VOL 15 PART 3
Sizwe Lindelo Snail Online gambling in South Africa
Comparative perspectives
1 Introduction to online gambling • Internet sport wagering and betting; • online lotteries and online bingo; and The increase in the number of Internet users • online tournaments and online sweep and the growing confidence of customers in stakes. conducting online transactions have led to a greater number of people being willing The most visible form is that of Internet to engage in online gambling. The potential gambling sites (idem at 5-3), also known as reach of online casinos is tremendous, taking virtual online gaming (see J Forder & P Quirk into account the number of casinos that Electronic Commerce and the Law (2001) 333). exist. The constant growth of the industry These sites now feature interactive games and and the increased number of online casinos and casino-style gambling in the form of blackjack, gambling sites are factors to be considered poker, slot machines, and roulette (see N Rose (see M Eksteen ‘Internet gambling and the law’ ‘Internet gambling: domestic & international in R Buys (ed) Cyberlaw @ SA: The Law of the developments’ in Gambling and the Law vol Internet in South Africa (2000) 315). Obviously, 4 (23 November 1998), and walk customers the figures are greatly influenced by a number through a virtual tour of the site, complete of variables that are difficult to predict, the with graphics and background music. Before most important being the regulatory measures gambling, people are required by most sites undertaken by governments (see United States to complete registration forms and either to National Gambling Impact Study — Commission purchase virtual chips or to create an account Report (1999) 5-1 (hence ‘USNGIS’), accessible at with a set minimum amount. Payment is made
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allows players to change their bets as the Another growing concern expressed by game progresses. governments and citizens is the easy and accessible manner in which e-gambling is The third kind of online gambling consists of provided. It has created a new group of online lotteries and online bingo (see USNGIS pathological gamblers attracted by the easy at 5-4). These types of gambling sites are the access to e-gambling sites, the high-speed virtual equivalent of the physical bingo game instant gratification of e-gambling games, and lottery. They have proved very popular and their offer of a high level of privacy. in the United States of America, and new Left unregulated, the problem of pathological ones have been emerging by the day in other gambling will worsen (BP Horn, testimony countries. before the Subcommittee on Crime, Committee on the Judiciary, US Congress (4 February The fourth and last form of online gambling 1998), as referred to in USNGIS at 5-5). (which may actually fall into the wagering category) is online tournaments and online Although underage e-gambling and pathological sweepstakes (ibid). In this type of online gam e-gambling are serious points of concern, it is bling, the web-site patrons usually compete clear that cyber crimes are on the increase against either the web host or other participants, and that different ways of promoting criminal much like playing a video game. These types activity are being developed by criminals across of sites usually charge an ‘entrance fee’, part of the globe. Before Internet gambling appeared, which is used for the prize to be won (CR it was fairly easy to catch offenders and enforce Janower ‘Gambling on the Internet’ 2 J. gambling legislation (Eksteen op cit at 316). Computer Mediated.Com, accessible at
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only a daily problem for governments and worldwide. Unfortunately, because of different banks but was also extremely applicable to legal philosophies and socioeconomic factors, the gambling world (see J Siska ‘Combating the different e-gambling statutes adopted by money laundering in the gaming sector’ in various governments cannot be harmonized G Strejcek et al (ed) Games of Chance in the into a single piece of international e-gambling EU and in Austria (2002) 103). The Internet, legislation. It will always be difficult to institute with its anonymity, remote access, and data control measures that could be applied encryption, can provide a safe and easy vehicle universally. and environment for money laundering. All the money launderer has to do is to deposit money To understand issues relating to conflicting into an offshore account, gamble a little, make laws on cross-border gambling activities, it more money and/or lose a fraction of it, and is essential to classify the different legislative then cash out the remaining funds (see USNGIS modes (idem at 104). This classification does at 5-6). not apply to all aspects of e-gambling, for that exercise would require a separate essay. It is clear from the various issues discussed However, the relevant cross-border issues that above that e-gambling (online gambling) is an will be used as criteria could be the following: area requiring extensive regulatory measures, • whether online casinos are permitted to because the failure to institute effective offer online gambling in their countries of countermeasures could lead to a plethora of origin; and criminal activities. • whether there are any restrictions on the eligibility to gamble with regard to the e- Various regulatory models of online gambler’s nationality or residence (ibid). gambling Schriever suggests that when answering the In a global market without borders, as the above questions, one can develop a scheme Internet is said to be, it is difficult to ensure that consisting of five different models (ibid): national regulation is respected and enforced (see • liberal (completely liberal); E Schriever ‘Conflict and coordination between • restrictive (restrictive liberal); diverse regulatory environments’ in Cross- • liberal prohibitive; Border Gambling on the Internet — Challenging • prohibitive (totally prohibitive); and National and International Law Swiss Institute • protectionist (protectionist prohibitive) of Comparative Law (2004) 103). The divergent interests and philosophies of governments have These will be described in turn. led to a large variety of approaches by different judicial systems concerning bricks-and-mortar Liberal (completely liberal) casinos. Each country has a different sociological or philosophical perception of gambling (ibid). Liberal e-gaming systems are characterized by This fact appears from the different legislative the fact that they expressly authorize online texts that have been adopted worldwide with gambling and have no limitations (idem at 115). respect to the online gambling phenomenon. Nor is there any prohibition on the export or import of online gambling services. Examples There are various factors that guide a particular of this liberal model are to be found in Canada, state when enacting legislation either for or Vanuatu, and the United Kingdom. against online gambling. These factors include financial interest (taxes and levies to be applied) Restrictive (restrictive liberal) and sovereignty (legitimacy and enforceability of the gambling laws of the state), and have These systems are essentially liberal but have led to a proliferation of e-gambling legislation one distinctive difference: licensed e-gambling
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is permitted but is not to be offered to It is submitted that South Africa’s National jurisdictions that prohibit it (idem at 118). Gambling Amendment Bill 2007 (Gen Notice Examples of restrictive liberal models are to be 1838 GG 29489) attempts to shift the totally found in Nevada and the United States Virgin prohibitive legal position towards one of being Islands. protectionist prohibitive.
Liberal prohibitive The South African position on online gambling Many of the small offshore online gambling havens may be placed in this category (idem at The present legal regime under the National 121). In terms of this approach, online gambling Gambling Act activities are authorized within the territory but are not authorized to local inhabitants. The proviso for Gambling in South Africa is regulated by the permitting such conduct is that the country must National Gambling Act 7 of 2004 (‘the Act’). stand to make financial gain. Examples of this This statute repealed the previous National model are to be found in Singapore and Curacao. Gambling Act 33 of 1996 and the Gambling Act 51 of 1965 completely in relation to all Prohibitive (totally prohibitive) online gambling activities (for the legal history of e-gambling, see Eksteen op cit at 316). The According to this legal system, any form present National Gambling Act also repealed of online offering, commercial exploitation, the Lotteries Act 57 of 1997. and online gambling (and/or any other form of electronic gaming practice) is prohibited Within the framework of the present National (idem at 105). In other words, ‘all practices’ are Gambling Act, each of South Africa’s nine expressly and impliedly prohibited. Examples provinces has authority to enact its own are to be found in the United States of America, provincial legislation on gambling (see, for France, most Arab nations, and South Africa. example, the Mpumalanga Gaming Act 5 of 1995, the Western Cape Gambling and Protectionist (protectionist prohibitive) Racing Law Act 4 of 1997, and the Kwa-Zulu Natal Gambling Act 10 of 1996). In terms of Protectionist systems allow gambling but only the Act, ‘gambling’ is any activity involving the if the operator is licensed domestically (idem at following (see Werkmans Inc Business guide 109). From a cross-border point of view, they to electronic commerce and the law (2005) 75, form part of the prohibitive system because last accessed at
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whether by skill or chance, and/or making There are similar judgments in the Transvaal such a game available) — see also ‘gambling Provincial Division, echoing the same message games’ in s 5; and that ‘unlicensed gambling activities are illegal • playing any amusement game with a in the Gauteng Province and the rest of restricted prize, or making it available as the Republic’ (see Notice from the National prescribed by the provincial Act. Gambling Board Warning Public on Interactive Gambling, 002/2007 (16 April 2007)). Under section 7(a) of the Act, it is illegal to ‘engage in conduct or make available a gambling It is clear from these provisions that any activity that depends directly, indirectly, partly form of unlicensed online gambling in or entirely on contingency related to an event South Africa is expressly prohibited and is or activity that is itself unlawful in terms of the a criminal offence under sections 82 and law’. In particular, section 7(b) prohibits the use 83 of the Act. Persons contravening the Act of any ‘gambling machine or device’ under the face imprisonment for up to ten years, a fine person’s control to be used for the purposes of of R10 000, or both. This prohibition also a gambling activity as contemplated by’ section applies to unlicensed online bingo operation 7(a). (For a discussion of the meaning of in terms of the Lotteries Act; similar criminal ‘gambling device and machine’, see Werksmans sanctions may apply. op cit.) This prohibition is also extended to the ‘maintenance and/or operation of illegal In line with international legislation on money premises’ (s 7(c)). It is submitted that the laundering, South Africa promulgated the word ‘premises’ must be read in the context of Prevention of Organized Crime Act 121 of 1988. section 82(4) of the Electronic Communications This outlaws receiving of and/or benefiting and Transactions Act 25 of 2003, which may from the proceeds of any criminal activity, as include an ‘information system as well as well as the failure to report such activity. This electronic messages’. approach is also visible in section 7(a) of the National Gambling Act, which specifically In addition, section 11 of the National Gambling outlaws the engaging in conduct or making Act expressly prohibits a person from engaging available ‘a gambling activity if the outcome and/or making available interactive games of that activity depends directly, indirectly, unless that person is authorized in terms of the partly or entirely on a contingency related to an Act or any other national law (see Notice from event or activity that is itself unlawful in terms the National Gambling Board warning public of any law. . .’. on interactive gambling, 002/2007 (16 April 2007)). This position is reiterated in both the Proposed amendments to the National Western Cape and the Eastern Cape provincial Gambling Act Acts, which provide for the prohibition of unlicensed gambling activities (by including It is clear, in the preamble to the National computer hardware or software within the Gambling Amendment Bill 2007 (‘the Bill’), definition of ‘gambling games’). that there is an attempt at shifting the totally prohibitive legal regime to one of being This position was confirmed in Eekhout v Chief protectionist prohibitive. The preamble reads: Magistrate, District of East London (EC 21 February 2001 (case no 208/2000) unreported). ‘to provide for the regulation of interactive The court in that case had no doubt about gambling; to provide for the registration of issuing a search warrant based on the fact that players and player accounts; conditions to players were playing poker on a computer interactive gambling licenses; to provide that used pre-paid gambling credits and thus for further protection of minors and other contravened the provincial gambling statute. vulnerable persons. . .’.
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This change to the legal position is clear from An e-gambling provider may not permit an e- clause 5 of the Bill, which intends to extend the gambler to play unless the latter has opened an meaning of ‘gambling activity’, as prescribed by account in his or her name (ibid). section 3 of the Act, by inserting the words ‘an interactive game’. In clause 6, the Bill further An e-gambling provider must also ensure that the intends to entrench the legality of engaging e-gambler is not in a jurisdiction in which such in gambling activities by way of electronic gambling is not authorized (ibid). The e-gambler communication, by guaranteeing a person’s must provide a statement to the e-gambling right to bet and/or wager by electronic means. provider that he or she is older than 18 years (ibid). In this way, section 4 of the Act is amended. An e-gamling provider must immediately transfer funds in excess of the prescribed maximum Clause 7 of the Bill intends to amend section 5 of held to the credit in the player account to the the Act by inserting section 1A. This defines an player’s nominated account (ibid). In addition, ‘interactive gambling game’. It clearly requires the provider must not continue to conduct e- the e-gambling activity to meet the following gambling services if there was a miscarriage in requirements (clause 5(a)): the e-gambling activity because of human error or • the winning of money or a prize a failure in the operating or telecommunications • by a registered player who has undertaken system, and that further game is likely to be to take part in the game by electronic affected by the same error or fault (ibid). communication and • who has given his undertaking to pay an The e-gambling provider is also required to display entry fee the web-site licence clearly on the site (clause 12), • in return for a prize and/or money which is comply with e-gambling policies on pathological due to the e-gambling due to his personal gambling (s 13), comply with the e-gambling skill and/or chance in the game. advertising code prescribed by the Minister, and ensure compliance with and display all other The insertion of section 5A for the purposes statutory notices (see clauses 14–18). It is also of defining ‘interactive gambling transaction’ interesting to note that, as in the casino and guides the e-gambling process and deems such limited payout machine industry, the Minister transaction to have been concluded if a player’s would be empowered to set the maximum account is opened, credited and/or debited and number of online gambling sites, taking into such transaction has not miscarried because consideration the number of existing licensed of human error and failure of the Internet casinos, the number of other e-gambling sites, connection (see clause 8). Under the proposed Black Economic Empowerment, and competition amendments the Minister of Trade and Industry in the industry (see clause 23, inserting s 37A would also be empowered to make regulations into the Act). The proposed e-gambling licensing directed at or referring to specific categories of will only take place at a national level (clause electronic communication that may or may not 25, amending s 39 of the Act): this will be a shift be used for the purpose of online gambling away from provincial autonomy. (see clause 5(b)). Online gambling compared internationally The Bill intends to create a standard for the provision of Internet gambling by the insertion Germany of section 11A. An electronic gambler is thus not Similarly to the South African position on permitted to take part in an electronic gambling gambling, each federal state (‘Bundesland’) in game unless the e-gambler is a registered player Germany is authorized to regulate gambling and has nominated an account with a licensed in its own territory. Electronic gambling in a financial institution for debits and/or credits of federal state that does not have legislation is the gambling activity (see clause 10 of the Bill). a criminal offence punishable under article 284
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of the German Criminal Code (see Schriever passing the Interactive Gaming Act 84 of op cit at 110). So far, there are few federal 2000. This prohibits Australian-based operators states that have instituted Internet gambling. of Internet casinos from providing Internet Those that have done so have adopted the gambling services to Australian residents. So protectionist restrictive approach: in addition Australian licensed casinos are free to organize to the licensing requirement, the e-casino games online to e-gamblers outside the borders may offer such services only to its residents. of Australia (see Schriever op cit at 122). Germany has taken many progressive steps in the codification of online gambling law and of The United Kingdom lotteries, and its regime is currently undergoing A liberal approach has been taken by the extensive law reform. United Kingdom authorities. They believe that a liberal approach should be followed, as players Austria are likely to opt for probity and integrity that Austria has a purely national market, in which would make the country an attractive place for the state holds a monopoly (under art 3 of the conducting an online gambling operation (idem Law on Gambling (the Glueckspielgesetz)) in at 117). The Government instituted the Budd the form of two state-owned companies: Casinos Commission to investigate the pros and cons of AG and the Oesterrische Lotterien Gesellschaft online gambling. Of the 30 recommendations (see Schriever op cit at 111). In article 56(3) made, it was clear that the United Kingdom of the Glueckspielgesetz, Austria follows the would not follow the prohibition route, as it protectionist system, in restricting e-gambling had a well-established market. The commission to its own residents (for further discussion, also considered that policing it would be far see C Zib ‘Internet gambling and the Unfair too costly (ibid). Competition Act’ in Strejcek et al op cit at 71). Austrian law specifically excludes minors under The United States of America (Nevada, Indian the age of sixteen from taking part in e-gambling Tribal Land and the United States Virgin activities, as well as people who do not have a Islands) bank account (see Schriever op cit at 111). In the United States of America, regulatory authority usually lies with the jurisdiction of Australia each state. This principle has resulted in an Australia has had an interesting development interesting mixture of regulatory models within in the online gambling industry. It was one the country. It would generally be correct to say of the first countries to allow online gambling that a totally prohibitive model is followed in (as regulated by the particular state) as early as the United States, as federal legislation (the Live 1998 (see Forder & Quirk op cit at 337). The Wire Act 18 USC 1084) makes it a punishable Queensland Government and the Northern offence to place or facilitate a wager or a bet Territory Government were pioneers in the via the transmission of a wire communication. legalization of online gambling. The latter Those found guilty face imprisonment of up state made such gambling legal to all its to two years and/or a fine. There have been residents resident within the state and illegal a couple of successful prosecutions against to countries in which e-gambling was illegal, companies, in particular their management by virtue of amending the Gaming Control Act officials, the most prominent being the company (idem at 345). In 1998, the State of Queensland directors of Sports Illustrated online in the introduced the Interactive (Player Protection) much-reported case of Cohen v United States Act, which similarly provided that online 378 F 2d 756 at 757 (9th Cir 1967). gambling was legal to all its residents resident within the state and illegal to countries in It should be noted that most of the e-gambling which e-gambling was illegal. The influence of takes place in the Native American tribal lands the Commonwealth eventually led to Australia’s under a specific statute that authorizes online
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gaming only within that territory or to people practical reasons. Currently, electronic gambling outside its jurisdiction where online gambling in South Africa has been prohibited because of is permitted (see Indian Gaming Regulatory the lack of a competent and legitimate legislative Act, Public Law 100-497, codified essentially in model that would govern it within the country. 25 USC §§ 2701–2721). There are other states such as Illinois, South Dakota, and Nevada that Most jurisdictions around the world have legalized regulated online gambling (see Schriever op cit at 107). have decided to regulate online gambling, instead of outlawing it for The Isle of Man economic, social, and practical reasons Under section 2(2) of the Online Gambling Regulation Act 2001, it is a criminal offence to provide online gambling services to I feel that the most practical and legitimate anyone within the territory and/or to one gambling models applicable to the South of the prohibited countries. (This statute is African scene would those of a liberal accessible at
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