22 AUGUST 2007
Honourable chairperson and members of the portfolio committee
I had intended to address this gathering
in person today on the matter of amendments to the National Gambling Act 2004,
in my capacity as a leading authority on gambling legislation, and in
particular legislation governing Internet-based or online gambling.
Unfortunately, medical circumstances have dictated that it is impossible for me
to travel to
I am a professor of business law at the
It is common knowledge that
But I fear that the Bill that has been introduced to regulate online gambling contains several flaws that need to be addressed before it passed into law, and wider processes of research and consultation need to be followed. Problem areas cover a wide range of topics, including issues of taxation, player protection, compliance with international conventions and treaties, consideration of existing land-based casino operations, pending international litigation around online gambling, problem gambling, enforcement, licensing, certification, regulation of both local and external interactive gambling operators, dispute resolution, solvency guarantees, and the like.
It is imperative that, as with the
promulgation of existing legislation in 1996 and 2004,
I trust that my submission will assist
this honourable committee in formulating the best possible legislative
solutions to the regulation of online gambling for
Professor Joe Kelly
It is essential that any interactive gambling
legislation comply with international treaties such as the World Trade Organisation,
as well as multi-national bodies such as the European Union. It is also
It would be difficult for operators to develop a
uniform list of excluded countries. First, some countries only ban foreign
interactive horseracing or foreign lotteries in order to preserve a national
monopoly. Second, the countries which prohibit interactive gaming will rarely
take action against a foreign operator unless it has a physical presence in
that country. Those exceptions, such as
It is suggested that:
1. Any list of prohibited countries concerning wagering from that country be a national list
2. It not be the function of the player to state he is not in violation of national law if the player wishes to wager at South African licensed entity
3. Operators have an affirmative duty to ensure that all players are at least 18 years old
4. A tax rate of not more than 2 percent be levied on profits, which is separate from annual licensing taxes or administrative levies
5. A dispute resolution procedure be drafted, with the National Gambling Board (the “Board”) being the agency of last resort
6. There is language in the Act that would ensure the solvency of all operators
7. There be a national self-exclusion list with a six-month minimum term
8. Provisions be drafted that would require Board approval for any substantial licensing or other material change of ownership
9. The Board consider player utilisation of credit cards, as well as accounts from an authorised financial institution
10. Internet gambling should not enjoy advantages over the existing gambling industry
11. Illegal casinos are prevented from masquerading as Internet gambling sites
12. Land-based casinos that have already proven suitability and solvency be allowed to start Internet operations with a minimum of red tape
13. External operators must be subject to rigorous checks before being given approval
14. Communication platforms must not be exclusive
15. Interactive intermediaries be clearly defined
16. The good neighbour policy be reconsidered
17. The law be enforced
18. Hacking and illegal transactions be prevented
19. Outsourced providers be regulated
20. Online player accounts be reconsidered
21. Duplications of inspections be avoided
22. Personal licences be simplified
Many countries regulate interactive gambling, but with
an amended Internet gambling law,
Internationally, there is not uniformity of approach in terms of regulating Internet gambling. In addition, international agreements and treaties present challenges to countries seeking to introduce regulation, and international litigation is pending in this regard.
(a) World Trade Organisation
Sect. 1A. In applying this Act, consideration may be given to —
(a) foreign and international law; and
(b) international conventions, declarations and protocols relating to gambling (National Gambling Amendment Bill, proposed changes, July 26, 2007).
37A(1) The Minister may, by regulations made in accordance with section 87 and after considering the criteria set out in this section, prescribe the maximum number of interactive gambling licences that may be granted in the Republic.
(b) European Union
European Union is presently in litigation or considering litigation against
about a half-dozen member states who want to restrict certain online gambling
to licensed national monopolies and keep out licensed gaming operators from
other member countries. The European Court of Justice, i.e. through its Gambelli and Placanica decisions, has also placed limitations on an Internet
gambling monopoly by any national EU member. Should
(11) 11A(e)(1) An interactive provider must—
(a) not permit a person to participate in an interactive game unless that person…
(iv) obtain a statement confirming that a player is not resident in a country that prohibits interactive gambling.
jurisdictions prohibit all interactive gambling. How can a player in the
(c) International reciprocity
(1) Suggested changes: List of prohibited countries
The minister must
(11) 11A(2)(b) from time to time, publish a list of foreign countries from which an interactive provider may accept accounts for the purpose of movement of funds in the manner contemplated in subsection (1)(a)(ii).
is beneficial in preventing suspicious transactions, it might make more sense
to publish a list of countries from which a South African operator may not accept players or accounts.
2. Statement by player of legality
(11) 11A(b) not make interactive gambling facilities available to a player unless there has been recorded, in the prescribed manner and form, in respect of that player —
(iv) a statement that the law of the country within which the player primarily resides, does not prevent or disqualify the player from playing interactive games.
few jurisdictions prohibit the player from wagering (such as Hong Kong, the State
3. Underage declaration is insufficient
(11) 11A(b)(iii) a statement that the player is at least 18 years old.
is important that the operator obtain verification of proof of age, especially
since a crucial area of concern is the “protection of children” (Statute 1.6).
It would also be advisable to include a provision that any prize won by an
underage player would be forfeited and given to compulsive gambling education
(expand on Section 16(2) or be forfeited to the state (Section 16(4)). This is
especially important since
In the interests of fairness and consistency, and bearing in mind that they will invariably have an advantage over land-based casinos because they will have far less to pay in infrastructural development and maintenance and staff costs, interactive operators should pay a rate of tax no less than those paid by land-based casinos.
consideration should be given to the taxation of both local and approved
external operators on all transactions undertaken with people in
5. Dispute resolution and complaint procedures – are they adequate?
Sect. 9. Dispute resolution and complaint procedures
6B. (1) If there is a dispute arising out of an interactive game or any matter in relation thereto, either party may, within the prescribed period, refer the dispute to the board for resolution.
(2) The board must resolve the dispute in accordance with the prescribed complaints resolution procedure.
This would be an administrative nightmare, with the Board becoming deluged with complaints, often about a “bonus” promised by the operators. The operator must have an internal complaint resolution procedure. Should the customer be dissatisfied, he/she should be encouraged to refer the dispute to binding arbitration conducted by an entity such as eCOGRA.
6. Purpose of the Act
Sect. 4.2A. The purpose of the Act is to---
add section “J”
“ensure that all licensed operators are financially solvent to ensure that winnings are paid.”
This could be accomplished by requiring a bond or surety of $100 000 (reserve requirement). Nothing hurts the credibility of a jurisdiction as an operator becoming insolvent.
Unlike land-based casinos, operators will invariably not hold large physical assets that could be attached in terms of insolvency actions. Guarantees must be put in place to protect gamblers from being unable to claim winnings, and governments from receiving taxes.
7. Amendment of Section 14 of Act 7 of 2004
14. Section 14 of the principal Act is hereby amended by the substitution for subsection (12) of the following subsection:
“(12) Every licensee authorised to make a gambling activity available to the public must —
(a) make available at all of its licensed premises and on its website —
(i) the prescribed form to be used by a person wishing to register as an excluded person in terms of subsection (1).
The Act allows a prescribed person to cancel at any time. This might result in interactive chaos. The period should be at least six months and once excluded, the player should be prevented from playing by all licensed South African operators.
8. Transfer of licence
There must be provisions requiring an operator to obtain Board approval for any substantial change in the ownership of the licence. This is especially important to a player who should be given the option of cancelling his account where there has been a substantial change in the ownership of the operator. Thus, Section 20 should have 33(j) added, whereby Board approval would be required for any substantial change in licence ownership.
9. Authorised Financial Institution
11A. (1) An interactive provider must —
(a) not permit a person to participate in an interactive game unless that person—
(i) has nominated an account held with an authorised financial institution for the movement of funds into and out of the player account; and
(ii) has set a limit on the funds that may be transferred from that person’s nominated account into the player account, in the prescribed manner, for the purpose of participating in interactive games;
This is certainly a way of minimising any suspicious transactions or money-laundering. However, Internet gamblers might not want a financial institution to be aware they are gambling. Would not credit cards, unlike electronic cash, also be effective in minimising suspicious transactions since they create a paper trail?
10. Having a level playing field
Land-based casino operators in South Africa have in the past 12 years undergone the most stringent of vetting, are stringently policed, pay billions of rands in taxes annually, have invested over R12-billion in infrastructural development, have met or exceeded BEE targets, have established one of the world’s foremost responsible gambling programmes, and managed to sustain over 30 000 jobs. Internet-based gambling operations will by comparison offer few jobs and little in the way of infrastructure development, allowing for better payouts. The potential for drawing people away from land-based casinos, and risking all that has been achieved so far, is great.
Therefore, it would be fair to expect that Internet gambling operators should meet all the stringent standards required of land-based gambling operations, as listed above.
11. Preventing illegal casinos
12. Land-based casinos going online
Thought should be given to established land-based casinos being allowed to establish online gambling operations without having to undergo a fresh, and unnecessarily bureaucratic, licensing process. As well as persons licensed by the Board and approved external interactive operators, only persons who hold casino licences issued by provinces should be allowed to offer Internet gambling.
13. Regulation of external operators
Like South African-based operators, foreign-based or external operators should also be subject to a strict approval process before being permitted to engage in interactive gambling with people in this country. By the same token, consideration should be given to subjecting external operators to all the stringent requirements demanded to local operators in terms of BEE, probity, taxation, regulation, job creation, responsibility, and so on.
14. Access to communication platforms
Online gambling is possible in a wide variety of ways, from computers and modems, to cellphones. A potential conflict arises should telecommunications providers become involved in interactive gambling operations, and could derive unfair benefits as a result, such as favourable rates or the prevention of access to certain communication platforms by other interactive operators. Care should be taken to ensure that such benefits do not occur.
15. What is an interactive intermediary?
The Bill is incomplete on what constitutes an interactive intermediary, providing only for providers who participate in the game. But what about games where the provider is only the intermediary, and does not participate in the game?
16. Gamblers from areas that prohibit online gambling
The Bill makes provision for not allowing persons in jurisdictions that prohibit online gambling to register for South African interactive operations. Thought should be given to revising this “good neighbour” provision, as it could bar South African operators from accessing lucrative markets such as the US – at their own risk.
17. Enforcement of the law
The Bill should contain provisions to police any activity supporting unauthorised gambling, and make existing provisions more enforceable.
18. Hacking and illegal transactions
Electronically-based gambling operators are vulnerable to hackers and the corruption, intentionally or otherwise, of software. The manipulation of software should therefore be criminalised by the Bill, and provision made for any game played on corrupted software to be declared void.
19. Outsourced providers
No provision is made in the Bill for the official approval of providers to whom an interactive operator has outsourced any specific operations. Without outsourced providers being licensed or approved, proper regulation cannot be attained.
20. Online player accounts
According to the Bill, each player will be required to have a bank account. Administratively this could be very difficult, but it provides for the greatest security for the player. Perhaps provision should be made for operators to hold an account into which players can make deposits, provided they guarantee any liabilities on the account,
21. Avoiding duplicate inspections
The Bill proposes to amend the National Gambling Act so that the Board has exclusive jurisdiction to inspect licensees. But the Bill is not specific about interactive licensees only, and duplication of inspections concerning licences issued and inspected by provinces could occur. This issue should be addressed, as duplication is unnecessary and costly, and contrary to government policy.
22. Simplifying personal licences
There are a few issues surrounding personal licences. Firstly, employees of interactive gambling operations should be based in a single province, and therefore it is not necessary for them to apply for national personal licences unless they work in more than one province. Secondly, the proposal in the Bill that the definition of “interactive gambling licence” includes employees, is at odds with the rest of the gambling industry and should be reconsidered, Thirdly, the Bill provides for two categories of national employee licence for interactive gambling, whereas only one category exists for land-based gambling. This should also be reconsidered,
It is correct that Internet gambling be regulated. It is far better to have a situation in which interactive operators can be properly and stringently policed, than one in which they are a law unto themselves. It is clear that the proposed Bill is well-intentioned, and seeks to apply the necessary regulation to interactive gambling.
But it is also clear that the Bill is not yet on target, and I have identified a large number of issues that I believe need to be addressed before it is, Issues such as taxation, licensing, external operators, enforcement, and standards. There are many aspects that the Bill does not address or adequately address. There is the ongoing problem of international litigation stemming from non-adherence to international agreements. More research is needed into the commercial and socio-economic impacts of regulating interactive gambling, and more consultation between stakeholders needs to take place. Importantly, care should be taken to prevent the legalisation of interactive gambling from putting existing gambling operations at risk.
I have mentioned,
I thank you.