Interactive Gambling (Moratorium) Bill 2000

Interactive Gambling (Moratorium) Bill 2000

Introduction

1.1         On 17 August 2000, the Senate referred the Interactive Gambling (Moratorium) Bill 2000 (the Bill) to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee.  The Committee was required to report to the Senate by 4 September 2000.

The Committee’s Inquiry

1.2         The Committee invited submissions from numerous industry, government and welfare groups in Australia who are affected by interactive gambling.  It received 30 submissions and held a public hearing on 25 August 2000, where it heard evidence from 23 witnesses. 

The Bill

1.3         It is important to note from the outset that the Committee has been requested to examine the Bill, which applies a 12-month moratorium, and not a ban, on interactive gambling service providers (IGSPs) in Australia.  Some of the evidence received by the Committee focussed on the consequences of banning interactive gambling.  While this is relevant to an informed debate on gambling on the Internet, it is not the focus of the Bill and therefore the Committee’s Inquiry.

1.4         The Bill imposes a 12-month moratorium on the development of the interactive gambling industry in Australia by creating a new criminal offence, the provision of an ‘interactive gambling service’.  The new offence prohibits a person from providing an interactive gambling service unless the person was already providing the service when the moratorium commenced on 19 May 2000.  The offence ceases to have effect at midnight on 18 May 2001.

1.5         From the Explanatory Memorandum, it is clear that the main objective of the Bill is to limit the expansion of interactive gambling in Australia over the next 12 months.  This will assist to minimise the level of problem gambling on the Internet, therefore providing the Government with some breathing space to consider in more detail the feasibility and consequences of banning interactive gambling.

Overview of the main issues

1.6         In the evidence to the Committee a number of recurring issues emerged about the consequences of the proposed moratorium.  In the main, it was suggested that it is too broad in its application.  Consequently, the evidence contained numerous calls to amend the Bill so that specified interactive gambling activities are excluded from the moratorium.  Several witnesses and submissions also argued that the moratorium should not be imposed at all.  The major issues are listed below:

The impact of the moratorium on the level of problem gambling in Australia

Summary of the evidence

1.7         Several witnesses and submissions advised that the moratorium would force Australian-based Internet gamblers to access unscrupulous overseas-based sites, which are inadequately regulated and provide few player protections.[1]  It was argued that, by limiting the range of services provided by domestic IGSPs, the Bill was discouraging Australians from gambling in a safe and regulated interactive environment.

1.8         The evidence also suggested that State and Territory governments were not adequately addressing problem gambling both on the Internet and in land-based venues, and that their competitive instincts undermined a national regulatory model that embodies a range of harm-minimisation measures.

Discussion of the evidence

Impact on the level of problem gambling on the Internet

1.9         In its submission, Lasseters Online stated that the number of overseas-based IGSPs is constantly increasing and may therefore lead to increased levels of problem gambling:

The claim that by restricting the number of potential providers in Australia consumers will have a fixed choice of Australian-based providers ignores the more than 1000 international IGSPs that they will continue to be able to access.  The number of these international IGSPs is growing by around 20 per week.[2]

1.10        In its submission, WWWagering & Gaming Consultants suggests that, if Australians choose to gamble with overseas-based sites, they face significant risks:

The proposed moratorium will worsen the current plight of Australians who utilise the Internet to gamble – all 2,300 of them.  Australians will not be able to register with Australian providers offering enforced harm minimisation and proof of age (identity) safeguards.  Australians will only be able to deal with less scrupulous providers – the inevitable result being unthinkable enticements and encouragement to gamble far worse than any experienced, even in poker machine and lotto venues in Australia.[3]

1.11        In its submission, the Australian Institute for Gambling Research stated that the moratorium could lead to a loss of revenue that could be used to fund problem gambling programs.[4]  Speaking for the Institute, Professor Jan McMillen advised the Committee that the moratorium would do little to curb problem gambling on the Internet:

Australians, in the nature of this moratorium, are going to continue to gamble through Internet service providers both within Australia and offshore. If the primary objective of the legislation is to restrict the market so that we can look at the issue of problem gambling and prevent the expansion of the increase of problem gambling, I think that is going to fail, simply, as I said, because people are going to bet with existing Australian licensees, and some of them do not have effective consumer protection programs in place. There is no requirement in this bill for that to occur. They are also going to bet offshore. Other people have made that submission to you, and people will move offshore.[5]

1.12        The Explanatory Memorandum to the Bill concedes that the moratorium will not restrict Australian gamblers’ current ability to access offshore sites.[6]  However, this alone will not lead to an increase in problem gambling on overseas-based sites:

By freezing the interactive gambling industry to 19 May 2000 levels, the moratorium may lessen the growth of problem gambling that could have occurred had the industry continued to grow.   However, given the moratorium will not prevent the expansion of the offshore industry or the availability of traditional gambling products, it is not possible to gauge whether this will directly affect demand.

The moratorium will mean that Australian gamblers will have access to a local interactive gambling industry that is fixed for 12 months at 19 May 2000 levels.  This could result in the uptake of interactive gambling services plateauing at current levels for 12 months.  If this happens, it is reasonable to anticipate a similar plateauing of problem gambling generated by interactive gambling.[7]

1.13        It is likely that the expansion of the offshore industry in reputable jurisdictions will be limited over the next 12 months.  The Committee was advised that a number of overseas governments that have world-class information technology infrastructures are in the early stages of considering interactive gambling.  Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, provided an overview of regulation in overseas jurisdictions:

The situation in the UK, as we understand it, is that an inquiry is being conducted under the auspices of the Home Secretary into a full range of gambling issues—not dissimilar in fact to the Productivity Commission inquiry here last year—of which Internet gambling is one part. Although a number of submissions have been made to that inquiry and some of them have been mentioned in submissions and evidence to this committee, I think the actual process by the independent government inquiry is still continuing. My understanding at this stage is that they have not reached any clear conclusions on Internet gambling as such. But we are keeping in touch with them and they are very interested in developments here in Australia. 

The US, we have mentioned. The only other jurisdiction which appears to be actively looking at the issue is South Africa. There, my advice is, the actual process of consideration through government and parliament is going fairly slowly. That is the only information I have. Globally, we do not get a lot of indication that this is an issue outside those countries, but there is interest in what is happening here.[8]

1.14        Mr Dale also commented on the legality of interactive gambling in the United States, and informed the Committee of the level of confusion surrounding this issue:

... there have been a number of prosecutions [in the United States] in recent months, for what is technically interstate sports betting being conducted via the Internet. In fact, there has been one operator sent to jail for that offence. Those were federal offences prosecuted by the Justice Department. However, the Justice Department has said publicly that they want further clarification, through legislation, of their power to act against Internet gambling, and that is the reason for some of the current legislation. We have not had any more detail than that from the US government.[9]

Failure of State and Territory governments to address problem gambling

1.15        Evidence to the Committee suggests that States and Territories are differing in their approach to addressing problem gambling, and that there is a need for the Commonwealth Government to take a lead role.

1.16        Professor Jan McMillen, Executive Director, Australian Institute for Gambling Research, provided the Committee with an overview of measures that are being taken to address all forms of problem gambling:

I have been calling for a national strategy [on problem gambling] for some time. What is lacking, I think, is a champion at the Commonwealth level to take this through. We found in other public health areas— for instance, tobacco, alcohol, road trauma and the AIDS campaign—that you needed a champion at the Commonwealth level, and that is lacking.

So at this stage we are working with inconsistent state governments but they are making some effort to at least share information and discuss the possibility of getting some common standards and policies in place.  But that is taking a long time—you know what these processes are like—and meanwhile people are hurting.[10]

1.17        On the specific issue of interactive gambling, Ms Marilyn Webster, Catholic Nominee, Inter-Church Gambling Taskforce, informed the Committee that the Taskforce ‘is not satisfied that consumer protection mechanisms held up in the various states will prevent the capture of new and vulnerable groups of problem gamblers’.[11]  Similarly, Professor Jan McMillen advised the Committee that the regulatory standards for interactive gambling are inconsistent:

Some of the best operators, certainly, have set some benchmarks that I think could even be improved further; but we also have, as the Netbets report quite rightly identified, some licensed operators in Australia who do not meet what I think are even basic, adequate standards. That is my major concern, I think.[12]

1.18        The Explanatory Memorandum to the Bill indicates that there is currently significant differences in the approaches of State and Territory governments to the issue of problem gambling on the Internet:

The Commonwealth cannot rely on the States and Territories to halt the growth of the interactive gambling industry. On 19 April 2000, the Commonwealth signalled its concern about the potential for interactive gambling to exacerbate the negative social impacts of problem gambling in Australia and called on the States and Territories to join it in imposing a voluntary moratorium on the introduction of new interactive gambling services. Only New South Wales and Western Australia indicated support for this initiative. Since this meeting, a number of jurisdictions have continued to issue new interactive gambling licences.[13]

1.19        In its inquiry into interactive gambling, the Senate Select Committee on Information Technologies found that State and Territory governments were not able to agree on a uniform regulatory model and that this compromised the effectiveness of harm-minimisation policies.[14]  This finding was supported in evidence to the Committee during its hearing on the Bill.  Mr Warren Wilson, Managing Director, TAB Ltd (NSW), referred to the continuing competitive instincts of some States and Territories as they vie for market share:

I think that the aggressive states have been those that have the least to lose—states/territories. That is, they do not have a tax base, they do not have a population base and, therefore, they have little to lose by getting out on the front foot and going forward with these things. I think it is already on the public record that one particular territory said that they wished to be the Nevada of Australia. I think that says it all.[15]

1.20        Similarly, when asked about the reasons for the failure of State and Territory governments to find a consistent position with respect to the licensing of interactive gambling, Mr Peter Fletcher, Public Affairs Manager, TAB Ltd (NSW), referred to the competitive nature of different jurisdictions:

Certainly there has been some breaking of ranks in terms of consistency on a number of regulatory issues. Some of the smaller states and territories have taken the view that they should offer very laissez faire arrangements whereby their licensees can fully target the more populous states without any recourse to loss of revenues, particularly to the racing industry in those larger states. Those types of arrangements and competition between the states have led to the situation that you allude to.[16]

1.21        In addition, a number of harm-minimisation measures that could easily be implemented using existing technologies and which were recommended by the Senate Select Committee in Netbets, have failed to materialise.  For example, the display of betting odds on a virtual poker machine, clear warnings about the dangers of gambling, enforced (not self-imposed) time limits to gambling activity, and the uniform availability of third-party player-exclusions have not yet been fully addressed.[17]

1.22        Evidence to the Committee indicated that Internet technology allows for the implementation of these types of regulatory measures and that governments should make them a part of licensing arrangements:

... look at the strengths of the Internet. Do not look at the issue as simply access to poker machines 24 hours a day; look at the extent to which the medium itself can provide [harm-minimisation policies]. Structure in your licence requirements to stipulate who may access your service and upon what conditions, and deal with it that way. We think that way you address the social policy concerns, which we also share, but you do not do it in a way that has these unintended and adverse impacts on the rest of the Internet industry.[18]

Conclusion

1.23        The Committee considers that the combination of the limited uptake of e-commerce (which is usually confined to trusted online retailers), the absence of reputable IGSPs and the availability of other forms of gambling, will discourage most Australians from gambling online with overseas-based IGSPs.  By implementing interim controls on the expansion of Australian-based IGSPs, the Bill effectively limits the most likely source for increased gambling activity and therefore problem gambling.

1.24        In addition, there is a need for the Commonwealth Government to take an active role in addressing problem gambling in Australia and the Bill will provide an opportunity to carry out a timely analysis on this very important social issue.  The Committee notes that most State and Territory governments will not take a lead role in addressing the social harm issues raised by interactive gambling, which provides further impetus for the Government’s proposed intervention.

The impact of the moratorium on interactive gambling service providers (IGSPs) in Australia

Summary of the evidence

1.25        Some of the evidence to the Committee stated that a temporary pause on the expansion of interactive gambling in Australia, would irrevocably set back Australian IGSPs, who must compete with overseas organisations.  Several witnesses submitted that, because the Internet and its related technologies are changing rapidly and consumer expectations are increasingly high, any impediment to meeting such consumer expectation is likely to result in a market loss that may not be recovered into the future.

1.26        However, the Committee was also informed that Australia’s reputation as a regulator provides Australian IGSPs with a significant market advantage over their international competitors.

Relevant provisions of the Bill

1.27        The Bill limits the expansion of existing IGSPs by making it an offence for them to provide an interactive gambling service.  However, there are a number of defences to this offence, and these are listed in clause 11.  Under this provision, it is a defence if the defendant proves that:

  1. on a particular day before 19 May 2000, the defendant provided an interactive gambling service (the pre-19 May 2000 service); and
  2. the current service is the same or substantially the same as the pre-19 May 2000 service; and
  3. the current service is provided under the same name as the pre-19 May 2000 service; and
  4. the pre-19 May 2000 service had at least one arm’s length paying customer.[19]

1.28        In order to fall within this defence, an organisation would essentially need to have been operating prior to 19 May 2000, and since that time continued to operate in substantially the same manner.  The Explanatory Memorandum provides guidance on what constitutes ‘substantially the same’ service:

In relation to the kind of services provided, a number of aspects of an interactive gambling service are so central to what kind of service the service is, that if a service is different from a pre-19 May 2000 service in respect of any of those aspects, it is intended that the service would not be regarded to be the same or substantially the same as the pre-19 May 2000 service.  These central aspects of an interactive gambling service are:

Non-central aspects of an interactive gambling service could vary in relation to a post-19 May 2000 service and it is intended that the service would still be regarded be the same or substantially the same as a pre-19 May 2000 service.  The non-central aspects of the service include aesthetic changes to the service, such as a change to the appearance of a service or the addition of music to the service, or changes to ancillary aspects of the interactive gambling service such as billing procedures or application procedures.[20]

1.29        Consequently, for an IGSP to rely on this defence, it must not alter its operations beyond the limitations set out by clause 11.  Much of the evidence to the Committee commented on how this limitation would affect the commercial wellbeing of IGSPs in Australia.

Discussion of the evidence

Operations shifted offshore

1.30        Mr Peter Coroneos, Executive Director, Internet Industry Association, advised that the moratorium, regardless of whether there is a ban in the future, will result in a number of Australian-based organisations moving overseas:

Undoubtedly the message we are getting from both member and non-member interactive gambling operators in Australia is that this moratorium will leave them with no option but to relocate.  So to that extent they are adjusting their business plans.[21]

1.31        The Committee heard evidence that the high level of regulation in Australia, and the trust that this builds with online gamblers, may not be enough to keep IGSPs in Australia.  Mr Richard Farmer commented that although Australian regulation helps to attract customers, in the long term, the reputation of an IGSP would outweigh its physical location and government regulator.[22]

1.32        The Australian Capital Territory Government commented in its submission that the Bill will force Australian IGSPs to progress arrangements offshore.[23]  Sportingbet.com, a United Kingdom based online wagering service with plans to locate its regional headquarters in Australia, stated in its submission that it would relocate to another country: ‘Sportingbet is one of many international organisations that will move to other locations and still offer their services to a global market (including Australia)’.[24]

Market losses

1.33        Lasseters Online, which operates Australia’s first online casino, alluded to the competitive nature of the Internet, and how the moratorium detracts from its ability to compete effectively:

The moratorium will impede the growth of existing operators such as Lasseters.  The introduction of new services and capabilities is critical within the information technology industry where rapid advances in technology can change the Internet and e-commerce dramatically within a one year period.[25]

1.34        Lasseters Online also stated that it will not benefit from the exclusion of other Australian IGSPs from the online environment:

The expectation that existing Australian operators will benefit from a protected position in the market and the absence of new competitors, is false.  The primary competition for existing Australian operators is the more than 1000 IGSPs.  Amongst this market, existing Australian operators will be at a disadvantage because they will be unable to innovate in line with market trends.[26]

1.35        Some organisations stated that the moratorium will impact negatively on industries that are related to their online gambling operations.  For example, ACT TAB Ltd argued that the inclusion of wagering in the moratorium is ‘totally inappropriate’ and ‘represents a major threat to the future funding of the racing industry’.[27]

1.36        Similarly, TABCORP Holdings Ltd stated that the moratorium:

... could immediately stop the development of any new wagering services by the State TABs in Australia who are presently operating under their wagering licence issued by their respective State governments.  This will adversely impact all TAB services including TAB agencies, racecourses and phone betting services.[28]

1.37        In the Explanatory Memorandum to the Bill, the Government states that, with respect to existing IGSPs, ‘the industry should be able to generate at least the same amount of revenue as it did as at the date the moratorium takes effect.’[29]  Lasseters Online responded to this statement, saying that it:

... ignores the essential business objective for growth in revenue and returns.  Companies are obliged to shareholders and to the health of the business to aim for increased revenue each year rather than ‘the same’.[30]

1.38        Similar comments were made in other submissions about the need for IGSPs to constantly develop their product in an international market and the obligation they owe to their Australian shareholders.[31]

1.39        Mr Andrew Eakins, Director of Finance, The Federal Group, indicated that the restriction will set back his company by up to two years:

... we would not be able to increase our range of games during that period of time.  We would be able to offer only the current games. That restriction would not apply on overseas sites, obviously, so overseas sites would be able to improve their product during this period of time. If, subsequently, there was no ban put on Internet gaming, there was some kind of national regulatory model or whatever, we would be 12, 18 or 24 months behind what the rest of the industry has done in that period. Effectively, there is a commercial ban by way of a moratorium.[32]

Conclusion

1.40        The Committee notes that the moratorium could have an impact on the short-term growth of the interactive gambling industry in Australia, and that this is a consequence of the desired outcome of providing the Commonwealth Government with an opportunity to examine the impact of interactive gambling.  The potential negative economic impact, however, is offset by the need to ensure that Australians are not subject to the potentially adverse effect of increased gambling opportunities.  Further, from the evidence, it appears that the moratorium alone will not result in large numbers of Australian IGSPs moving their operations offshore.

1.41        In addition, the Committee also notes the considerable marketing advantage that Australian regulation provides IGSPs, which is evidenced by the continuing interest of international organisations wishing to establish operations in Australia.  The Bill is not likely to damage this market advantage, as it indicates a commitment by the Commonwealth to offer the highest levels of protection to consumers on the Internet.

The inclusion of interactive wagering and lotteries in the moratorium

Interactive wagering

Summary of the evidence

1.42        Some of the evidence to the Committee stated that interactive wagering activities should be excluded from the moratorium.  There were two main arguments in support of this conclusion.  First, it was stated that wagering on the Internet is not an interactive activity and is less likely than online gaming to result in problem gambling.  Second, it was argued that wagering on the Internet is very similar to telephone betting, which is not illegal.  The Committee also heard evidence, however, to the effect that the moratorium should apply equally to all forms of gambling on the Internet.

Relevant provisions of the Bill

1.43        Clause 4 of the Bill specifies the types of gambling services that are covered by the moratorium.  These are summarised in the Explanatory Memorandum:

A Gambling service is defined in clause 4 to mean:

  1. a service for the placing, making, receiving or acceptance of bets; or
  2. a service the sole or dominant purpose of which is to introduce individuals who wish to make or place bets to individuals who are willing to receive or accept those bets; or
  3. a service for the conduct of a lottery; or
  4. a service for the supply of lottery tickets; or
  5. a service for the conduct of a specified kind of game, or
  6. a gambling service (within the ordinary meaning of that expression) that is not covered by any of the above paragraphs.

1.44        This is a broad definition and includes wagering and lotteries.  However, a further qualification to the definition is made in clause 5, which requires the gambling service to be provided using specified telecommunications means. 

Discussion of the evidence

1.45        A number of witnesses and submissions highlighted the difference between wagering and gaming, and therefore argued that a different regulatory regime should apply to each.  The principal difference was that wagering is not repetitive and is dependent on an external event or outcome.  In contrast, gaming is highly repetitive and the activity is generated by the person, usually at the press of a button or the click of a mouse.

1.46        In its submission, ACT TAB Ltd stated that wagering on the Internet is not an interactive gambling activity as the wager is usually placed ahead of an event, the timing of which is determined by an external body:

Placing wagers on racing or ‘live’ events is far removed from Internet gaming and interactive gambling.  The events on which wagers are made are conducted at racecourses throughout the country and run to a time schedule set by racing clubs.  In no way could these events be classified as ‘interactive’.[33]

1.47        A similar point was made by MegaSports (ACT) Pty Ltd in its submission, which highlighted that unlike ‘mindless button pushing of virtual poker machines or simple red/black choices of virtual roulette, wagering requires some degree of skill and analysis.’[34]

1.48        Mr Warren Wilson, Managing Director, TAB Ltd (NSW), implied that wagering on the Internet will not lead to an ‘unwieldy’ growth in wagering activity and a consequent increase in problem gambling:

... Sky Channel commenced a home racing service on 5 September 1998 and now, through all of the pay TV operators, the home racing channel is available in about 1.3 million homes—nearly one in four homes throughout the country, and yet it is still only single digit growth that is probably below or around inflationary growth in the country.  So the point is that, even with these new technologies or new distribution mechanisms, we have not seen any outrageous or unwieldy sort of growth in the business.  My point is that the technology will not—as some of the doomsayers suggest—create rampant growth in wagering.  It just will not happen.[35]

1.49        In contrast to the above arguments, however, the Committee also heard evidence that the moratorium should apply equally across all forms of interactive gambling.  Mrs Joanne Pafumi, Consultant, Lasseters Holdings, provided the reasoning for this inclusive approach:

We are also concerned about some issues raised this morning in regard to the consistent application of the bill across gambling forms. I refer to the Productivity Commission, which reported on the source of problems for gamblers in counselling. It found that gaming machines were the primary source, with 68.9 per cent of problem gamblers reporting that method. Racing accounted for 15.6 per cent; casino table games, five per cent; lottery games, 3.7 per cent; bingo, 2.7 per cent; and other kinds, 4.1 per cent. So while the source of problem gambling in society is heavily skewed towards gaming machines, other forms of gambling must take some responsibility for problem gambling in society. We believe firmly that if you are part of the problem, you should be part of the solution. For that reason we believe that regulation with respect to interactive gambling should be consistent across all forms of gaming.[36]

1.50        Professor Jan McMillen, Executive Director, Australian Institute for Gambling Research, indicated that wagering activity is on the rise and that even though ‘sports betting is a small part of the market it had a growth rate of 42 per cent in the last financial year’.[37]  Professor McMillen also stated that the changes to wagering activities are not being closely regulated by State and Territory governments and are ‘slipping through the net’.[38]

1.51        The Committee also heard evidence that there should be no distinction between wagering and gaming on the Internet, and therefore both should fall under the moratorium. For example, Ms Marilyn Webster, representing the Inter-Church Gambling Taskforce, advised the Committee that their organisation does not distinguish between wagering and interactive gambling.[39]

1.52        Several submissions to the Committee stated that there is little distinction between a wagering activity that is conducted on the Internet, at a racetrack, or over the telephone.  Consequently, if it is legal to place a bet using a telephone, then it should also be legal on the Internet.

1.53        In its submission, CentreRacing Ltd stated that the Bill fails to make a valid distinction between telephone and Internet wagering:

The process and exposure of a punter placing a bet on a horse race are the same whether he does so in person, over the telephone (either speaking or pressing buttons on a handset) or using a standard computer keyboard. ...

The definitions of ‘standard telephone service’, ‘telephone betting service’ and ‘voice call’ [in the Bill] all appear to allow for data input of bets using a telephone handset but apparently not a standard keyboard.  There is no rational basis for such a distinction.[40]

1.54        The Committee notes that several other submissions supported this point of view.

1.55        Professor Jan McMillen, Executive Director, Australian Institute for Gambling Research, stated that Internet wagering is likely to attract a new market, and that experience indicates the size of this market will grow considerably:

I suspect it is a new market.  There probably is migration and that will probably accelerate, but I also think there is a new market.  History has shown that when technology facilitates the development of a new product and a new mode of delivery in gambling the market expands.  The cake gets bigger; it is just the slices of the cake that shift.  It happened with casinos; it happened with gaming machines; it happened with online lotteries, and now it is going to happen with this form of gambling as well.  We will end up with more Australians gambling and gambling more.[41]

1.56        Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, explained the Government’s policy behind the application of the moratorium to a range of gambling activities, despite the similarities between their access on the Internet and telephone:

It is one of a number of areas in the bill where I guess a line had to be drawn. The existing telecommunications regime makes a number of regulatory distinctions between different forms of carriage service.  We are trying to be consistent with that regime, among other things, and I think it sits logically with that approach.[42]

Lotteries

Summary of the evidence

1.57        The Committee heard a number of similar arguments against the inclusion of Internet lotteries in the moratorium.[43]  That is, lotteries on the Internet are no different to those in the terrestrial environment, and they have minimal impact on the levels of problem gambling.

Discussion of the evidence

1.58        Mr John Mortimore, General Manager, Tatts.com Division, Tattersall’s, stated that lotteries may not even be a source of problem gambling in Australia:

As a former chairman of the Australian lotto bloc and a long serving member of the industry I can assert that I have never seen any cogent evidence of the development of problem gambling behaviour in respect of the purchase of lottery tickets. The community does not even consider the purchase of lottery tickets to be gambling behaviour, in any case.[44]

1.59        Mr Peter Coroneos, Executive Director, Internet Industry Association, expressed concern about the Government’s divergent approach to existing activities that are conducted on the Internet such as, for example, the purchase of a lottery ticket: 

The banning of the sale of lottery tickets online seems to us a fairly ludicrous proposition when they are legally available from the local newsagent.  We question why the moratorium seeks to go so widely in its effect at a time when we are dealing with an activity which is legal and is responsibly enjoyed by many Australians.[45]

Conclusion

1.60        The Committee recognises that there are a number of similarities between wagering activity and lotteries on the Internet and their availability through other mediums such as the telephone and physical venues.  It also notes the differences between wagering and gaming.

1.61        The Committee believes that the Internet will bring such significant change to wagering activity that a moratorium is required for the Government to consider its impact.  The Internet will increase the accessibility and appeal of wagering activity.  The improved content and options it provides for gamblers such as placing more bets on more events, along with the fact that it can be accessed in private and in the workplace, will lead to increased gambling activity and with it a greater propensity for problem gambling. [46]

1.62        The Committee endorses the consistent and uniform approach of the Bill to all forms of interactive gambling services, including lotteries.

The application of the moratorium to interactive gambling operations that are not wholly based in Australia.

Summary of the evidence

1.63        Some of the evidence to the Committee stated that the extra-territorial application of the Bill is excessive, and that it should be amended so that it does not apply to IGSPs that have a connection with Australia, but whose operations are based overseas.  The Committee was also advised however, that this aspect of the Bill is necessary to ensure that organisations cannot circumvent the moratorium simply by having their Internet service hosted on an offshore server.

Relevant provisions of the Bill

1.64        Clause 5(1)(c) of the Bill has the effect of extending the moratorium to IGSPs that may not be based or operating in Australia.  The Explanatory Memorandum provides an example of its application, and states that a business could come within the terms of the moratorium if it:

... provides an on-line gambling service such as a casino which has its web-site maintained in an offshore jurisdiction and the company executive (or principal company executives) are based in Australia.[47]

Discussion of the evidence

1.65        In its submission, eBet Ltd argues that any moratorium should relate only to the operation of Internet gambling services on Australian soil or to Australian companies who target or accept customers from Australia.[48]  It argues that without this amendment,  the Bill would unduly impact on eBet’s overseas operations:

By way of example: If our company were to establish an Internet betting service for a European racetrack, licensed by a European Government and accepting only European resident customers, it would seem that we would be in breach of the law should the Bill pass in its current form.

We ask you to consider how this in any way assists the Government in its endeavours with respect to protecting Australians that it perceives as at risk from Internet gambling.[49]

1.66        A similar point was raised by the Northern Territory Government, which stated that this could drive legitimate Australian businesses offshore.[50]

1.67        Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, said that the extra-territorial application of the Bill is required to ensure that ‘firms did not seek to avoid the provisions of the Bill by simply moving servers around and things like that’.[51]

Conclusion

1.68        The Committee believes that the application of the moratorium to interactive gambling operations that are not wholly based in Australia, is necessary to ensure that the moratorium has its desired effect.  Without this restriction, Australian-based IGSPs could, as Mr Tom Dale advised the Committee (see paragraph 1.67), move their operations offshore and possibly continue to offer interactive gambling services to Australians.  Furthermore, from the point of view of consistency, it would be severely hypocritical of the Australian Government to expose overseas consumers to a service, which has been declared illegal for the period of the moratorium in Australia while its potential, undesirable social consequences are evaluated.

The scope for IGSPs to offer services to residents in overseas countries where interactive gambling is legal

Summary of the evidence

1.69        A number of submissions argued that the moratorium should not apply in cases where Australian residents are not targeted by IGSPs.  Several organisations - mainly those that provide gaming or wagering on international sporting events - indicated that they were prepared to target overseas markets only.  This is due to the fact that Australia is a very small gambling market and that the Internet enables cheap and easy access by overseas residents. 

1.70        Further, some Australian organisations have developed working relationships and partnerships with overseas bodies, with a view to assisting them with gambling products for their domestic markets.  Under the moratorium, the Australian-based organisations would be restricted from assisting to develop new products.

1.71        The Committee also heard, however, that there is a need for consistency between Australia’s domestic and international policies, and the Commonwealth Government should only endorse interactive gambling for international markets once it has done so domestically.

Relevant provisions of the Bill

1.72        Clause 9 of the Bill extends the application of the moratorium to ‘acts, omissions, matters and things outside Australia’.  The Explanatory Memorandum states that this provision is consistent with the intention of the Bill, which is to ‘pause the development of the Australian-based interactive gambling industry, which includes the provision of services to persons outside Australia.’[52]

Discussion of the evidence

1.73        In its submission, Publishing and Broadcasting Limited Gaming Management Pty Ltd (PBLG) suggested that the Commonwealth Government may be intruding on the policies of foreign governments:

If the Government and Parliament want to put Australians’ access to online gambling services ‘on hold’, PBLG submits that the moratorium should be targeted at that end. ...

By permitting Australian companies to participate in the overseas online gaming market, while denying Australians the opportunity to gamble, the Government’s purpose would be fulfilled without jeopardising a great e-commerce opportunity for Australia.

In putting this view, PBLG believes that:

·         It is for foreign governments, rather than Australia’s, to determine foreigners’ access to the Internet.[53]

1.74        Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, stated that there is a sound public policy reason for this restriction:

... there is a valid public policy point that if the Australian parliament decides that an issue is sufficiently harmful to pass legislation to restrict it domestically, effectively the export of such a harm is arguably very much contrary to good public policy and not guaranteed to win you friends overseas.[54]

Conclusion

1.75        The Committee notes that the Bill does not prohibit existing Australian IGSPs from continuing to offer their existing services to overseas markets.  It merely limits it to existing levels.  It could be a source of international embarrassment if, without adequate consultation, the Commonwealth Government endorsed a product the suitability of which it is now considering as part of its domestic policy.  It is possible that Australia’s reputation as a world-leading technical regulator of gambling would be compromised if it was not consolidated with an equally sound social policy.  The Committee believes that the sovereign right of the Australian Government to determine what happens on Australian territory must be understood.

1.76        The Committee also notes that some Australian IGSPs have not complied fully with the policies of overseas governments.  For example, Lasseters Online and Canbet Ltd informed the Committee that they accept bets from United States residents even though the government of that country has placed severe restrictions on interactive gambling services.

Consultation and retrospectivity of the moratorium

Consultation

Summary of the evidence

1.77        A number of witnesses stated that both the interactive gambling industry and government regulators had minimal opportunity for input into the drafting of the Bill. 

Discussion of the evidence

1.78        The consultative process for the Bill is outlined in the Explanatory Memorandum:

On 19 May 2000 the Commonwealth wrote to State and Territory Ministers outlining the Government's intention to legislate for a moratorium.  The letter invited States and Territories to provide input into the nature and scope of a legislated moratorium.  The Commonwealth also issued several public statements outlining its approach to the moratorium and this resulted in a number of queries and correspondence from industry representatives.  The Commonwealth's intention has been to signal in a very broad way its intention to legislate for a moratorium.  The Commonwealth will be in a better position to consult on the detail of the moratorium once it has developed and introduced legislation into Parliament.[55]

1.79        Mr Peter Bridge, representing the Australian Casino Association, advised that it was not consulted with respect to the drafting of the Bill.[56]  Similarly, Mr John Mortimore, General Manager, Tatts.com Division, Tattersall’s, told the Committee that, in his capacity as a member of the recently formed Australian Gaming Council, he was not aware of any consultations with its member organisations.[57]

1.80        In his evidence to the Committee, Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, stated that there was no industry input into the Bill, and that this practice has been followed in the past:

I will just note for the moment that it is not normal practice, although it can sometimes occur, for the specific details of draft legislation to be made available to the public or to interested parties in industry. There was certainly consultation with the industry and state governments and a number of user groups in the early stages of the government’s consideration of gambling policy generally, including Internet gambling. That was earlier this year but before the process of drafting the bill commenced.[58]

Retrospectivity

Summary of the evidence

1.81        Some of the evidence to Committee stated that the retrospectivity of the Bill will result in investment losses in the interactive gambling industry.  Several organisations argued that it was unfair that their activities are legal under State and Territory laws, but will potentially become illegal under the Bill.  In addition, retrospectivity results in an uncertain investment environment which could damage the wider Internet industry.

Discussion of the evidence

1.82        In its submission, the Northern Territory Government stated that the retrospectivity clauses of the Bill are unfair and should be amended:

Public comments have been made that the Bill, including the criminal offence provisions, would have retrospective effect.  If so, it is submitted that this is unfair as the actions that constitute the offence were not known to existing operators until the release of the Bill.  ...

However, it appears a penalty may not be imposed except for actions occurring after the Date of Assent.  If so, the Bill should be recast to have prospective effect only, and references to the May 2000 date should be removed.[59]

1.83        Similarly, a confidential submission received by the Committee stated that the retrospectivity of the Bill raised problems for business planning:

It is hard to understand the logic and fairness of the retrospective nature of the Bill.  The term ‘gambling service’ was not defined until the tabling of the Bill before Parliament.  How was it envisaged that Australian companies manage the operation of their commercial activities from the date Senator Alston made a press release in May 19 this year without definition?[60]

1.84        A number of witnesses commented that the uncertainty caused by the moratorium could have a negative impact on foreign investment in Australia.  Mr Keith Cullen, Managing Director, eBet Ltd, stated that the retrospectivity impacts negatively on the interactive gaming and other Internet industries:

Telecommunications covers every single business. There is a certain argument that says governments can use their powers under telecommunications to impact retrospectively and make criminal the activities of legitimate operators that were not operating in a vacuum—this is the important point here, which is frustrating.[61]

1.85        Mr Paul Appleby, Chief Executive Officer, GoCorp Ltd, stated in evidence that the moratorium has caused a high level of uncertainty, and as a result his organisation has examined the prospect of claiming compensation:

I must say it makes it very confusing for a business that is trying to move forward, and for the investor community, to try to have some confidence in investing in the business as it goes forward. ... This has to cause serious concern not only for the gaming sector but also for the e-commerce sector in general, the fact that the government can legislate retrospectively with regard to investments that have already been made, and been made in good faith under existing legislation. It is a major concern for our investors.[62]

Conclusion

1.86        Gambling has been a prominent public policy issue since it became evident that problem gambling in Australia is a major social problem.  Since the release of the Productivity Commission report into Australia’s gambling industries in November 1999, a number of Government press releases have been released, with the Prime Minister’s December 1999 statement clearly foreshadowing future developments:

Internet gambling has the potential to dramatically increase the number of problem gamblers because it will be accessible to every household 24 hours a day.

I would envisage that this issue will be a major focus of the proposed Ministerial Council on Gambling and its advisory body. In addition the Government will be undertaking consultations with relevant industry and consumer groups and will also take account of the forthcoming report of the Senate Information Technology Committee’s inquiry into on-line gambling.[63]

1.87        That Senate Committee subsequently released its report, Netbets: A review of online gambling in Australia, in March 2000 in which it indicated that further significant reforms were required and that without these a moratorium should be imposed.  Consequently, the gambling community has been aware since March 2000 that the Commonwealth Government was considering using its powers to possibly impose a moratorium.

1.88        Therefore, the Committee considers that adequate notice was provided.  Further, it would be unduly restrictive on the Commonwealth Government to expect that comprehensive consultations be carried out with respect to all Commonwealth legislation. 

Claims for compensation from IGSPs and State and Territory Governments

Summary of the evidence

1.89        Some of the evidence to the Committee stated that, as several organisations had spent millions of dollars in obtaining interactive gambling licences, which may subsequently be blocked or frustrated by the moratorium, a claim for compensation may lay against the Commonwealth.

Discussion of the evidence

1.90        In its submission to the Committee, the Australian Casino Association stated that a number of its members may seek compensation as a result of the moratorium:

The retrospective legislation is unfair and a number of our members could take legal action.  Compensation could be sought for the millions of dollars members have spent developing a legal business with a licence granted by a State or Territory Government.[64]

1.91        Mr Michael Gard, Senior Adviser, Tasmanian Government, stated in evidence that the Federal Group, Tasmania’s only operating IGSP, would have the support of its Government if it claimed compensation:

[The Federal Group] have indicated that they had to spend in the order of $14 million developing their site. They have said publicly that should this ban proceed they will sue. The Tasmanian government is on record as saying that they will do all they can to support the Federal Hotels’ action to recoup their losses.[65]

1.92        The Explanatory Memorandum to the Bill considered the issue of investment losses by licensees and the possibility that this could lead to a claim for compensation.  It states that licensees may have to pursue compensation under the general principles of contract law:

Some recently licensed providers may have made business decisions and investments based on an ability to generate revenue in the near future. Given a moratorium will temporarily delay these providers from entering the market, it is possible the providers will have to carry the cost of any investment decisions taken before the announcement of the moratorium. Recent licensees frustrated from operating by the moratorium may claim for restitution from States and Territories for the costs associated in obtaining a license.  Principles of restitution will apply to any contracts frustrated by the Commonwealth's action to prevent one party to a contract from gaining a windfall benefit at the expense of the other party.[66]

Conclusion

1.93        It is a consequence of the policy making process by the Commonwealth Government that there may be some conflict or inconsistencies between State and Territory policies.  This is in fact contemplated by the Commonwealth Constitution, which provides that in the case of overlap between different legislatures, the Commonwealth Government’s laws will prevail.

Unintended consequences of the Bill

Summary of the evidence

1.94        Evidence to the Committee highlighted at least two instances in which organisations believed that the Bill would impact unintentionally on gambling operations.

Discussion of the evidence

1.95        Mr John Mortimore, General Manager, Tatts.com Division, Tattersall’s, stated that the Bill could have unintended consequences in so far as it applies to terrestrial lottery activities:

A further problem with the bill is what I assume to be an unintended consequence of its drafting. We have been told that the bill is supposed to ban only new gambling services offered by means of the Internet. However, a quick review by Tattersalls’ legal counsel indicates that the bill is so drafted that it may also ban new services offered via Tattersalls’ terrestrial systems for retail lotteries and gaming. Since Tattersalls is working with the Victorian government and its regulators on attempting to produce new systems in the future which will complement our responsible gambling platform and assist in dealing with problem gambling behaviour, obviously such an impact would be most unfortunate.[67]

1.96        The Committee notes that this issue was not addressed in the submission provided by Tattersall’s and that from the evidence provided by Mr Mortimore, it is not clear how the Bill has an unintended consequence. 

1.97        In contrast to Mr Mortimore’s statement, Mr Tom Dale, General Manager, Regulatory and Access Group, National Office for the Information Economy, stated that he is not aware of any unintended consequences:

A third point concerns the question of exemptions. That was covered in some detail by a number of witnesses this morning, particularly in relation to, firstly, wagering and, secondly, to lotteries. All I will note at the moment is that, as far as we are aware, there are still no unintended consequences of the draft, the inclusion of those forms of gambling is intended, and we can answer questions about that if you like.[68]

1.98        In its submission, CentreRacing Ltd stated that its operations would be affected by the Bill because it had undergone a recent name change.[69]  This has occurred because the proprietor, Mr Terry Lillis, purchased the horseracing component of Centrebet Pty Ltd, one of Australia’s first online wagering services, and has subsequently named it ‘CentreRacing’.

Conclusion

1.99        Clause 5(5) of the Bill allows the Minister for Communications, Information Technology and the Arts to exclude a service from the operation of the Bill.  The Explanatory Memorandum describes the circumstances in which a service may be excluded:

This Ministerial determination power has been included in the Bill to ensure that, if there is a service in a class of services that would arguably be an interactive gambling service as a result of subclause 5(1), but the service is not the kind of service that should be covered by the moratorium, the Minister may determine that each service in the class of services is exempt and therefore is taken not to be an interactive gambling service.

The Ministerial determination power is intended to be used only in extraordinary circumstances to ensure that the moratorium does not apply to services to which it was never meant to apply.  The Ministerial determination may not specify that a particular provider is taken not to provide an interactive gambling service. The determination must be a general rule of application, which relates to each service included in a specified class of services.[70]

1.100        The Committee considers that this provision adequately covers any situation in which it is clear that the Bill was not intended to apply.

RECOMMENDATION

1.101        The Committee reports to the Senate that it has considered the Interactive Gambling (Moratorium) Bill 2000 and recommends that the Bill proceed.

__________________

Sen Alan Eggleston

Chair (LP WA)


Appendix 1 - List of Submissions

  1. Mr John Quiggin
  2. Tasmanian Government
  3. World Wide Wagering & Gaming Consultants Pty Ltd
  4. Regis Controls Pty Ltd
  5. ACTAB Limited
  6. Interactive Entertainment Technology Pty Ltd (IETEC)
  7. ACT Legislative Assembly
  8. Mr Adam Garrigan
  9. Publishing & Broadcasting Limited Gaming Management Pty Ltd  (PBLG)
  10. MegaSports (ACT) Pty Ltd
  11. Lasseters Online
  12. The Federal Group
  13. Australian Casino Association
  14. Australian Institute for Gambling Research (AIGR)
  15. NT Departmentof Industries & Business
  16. GOCORP Limited
  17. Mr Timothy J. Ryan
  18. International All Sports Ltd
  19. MB2
  20. Centre Racing
  21. TATTERSALLS
  22. eSuccess
  23. eBet Limited
  24. Gamblers Help Line Inc
  25. Senator Grant Chapman
  26. Two Way TV Autralia Pty Ltd
  27. TABCORP
  28. Sportingbet.com Australia Pty Ltd
  29. Confidential
  30. GGS

Appendix 2 - Witnesses Who Appeared Before the Committeee

Canberra, Friday 25 August 2000

Canbet

Internet Industry Association

Tim Ryan – Licenced Bookmaker

ACT TAB

NSW (TAB)

Australian Institute for Gambling Research

Inter-Church Gambling Taskforce

Australian Casino Association

The Federal Group

Tattersalls

Ebet Limited

Gocorp

Lasseters

PBL, ECORP

ACT Government

Northern Territory Government

Tasmanian Government

NOIE


Appendix 3 - Documents Tabled at Public Heariangs

Canberra, 25 August 2000

Instructions to Applicant, a document containing information on how to apply for an Interactive Gambling Licence in the ACT.

Appendix A, Parts 1 & 2 to Submission No. 2 – Draft – Tasmanian Gaming Commission, Interactive & Wagering Player Protection Standards, August 2000.

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