ILLEGAL ONLINE GAMBLING IN SOUTH AFRICA

PRESENTED TO ACAMS SA CHAPTER ON 26 JUNE 2015 BY EDWARD LALUMBE

CHIEF OPERATING OFFICER GAUTENG GAMBLING BOARD

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PRESENTATION OUTLINE

Introduction

What is online gambling

Prohibition of online gambling

Policy objectives

Jurisdiction of online gambling transactions

Illegal online gambling and money laundering

Illegal online gambling and organised crime

Unlawful activities

Penalties

Conclusion

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INTRODUCTION

The legalisation of gambling in South Africa has over a period of time being impacted on by emerging forms of gambling.

These includes the evolution of gambling technologies amongst others. Such changes have influenced gambling activities that are offered in the jurisdictions where gambling is legal.

In South Africa technological advancements have surpassed the current gambling regulatory programme. This is a world wide phenomenon.

Many South African residents use online gambling services despite statutory prohibition and restrictions.

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INTRODUCTION

Because of work around such as e-wallets (essentially a payment processor situated between banks and gambling site) phone based deposits and prepaid credit cards very few South African based gamblers are not inconvenienced from using their funds for gambling purposes

It is estimated that the size of the industry runs into millions if not billions of rands

Accountable institutions need to be aware of their legal obligations and risks associated with illegal online gambling.

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WHAT IS ONLINE GAMBLING

Interactive gambling is defined in terms of section 1 of NGA as follows:

“means a gambling 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;”

An activity is a gambling game if it meets the following criteria:

‾ It is played upon payment of any consideration, with the chance that the person playing the game might become entitled to, or receive a pay-out; and

‾ The result might be determined by the skill of the player, the element of the chance or both;

‾ A bet or wager placed in a casino in terms of the two above criteria ‾ The following are excluded from a gambling game:

Bet or wager placed with a bookmaker Totalizator Amusement game

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PROHIBITION OF ONLINE GAMBLING

Section 15 of the NGA provides:

“(1) A person must not advertise or promote – (a) any gambling activity – (i) …

(ii) that is unlawful in terms of this Act or applicable provincial law;

or …”

(2) Section 8 of the NGA provides: “Despite any other law, a person must not engage in,

conduct or make available a gambling activity except – (a) a licensed gambling activity; …” (3) Section 11 of the NGA provides:

“A Person must not engage in or make available an interactive game except as authorised in terms of this Act

or any other national law.”

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PROHIBITION OF ONLINE GAMBLING

(4) Section 71(1) of the GGA provides:

“(1) No person shall, by way of advertisement or with intent to advertise, publish or otherwise disseminate any information concerning gambling in the Province in respect of which a licence in terms of this Act is not in force.”

Section 76(2) of GGA provides:

“No person may gamble on the result of an event or contingency contemplated in subsection (1) with any person other than the holder of a licence who is authorised by such licence to gamble on the event or contingency concerned.”

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POLICY OBJECTIVES

Legalisation and regulation of gambling is premised upon the following objectives:

Protection of society from overstimulation of latent demand for gambling through the limitation of gambling opportunities.

Protection of players, integrity and fairness of the industry through strict control and supervision of the industry.

Uniformity and harmonisation of policy and legislation at all levels of government across provinces through minimum norms and standards, co-operation and co-ordination.

Generation of revenue and taxes for government and good causes.

Economic empowerment of historical disadvantaged.

Promotion of economic growth, development and employment.

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JURISDICTION OF ONLINE GAMBLING TRANSACTIONS

Playboy Enterprises Inc v Chuckleberry Publishing Inc 1996

‾ the defendant established an Internet site with a server located in Italy using its “Playmen” trade mark.

‾ The defendant had been prohibited from distributing this trade mark in the United States by virtue of a 1981 court interdict on the grounds that it was confusingly similar with Playboy’s established trade mark.

‾ In this case, the court assumed jurisdiction and held that its availability on the Internet, together with an invitation to users in the United States to download the images, amounted to distribution in the United States in violation of the interdict.

‾ In coming to this conclusion, the court emphasised that the Playmen website was accessible to persons in the United States, who could view and download its contents.

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JURISDICTION OF ONLINE GAMBLING TRANSACTIONS

People v World Interactive Gaming Corp

‾ The Attorney-General of the State of New York sought an injunction restraining World Interactive Gaming Corporation and their principals, officers and directors from operating within or offering to residents of the State of New York, gambling over the Internet

‾ The issue was whether the State of New York could enjoin a foreign corporation legally licensed to operate a casino off-shore from offering gambling to Internet users in New York.

‾ The respondents argued that the transactions in question occurred off-shore and that no State or federal law regulated Internet gambling.

‾ They claimed that they were operating a duly licensed legitimate business authorised by the government of Antigua and in compliance with that country’s rules and regulations. This argument was rejected and the court stated the following:

“It is irrelevant that Internet gambling is legal in Antigua. The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within the New York State.”

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JURISDICTION OF ONLINE GAMBLING TRANSACTIONS

“A computer server cannot be permitted to function as a shield against liability, particularly in this case where respondents actively targeted New York as the location where they conducted many of their alleged illegal activities. Even though gambling is legal where the bet is accepted, the activity was transmitted from New York … the respondents enticed Internet users, including New York residents, to play in its casino.”

Casino Enterprise (Pty) Ltd vs Gauteng Gambling Board and others

‾ Piggs Peak was registered and incorporated in Swaziland, owned and operated a land based casino and an online casino. Both operations were licensed in Swaziland and not in South Africa.

‾ Piggs Peak argued when gamblers in Gauteng gamble on the internet casino, such gambling is made available on Piggs Peak’s computer service in Swaziland and not in Gauteng in any manner that contravenes legislation. The court rejected this argument and stated the following:

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JURISDICTION OF ONLINE GAMBLING TRANSACTIONS

“… the stake is irrevocably placed on the outcome of the player’s chosen gambling game (and the gamble is under way) at the moment that he or she activates the “Spin” button (or its equivalent). The fact that any or all of the actions descried by Prof Hazelhurst may occur in Swaziland after or as a consequence of that activation is, it seems to me, irrelevant to the central issue as non of those actions changes the reality that the player at his or her computer has in South Africa committed himself or herself to staking money on the chance. That takes place where the player is (in South Africa) and not Swaziland.

“Such an interpretation satisfies the aims of the statute: the prospective player is “seduced” in South Africa, he or she takes and activates the crucial decision to gamble here, he or she is impoverished here; the internet casino intrudes upon the field of licensed operators here and it does so without payment of dues to the State. The legislature is concerned with substance, not form, and if gambling takes place in South Africa it is of no consequence what means are employed to facilitate it and whether those means are employed outside the country.”

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ILLEGAL ONLINE GAMBLING AND MONEY LAUNDERING

One of the major concerns of illegal online gambling is the facilitation of money laundering.

The process entails three stages namely:

‾ Placement stage first entry of illegal money into financial institution or the retail economy

‾ Layering stage consists of activities meant to hide the trail of money (transfer of money among multiple entities)

– Integrated stage the process when illegal funds are reintroduced into the economy to appear as though they were legitimate

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ILLEGAL ONLINE GAMBLING AND ORGANISED CRIME

One of the major concerns is the ability of organised crime to utilise illegal online gambling.

Transactions are mainly in cash and susceptible to skimming, in which profits are removed by the owners and other insiders before being declared.

In a regulatory environment there are elaborate mechanisms to route

out organised crime through probity and licensing procedures.

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UNLAWFUL ACTIVITIES

The following activities relating to online are unlawful:

Internet operators who offer on-line gambling (interactive games) to the residents of the Republic

A player or a punter who participates in on-line gambling transactions (interactive games).

Persons, entities or organisations which facilitate the provision of on-line gambling (interactive games) includes:

‾ Internet service provider

‾ Financial transaction providers such as banks

Persons, entities or organsations which advertise or facilitate the advertisement of on-line gambling (interactive games) eg radio and television stations, print media, outdoor advertising agencies

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PENALTIES

Liable for a fine not exceeding R10 million or

to imprisonment for a period not exceeding 10 years or

both such fine and imprisonment.

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CONCLUSION

It is imperative that an accountable institution should:

Be aware of their legal obligations

Implement necessary controls and procedures to detect facilitation of illegal online gambling eg. Regulation 21 of FICA Regulations requires accountable institutions to obtain information on source of income and source of funds to be utilised for transactions in the cause of business relationship

Take appropriate steps to mitigate the risks associated illegal online gambling