1. 11 July 2016 Presenter: Mrs Caroline Kongwa-Hankanga

2. CONTENT  Introduction (and legal South African legislation)  Online gambling globally  Online gambling in South Africa (overall trends and challenges)  Illegal gambling in South Africa (economic impact)  Illegal gambling in South Africa (social impact)  Online and illegal gambling (problem gambling)  Regulation and way forward  Questions and comments

3. INTRODUCTION  The National Gambling Act 7 of 2004, makes provision for the following authorised gambling activities: Gambling games at casinos (slots and tables) Betting and wagering on horse racing and sport (also through the internet) Bingo Limited payout machines  Lotteries and associated schemes are authorised by the National Lotteries Commission of South Africa  Illegal, and by implication online gambling, is defined as any gambling activity that is not authorised in the legislation. Unlawful gambling activities are contemplated in Chapter 2, Part B, of the National Gambling Act 7 of 2004

4. INTRODUCTION  Online gambling is defined in the legislation as an interactive game played or available to be played through the mechanism of an electronic agent accessed over the internet other than a game that can be accessed for play only in licensed premises, and only if the licensee of any such premises is authorised to make such a game available for play  The Department of Trade and Industry and the South African government are firmly for the prohibition of online gambling from a regulatory stance (National Gambling Policy,2016), as it exacerbates the regulatory costs, due to its ease of accessibility and unmonitored environment. Additionally, there is a significant lack of capacity to regulate the industry.

5. INTRODUCTION  NGB is mandated by the National Gambling Act 7 of 2004, to conduct research to determine the socio-economic impact of gambling in South Africa  NGB commissioned research during 2015 to determine the socio- economic impact of illegal, and especially online, gambling in South Africa, as well as the NGB’s role to combat illegal gambling We are happy to share the latest research findings with you! We are happy to share the latest research findings with you!

6. INTRODUCTION  The contribution the legal gambling industry is making to South Africa (SA) is, unfortunately, threatened by that of a mushrooming and shadow industry and illegal gambling activities operated by unlicensed operators, primarily through online platforms  Other traditional forms of illegal gambling (excluding online) are Fafi, dice, card games, betting on animals, illegal casinos and slot machines - often found in areas regarded as low levels of socio-economic welfare, high unemployment, poverty and low levels of economic activity – often in places disconnected from urban areas such as townships and rural communities characterised by low levels of enforcement  The majority of online gamblers are young technologically advanced individuals, accessing the internet using portable devices. Four out of ten households in SA have access to the internet using mobile phones (Stats SA, 2014)

7. INTRODUCTION But what IS the impact of illegal and especially online gambling  But what IS the impact of illegal and especially online gambling operators on existing modes of gambling in South Africa in terms of revenue, unfair competition and increased challenges associated with problem gambling?  And how does South Africa address this challenge?

8. ONLINE GAMBLING – GLOBALLY  Online gambling activities have grown substantially and become very popular since the early 1990’s  2016 ( Globally) : 3,640 listed sites 1,155 site owners Operation in 127 jurisdictions 442 payment methods [Source: Casino City, 2016]  Popular games: Online casinos, poker rooms and sportsbook. New games are emerging such as betting exchanges, tournaments and spread betting and poker  Some countries that have prohibited online gambling are China, Greece, Hungary, Lithuania, Luxemburg and some US (excluding online poker in three states)

9. ONLINE GAMBLING – GLOBALLY  C ountries that regulate online gambling (e.g. Germany, UK, France and Canada) generated between US$1.81 billion to US$3.65 billion during 2015. However, China and some states of the US, have completely prohibited online gambling but generate the highest revenues based on their regulated modes of gambling  Growth in online gambling has been much associated with and connected to the digital revolution, the creation of online payment mechanisms, online search engines, advertising and social media platforms  Online gambling represents a lucrative enterprise and has a fraction of the start-up costs associated with traditional land-based or destination approach gambling activities  The barriers to entry for online gambling are significantly less than for land-based casinos

10. ONLINE GAMBLING – GLOBALLY  The progress of technology and rapidly declining costs have increased people’s access to technology and the internet and therefore their propensity to engage in online gambling  The development of specialist gambling software has increased customer experiences and complimented it with the rise of internet payment mechanisms  The main participants of online gambling are the operators, the punters, the countries in which they are situated, and the financial institutions that process the transactions  Perhaps the dominant factor to the growth of online gambling is that the future adult population would have been the first generation to grow up with technology and millions of people across the globe are familiar and accustomed to the internet

11. ONLINE GAMBLING – GLOBALLY  Arguments for the prohibition of online gambling: The anonymity of the internet will allow underage gamblers to participate in online gambling The convenience, high-speed and accessibility of online gambling may exacerbate problems with pathological gamblers The anonymity provided by the internet and the lack of accountability thereof may allow criminal activities to flourish (unscrupulous operators, rigging games and cover for money laundering) Online gambling erodes a country’s sovereignty in terms of rules and regulations governing society by making gambling accessible to anyone with a device and internet connection Government is unable to protect the rights of consumers that engage in online gambling Online gambling activities compete with traditional, land-based casinos – impact on jobs and taxes contributed by the traditional gambling sector

12. ONLINE GAMBLING – GLOBALLY  Arguments for the regulation of online gambling: Internet gambling is already in existence and growing at a rapid rate where many governments are focussed on the roll-out of ICT infrastructure that will increase accessibility to this form of gambling. Many schools use ICT to educate children, and combined with social media, exposure to and participation in online gambling can be expected to continue. A continuation of the prohibition stance will mean the government must enforce the law, which will be challenging If internet gambling cannot be effectively prohibited through enforcement, then a more sensible approach to mitigate the potential downside of this activity is to regulate it. This would provide government with the power to monitor these activities while extracting some sort of benefit in the form of license fees, etc

13. ONLINE PROFILE [Majority] ILLEGAL PROFILE [Majority] Female Gender Male Young (18 – 34 years) Age Young to middle-aged (25 – 39 years) African Race African Two dependents Dependants Two dependents High to semi-skilled Occupation Low/unskilled Middle to high income Income Low to middle income  Main motivation to gamble: TO BOOST INCOME  Substantial growth in online gambling seems inevitable, especially with increasing access to the internet in most households ONLINE GAMBLING IN SOUTH AFRICA Overall trends & challenges ONLINE GAMBLING IN SOUTH AFRICA Overall trends & challenges

14. ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges  Approximately 96 online gaming sites accept participants from South Africa (Casino City, 2016)  Evidence suggests that about 75.4% (age 18 to 34) of average South African online gamblers are young, technologically advanced individuals, who mainly access the internet using portable devices  Most people play slot machines and bet on sport, horse racing and other contingencies  Overall, most people play for short periods at average frequencies of 1-3 times a week  Male gamblers gravitate towards casino table type games and betting, while females are attracted to games such as bingo and casino slots

15.  96% of respondents in a NGB survey had access to the internet via their mobile devices  Most of the respondents have observed e-gambling advertisements in digital form, either through emails, SMSs or websites, as well as social media applications such as Facebook and Twitter  Financial institutions are also unsuspecting or involuntary role players because they process some of these transactions. These institutions have the capability to determine the nature of the transactions, as well as to block/limit their processing  A large percentage share of the sample was unsure of the laws regulating online gambling, however, a much higher proportion are aware of support programmes  The size of the SA regulated gambling industry tax base is slowly being eroded by the fast growing online gambling sector ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges

16.  Online gambling has become a faceless adversary for regulators due to its borderless nature and modus operandi, making regulations and law enforcement even more difficult and challenging  The main drivers/enablers of online gambling are: Marketing of e-gambling, Social media (as a platform and marketing tool) Financial institutions that transact the payments, deposits and pay outs  More control measures are required as the environment is quickly expanding and the associated consequences may be exacerbated by the unmonitored nature of the activity ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges

17.  A big challenge is that combatting online gambling requires a multifaceted approach. Often illegal gambling activities are linked to other organised crimes such as poaching and human trafficking  This shadow industry brings with it unfair competition and creates other threat areas for the broader economy such as job sustainability within the regulated gambling industry because over time, as revenues decrease, the industry will be forced to shed jobs (direct and indirectly). In turn this will impact on the South African Government’s objective, as set out in the National Development Plan (NDP), to create 5 million jobs by 2030  As revenues continue to erode this industry, the gambling industry’s contribution to Corporate Social Responsibility initiatives are likely to decline. Hence, reducing the contribution to social and educational programs ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges ONLINE GAMBLING IN SOUTH AFRICA Overall trends and challenges

18.  Unfair competition created by illegal enterprises negatively affects legal enterprises in terms of their ability to generate revenue. Legal gambling enterprises have to fulfil a number of different conditions before operating licenses are granted. Illegal gambling outfits do not adhere to the rules, regulations and standards governing the industry, and thus face no restrictions in terms of the areas they operate in and the price which they can charge for gambling. This translates in reduced government revenue in the form of tax contributions by legal gambling enterprises.  The Casino Association of South Africa (CASA) estimates the total tax loss due to illegal gambling activity equalled R110 million for the 2014/2015 financial year ILLEGAL GAMBLING IN SOUTH AFRICA Economic impact ILLEGAL GAMBLING IN SOUTH AFRICA Economic impact

19. ONLINE GAMBLING IN SOUTH AFRICA Economic impact ONLINE GAMBLING IN SOUTH AFRICA Economic impact  Legal enterprises which face competition from illegal enterprises often have to undertake cost cutting measures to remain profitable. Reducing staff numbers is often one of the first avenues that are pursued for reducing costs  In addition, people employed in illegal enterprises do not enjoy the basic provisions of a fair and equitable workplace as contained within the relevant legislation. Illegal enterprises often take advantage of their employees through low wages, poor working conditions and almost no economic benefits  Many transnational criminal networks use illegal gambling, mostly online gambling, as a mechanism for money laundering and other criminal activities (i.e. animal poaching, trafficking of counterfeit merchandise, drugs and people)

20. ILLEGAL GAMBLING IN SOUTH AFRICA Economic impact ILLEGAL GAMBLING IN SOUTH AFRICA Economic impact  The estimated monetary flows associated with illegal (online) gambling in South Africa impact the economy in the following ways with respect to employment and GDP: Total loss in value add (the total contribution of the gambling industry to the SA economy) of R1.9 billion for the economy as a whole per annum. This includes a direct impact of R972 million and an indirect impact of R972 million. This is less than 0.01% of total annual GDP for South Africa Total loss of 3,785 employment opportunities in the legal gambling industry based on employment in casinos (841) and employment in related services such as retail outlets and restaurants (2,945). This equates to 5.9% of the total employed persons in the casino industry of the country

21. ILLEGAL GAMBLING IN SOUTH AFRICA Social impact ILLEGAL GAMBLING IN SOUTH AFRICA Social impact  Many of the illegal gambling modes are targeted at lower income earners. These consumers, often desperate to make ends meet or earn extra income, are loured into playing. The consequence is that many of them end up spending the little income that have and are forced to borrow money to either fund their gambling habits or to take care of themselves  Consumers that participate in illegal gambling do not enjoy the same rights and protection as those that participate in legal gambling due to the legality of the operator. Many punters that have gambled in illegal establishments and won a substantial amount of money have been refused payment. Further, many of the games offered by illegal operators are not always based purely on chance or skill

22. ILLEGAL GAMBLING IN SOUTH AFRICA Social impact ILLEGAL GAMBLING IN SOUTH AFRICA Social impact  Illegal gambling impacts society at large through its impact on social resources, both in terms of what is spent on enforcement with regard to prohibiting illegal gambling activities, and also what is lost on account of these activities  Many millions of rand in state resources are expended on crime intelligence activities relating to the investigation and prosecution of illegal gambling operators  Social resources are lost due to legal operators (either private gambling enterprises or the National Lottery) having to cut spending in terms of social investment and the funding of good causes. In some instances, funding through these means exceeds traditional funding sources from the state. Therefore, a reduction in funding sourced from legal gambling activities can have a significant impact on many social causes

23. ILLEGAL GAMBLING IN SOUTH AFRICA Problem gambling ILLEGAL GAMBLING IN SOUTH AFRICA Problem gambling  The evaluation framework in the research study used three variables to determine the number of possible problem gamblers; namely time allocation (20%), control levels (50%), and expenditure (30%) described as the proportion of income spent on gambling, to determine whether an individual is a possible problem gambler, or at risk of becoming pathological gamblers  The results based on the evaluation framework to identify problem gamblers revealed that in terms of online gambling there are no pathological gamblers as most peoples’ income remains unchanged (many are middle to high income earners) and debt does not increase.

24. PROHIBITION AND WAY FORWARD IN SOUTH AFRICA  Currently, any form of online gambling happening on unauthorised sites in South Africa is expressly prohibited and is a criminal offence. Those contravening the Act not only face imprisonment, but also hefty fines. This prohibition also applies to unlicensed online sports betting and bingo operations  Winnings from prohibited activities are forfeited and placed in a trust account as stipulated by the National Gambling Act. The winnings are forfeited to the State.

25. RECOMMENDATIONS TO MANAGE THE IMPACT OF ONLINE GAMBLING Legislation: Amend current laws to ensure terminology is substituted for online; laws should shift focus to enforcement and assign more resources; and laws should outline uniform criteria for processes and duties so that gambling regulators can concentrate more on enforcement Institutional capacity: Capacitate regulators and ensure they have the tools needed to combat online gambling; assign all regulators peace officer powers and assign them legal authority to conduct raids; create gambling-specialised courts and appoint and train prosecutors aligned to gambling related cases

26. RECOMMENDATIONS TO MANAGE THE IMPACT OF ONLINE GAMBLING Collaboration mediums: Constituting forums which include representatives from the regulators and all other significant agencies that support the enforcement of illegal gambling; inter-link national databases or repositories of information so that all relevant parties are able to access them from any web capable device and they are able to update them Advertising: Set advertising standards to ensure that exposure is limited and penalties are adequate to discourage operators Awareness: Create awareness campaigns that run constantly on some form of media to inform the public about gambling legislation and its penalties; as well as problem gambling, its consequences and treatment options

27. Research is to see what everybody else has seen, and to think what nobody else has thought! Albert Szent-Gyorgyi QUESTIONS AND COMMENTS Presenter: Mrs Caroline Kongwa-Hankanga Administrator National: 01000 33475 E-mail: ckongwa-hankanga@ngb.org.zackongwa-hankanga@ngb.org.za Web: www.ngb.org.zawww.ngb.org.za Address: 420 Witch-Hazel Avenue, Eco-Glades 2, Block C, Eco-Park, Centurion, 0144