Negotiating Mandate of the Western Cape Provincial Parliament

Report of the Standing Committee on Agriculture, Tourism and Gambling on the National Gambling Bill [B48B 2003] (NCOP), dated 18 November 2003 as follows:

The Standing Committee on, Agriculture, Tourism and Gambling having considered the subject of the National Gambling Bill [B48B -2003) (NCOP), referred to the Provincial Parliament in terms of the rules of the National Council of Provinces (NCOP), begs to report that it confers on the Western Cape’s delegation in the NCOP the authority to support the Bill with the attached concerns.


MR. S BYNEVELDT
CHAlRPERSON
18 NOVEMBER 2003


Select Committee on Economic and Foreign Affairs: National Council of Provinces

National Parliament
Dear Sir

COMMENTS OF THE PROVINCE OF THE WESTERN CAPE IN RESPECT OF NATIONAL GAMBLING BILL, B 48B -2003

Having thoroughly considered the content and ambit of the National Gambling Bill, B48B - 2003, the
Standing Committee on Agriculture, Tourism and Gambling of the Western Cape Provincial Legislature, hereby submits the following comments on the Bill for consideration by the National Council of Provinces.

While the many measures in the Bill aimed at securing uniformity and standardization of regulatory practices across provincial boundaries are welcomed, there are a number of issues which, because they may impact upon the extent to which the Bill achieves its core objectives on both a practical and policy level, may warrant closer attention and possible re-evaluation. These are the following:

AD CLAUSE 14:
It is recommended that, for practical purposes, Clause 14 should be reworded to restrict the role of the National Gambling Board to the maintenance of a database in respect of excluded persons. It is regarded as inappropriate to require any member of the public, wherever resident, to be obliged to apply on paper to the National Gambling Board in Pretoria, for self-exclusion. This is more appropriately dealt with at provincial level, on the basis not only of practical considerations, but also because, in view of the sensitive nature of the procedure, a level of personal contact with the patron may be advisable.

In addition, it will not be cost-effective for the persons contemplated in sub-clause (2) to make use of the High Court as a vehicle for the exclusion of problem gamblers. As such, because of its relatively limited accessibility, the High Court procedure may impede, rather than promote, the exclusion of problem gamblers from licensed premises.

In addition, the newly introduced further proposed amendment to Clause 14 contemplates that the National Gambling Board will now be vested with the power to consider applications made by excluded persons to have themselves removed from the list of excluded persons. It is notable that no procedure is envisaged to be prescribed for this function; only the notice upon which application is made will be prescribed by regulation. The removal of excluded persons from the list is likely to be highly complex and contentious. The absence of provision for prescribed procedures and criteria regulating the manner in which this is to be done creates undesirable vagueness. However, even if such procedures or criteria were stipulated, it should be recognized that the exercise of this function creates enhanced scope for litigation against the National Gambling Board on the basis of the decisions thus taken and may, for this reason, involve the assumption of an unnecessary operational risk.

AD CLAUSES 19-23:
It is understood that Clause 20 of the Bill is, with a few minor additions, the Clause formerly suggested by provincial licensing authorities and the National Gambling Board in its previous comment on an earlier draft of the same Bill. As such, it is recommended that it be retained. However, Clauses 19 to 23 inclusive put ii) place a registration procedure which is understood to be practically unworkable and which adds no value if its aim is (as it appears to be) reliably to track the movement of restricted gambling devices.

It is accepted that all devices should be certified and approved before being distributed and that prescribed devices should be licensed or registered, in the sense currently contemplated in provincial legislation, before being exposed for play.

Provincial licensing authorities have provided for and adhere to such procedures. This is the purpose (and purport) of Clause 20 of the Bill. It is, however, impractical to insist on all prescribed devices being registered in the manner contemplated in the Bill. This is all the more so if regard is had to the definition of "gambling machine", since all gambling machines are prescribed gambling devices,. and as such subject to registration. The definition of "gambling machine" is wide enough to cover the software (including small electronic components, such as chips) housed in gambling machines, as well as roulette balls, wheels and similar gambling devices It will be impossible to comply with the proposed registration procedures in respect of a large percentage of such devices. These cannot all have identification mechanisms attached to them, as contemplated in the Bill.


The previous recommendation of the various licensing authorities, on both a national and provincial level, that the manufacturer should be required to keep a record of the devices ab initio, with registration taking place only at the time of transfer of possession or ownership of the devices (to the licensed operator exposing such machines for play), as is the case with firearms and motor vehicle licenses, is supported.

The proposed registration regime (to the extent that it is aimed at controlling the movement of physical machines, will in any event add no regulatory value for the following reasons:

(i) Software and other vital components of gambling machines (which determine the outcome of the games offered on such machines) are constantly being upgraded or altered subject to regulatory control by the provincial licensing authorities.

(ii) Ml gaming machines already have unique serial numbers permanently affixed to them at the time of manufacture which can be used for tracking purposes in the same way as the registration number
contemplated by the Bill. (See for instance SABS 1718- paragraph 4.2 and SABS 1718-2 paragraph 4.3.1 which require this for all gambling machines before they can be certified).

(iii) The proposed register has no purpose if it is only intended to be used to control the movement of cabinets, irrespective of the individual components thereof. The cabinets are merely physical structures which house the vital software controlling all relevant aspects of the games offered.

AD CLAUSE 83:
It is proposed that the administrative penalty provided for in sub-clause (2) should not exceed the maximum fine of Rl 0 million contemplated in sub-clause (1), on the basis that it is not desirable that the power of a regulatory authority to impose a penalty should exceed even that of a criminal court. In addition, it is suggested that sub-clause (2) should specify that the administrative penalty contemplated therein is to be imposed by the provincial licensing authority which issued the relevant license.

Over and above the aspects listed above, there are certain provisions in the Bill which, in the view of this Committee, merit revision on an urgent basis, in view of the fact that they appear to be based on a misapprehension of certain key policy issues directly affecting the regulation of the gambling industry in this country. These are the following:

CLAUSES 43, 51 & 52:
There appears to be a material conflict between Clause 43(l)(b) on the one hand and Clauses 51 and 52 on the other. Whereas Clause 43(l)(b) provides that a national license may be suspended or revoked if the licensee has become disqualified to hold such license, Clauses 51 and 52 make provision for a maximum period of three years within which a licensee (or a person holding any interest in such licensee) will be required to dispose of such interest in the event that such licensee or person becomes legally disqualified to hold the license. Clauses 51 and 52 go on to provide further that the provincial licensing authority must determine the period of time within which the relevant interest is to be disposed of by the disqualified person. These Tatter provisions undermine the power conferred on the licensing authorities by Clause 43(l)(b) to suspend or revoke licenses in the event of disqualification, particularly when the disqualified person itself holds the license in question.

Moreover, the provisions allowing a disqualified person a substantial period of time to dispose of an interest in a license undermine the law, since these are contrary to the recognized policy of ensuring that disqualified persons play no role whatsoever in the gambling industry. The implication is that, despite a proven disqualification, a disqualified person will be entitled to continue to retain a license or an interest therein, for anything up to three years. This is of even greater concern in that Clause 51 contemplates a situation where, even when it is the license holder itself which is disqualified to hold the license, the Bill paves the way for that license holder, despite such disqualification, to continue to hold the license for up to three years. It is submitted that a distinction must be drawn between the situation where the licensee itself does not qualify for the license, in which case the license should be suspended or revoked immediately, and the case where a person holding an interest in a license does not qualify for such license, in which case an argument may be made out for stipulating a period within which the interest in question is to be disposed of.


For the above reasons, it is recommended that the provisions of this Clause should not apply to licensees themselves, but should be restricted to persons having an interest in a license holder. It is noted that Clause 51 focuses on the situation where a licensee, or a person with an interest in a license, becomes disqualified. In this regard, it is recommended that the provisions of the Clause be expanded to include within its applicability, those persons having an interest in a license who do not necessarily "'become disqualified" after the award of the license, but who are found, after such award, to be so disqualified. This would make provision for persons who have erroneously been found suitable by a regulatory authority, because an existing disqualification has not been revealed by the investigations conducted by that authority.

It should also be mentioned that the provisions of Clause 51 (3)(b) (ii), regarding the situation which arises when the manager of the business to which a license relates is found to be disqualified, is inappropriate from a policy point of view and should be deleted. In the first instance, it should be noted that a manager does not fall into the category of persons enumerated in Clause 51(2) because he or she does not hold an "interest" in the sense contemplated in the Bill, in the licensee and, while he or she is an employee of the licensee, this Clause pertinently excludes the holders of employment licenses. Therefore) such a person is not properly covered by sub-clause (3). More importantly, however, the manager of a business to which a license relates, where he or she is a natural person, will ordinarily be licensed as a key employee. If such person is found to be disqualified, the proper course of action would be to suspend or revoke the employment license of such person, not to stipulate further conditions in relation to the license held by the employer so as to allow the manager to continue working in that capacity. Where the manager of a licensee is a legal person, the regulatory authority would similarly be in a position to revoke the suitability findings made in respect of such person. It is therefore recommended that Clause 51 (3)(b)(ii) be deleted.

It should also be noted that Clause 52 contemplates a situation where a disqualified person "acquires a license". It is similarly recommended that the above wording be amended to make provision for persons who are licensed in error because the investigations conducted by the regulatory authority have not revealed the disqualification.

Clause 52 also stipulates that if a disqualified person holds an interest of 5% or more in a license, that person must, within a period of not more than three years (as determined by the relevant licensing authority) dispose of any portion of such interest which exceeds 4,999% of the total financial interest in the license. This implies that there is no objection to persons who have been proven to be disqualified, holding an interest of 4,999% in a license. This is an untenable policy position, since the highest priority should be placed on ensuring that no disqualified persons participate in the industry. If a licensing authority is aware that any person holding any interest in any license has been proven to be disqualified to hold such interest, such person should be legally obliged to dispose of that interest in toto. The absurd consequence of the situation contemplated in Clause 52 is that it would be theoretically possible for the entire financial interest in a license holder to be held by legally disqualified persons, on the sole proviso that not one of those persons held more than 4,999% of the total financial interest in such license holder.

In the above regard, the point should be made that the motivation behind the benchmark of 5% currently contemplated in provincial legislation is to attempt to set feasible levels at which provincial licensing authorities are required to conduct probity investigations (in terms of the projected [lesser] impact of a disqualification where the interest held by the disqualified person does not exceed 5% of the total financial interest in the license holder), but not to support or advance the view that it is in order for legally disqualified persons to hold a financial interest of less than 5% in a license holder. In this regard, it should be borne in mind that the integrity of the gambling industry is at stake and should not be compromised.

AD CLAUSE 59:
Clause 59 of the Bill stipulates that, where a person acquires, inter alia, a controlling interest in a license holder, that person is obliged to apply to the relevant licensing authority for the transfer of the relevant license.

This provision is unworkable and inappropriate for a number of reasons. In the first instance, the Western Cape Gambling and Racing Law, Law 4 of 1996, as amended ("the Law" ) provides that licenses are not transferable. However, more importantly, there is no logical reason to require the transfer of a license from a license holder to another party merely because that party has or acquires a controlling interest in that license holder. Levels of shareholding in various categories of licensee may change frequently and these variations are monitored and approved in advance by provincial licensing authorities. Therefore the suitability of shareholders acquiring controlling or other interests in license holders is ensured on an ongoing basis.

The practical effect of this Clause would seem to be that, since the controlling shareholder in a number of casino licensees may, for instance, be Sun International (South Africa) Ltd ("SISA"), those licenses should properly be transferred to SISA and no longer held by the individual, separate legal entities (with their corresponding empowerment shareholding components) to whom those licenses had originally been granted on a number of conditions. If this were to occur, and these licenses were to be transferred to SISA, issues regarding monopolistic practices would inevitably arise. More importantly, the question must be posed as to what would become of the other shareholders in the previous license holder, such as the empowerment partners. The license conditions regarding participation in the various casino projects by those partners are predicated on the structure of the license holder to which the licence was originally granted. Thus, for example, if a license were to be transferred from SunWest International (Pty) Ltd ("SunWest") to SISA, the licence conditions imposed on SunWest in respect of the empowerment shareholders in SunWest would be difficult to enforce as against the new licence holder, which would have its own structure, operating independently of those shareholders. Needless to say, the dividends expected to be payable to empowerment shareholders would not be generated if SunWest no longer held the licence.

In the above regard, it is important not to lose sight of the fact that licence holders which are companies are legal entities in their own right, and as such are impacted upon by other legislation having reference to corporate bodies, such as the Companies Act. For example, a company which has been established to hold a casino operator licence must, by law, reflect the nature of its core business in its founding documents. The transfer of a casino licence to another company not established for the same business purpose would accordingly have a host of other legal implications for both the transferor and the transferee.

Moreover, there is another potential legal impediment to the proposed mandatory transfer procedure contemplated by Clause 59. If' for example, a natural person were to acquire a controlling interest in the holder of a casino licence, such person would similarly be obliged, in terms of Clause 59 of the Bill, to apply for the transfer of the licence into his or her name. However, this would not be legally permissible, since

Clause 46 of the Bill pertinently provides that only a juristic person may be licensed to operate a casino. It follows that, in such circumstances, Clause 59 would be unenforceable and it is accordingly recommended that it be deleted in its entirety.

In addition to the above, there is a further highly material consideration regarding the implementation of the Bill which, in the view of this Committee, requires urgent and thorough attention. In this regard, it should be noted, against the backdrop of the fact that, in terms of Schedule 4 to the Constitution, casinos, gambling, racing and wagering are areas of concurrent functional legislative competence, that certain major conflicts are foreseen between the Bill in its current form and corresponding provisions of provincial legislation. It is well known that conflicts of this nature are highly undesirable inasmuch as they serve as a breeding ground for disputes and litigation, and are to be avoided at all costs.

The conflicts foreseen would require substantial amendments to the provincial Acts. At a minimum, provincial legislation would have to be amended to empower the provincial licensing authorities to perform a number of the functions to be executed by them in terms of the Bill, to introduce new or amend existing procedural prescripts in respect thereof' to provide for new licence types, the concept of a national licence and to introduce and define new concepts, such as the "independent site operator". In addition, it is as yet unknown what regulations are to be promulgated in terms of the Act, what subject matter is to be covered thereby and when such regulations are foreseen to come into operation. It must also be acknowledged that, in view of the above, there is considerable potential for conflict between the national regulations and provincial legislation, about which little can be done until details regarding the provisions proposed to be introduced are made known to the provincial licensing authorities.

Therefore, appropriate arrangements will have to be made to prevent conflicts between the various legislative instruments. Against the above backdrop, it is suggested that, pending the finalization of the Bill, the national regulations be drafted and provided to the provincial licensing authorities, allowing them sufficient time in which to motivate the necessary adjustments to their legislation to the relevant Provincial Parliaments.

It is further strongly recommended that the implementation of the Act and the national regulations be timed so as to come into effect simultaneously, in order to give provincial licensing authorities an adequate opportunity to make the necessary provision for aligning their legislation with the primary and subordinate legislation to be implemented on a national level. These proposals are motivated by the need to ensure uniformity and thereby to enhance the objectives of effective and streamlined regulation, both provincially and nationally.

It is trusted that the above comments will prove to be of assistance to the National Council of Provinces.

Pursuant to the comments made above, attached as Annexure "A" hereto please find a schedule of proposed amendments to the Bill. It will be noted that the amendments proposed in Annexure "A" pertain only to the most critical shortcomings in the Bill (having a direct bearing on crucial areas of policy) which have been identified in this submission. However, the National Council of Provinces is requested to give consideration to all the matters regarded as requiring amendment which have been dealt with in this submission.

Yours faithfully

CHAIRPERSON
STANDING COMMITTEE ON AGRICULTURE, TOURISM & GAMBLING
PROVINCIAL LEGISLATURE: WESTERN CAPE


ANNEXURE "A"

REPUBLIC OF SOUTH AFRICA


PROPOSED AMENDMENTS TO NATIONAL GAMBLING BILL[B48B-2OO3]

B 48B - 2003]
AMENDMENTS PROPOSED

NATIONAL GAMBLING BILL
[B48B-2003]

CLAUSE 51

1. On page 27, in line 50, to omit "a licence, or

2. On page 27, in line 50, after "licensee" to insert "is found to be or".

3 On page 27, in line 54, after "subsection (2)" to insert "is found to be or".

4. On page 27, in line 55, after "issued" to insert "that person".
5. On page 27, in line 56, after "(a)" to delete "that person".

6. On page 27, in line 58, after "(1,)"to delete "if that person-"

7. On page 28, in line 1, to delete "(i) holds an interest in the licensee, that person

8. On page 28, in line 4, after "disqualification" to insert".".

9 On page 28, in line 4, to delete"; or".

10. On page 28, in lines 5-7, to delete "(ii) is a manager of the business concerned, the licensing authority may impose reasonable conditions on the continuation of the licence with the object of ensuring continuing compliance with the principles of this Act.".

CLAUSE 52

1. On page 28, in line 10, after "If', to delete "-".

2. On page 28, in line 11, to delete "(a)".

3. On page 28, in line 11, after "section 50(2)", to omit "acquires" and to substitute:

"has acquired a financial interest in".

4. On page 28, in lines 11 - 12, to omit "or 5% or more of the total financial interest in a licensee, or".

5. On page 28, in lines 13 - 15, to omit "~) the financial interest held by a person who is disqualified in terms of section 50(2) comes to represent 5% or more of the total financial interest in a licensee,".

6. On page 28, in line 18, after "their financial interest", to omit "that exceeds

4,999% of the total financial interest" and to substitute:

"in such licence".

CLAUSE 59
Clause rejected.