Published on the Malta Independant, issue Wednesday, 05 September 2010
While most European jurisdictions are waking up to the reality that nothing can stop Internet gaming, it transpires that a South African judge has just outlawed the sector. As a result, it is an offence for Internet service providers (ISPs) to facilitate online gambling, and for the media to run advertisements promoting Internet gaming. In addition, banks cannot help people gambling online. However, bets taken on real-time games that take place in physical, licensed locations outside the cyber world are legal.
By contrast, in Europe we see how France, Spain, UK, Italy and Denmark have been falling over themselves to fine tune their licensing laws to liberalise the industry. Obviously, recession helped draw the attention of the taxman to the fact that gambling leads to high taxation. This liberalisation also recognises the fact that online gaming takes place on the Internet, a virtual device that knows no national boundaries and operates across many jurisdictions. Unlike brick-and-mortar operations, online casinos are able to enter new markets without establishing a physical presence. It is an enigma why the Bush administration imposed a ban in 2006.
Where does this leave Malta as the premium hub in Europe with over 300 licences active in the remote gaming arena? As published elsewhere in the media, I wrote that the situation warns us to be more dynamic and offer better competitive terms, not only to attract new applications but also not to kill the geese (licensees) that are laying the golden eggs. It is true that the industry is not high on the agenda of the present
government, since it is hardly mentioned in its PR statements.
But again we must be vigilant. It is true that a cautious and low-key approach is proving somewhat beneficial at Brussels political level so as not to ruffle feathers. Competition is getting stiffer and more resources will be needed to provide better protection from our European countries, which now join the list of licensing jurisdictions opening their doors to operators to access their markets (something we cannot match).
Back to South Africa (SA), where online gambling has been declared illegal by a recent ruling in the North Gauteng High Court, putting an end to years of arguments as to where technically the gambling takes place and whether it would be considered legal if servers are outside SA. It follows that Internet gambling is now illegal, because the National Gambling Act of 2004 makes no provision for it. The Northern Gauteng High Court dismissed the application of Piggs Peak Casino, which operates and is licensed in terms of Swaziland laws.
Piggs Peak’s application applied for the court to declare that it lawfully advertises in SA as a licensed entity. As can be expected, adherents of this industry have pleaded that SA regulations cannot ban offshore sites. Such arguments have now come up against a brick wall and have been wending their way through the legal system for some time. To quote one case, that of Casino Enterprises in Swaziland, the operators took the Gauteng Gambling Board to court in 2006 after the board stopped it from advertising its online gambling service in the province.
In the recent ruling of Piggs Peak v GGB, the regulator argued that gambling did not take place outside SA, but rather where the person doing the gambling was at the time. After the judgement, the Gauteng Gambling Board instantly issued a statement on its website saying it is unlawful for Internet operators to offer online gambling to South African residents. Moreover, it said, it is illegal for people to bet online. The board adds that people, entities or organisations that aid and abet Internet gambling, including ISPs or financial services providers such as banks, could be prosecuted. Critics say that total prohibition can only be a temporary measure while SA presses ahead with better regulation. The ruling, handed down in Johannesburg by Judge Neil Tuchten last month, underpins the strong lobby by the brick and mortar casinos that have opposed the liberalisation of online casinos. But can you blame them, considering that the South African gaming industry is worth about R16 billion in tax revenue each year, and players bet about R212 billion (circa €220 million) in legal gambling annually. According to the National Gambling Board, only about seven per cent of global gambling revenue is spent on the Internet but this is obviously on the increase, especially due to its popularity during the sports
betting mania of the World Cup.
Piggs Peak has issued a statement in which it indicated that it would appeal against the judgement. Operations director Lew Saul Koor says: “Until the appeal has been heard and the outcome determined, our business will continue as usual, as agreed with the Gambling Boards.” However, it may prove to be a pyrrhic victory, given that the operator appealed against the decision, but – in the meantime – it has stopped operations, despite previous statements saying that business would continue as usual until the appeal had been heard and the outcome determined.
In the latest statement to customers, Lew Saul Koor says the casino is in the process of applying for leave to appeal against the judgment that declared online interactive gambling illegal. Koor adds that the business thought it could continue to operate in the interim, but has since been advised that it should stop operating for South African players until the matter has been resolved.
Ever since the judgement was made public, the authorities have lost no time in threatening huge penalties for those who aid and abet the sector, including Internet service providers, with a R10 million (circa €1 million) fine if they facilitate remote gambling. The ruling also makes banks as well as financial transaction providers liable to prosecution.
The question on everybody’s lips is that four years ago legislative measures were initiated to make the sector legal, so what has happened in between? The national regulator is reported to be wrapping up its report after looking into all aspects of gambling in SA, including casinos, online gambling and horse racing. The SA press reported that Ms Maseti, chief director of policy and legislation in the Department of Trade and Industry, says the review commission is “looking at the industry holistically, including casinos, online gambling and horse racing, so as to do a comprehensive review”. Yes, it took rather longer than expected but it is hoped that the commission should wrap up its findings at the end of this month. However, Ms Maseti did not pre-empt its findings, ie, whether it could recommend that online gambling in SA be made legal, which would require a U-turn in legislation. Hopefully if, as rumoured, the government decides in favour of online gambling, the National Gambling Board will restrict new licences to only 10 applicants. It goes without saying that there will be a mad rush for the limited
number of licences.
It is to be expected that applicants will be required to prove they have a physical presence in SA (ie their servers, etc.,) and their financial transactions will have to be located within its borders. Alicia Gibson, member of AG Consulting and a lawyer specialising in gambling law, says the government could, in the near future, make provision for interactive gambling. Despite the passing of the Interactive Gaming Act several years ago and the drafting of regulations by the National Gambling Board last year, Judge Neil Tuchten’s ruling puts the clock back.
To conclude, some argue that even though the commission’s report is imminent, new legislation and regulations are now not likely for another year or two. For Malta this means that while competitors are busy fine-tuning their regulations, it should not be caught sleeping on the job and must take this brief window of opportunity to revamp its legislation. The early bird catches the worm...
The writer is a partner in PKF, an audit and business advisory firm