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 South Africa at present. I am nevertheless compelled to make a contribution to this honourable committee’s hearings into the matter at hand, and I beg your indulgence in accepting a written submission from me in place of oral representation.


I am a professor of business law at the SUNY College in Buffalo, New York, I have published numerous articles on the subject of Internet gambling, and publications I have authored have been cited as authority in the US courts .In January 2007,I was an expert witness on Poker in a London Crown Court trial. I have also assisted in the drafting of online gambling legislation in various jurisdictions, and I am a past chairperson of the International Bar Association Section on Gaming and Sports Law. I believe I have the requisite expertise and experience to be of material assistance to this honourable committee, in its efforts to formulate the most effective and equitable online gambling legislation possible for this country.


It is common knowledge that South Africa boasts some of the world’s most effective and well-formulated legislation governing land-based gambling, and this country serves as a model to other nations seeking to regulate gambling within their jurisdictions. It stands to reason that any new legislation regulating online gambling should be as rigorous and thorough. South Africa is to be applauded for initiating amendments to the National Gambling Act 2004 in this vein, and its intentions in this regard are noble.


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, South Africa gets it right the first time with the proposed amendments, in the interests of all concerned: the State, the gambling industry as a whole, and gamblers. Billions of rands in infrastructure development, thousands of jobs and a lucrative government taxation source depend on the soundness of legislation enacted by South Africa’s elected representatives. It would indeed be tragic if all the good work that has already been done in regulating gambling in South Africa, were to be undone by flawed amendments.


I trust that my submission will assist this honourable committee in formulating the best possible legislative solutions to the regulation of online gambling for South Africa.

Yours faithfully


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Professor Joe Kelly






The Republic of South Africa is considering a Bill (B311-2007) that would amend the National Gambling Act 2004. Specifically, the Bill would provide for the better regulation of interactive gambling, to ensure the suitability of the operator and protection of the player. Overall, the Bill would be a positive addition to the National Gambling Act.


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 important that South Africa join with other countries to seek transnational co-operation concerning the international regulation of Internet gambling, as suggested by the British government in 2006.


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 France, Israel and the United States, which have taken action against foreign licensed operators, might be in violation of international trade law (US/WTO) or regional law (France/European Union).


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, South Africa will be the only country with a well-respected National Gambling Board that is interested in ensuring that its citizens have access to a solvent and secure licensed operator, and that foreign operators as well as domestic will not be subject to excessively burdensome taxes.


1.       South Africa should follow international legal developments


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).



This would mean that South Africa should adhere to the World Trade Organisation (GATS, General Agreement on Trade in Services). South Africa should also consider the rulings and complaints before the European Union.


South Africa is a member of the World Trade Organisation (GATS). It has not excluded, as did Canada and other countries, gambling from covered services. Antigua and Barbuda (Antigua) has been in litigation with the US since 2002 over the US refusal to allow licensed Antiguan gaming entities to have access to the US market. After five years of litigation, the US was found to have violated GATS by allowing domestic licensed interstate horserace wagering, but refusing access to Antiguan companies. The US has since withdrawn “gambling” from covered services, but it will probably have to pay some compensation to Antigua.


South Africa may have to open its markets to all gaming operators from jurisdictions with strict licensing requirements. Otherwise, it may be in violation of GATS. One wonders then if it makes sense to restrict the maximum number of interactive gaming licenses pursuant to (23) 37A:


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


The 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 South Africa prohibit an operator from accepting a player from a country such as Italy or Sweden?


(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.



Very few jurisdictions prohibit all interactive gambling. How can a player in the US know whether interactive poker or casino games are prohibited by US law, which is still uncertain? Does France, which allows domestic monopolies concerning interactive gambling, actually prohibit Internet gambling even though it has taken action against non-French operators?


      (c) International reciprocity


South Africa undoubtedly will seek to be approved by entities such as Great Britain’s White List. While it is too late for the initial September 2007 list, South Africa’s high standards should meet the qualifications which would then allow its licensed gaming operators to advertise within the United Kingdom. Should South Africa consider a similar arrangement? At this point only Alderney and the Isle of Man have been approved on the UK White List.


            (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).



While this 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. South Africa may also publish a list of countries prohibiting a particular type of wagering, such as pari-mutuel horseracing. 


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.



Very few jurisdictions prohibit the player from wagering (such as Hong Kong, the State of Washington). Many jurisdictions, with several notable exceptions such as Israel and South Africa, state the wagering takes place where the bet is accepted (the operator’s location). Would not France, which licenses only domestic monopolies, be a country that does not disqualify the player from playing interactive games?


3.       Underage declaration is insufficient


(11) 11A(b)(iii) a statement that the player is at least 18 years old.


It 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 South Africa requires a “knowingly” standard which is much less protective than one of mere negligence.


4.       Tax

It is imperative that South Africa determine a workable tax rate, which would be separate from any non-refundable application fee. Certain jurisdictions, such as Antigua, charge an annual fee ($50 000 sports books, $75 000 casinos). Plans to charge a high percentage or profit tax lead to a threatened exodus of operators. The United Kingdom’s proposed high profit tax has also resulted in operators’ reluctance to become licensed in that jurisdiction.


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.


In addition, consideration should be given to the taxation of both local and approved external operators on all transactions undertaken with people in South Africa.


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


South Africa, for social reasons, has placed a limit on the numbers of casinos in each province and the country as a whole. For this reason, the desirability of situations such as server-based casino operations, vertical integration and agreements between interactive providers and premises where players can access the Internet, should be considered.


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.


As I have mentioned, South Africa has some of the best gambling legislation in the world. It is of critical importance that any changes to that legislation are as comprehensive, pragmatic, correct and fair as possible, for it to remain that way, and for South Africa to continue enjoying the fruits of a well-regulated and profitable gambling industry,


I thank you.