Illegal Interactive Gambling The role the banking industry system can play in combating this challenge Presented by : Elijah Mazibuko

Presentation Overview n Historical background of exchange controls n Purpose of exchange controls n Impact of the current legislation in the unregulated interactive gambling environment n Compliance and enforcement of the current legislation n Monitoring and reporting of cross border flows n Challenges facing the banking industry in combating illegal interactive gambling n The role the banking industry system can play in combating this challenge

Historical background of exchange controls n 1939:Exchange control first introduced in South Africa in the form of Emergency Finance Regulations adopted in the Sterling Area to: Prevent large capital outflowsPrevent large capital outflows Protect foreign reserves of member countriesProtect foreign reserves of member countries n 1961:Current set of exchange controls introduced by way of the Exchange Control Regulations issued in terms of the Currency and Exchanges Act (No. 9 of 1933)

Purpose of exchange controls n Prevent the loss of foreign currency resources through the transfer abroad of real or financial capital assets held in SA and n Constitute an effective system of control over the movement into and out of SA of financial and real assets, whilst simultaneously avoiding interference with the efficient operation of the commercial, industrial and financial system of the country

Impact of the current legislation in the unregulated interactive gambling environment  Current legislation prohibits gambling via Internet sites that offer casinos and poker n Waging on offshore and non-SA betting sites is also not allowed n Section 11 of the National Gambling Act, No. 7 of 2004 states: “A person must not engage or make available an interactive game except as authorised in terms of this Act or any other national law”  Also, in terms of the Lotteries Act, No. 57 of 1997, SA residents may not participate in lotteries organised abroad  SA residents may gamble with foreign operators while abroad

Compliance and enforcement of the current legislation n The problem with legislation of this nature is that it relies on the exchange control system for compliance and enforcement or to at least assist in enforcing n Interactive gambling transactions are not permissible in terms of the Exchange Control Regulations n Regulation 10(1)(c) of the Exchange Control Regulation states: “No person shall, except with a permission granted by the Treasury and in accordance with said conditions as the Treasury may impose, enter into any transactions whereby capital or any right to capital is directly or indirectly exported from the Republic”

Compliance and enforcement of the current legislation (cont.) n Current Exchange Control Rulings prohibit SA residents from using their credit cards for any online cross border transactions except for foreign sport betting, imports and travel subject to a limit n In terms of the national and provincial gambling legislations, SA residents are allowed to bet or wager on any contingency offered by a licensed operator in SA i.e. licensed bookmaker or totalisator n Within the racing and betting environment, there is a concept of comingling, which effectively refers to combining of pools with other jurisdictions, locally or internationally

Compliance and enforcement of the current legislation (cont.) n In terms of the comingling concept, punters are allowed to bet on any other contingency whether local or international provided such a contingency is offered by a licensed SA bookmaker For example; a punter can take a bet with a SA bookmaker on a soccer match between Man United and Schalke, although these are not SA teams, this foreign sport betting is allowed provided the bookmaker operates and is licensed in SA n Unlicensed bookmakers (local or international) are not permitted to offer bets in an environment/country which they are not licensed

Monitoring and reporting of cross border flows n All cross border flows are reported by Authorised Dealers (ADs) and Authorised Dealers with Limited Authority and monitored by the Financial Surveillance Department n All cross border transactions are reported via BOPCUS and outward payments (including credit cards) via BOPCARD n The Cross Border Foreign Exchange Transaction Reporting System (BOPCUS) and Credit/Debit Card transactions Reporting System (BOPCARD) are electronic systems in place between AD’s, Card Companies and Direct Reporting entities and the SARB for the submission of reportable transactions to the SARB

Challenges facing the banking industry in combating illegal interactive gambling n Compliance would require AD’s to monitor, report, identify or block suspicious “illegal” transactions: Identification of certain transactions - AD’s claim their systems are unable to identify “illegal” transactions through the current Merchant Category Code (“MCC”) Identification of certain transactions - AD’s claim their systems are unable to identify “illegal” transactions through the current Merchant Category Code (“MCC”) n The real problem is when local card holders gamble on international websites over which SA has no control n Some merchants, knowing that they have a highly profitable but illegal business, operate “under cover” and use merchant names and category codes indicating a business completely different from online gambling, making it impossible for the issuing bank to identify and stop any illegal transactions

The role the banking industry system can play in combating this challenge n The AD’s and card companies need to investigate the development of a unique MCC for gambling merchants that would enable them to identify illegal transactions and to go to an extent of blocking such transactions n The unique MCC should enable the AD’s to easily identify illegal transactions and being able to block them at the point of sale and/or “other” n Currently there is only one AD that is able to flag the MCC that pertains to online gambling and block such transactions

The role the banking industry can play in combating this challenge (cont.) n Banks are required to report all suspicious transactions to FICA n The Gambling Act requires that banks identify foreign winnings of local card holders and pay them to the NGB n Individuals who have participated in illegal gambling are penalised in terms of the Exchange Control Regulations

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